MEMORANDUM AND ORDER RE: MOTION TO DISMISS
WILLIAM B. SHUBB, District Judge.
Plaintiffs Gabriel Dick and Jill Dick brought this action against defendants Homeward Residential, Inc., formerly known as American Home Mortgage Servicing, Inc.; Ameriquest Mortgage Co.; Ameriquest Mortgage Securities, Inc.; Deutsche Bank National Trust; Town and Country Title Services; Citi Residential Lending; and Power Default Services, Inc., arising from the foreclosure of their home. Defendants Town and Country Title Services, Ameriquest Mortgage Company, and Ameriquest Mortgage Securities, Inc., ("Ameriquest defendants") and defendants Homeward Residential, Inc., Deutsche Bank National Trust Company, and Power Default Services, Inc., ("remaining defendants") now separately move to dismiss plaintiffs' Second Amended Complaint ("SAC") for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). (Docket Nos. 57 and 62, respectively.)
I. Factual and Procedural Background
The factual background of this case is described in detail in the court's September 18, 2013, Order granting defendants' motion to dismiss. (Docket No. 40.) In short, plaintiffs obtained a loan in the amount of $270, 000.00 from Ameriquest Mortgage Company ("Ameriquest") in 2003, secured by a Note and Deed of Trust on property located at 11603 Northern Lights Drive in Grass Valley, California (the "Property"). (SAC ¶¶ 2-3, 12-13; Defs.' Req. for Judicial Notice in Supp. Of Ameriquest's Mot. To Dismiss ("Ameriquest RJN") Ex. A (Docket No. 58-1).)
Ameriquest assigned its interest in the Note and Deed of Trust to Deutsche Bank National Trust Company ("Deutsche Bank") by way of a Corporate Assignment and Deed of Trust. (SAC ¶ 18; Ex. 1.) Plaintiffs allege this assignment to a securitized trust was improper because it violated the terms of the trust's pooling and servicing agreement. ( Id. ¶¶ 26-64.)
Sometime in 2010, plaintiffs allege an employee of American Home Mortgage Servicing, Inc., ("AHMSI") named "HOUTEN" represented to plaintiffs that they would receive a loan modification if they became three months delinquent on their mortgage payments. ( Id. ¶ 71.) However, on October 12, 2010, Deutsche Bank recorded a Notice of Default and Election to Sell Under Deed of Trust ("NOD") against the Property, which stated plaintiffs were in default on the loan, owing at least $15, 379.31. ( Id. ¶¶ 21-23, Ex. 2.)
Subsequently, Power Default Services, Inc., recorded a Notice of Trustee's Sale against the Property, (id. Ex 3), and, on May 6, 2011, executed a Trustee's Deed Upon Sale conveying the Property to Deutsche Bank, (id. Ex. 4). Plaintiffs allege this sale never actually took place. ( Id. ¶ 25.)
In October 2011, plaintiffs filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Eastern District of California, (Bk. No. 11-45476; RJN Ex. I.). On January 5, 2012, plaintiffs filed a complaint to commence a bankruptcy adversary proceeding, (Ad. Pro. No. 12-02007), and filed an amended complaint ("FAC") in that proceeding on February 9, 2012.
Plaintiffs obtained a discharge in bankruptcy on February 13, 2012, (RJN Ex. J), and the court granted plaintiffs' motion to withdraw the reference of the adversary complaint to bankruptcy court on July 16, 2013. (Docket No. 32.) On September 18, 2013, the court granted Ameriquest defendants' motion to dismiss plaintiffs' FAC. (Docket No. 40.) Plaintiffs filed the SAC on October 8, 2013, realleging claims for wrongful foreclosure, fraud, and cancellation of instruments. (Docket No. 41.) Defendants now move to dismiss the SAC for failure to state a claim pursuant to Rule 12(b)(6).
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 , 556 U.S. 662, 678 (2009) (quoting Twombly , 550 U.S. at 556-57).
A. Wrongful Foreclosure
Under California law, "[w]rongful foreclosure is an action in equity, where a plaintiff seeks to set aside a foreclosure sale." Castaneda v. Saxon Mortgage Servs., Inc. , 687 F.Supp.2d 1191, 1201 (E.D. Cal. 2009) (Shubb, J.). California courts require an allegation of prejudice to maintain a wrongful foreclosure claim. Herrejon v. Ocwen Loan Servicing, LLC, ___ F.Supp.2d ___, Civ. No. F 13-1756 LJO MJS, 2013 WL 5934148, at *8 (E.D. Cal. Nov. 1, 2013) (citing Fontenot v. Wells Fargo Bank, N.A. , 198 Cal.App.4th 256, 272 (1st Dist. 2011)).
Allegations that the improper party initiated foreclosure proceedings do not satisfy the element of prejudice; rather, a plaintiff must allege facts demonstrating "that the foreclosure would have been averted but for these alleged deficiencies." Reynoso v. Paul Fin., LLC, No. 09-3225 SC , 2009 WL 3833298, at *4 (N.D. Cal. Nov. 16, 2009); see also Ghuman v. Wells Fargo Bank, N.A., Civ. No. 1:12-00902 AWI BAM , 2012 WL 2263276, at *5 (E.D. Cal. Jun. 15, 2012) (noting "Plaintiffs would be hard pressed to show any conceivable prejudice" from alleged improper substitution of trustee because a "substitution would simply have replaced one trustee with another without modifying Plaintiffs' obligations under the note or deed of trust"); Permito v. Wells Fargo Bank, N.A., No. C-12-00545 YGR , 2012 WL 1380322, ...