ORDER RE: MOTIONS TO DISMISS
I. History*fn1 Plaintiffs Edgardo Michel and Alis Salinas de Michel ("Plaintiffs") purchased 5025 Countryridge Lane, Salida, CA on August 24, 2005. Plaintiffs financed the purchase with two loans from Defendant Argent Mortgage Company ("Argent") in the amounts of $360,000 and $90,000. The subject of this suit is the larger loan ("Subject Loan"); the smaller loan was refinanced in May 2007 with third party Bank of America. In procuring financing, Plaintiffs had responded to an advertisement from third party Mi Tierra Mortgage and Real Estate Inc. ("Tierra"). Plaintiffs' primary language is Spanish; their English is extremely limited. Plaintiffs worked with a Tierra employee, Ruby Haro, and all communications with Ms. Haro and Tierra were in Spanish. On Plaintiffs' behalf, Ms. Haro applied for the loans with Argent. Plaintiffs signed the loan documents on August 7, 2005 at Tierra's office. Ms. Haro was expected to be present but did not show up. Due to typographical errors, the loan documents had to be signed again on August 14, 2005. Plaintiffs were not provided with copies of initial disclosures required under the Truth in Lending Act ("TILA").
Plaintiffs allege Ms. Haro was acting as an agent for Argent. Doc. 29, FAC, 7:12-16. Plaintiffs initially sought to pay a down payment and have a thirty year fixed interest rate mortgage. Ms. Hara convinced them to get an adjustable rate mortgage with no down payment. The Subject Loan was a thirty year adjustable rate mortgage with an initial period of three years during which the monthly payments only covered interest. After three years, the interest rate would reset and payments would increase to start paying off principal and the higher interest rate. Ms. Haro told Plaintiffs that the monthly payments would be $1,500 including taxes and insurance. The actual mortgage payments in the initial three year period were $2,890.15. Plaintiffs allege Tierra falsely represented Plaintiffs' monthly income as $9,752.02 on the loan application though the actual amount was $4,516.00. Plaintiffs allege Argent provided Tierra with information about what should be put on the loan application form in order to obtain loans of the specified amounts, knowing that Tierra would falsify loan applications to meet the requirements. Upon receipt of the first payment, Plaintiffs realized that their monthly payments exceeded $1,500 once taxes and insurance was considered. Ms. Haro told them that her earlier communication was a mistake.
The loan servicer was Defendant Saxon Mortgage Services, Inc. ("Saxon"). The original deed of trust on the Subject Loan specified Plaintiffs as the "borrower"; Argent as the "lender" and "beneficiary"; and third party Town and Country Title Services, Inc. ("TAC") as "trustee." The deed of trust was signed before a notary public on August 12, 2005 and recorded on August 24, 2005. Doc. 1, Ex. A, at 28-42. Argent executed an assignment of the deed of trust in favor of Defendant Deutsche Bank Trust Company ("Deutsche") as Trustee for GSAA Home Equity Trust 2006-2 ("GSAA"). The notary public affirmed that Argent's agent signed the document on August 26, 2005 though the document is dated August 23, 2005; the assignment was not recorded until June 15, 2007. Doc. 1, Ex. B, at 45-46. Plaintiffs point out that the GSAA was not created until January 6, 2006. Doc. 1, Complaint, at 8:9-10. On January 23, 2009, a Deutsche representative signed an assignment of the deed of trust in favor of Saxon; the assignment was recorded on January 28, 2009. Doc. 3, Part 2, Ex. B, at 24. On January 9, 2009, a Saxon representative signed a substitution of trustee, removing TAC in favor of Defendant Regional Service Corporation ("RSC"); the substitution of trustee was recorded on March 24, 2009. Doc. 1, Ex. C, at 48. On June 3, 2010, a Saxon representative signed an assignment of the deed of trust in favor of Deutsche as trustee for GSAA, the assignment was recorded on September 7, 2010. Doc. 3, Part 2, Ex. E, at 33-34. Plaintiffs object to a number of these transactions, arguing that Saxon's signatories do not actually represent Saxon.
