MEMORANDUM AND ORDER RE: MOTIONS TO DISMISS
Plaintiffs James and Dawna Lane brought this action against defendants Vitek Real Estate Industries Group dba Vitek Mortgage Group ("Vitek"), Mortgage Electronic Registration Systems, Inc. ("MERS"), Aurora Loan Services, Inc. ("Aurora"), CitiMortgage, Inc. ("CMI"), and Cal-Western Reconveyance Corporation ("CWRC") alleging various federal and state claims arising out of plaintiffs' mortgage transaction. Presently before the court are defendants Vitek and CMI and MERS's motions to dismiss the First Amended Complaint ("FAC") pursuant to Federal Rule of Civil Procedure 12(b)(6).
I. Factual and Procedural Background
On July 17, 2003, plaintiffs obtained a loan from Vitek to refinance their home, located at 8442 West Hidden Lakes Drive in Granite Bay, California. (FAC Ex. 1.) This loan was secured by a Deed of Trust on the property. (Id.) The Deed of Trust listed Fidelity National Title Company as trustee, Vitek as lender, and MERS as the nominal beneficiary for the lender and the lender's successors and assigns. (Id.) At the time of consummation of the loan, defendants allegedly falsely represented to plaintiffs that plaintiffs were qualified for their mortgage and that plaintiffs could pay back the loan even though defendants had not conducted an investigation into plaintiffs' finances. (Id. ¶ 51.) The FAC further alleges that Vitek failed to provide plaintiffs with two copies of the statutory right to rescind their loan and received kickbacks to steer plaintiffs into an unaffordable loan. (Id. ¶ 34.)
Plaintiffs began experiencing financial difficulties in October 2008 and eventually fell behind on their loan payments. (Id. ¶ 13.) CMI allegedly never contacted plaintiffs to discuss loan modification before filing a Notice of Default, and the only calls plaintiffs ever received from CMI were collection calls. (Id. ¶ 15.) Plaintiffs called CMI in response to the alleged collection calls and were eventually referred to CMI's Loss Mitigation Department, which provided them with loan modification forms and advised them that a loan negotiator would be assigned to their account. (Id. ¶ 17.) Plaintiffs completed the loan modification paperwork and sent it to CMI by fax. (Id. ¶ 18.) After allegedly calling twice a week for forty-five days and being unable to reach a loan negotiator, plaintiffs were allegedly told by CMI that it lost their paperwork and that they should reapply for loan modification. (Id.) Plaintiffs resubmitted their paperwork and allegedly were not contacted by anyone at CMI while they attempted to contact CMI every week for eight months. (Id.)
In May of 2009, plaintiffs allege that they were told orally that their loan modification was approved at a payment of $2,700 a month of three months that would subsequently become permanent. (Id. ¶ 18.) After sending in a payment, plaintiffs were subsequently told that their payment was only partial and that their loan modification was denied. (Id.) On September 14, 2009, MERS substituted CWRC as the new trustee under the Deed of Trust. (CMI Req. Judicial Notice Ex. C.) On September 15, 2009, MERS assigned its beneficial interest in the Deed of Trust to CMI pursuant to an Assignment of Deed of Trust. (Id. Ex. D.) A Notice of Default was filed on plaintiffs' property on September 18, 2009. (Id. ¶ 16.) In October, plaintiffs hired a representative to negotiate with CMI. (Id. ¶ 18.) CMI allegedly again denied plaintiffs' request for loan modification without negotiation or discussion. (Id.)
A trustee's sale of plaintiffs' property was originally scheduled for February 10, 2010. (Id. Ex. B.) On February 9, 2010, plaintiffs filed this action and a motion for a temporary restraining order ("TRO") enjoining the foreclosure sale. (Docket Nos. 1, 7.) The court granted plaintiffs' unopposed motion for a TRO on February 9, 2010, and issued an Order to Show Cause why a preliminary injunction ought not issue in this action. (Docket No. 11.) The court vacated the TRO and denied plaintiffs' motion for a preliminary injunction on February 26, 2010, after CMI and MERS appeared and opposed the motion. (Docket No. 30.) Vitek filed a Rule 12(b)(6) motion to dismiss on March 18, 2010. (Docket No. 33.) CMI and MERS filed their own motion to dismiss the FAC on March 30, 2010. (Docket No. 36.) Plaintiffs did not oppose the motions. Nor did plaintiffs file a statement of non-opposition pursuant to Local Rule 230(c). Therefore, on May 3, 2010, the court vacated the hearing date on Vitek, MERS, and CMI's motions pursuant to Local Rule 230(c), and took the motions to dismiss under submission without oral argument. (Docket No. 39.) On May 10, 2010, plaintiffs and Vitek filed a stipulation dismissing Vitek from this action with prejudice. (Docket No. 41.)
