The opinion of the court was delivered by: Kendall J. Newman United States Magistrate Judge
FINDINGS AND RECOMMENDATIONS
Presently before the court are defendants' respective motions to set aside the default entered against them by the Clerk of Court. Defendants are proceeding without counsel.*fn1
The undersigned permitted the filing of such motions and advised the parties that a hearing on the motions would be held only if necessary. (Order, Dec. 8, 2010, at 3-4, Dkt. No. 42.) Because oral argument would not materially aid the resolution of the pending motion, the undersigned resolves this matter on the briefs and record without a hearing. See E. Dist. Local Rule 230(g). The undersigned has fully considered defendants' motions and appropriate portions of the record in this case and, for the reasons that follow, recommends that defendants' motions to set aside the entry of default be granted.
A. The Underlying Loan and Guaranty Agreement
Plaintiff alleges that on or around August 18, 2004, Morgan Stanley Mortgage Capital Inc. ("Morgan Stanley") made a loan to Douglas Pointe, LLC ("Douglas Pointe") in the amount of $20,720,000.*fn2 (Compl. ¶ 7.) The loan is evidenced by a Loan Agreement and Promissory Note executed in Morgan Stanley's favor and is secured by, among other things, a Deed of Trust and Security Agreement and an Assignment of Leases and Rents, all of which are dated August 18, 2004. (Id. ¶ 8 & Exs. A-D.) These documents are occasionally referred to herein as the "loan documents." The deed of trust encumbers three pieces of real property in Roseville, California. (Id. ¶ 9.)
On or around August 18, 2004, each defendant and Kobra Properties, a California general partnership, executed a guaranty agreement ("Guaranty Agreement"), "which guaranteed payment and performance of the 'full amount of the Debt' under the [promissory note]."*fn3
(Compl. ¶ 23 & Ex. I at § 1.2.) This Guaranty Agreement, which is the subject of the pending dispute, indicates that defendants are the owners of "a direct or indirect interest" in Douglas Pointe. (Compl., Ex. I at 1.)
Morgan Stanley subsequently assigned the deed of trust and other loan documents to plaintiff, effective October 19, 2004, through a document entitled Assignment of Deed of Trust and Security Agreement and Assignment of Assignment of Leases and Rents. (Compl. ¶ 11 & Ex. E.) Plaintiff alleges that pursuant to this assignment, plaintiff became the "owner of the [promissory note] and beneficiary, secured party and/or assignee under" the loan documents. (Id. ¶ 11.)
In accordance with the loan documents, Douglas Pointe was obligated to pay to plaintiff "monthly installments of principal, interest, and tax, insurance, and reserve escrows." (Compl. ¶ 12.) From around September 2008, through the time plaintiff filed its complaint in late 2009, Douglas Pointe allegedly failed to make timely payments as required, and the total accrued balance overdue, owing, and unpaid as of December 1, 2009, was alleged to be $22,322,767.01. (Id. ¶¶ 13, 20.)
In a letter dated October 15, 2008, plaintiff demanded that Douglas Pointe cure the defaults under the loan document within seven days. (Id. ¶ 14 & Ex. F.) Defendants, as guarantors, were copied on this demand letter. (Id., Ex. F.) The default remained uncured. (Id. ¶ 15.) Plaintiff alleges that, nevertheless, on November 3, 2008, Douglas Pointe, without prior written consent from plaintiff, further encumbered the property that secured the deed of trust with a junior lien to Kobra Properties, an alleged "insider," which "automatically affected [sic] entitlement to a prepayment premium" and violated the "Due on Sale and Encumbrance" provision in Section 4.2.1 of the Loan Agreement. (Id. ¶¶ 21-22.) In a letter dated November 4, 2008, plaintiff informed Douglas Pointe of the acceleration of the loan because of the defaults. (Id. ¶ 16 & G.) As with the demand letters, defendants, as guarantors, were copied on this letter. (Id., Ex. G.)
Plaintiff filed a complaint on December 23, 2009, alleging that defendants had breached their loan guaranty obligations.*fn4 Plaintiff's first claim for relief alleges that defendant Abolghassem Alizadeh is in material breach of the Guaranty Agreement and has failed to meet his obligations under the Guaranty Agreement upon demand to do so. (Compl. ¶ 25.) Plaintiff's second claim alleges that defendant Kobra Alizadeh is in material breach of the Guaranty Agreement and has failed to meet her obligations under the Guaranty Agreement upon demand to do so. (Id. ¶ 29.) Plaintiff alleges that it has "performed all unexcused obligations it was bound to perform under the Loan Documents, and under the Guaranty." (Id. ¶¶ 26, 30.) As to each defendant, the complaint seeks an award "of at least $22,322,767.01, plus accruing interest, and late charges," and attorneys' fees and costs. (Id. at 6.)
Plaintiff filed two proofs of service with the court representing that on January 12, 2010, plaintiff, through a process server, attempted personal service on defendants at the following address: 3001 Lava Ridge Ct., Suite 340, Roseville, California 95661. (Dkt. Nos. 5, 6.) Each proof of service states that, on January 12, 2010, plaintiff effectuated substituted service by leaving the summons, complaint, and related court documents with Steve Colgate, an "onsite attorney." (Dkt. No. 5 at 1; Dkt. No. 6 at 1.) The proofs of service also indicate that plaintiff's process server also served defendants by mail, with a January 13, 2010 date of mailing.*fn5 (Dkt. No. 5 at 2; Dkt. No. 6 at 2.)
On February 19, 2010, following the filing of plaintiff's request for entry of default, the Clerk of this Court entered a certificate of ...