ORDER RE: PRELIMINARY INJUNCTION
On February 9, 2010, the court granted plaintiffs' unopposed motion for a Temporary Restraining Order and issued an Order to Show Cause on plaintiffs' motion for a preliminary injunction preventing defendants from foreclosing on plaintiffs' property. (Docket No. 11.) Defendant CitiMortgage, Inc. ("CMI") filed an Opposition to the motion for a preliminary injunction along with a declaration from a Legal Support Specialist at CMI and a series of documents related to plaintiffs' mortgage. (Docket No. 15.)
A preliminary injunction is "an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion." Mazurek v. Armstrong, 520 U.S. 968, 972 (1997). "A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Winter v. Nat. Res. Def. Council, Inc., ---U.S. ----, 129 S.Ct. 365, 374 (2008). "Plaintiffs seeking preliminary relief [must] . . . demonstrate that irreparable injury is likely in the absence of an injunction." Id. at 375 (emphasis in original).
II. Likelihood of Success on the Merits
Plaintiffs have not established a likelihood of success on the merits sufficient to warrant the extraordinary remedy of a preliminary injunction. Although plaintiffs' Complaint consists of eleven causes of action, plaintiffs only argue they are entitled to a preliminary injunction on the basis of the following three claims: (1) wrongful foreclosure in violation of California Civil Code section 2923.5, (2) plaintiffs' contention that defendants cannot foreclose upon the Deed of Trust because they are not beneficiaries under the Note, and (3) plaintiffs' demand for rescission of the loan under the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601-1667f. While plaintiffs failed to so much as mention their other causes of action in their motion for a preliminary injunction, out of caution the court will evaluate plaintiffs' likelihood of success on all those claims for which plaintiffs request equitable relief in the Complaint.
A. Section 2923.5 Wrongful Foreclosure Claim
Plaintiffs contend that defendants failed to comply with the communication requirements set forth in California Civil Code section 2923.5. Section 2923.5(a)(2) requires a "mortgagee, beneficiary or authorized agent" to "contact the borrower in person or by telephone in order to assess the borrower's financial situation and explore options for the borrower to avoid foreclosure." Section 2923.5(b) requires a default notice to include a declaration "from the mortgagee, beneficiary, or authorized agent" of compliance with section 2923.5, including attempt "with due diligence to contact the borrower as required by this section."
While plaintiffs make the conclusory claim that no one attempted to contact them to discuss options to pay their loan or assess their financial situation before foreclosure, defendants have raised serious doubts about this contention. CMI has provided a declaration indicating that it contacted plaintiffs on nine separate occasions (April 1, 27; May 7, 26; June 3, 8, 10, 25; and July 14, 2009) to assess their financial situation and explore options for avoiding foreclosure. (Oaks Decl. ¶¶ 8-13.)*fn1
In plaintiffs' declaration, supplied in support of their Ex Parte Application for a Temporary Restraining Order, plaintiffs claim that they did not receive any correspondence from CMI prior to the filing of the Notice of Default on the property advising plaintiffs to contact CMI. (Lane Decl. (Docket No. 8) ¶ 8.) However, plaintiffs further state that they called CMI in response to what they characterize as "constant collection calls" and were subsequently referred to CMI's Loss Mitigation Department, which provided plaintiffs with loan modification forms to fill out. (Id.) Ultimately, plaintiffs contend that they were given conflicting information about whether their loan modification was accepted until it was finally officially denied. (Id.)
Section 2923.5 requires the borrower to discuss options to prevent foreclosure, but it does not require that any loan modification take place. See Vega v. JPMorgan Chase Bank, N.A., 654 F. Supp. 2d 1104, 1113 (E.D. Cal. 2009) (O'Neill, J.). Although plaintiffs' plead they responded to "collection calls" by CMI, the actions allegedly taken by CMI are consistent with an attempt to assess plaintiffs' financial situation and investigate ways to avoid foreclosure. As plaintiffs admit, CMI provided plaintiffs with loan modification forms and told them a loan negotiator would be assigned to their account. (Lance Decl. ¶ 8.) CMI was not required by law to grant plaintiffs' application for loan modification. Plaintiffs' description of events leading to CMI's ultimate rejection of plaintiffs' application, while artfully claiming that CMI did not specifically reach out to them to explore options to avoid foreclosure, appears consistent with CMI's compliance with the statute. The facts presented by plaintiffs, despite their characterization, sound like the back and forth between a lender and borrower attempting to modify a loan, rather than CMI stonewalling plaintiffs before filing the Notice of Default. As plaintiffs themselves concede that they made contact with CMI and discussed loan modification options, they have not shown they are likely to succeed on the merits of their wrongful foreclosure claim.
Additionally, in their Reply brief, plaintiffs claim that their first cause of action for violation of section 2923.5 is actually a claim for negligence, with the standard of care established by section 2923.5. (Pls.' Reply 2:18-23.) "Absent 'special circumstances' a loan transaction 'is at arms-length'" and no duties arise from the loan transaction outside of those in the agreement. Rangel v. DHI Mortgage Co., Ltd., No. CV F 09-1035 LJO GSA, 2009 WL 2190210, at *3 (E.D. Cal. July 21, 2009) (quoting Oaks Mgmt. Corp. v. Superior Court, 145 Cal. App. 4th 453, 466 (2006)). Absent contrary authority, a pleading of an assumption of duty by defendants or a special relationship, plaintiffs cannot establish defendants owed them a duty of care. See Hardy v. Indymac Fed. Bank, --- F.R.D. ---, No. CV F 09-935 LJO SMS, 2009 WL 2985446, at *7 (E.D. Cal. Sept. 15, 2009); Bentham v. Aurora Loan Servs., No. C-09-2059 SC, 2009 WL 2880232, at *2-3 (N.D. Cal. Sept. 1, 2009). Accordingly, plaintiffs' first claim is unlikely to succeed on the merits even if it is construed as a claim for negligence.
B. "No Beneficial Interest" Theory and Injunctive Relief Claim
Plaintiffs' claim that defendants are not beneficiaries under the Note and therefore cannot foreclose under the Deed of Trust is incorrect as a matter of law. This theory appears to be the basis for plaintiffs' tenth cause of action for declaratory and injunctive relief. (See Compl. ¶¶ 77-82.) Plaintiffs assert that "there have been numerous improprieties in the assignment, transfer and exercise of power of sale contained in the Deed of Trust" because MERS has no authority to assign its interest under the Deed of Trust and no parties are in possession of the Note.
Specifically, plaintiffs assert that defendants cannot foreclose upon the Deed of Trust absent a beneficial interest in the Note. (Mot. Prelim. Injunction 8:20-25.) Plaintiffs contend that none of the parties are beneficiaries of the Note and only have interests in the Deed of Trust, which leaves them without any right to foreclose upon the Deed of Trust. "Financing or refinancing of real property is generally accomplished in California through a deed of trust. The borrower (trustor) executes a promissory note and deed of trust, thereby transferring an interest in the property to the lender (beneficiary) as security for repayment of the loan." Bartold v. Glendale Fed. Bank, 81 Cal. App. 4th ...