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Fonteno v. Wells Fargo Bank, N.A.

California Court of Appeals, First District, Second Division

August 18, 2014

LEROY FONTENO, et al, Plaintiffs and Appellants,
WELLS FARGO BANK, N.A., et al, Defendants and Respondents.

Contra Costa County Super. Ct. No. C12-00203 Hon. Judith Craddick Trial Judge.

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[Copyrighted Material Omitted]

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Moss & Murphy and Glen L. Moss for Plaintiffs and Appellants.

Law Offices of Glenn H. Wechsler, Glenn H. Wechsler and Lawrence D. Harris for Defendant and Respondent First American Trustee Servicing Solutions, LLC.

Severson & Werson, Jon D. Ives and Jan T. Chilton for Defendant and Respondent Wells Fargo Bank, N.A.


BRICK, J.[*]

In June 2011, defendant Wells Fargo Bank, N.A. (Wells Fargo) foreclosed on the residential mortgage loan of plaintiffs Leroy Fonteno and Jeanette Childs and purchased their home at a trustee sale conducted by defendant First American Trustee Servicing Solutions LLC (First American). Plaintiffs sued, alleging, among other things, that defendants violated both their deed of trust’s incorporation of a pre-foreclosure meeting requirement contained in National Housing Act (NHA; 12 U.S.C. § 1701 et seq.) regulations and the Federal Debt Collection Practices Act (FDCPA; 15 U.S.C. § 1692 et seq.). The trial court sustained defendants’

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demurrers and denied plaintiffs’ request for a preliminary injunction, leading to this appeal. Plaintiffs argue numerous errors in these rulings.

We conclude that plaintiffs have pled viable causes of action for the equitable cancellation of the trustee’s deed obtained by Wells Fargo based on their allegation that Wells Fargo did not comply with the NHA requirements incorporated into the deed of trust. Because compliance is a condition precedent to the accrual of Wells Fargo’s contractual authority to foreclose on the property, if, as plaintiffs allege, the sale was conducted without such authority, it is either void or voidable by a court sitting in equity. Whether void or voidable, plaintiffs were not required to allege tender of the delinquent amount owed under the circumstances alleged in this case. Accordingly, the trial court should not have sustained Wells Fargo’s demurrers to plaintiff’s wrongful trustee sale and quiet title causes of action without leave to amend. That part of the trial court’s order is reversed. However, we affirm the remainder of the trial court’s demurrer rulings.


In January 2012, Wells Fargo filed a separate unlawful detainer action after purchasing the property at the trustee sale conducted by First American. It obtained a judgment against plaintiffs and a writ of execution enabling it to evict them from the property, located on Ashbridge Bay Drive in Pittsburg, California (property). In its statement of decision, the court concluded that the trustee’s deed created a rebuttable presumption in favor of Wells Fargo as the owner of the property, plaintiffs had not established grounds for equitable relief, and having not shown fraud by Wells Fargo, were required to, but did not, make the requisite tender of the delinquent amount owed; also, plaintiffs’ affirmative defenses, including Wells Fargo’s failure to comply with the NHA and the federal Home Affordable Modification Program (HAMP), were not properly before the court, it being of limited jurisdiction. Plaintiffs then brought this action.

Plaintiffs’ Original Complaint and Request for a Preliminary Injunction

In their original complaint, plaintiffs alleged that Wells Fargo made a loan to them secured by the property pursuant to a deed of trust. It wrongfully caused First American to record a notice of default and notice of trustee sale, purchased the property at the non-judicial foreclosure sale which followed in June 2011, and obtained a trustee’s deed to the property. Plaintiffs stated claims for wrongful trustee sale, quiet title, and breach of the FDCPA, naming Wells Fargo as the defendant in all of those claims and First American in the first and third.

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Although not a model of clarity, plaintiffs alleged that Wells Fargo violated paragraph 9 of the deed of trust (paragraph 9) by failing to comply with the NHA, 12 United States Code section 1701 et seq., and related regulations. These included that Wells Fargo failed to meet with plaintiffs face to face to discuss alternatives to foreclosure, including the possible modification of the loan, and failed to secure the approval of the Secretary of Housing and Urban Development (Secretary) before commencing with foreclosure proceedings. They further alleged that Wells Fargo was required to accept modifications to their loan pursuant to HAMP.

Plaintiffs also alleged that Wells Fargo did not comply with HAMP rules or the FDCPA, 15 United States Code section 1692, et. seq. They claimed Wells Fargo, as a debt collector under the FDCPA, provided misleading modification and forbearance agreements to plaintiffs. It falsely stated these agreements would enable plaintiffs to retain title and possession of the property by making certain fixed payments and successfully completing a trial period. Although plaintiffs signed the agreements and made all required payments, Wells Fargo caused First American to sell the property at a trustee sale and secured a deed of trust to it.