On a motion to dismiss, the court must accept the allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 (1972). To survive a motion to dismiss, a plaintiff needs to plead "only enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This "plausibility standard," however, "asks for more than a sheer possibility that a defendant has acted unlawfully," and where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 556-57).
In general a court may not consider items outside the pleadings upon deciding a motion to dismiss, but may consider items of which it can take judicial notice. Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir. 1994). A court may take judicial notice of facts "not subject to reasonable dispute" because they are either "(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201.
CMI and MERS submitted a request for judicial notice. CMI and MERS request the court take judicial notice of several publically recorded documents related to plaintiffs' mortgage as well as two court documents relating to plaintiffs' bankruptcy proceedings. (Docket No. 36.) The court will take judicial notice of these documents, since they are matters of public record whose accuracy cannot be questioned. See Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001).
CMI and MERS contend that plaintiffs lack standing to bring this action because their claims are now property of their bankruptcy estate. On March 12, 2010, plaintiffs filed a Voluntary Chapter 7 Bankruptcy Petition in the United States Bankruptcy Court for the Eastern District of California. (CMI Req. Judicial Notice Ex. E.) Upon a declaration of bankruptcy, all petitioner's property becomes the property of the bankruptcy estate. See 11 U.S.C. § 541(a). This includes "all legal or equitable interests of the debtor in property," id. at § 541(a)(1), which has been interpreted to include causes of action. See Switchboard Co. v. Westinghouse Elec. Corp., 789 F.2d 705, 707 (9th Cir. 1986); Rowland v. Novus Fin. Corp., 949 F. Supp. 1447, 1453 (D. Haw. 1996) (holding claims under the Truth in Lending Act are included as an interest under § 541(a)(1)). Accordingly, a bankruptcy petitioner loses standing for any causes of action and the estate becomes the only real party in interest unless the bankruptcy trustee abandons the claims. See In re Lopez, 283 B.R. 22, 28-29 (9th Cir. 2002); In re Pace, 146 B.R. 562, 565-66 (9th Cir. 1992).
If plaintiffs were in bankruptcy they clearly would lack standing to bring this action absent abandonment of their claims by the bankruptcy trustee. However, plaintiffs continue to have standing to pursue this case because their bankruptcy petition was dismissed after CMI and MERS filed their motion to dismiss. See In re Lane, No. 10-25998 at Docket No. 14.
B. Section 2923.5 Wrongful Foreclosure Claim
Plaintiffs' FAC purports to state a claim for wrongful foreclosure against all defendants. Wrongful foreclosure is an action in equity, where a plaintiff seeks to set aside a foreclosure sale. See Abdallah v. United Sav. Bank, 43 Cal. App. 4th 1101, 1009 (1996); Karlsen v. American Sav. & Loan Ass'n., 15 Cal. App. 3d 112, 117 (1971). Plaintiffs primarily base this claim on defendants' alleged failure 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."
The FAC only makes the conclusory claim that no one from CMI attempted to contact them to discuss options to pay their loan or assess their financial situation before foreclosure and that there was no personal meeting or telephonic communication between CMI and plaintiffs at any time. (FAC ¶¶ 15-16, 19, 21.) 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. ¶¶ 17-18.) These contradictory statements are difficult to reconcile--plaintiffs claim they had no contact with CMI and yet that CMI referred them to a department which then discussed the procedure plaintiffs would need to follow to obtain a loan modification.
While section 2923.5 requires the borrower to discuss options to prevent foreclosure, 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. (FAC ¶ 17.) While CMI ultimately rejected plaintiffs' application for loan modification after a protracted process, CMI was not required by law to grant plaintiffs' request. Plaintiffs' allegations against CMI "stop ...