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McNeil v. Wells Fargo Bank, N.A.

United States District Court, N.D. California

July 1, 2014

TROY L. McNEIL and TRICIA A. McNEIL, Plaintiffs,


SAMUEL CONTI, District Judge.


This is a mortgage foreclosure dispute. Defendants Wells Fargo Bank, N.A. ("Wells Fargo") and U.S. Bank National Association ("U.S. Bank") (collectively, "Defendants") now move to dismiss. ECF No. 14 ("MTD"). Plaintiffs Troy and Tricia McNeil oppose the motion, ECF No. 18 ("Opp'n"), [1] and Defendants have declined to file a reply brief. The Court held a hearing on the Motion on April 4, 2014. For the reasons set forth below, the Motion is GRANTED in part and DENIED in part.


Plaintiffs are residents of the property at issue in this case, which is located on Senger Street in Livermore, California (the "subject property"). ECF No. 1 Ex. A ("Compl.") ¶ 3. In April 2004, Plaintiffs borrowed $536, 000 from Wells Fargo Home Mortgage, which later merged into Wells Fargo. Compl. Ex. A. The loan was secured by a deed of trust on the subject property. Id . The deed of trust included an "Adjustable Rate Rider, " which allowed for an increase in the interest rate on the loan. Id.

In 2011, Wells Fargo transferred its beneficial interest in the deed of trust to U.S. Bank through a Corporate Assignment Deed of Trust (the "Corporate Assignment"). Compl. Ex. B. Plaintiffs allege that the Corporate Assignment shows that the deed of trust was transferred to a mortgage backed security trust, and that this trust was governed by a Pooling Services Agreement ("PSA"). Compl. ¶ 21. Plaintiffs further allege, upon information and belief, that Defendants lack standing to foreclose on the deed of trust because Plaintiffs' promissory note was not transferred to the investment trust prior the trust's closing date. Id . ¶ 23.

In December 2011, a notice of default was recorded against the subject property, indicating that Plaintiffs were $24, 848.53 in arrears. Compl. Ex. C. In March 2012, the trustee on the deed of trust recorded a notice of trustee's sale, scheduling the sale for April 4, 2012. Compl. Ex. D. The notice indicates that the total unpaid balance on the loan was $522, 493.45.

In May 2012, Plaintiffs entered into a loan modification agreement with Wells Fargo. Compl. ¶ 26. The modification agreement created a secondary principal balance of $34, 212.59, on which no interest accrues, and dropped the interest rate on the remaining balance to 2.5 percent for six years. ECF No. 14 ("RJN") Ex. 6 ¶¶ 1-2. Pursuant to the agreement, Plaintiffs promised to make monthly principal and interest payments of $2, 424.62 starting on July 1, 2012. Id . ¶ 2. Plaintiffs also promised to make monthly escrow deposits "as defined in the Note." Id . The agreement states that escrow deposits may be subject to change in the future. Id.

Plaintiffs allege that the monthly escrow charges initially amounted to $800, bringing Plaintiffs' total monthly payments to $3, 224.62. Compl. ¶ 85. Defendants subsequently assessed Plaintiffs for additional charges, increasing the total monthly payments to $4, 400. Id . At the hearing and in their opposition brief, Plaintiffs asserted that Defendants improperly applied Plaintiffs' payments, resulting in the additional charges. The Complaint itself is silent on the issue. In any event, Plaintiffs do allege that they could not afford the additional monthly charges assessed by Defendants.

On February 4, 2013, the substituted trustee on the deed of trust recorded yet another notice of default against the subject property, indicating that Plaintiffs were $29, 644.95 in arrears. Compl. Ex. F. Another notice of trustee's sale was recorded on May 6, 2013, setting the sale date for May 28, 2013. At the hearing, Plaintiffs suggested that the foreclosure was the direct result of the unauthorized charges assessed by Defendants after they executed the first loan modification agreement.

In June 2013, Plaintiffs contacted Wells Fargo about obtaining a second loan modification. Compl. ¶ 31. The request was denied on the grounds that the "investor" lacked contractual authority to modify the loan and Plaintiffs had exceeded the number of modifications allowed by the investor. Id . Plaintiffs contend that neither reason is accurate. Id . Wells Fargo subsequently denied Plaintiffs' appeal of the denial of the modification request. Id . ¶ 33.

The trustee's sale was apparently delayed during the application process for the second loan modification, and a new notice of trustee's sale was later recorded, setting the sale date for October 16, 2013. RJN Ex. 11. According to Defendants, the trustee's sale was postponed yet again to April 14, 2014.

Based on these facts, Plaintiffs assert causes of action for (1) lack of standing to foreclose, (2) violation of California Civil Code section 2923.55, (3) promissory estoppel, (4) breach of the implied covenant of good faith, (5) intentional misrepresentation, (6) violation of the Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200, and (7) cancellation of instruments.

Defendants now move to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).


A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) "tests the legal sufficiency of a claim." Navarro v. Block , 250 F.3d 729, 732 (9th Cir. 2001). "Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't , 901 F.2d 696, 699 (9th Cir. 1988). "When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Ashcroft v. Iqbal , 556 U.S. 662, 679 (2009). However, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id . (citing Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555 (2007)).

Claims sounding in fraud are subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), which requires that a plaintiff alleging fraud "must state with particularity the circumstances constituting fraud." See Kearns v. Ford Motor Co. , 567 F.3d 1120, 1124 (9th Cir. 2009). "To satisfy Rule 9(b), a pleading must identify the who, what, when, where, and how of the misconduct charged, as well as what is false or misleading about [the purportedly fraudulent] statement, and why it is false." ...

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