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Hernandez v. Association

March 17, 2009


The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court


On March 3, 2009, plaintiff requested a TRO and preliminary injunction to prevent defendant Deutsche Bank National Trust Company ("Deutsche Bank") from enforcing a writ of execution against her residence. On March 3, 2009 the Court issued a TRO and an Order to Show Cause why it should not issue a preliminary injunction against defendants. (Doc. No. 9.) U.S. Bank National Association ("U.S. Bank"), acting on behalf of Downey Savings and Loan Association, F.A. ("Downey") filed an opposition on March 11, 2009. (Doc. No. 13.) The Court heard oral argument on March 17, 2009. After reviewing the parties' submissions, and for the reasons set forth below, the Court DENIES the motion for preliminary injunction. BACKGROUND

A. The Parties

Plaintiff Aurelia Hernandez was the owner of the property at 226 West 10th Avenue, Escondido, California 92025 ("property"), and is the property's current occupant.

Defendant Downey was the originator of plaintiff's loan. Defendant Deutsche Bank was the agent and trustee for Downey. FCI Lender Services ("FCI") was the foreclosure trustee responsible for conducting the trustee's sale on the property. Defendant U.S. Bank is the Successor in Interest for the FDIC, who placed Downey into receivership after Downey became insolvent.*fn1

B. Factual Background

The following facts are taken primarily from plaintiff's first amended complaint ("FAC"). On May 11, 2006 Downey loaned plaintiff $296,000 to refinance her home. The loan was secured by a deed of trust which gave Downey a power of sale against the property. On May 12, 2006 Downey made disclosures about the loan, as required by the federal Truth in Lending Act ("TILA").

The adjustable rate note plaintiff signed (Ex. 1 to FAC) carried an effective interest rate of 8.018%. The initial rate of the loan, called a "teaser rate" was 2%. The loan also contained a yield spread premium ("YSP") in the amount of $9,620 (equivalent to 3.25% of the entire loan).*fn2 The total broker and lender fees were $10,600. There was a pre-payment penalty of $4,883.

Plaintiff contends that Downey failed to disclose that the YSP had the effect of increasing the built-in cost of the loan. Plaintiff states the YSP had the effect of increasing the interest rate of the note and plaintiff's monthly payment. Because the YSP affected the interest rate and payment structure, the negative amortization of the loan was also affected, resulting in an increase of the principal due if plaintiff did not make a high enough monthly payment to cover the interest.

Plaintiff paid her mortgage current through October 2007. On March 27, 2008, FCI caused a Notice of Default to be recorded in the San Diego County Recorder's Office. (Ex. 3 to FAC.) The Notice of Default stated that plaintiff owed $4,956.04 as of February 20, 2008.

On July 31, 2008 at 1:48 a.m. plaintiff sent a Notice of Rescission and a Notice of Tender as required by TILA to Downey, Deutsche Bank, and FCI. The bases of the notice were violations of TILA and Regulation Z. Downey did not cancel the note, void the deed of trust, or return the settlement charges of the loan. Instead, on July 31, 2008, FCI conducted a trustee's sale of the property. The property was sold to Deutsche Bank, acting as trustee for Downey.

Plaintiff filed for Chapter 13 bankruptcy on December 13, 2008. This claim was dismissed on January 8, 2009. Plaintiff filed for Chapter 7 bankruptcy on January 12, 2009. Plaintiff now seeks an injunction from Deutsche Bank's enforcement of the writ of execution that will force her from the property.

C. Procedural Background

On November 5, 2008 plaintiff filed a complaint in California Superior Court for the County of San Diego. On December 17, 2008 U.S. Bank removed the action to this Court. (Doc. No. 1.) Plaintiff filed a first amended complaint ("FAC") on February 23, 2009. (Doc. No. 7.) The FAC asserts claims for: (1) violations of TILA; (2) violations of Cal. Civ. Code § 2924 et seq.; and (3) rescission based on fraud and unilateral mistake of fact pursuant to Cal. Civ. Code § 1689(b)(1).

On March 3, 2009, plaintiff requested a TRO and preliminary injunction. The Court granted the TRO and set the preliminary injunction hearing on March 17, 2009 at 9:30 a.m.


When pursuing an injunction, all courts agree a plaintiff must show "irreparable injury" and that legal remedies are "inadequate." Arcamuzi v. Continental Air Lines, Inc., 819 F.2d 935, 937 (9th Cir. 1987). However, the Ninth Circuit uses two alternative tests to evaluate the propriety of a temporary restraining order or a preliminary injunction. Under the "traditional test," courts implement four factors to evaluate the application:

(1) the likelihood of the moving party's success on the merits; (2) the possibility of irreparable injury to the moving party if relief is not granted; (3) the extent to which the balance of hardships favors the respective parties; and (4) in certain cases, whether the public interest will be advanced by granting the preliminary relief.

Owner Operator Indep. Drivers Ass'n, Inc. v. Swift Transp. Co., Inc., 367 F.3d 1108, 1111 (9th Cir. 2004). Alternatively, courts require the moving party to "demonstrate either (a) probable success on the merits combined with the possibility of irreparable injury or (b) that she has raised serious questions going to the merits, and that the balance of hardships tips sharply in her favor." Bernhart v. County of Los Angeles, 339 F.3d 920, 925 (9th Cir.2003). These are not two separate tests, but rather two points on a sliding scale in which the required showing of harm varies inversely with the required showing of meritoriousness. Clear Channel Outdoor Inc. v. City of Los Angeles, 340 F.3d 810, 813 (9th Cir. 2003).Because a preliminary injunction is an extraordinary remedy, the movant must carry its burden of persuasion by a "clear showing." Mazurek v. Armstrong, 520 U.S. 968, 972 (1997).


A. Likelihood Of Success On the Merits

In order to obtain a preliminary injunction, plaintiff must show that she is "likely" to prevail on the merits. Ashcroft v. American Civil Liberties Union, 542 U.S. 656, 665 (2004). This means plaintiff "need not promise a certainty of success, nor even present a probability of success, but must involve a 'fair chance of success on the merits.'" Gilder v. PGA Tour, Inc., 936 F.2d 417, 422 (9th Cir. 1991) (quoting Republic of the Philippines v. Marcos, 862 F.2d 1355, 1362 (9th Cir. 1988).

The parties raise several issues relevant to plaintiffs' ability to succeed on the merits. First, U.S. Bank disputes whether plaintiff has standing to bring the suit. Second, the parties debate whether the timing of Downey's loan disclosures violated TILA. Third, the parties discuss whether rescission is warranted based on state law due to Downey's alleged failure to adequately disclose the effect of the YSP. Fourth, plaintiff generally alleges that Downey's arithmetic was incorrect on the notice of default. Plaintiff has not demonstrated a ...

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