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Manlangit v. National City Mortgage

May 20, 2010




Plaintiffs Lydia O. Manlangit and Oscar T. Manlangit filed this action and a motion for a temporary restraining order yesterday at 3:00 p.m., alleging that plaintiffs' house faced foreclosure at 9:00 a.m. today. (Docket Nos. 1, 2.) The Complaint consists of causes of action for declaratory relief, injunctive relief, and cancellation of instrument, all of which appear to be based on the allegation that defendants are not holders of a beneficial interest in the Note or Deed of Trust on plaintiffs' property. Because plaintiffs' attorney filed the complaint electronically from San Francisco, it was impossible for him to get to Sacramento to have the matter heard yesterday. Accordingly, this matter came on for hearing on plaintiffs' motion at 2:00 p.m. today. At the hearing, plaintiffs' attorney, Johnson Lazaro, represented to the court that the foreclosure sale of plaintiffs' property had been postponed until June 1, 2010, after plaintiffs filed bankruptcy on May 19, 2010, at approximately 9:00 p.m. last night.

I. Jurisdiction

Plaintiffs predicate federal jurisdiction over this action, which is composed entirely of state law claims, upon diversity of citizenship under 28 U.S.C. § 1332. (Compl. ¶ 1.) "Federal courts are always under an independent obligation to examine their own jurisdiction . . . and a federal court may not entertain an action over which it has no jurisdiction." Hernandez v. Campbell, 204 F.3d 861, 865 (9th Cir. 2000); see also Fed. R. Civ. P. 12(h)(3) ("If the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action"). A district court will have original jurisdiction based on diversity when the amount in controversy is greater than $75,000.00 and there is complete diversity between the parties--i.e., the parties are "citizens of different states." 28 U.S.C. § 1332(a).

Plaintiffs have not alleged facts sufficient to show that there is complete diversity between the parties. Plaintiffs are citizens of California. While plaintiffs have plead that defendants National City Mortgage and PNC Mortgage are Ohio corporations, the Complaint in entirely devoid of any allegation that Cal-Western Reconveyance Corporation ("Cal-Western") is not a citizen of California. (Compl. ¶¶ 6-8.) The Complaint states that Cal-Western is authorized to conduct business in California and is registered with the California Secretary of State. (Id. ¶ 8.) In fact, at the hearing on this motion, plaintiffs' counsel referred to Cal-Western as a California corporation. Under this set of facts, it is not clear that the court has jurisdiction to hear this case. Since plaintiffs have not adequately pled that jurisdiction exists, the court must deny their motion for a temporary restraining order.

II. Standing

Even assuming the court does have jurisdiction, as previously noted, plaintiffs allegedly filed for bankruptcy the night before the hearing on their motion. Upon a declaration of bankruptcy, all of a 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). Since plaintiffs have not indicated that the bankruptcy trustee has abandoned the claims against defendants, plaintiffs have no standing to bring this action and the motion for a temporary restraining order accordingly must be denied.

III. Temporary Restraining Order Standard

Even assuming that plaintiffs do in fact have standing and the court has jurisdiction, plaintiffs are still not entitled to a temporary restraining order. In order to obtain a temporary restraining order or a preliminary injunction, the moving party "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. NRDC, --- U.S. ---, ---, 129 S.Ct. 365, 374 (2008). As the Supreme Court has repeatedly recognized, injunctive relief 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); see Winter, 129 S.Ct. at 375-76.

A. Likelihood of Success on the Merits

Plaintiffs' claims are all based on the argument that defendants are not beneficiaries under the Note and therefore cannot foreclose under the Deed of Trust. As this and other courts have repeatedly ruled, this theory is incorrect as a matter of law. "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 816, 821 (2000). A deed of trust "entitles the lender to reach some asset of the debtor if the note is not paid." Alliance Mortg. Co. v. Rothwell, 10 Cal. 4th 1226, 1235 (1995).

The California Court of Appeal for the Fourth District has explained that California's non-judicial foreclosure statute, California Civil Code section 2924, is a "comprehensive statutory framework established to govern non-judicial foreclosure sales [and] is intended to be exhaustive." Moeller v. Lien, 25 Cal. App. 4th 822, 834 (1994); see I.E. Assoc. v. Safeco Title Ins. Co., 39 Cal. 3d 281 (1985) ("These provisions cover every aspect of exercise of the power of sale contained in a deed of trust."). Because of the exhaustive nature of this scheme, California appellate courts have refused to read any additional requirements into the non-judicial foreclosure statute. See Moeller, 25 Cal. App. 4th at 834; see also, I.E. Assocs. v. Safeco Title Ins. Co., 39 Cal. 3d 281, 288 (1985).

Under California Civil Code section 2924(a)(1), a "trustee, mortgagee or beneficiary or any of their authorized agents" may conduct the foreclosure process. Under California Civil Code section 2924b(4), a "person authorized to record the notice of default or the notice of sale" includes "an agent for the mortgagee or beneficiary, an agent of the named trustee, any person designated in an executed substitution of trustee, or an agent of that substituted trustee." "Upon default by the trustor, the beneficiary may declare a default and proceed with a non-judicial foreclosure sale." Moeller, 25 Cal. App. 4th at 830. There is no stated requirement in California's non-judicial foreclosure scheme that requires a beneficial interest in the Note to foreclose. There is also no requirement for the production of the original note to initiate a non-judicial foreclosure. Oliver v. Countrywide Home Loans, Inc., No. CIV S-0-1381 FCD GGH, 2009 WL 3122573, at *3 (E.D. Cal. Sept. 29, 2009) (citing Alvara v. Aurora Loan Servs., No. ...

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