In July 2008, the interest rate reset and Plaintiffs had to begin paying down principal. The monthly payment increased by $1,000. Plaintiffs fell behind on their payments. Plaintiffs contacted Saxon, which sent them a financial worksheet, seeking information. Plaintiffs returned the worksheet. Saxon told Plaintiffs not to make any payments until the paperwork was complete. Plaintiffs ceased making monthly payments. On June 10, 2009, Plaintiffs received a trial loan modification offer from Saxon. Under the Making Home Affordable Program ("HAMP"), Saxon allowed Plaintiffs to make three monthly payments of $1,700.74. Plaintiffs complied and contacted Saxon in September 2009 to ask about permanent loan modification. The Saxon representative informed Plaintiffs a permanent loan modification would involve monthly payments of $1,400. Plaintiffs continued to make three additional modified monthly payments. In December 2009, Saxon offered Plaintiffs a permanent HAMP modification offer with an initial $1,829.87 monthly payment, eventually increasing to $2,454,05. Plaintiffs rejected the offer and stopped making monthly payments. On February 20, 2010, Plaintiff Edgardo Michel filed a Chapter 7 bankruptcy petition.
A notice of default was recorded on December 18, 2008. A notice of trustee sale was recorded on March 24, 2009. On April 21, 2010, RSC recorded a notice of rescission of the earlier notice of default. Doc. 3, Part 2, Ex. C, at 27. RSC recorded a new notice of default on June 3, 2010. Doc. 3, Part 2, Ex. D, at 29. Also on June 3, 2010, the deed of trust was reassigned back to Deutsche for the benefit of GSAA. Doc. 29, FAC, 12:7-9. RSC recorded a notice of trustee's sale on September 7, 2010, setting the date of the sale as September 28, 2010. Doc. 3, part 2, Ex. F, at 36. The public auction took place on October 28, 2010; Deutsche purchased the property and RSC recorded a trustee's deed on November 4, 2010. Doc. 3, Part 2, Ex. G, at 40-41.
Plaintiffs filed suit in Superior Court, County of Stanislaus on November 9, 2010. The matter was removed to the Eastern District of California, Fresno Division on December 21, 2010. Defendants Saxon and Deutsche filed a motion to dismiss, which was granted in part. Plaintiffs were granted leave to amend. The operative complaint is the First Amended Complaint ("FAC"). Doc. 29. Plaintiffs' causes of action are: (1) wrongful foreclosure, (2) to cancel the trustee's deed upon sale, (3) fraud in the factum, (4) to void the promissory note and deed of trust, (5) to quiet title, (6) violation of 15 U.S.C. § 1641(g), TILA, (7) violation of 12 U.S.C. § 2605, the Real Estate Settlement Procedures Act ("RESPA"), and (8) Cal. Bus. & Prof. Code 17200, unfair business practices. Defendants Argent, Deutsche, and Saxon have filed two motions to dismiss. Plaintiffs have filed an opposition. Defendants filed reply and the matter was taken under submission without oral argument. Of note, none of the Defendants challenge the seventh cause of action under TILA.
Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of the plaintiff's "failure to state a claim upon which relief can be granted." A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)....a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007), citations omitted. "[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss. Determining whether a complaint states a plausible claim for relief will, as the Court of Appeals observed, be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged -- but it has not shown that the pleader is entitled to relief." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009), citations omitted. The court is not required "to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). The court must also assume that "general allegations embrace those specific facts that are necessary to support the claim." Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 889 (1990), citing Conley v. Gibson, 355 U.S. 41, 47 (1957), overruled on other grounds at 127 S. Ct. 1955, 1969. Thus, the determinative question is whether there is any set of "facts that could be proved consistent with the allegations of the complaint" that would entitle plaintiff to some relief. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002). At the other bound, courts will not assume that plaintiffs "can prove facts which [they have] not alleged, or that the defendants have violated...laws in ways that have not been alleged." Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526 (1983).
In deciding whether to dismiss a claim under Rule 12(b)(6), the Court is generally limited to reviewing only the complaint. "There are, however, two exceptions....First, a court may consider material which is properly submitted as part of the complaint on a motion to dismiss...If the documents are not physically attached to the complaint, they may be considered if the documents' authenticity is not contested and the plaintiff's complaint necessarily relies on them.
Second, under Fed. R. Evid. 201, a court may take judicial notice of matters of public record." Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001), citations omitted. The Ninth Circuit later gave a separate definition of "the 'incorporation by reference' doctrine, which permits us to take into account documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the plaintiff's pleading. We have extended the 'incorporation by reference' doctrine to situations in which the plaintiff's claim depends on the contents of a document, the defendant attaches the document to its motion to dismiss, and the parties do not dispute the authenticity of the document, even though the plaintiff does not explicitly allege the contents of that document in the complaint." Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005), citations omitted. "[A] court may not look beyond the complaint to a plaintiff's moving papers, such as a memorandum in opposition to a defendant's motion to dismiss. Facts raised for the first time in opposition papers should be considered by the court in determining whether to grant leave to amend or to dismiss the complaint with or without prejudice." Broam v. Bogan, 320 F.3d 1023, 1026 n.2 (9th Cir. 2003), citations omitted.
If a Rule 12(b)(6) motion to dismiss is granted, claims may be dismissed with or without prejudice, and with or without leave to amend. "[A] district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc), quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995). In other words, leave to amend need not be granted when amendment would be futile. Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002).
A. Wrongful Foreclosure Claims
The first (wrongful foreclosure), second (to cancel the trustee's deed upon sale), and fifth (quiet title) causes of action are based upon claims that the foreclosure was void as the proper procedure was not followed. In essence, they are one cause of action coupled with different requests for relief; they include claims against all Defendants. In looking at the allegations, there appear to be a series of interrelated issues. First, Plaintiffs allege that GSAA does not exist. Doc. 29, FAC, 15:16- 17. Second Plaintiffs allege the transfer of the deed of trust from Deutsche to Saxon was ineffective as the promissory note remained with Deutsche and Deutsche lacked capacity to convey title. Doc. 29, FAC, 16:3-8. Third, Plaintiffs allege the substitution of trustee from TAC to RSC was ineffective because Saxon was not the beneficiary at the time the substitution was executed. Doc. 29, FAC, 15:21-22. Fourth, the substitution from TAC to RSC was ineffective because the document was signed by Christina Allen, who was not an officer of Saxon. Doc. 29, FAC, 15:26-28.
The first two objections concern the transfer of the deed of trust.
First, Plaintiffs allege that GSAA never existed and thus any transfer
from Argent to Deutsche acting as trustee for GSAA was a legal
nullity. Doc. 29, FAC, 16-17. This appears to be based on the
assertion that "a GSAA 2006-2 trust...has never existed and no such
trust is registered with the Securities and Exchange Commission." Doc.
29, FAC, 8:8-10. However, Plaintiffs also allege that "The Goldman
Sachs trust administered by DEUTSCHE 'GSAA Home Equity Trust
2006-2'...is an actual entity registered with the SEC. The Pooling and
Servicing Agreement...is available online at
http://www.sec.gov/Archives/edgar/data/807641/000090514806001043/efc6-0400_fwp.txt." Doc. 29, FAC, 12:12-15. Plaintiffs' latter allegations, backed by SEC
documentation, directly controverts any assertion that GSAA does not exist. Further, the transfer was to Deutsche for GSAA's benefit, not GSAA. Plaintiffs have
not explained how such a transfer to Deutsche would be invalid even if GSAA did not exist.
Second, Plaintiffs argue the transfer from Deustche to Saxon was invalid. "DEUSTCHE, as trustee for the non-existent GSAA Trust lacked capacity to convey title." Doc. 29, FAC, 16:4-5. As stated, Plaintiffs have provided the judicially noticeable documentation that shows GSAA did in fact exist. Plaintiffs also appear to argue that Deustche did not transfer physical possession of the promissory note to Saxon: "the Promissory Note necessarily remained with DEUTSCHE, as required under SEC and IRS laws governing mortgage-backed securities. This attempt to transfer the Deed of Trust to SAXON without the Promissory Note is void under California law."
Doc. 29, FAC, 16:5-8. Plaintiffs disclaim any claim based on securitization. Doc. 37, Opposition, 4:10-12. Physical possession and legal status as holder of a promissory note are distinct concepts. The holder of the note is the party entitled to enforce it. See In re Kang Jin Hwang, 393 B.R. 701, 707 (Bankr. C.D. Cal. 2008). When the beneficial interest of a deed of trust is sold, physical transfer of the promissory note is not required. See, e.g. In re Golden Plan of Cal., Inc., 829 F.2d 705, 708-11 (9th Cir. Cal. 1986) (agreement transferring proceeds of note, including hiring agent to handle monthly payment collections and potential foreclosure proceedings, but no physical transfer of mortgage note was nevertheless a sale). "There is no requirement in California that the holder of a ...