Plaintiffs alleged that First American, by acting as a debt collector, violated the FDCPA by not providing them with a debt collection notice, engaging in unfair debt collection practices, and selling the property with actual knowledge that plaintiffs were denied protections provided for in paragraph 9. Also, First American’s recording of a notice of default was contrary to plaintiffs’ contractual and legal rights.

Plaintiffs alleged that, as a result of defendants’ wrongful acts, the trustee sale was improper and the trustee’s deed was wrongfully executed, delivered, and recorded. In their first cause of action, for a wrongful trustee sale, plaintiffs sought an order allowing them to reside in the property during the litigation, cancellation of the trustee’s deed, and an award of damages for breach of the FDCPA. In their second, for quiet title, they sought a declaration quieting title in their names and an accounting. In their third, for violation of the FDCPA, they sought an order setting aside the trustee’s deed, damages, and attorney fees.

In their quiet title cause of action, and as incorporated into their FDCPA cause of action, plaintiffs further alleged that they were ready, willing, and able to make the payments required of them by the deed of trust, the amounts of which should be set pursuant to HAMP and related programs, but that Wells Fargo was insisting on excessive monthly payments. Plaintiffs did not incorporate this allegation into their wrongful trustee sale cause of action.

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Plaintiffs obtained a temporary restraining order barring enforcement of the unlawful detainer judgment and applied for a preliminary injunction. Defendants demurred and opposed the request for a preliminary injunction.

On March 26, 2012, the trial court heard argument on the demurrers and preliminary injunction at the same time, took the matters under submission, and subsequently ruled. It sustained Wells Fargo’s demurrer without leave to amend regarding plaintiffs’ quiet title cause of action because plaintiffs were required to make “a valid and viable tender of payment of the indebtedness owing in order to cancel a voidable sale under a deed of trust.”

The court also sustained Wells Fargo’s demurrer without leave to amend regarding plaintiffs’ FDCPA cause of action. It concluded that nonjudicial foreclosure activities by lenders or their agents do not constitute debt collection activities within the meaning of the FDCPA.

However, the court sustained Wells Fargo’s demurrer with leave to amend regarding its wrongful trustee sale cause of action. The court concluded that plaintiffs might be able to plead a viable cause of action for breach of contract resulting in a wrongful trustee sale if they sufficiently identified the federal law Wells Fargo was required to follow pursuant to the deed of trust. It granted plaintiffs leave to amend “to clarify the nature” of the first cause of action.

The trial court also sustained First American’s demurrer without leave to amend. It ruled plaintiffs could not maintain a wrongful trustee sale cause of action against First American based on their deed of trust with Wells Fargo and did not allege a viable FDCPA claim against First American for the same reason they did not against Wells Fargo. The court also denied plaintiffs’ motion for a preliminary injunction because plaintiffs’ only potentially viable claim was for breach of contract against Wells Fargo, for which they had an adequate remedy at law for damages.

Plaintiffs filed a timely notice of appeal from the trial court’s rulings.

Plaintiff’s First Amended Complaint

Plaintiffs also filed a first amended complaint, in which they brought a revised cause of action for wrongful trustee sale. They alleged Wells Fargo had violated an NHA statute requiring the exploration of alternatives to foreclosure and modifications of loans (12 U.S.C. § 1715u) and unspecified implementing regulations by not meeting with them, not obtaining the appointment by the federal Department of Housing and Urban Development

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(HUD) of a foreclosure commissioner prior to the property’s sale, and not accepting loan modifications pursuant to HAMP.

Plaintiffs also alleged a cause of action for cancellation of the trustee’s deed based on a consent judgment against Wells Fargo in another action (consent judgment cause of action). In this cause of action, they alleged that they were “ready, willing and able to make the payments required of them pursuant to this Deed of Trust, as appropriately modified pursuant to the Consent Judgment.” Plaintiffs did not incorporate this allegation into their wrongful trustee sale cause of action.

Wells Fargo demurred to plaintiffs’ first amended complaint; plaintiffs did not oppose. On July 24, 2012, the court sustained the demurrer without leave to amend in the absence of opposition and entered a judgment of dismissal. Plaintiffs filed a timely notice of appeal from this judgment as well.

Proceedings on Appeal

The parties submitted one set of briefs for both appeals. During the pendency of this appeal, we granted plaintiffs’ petition for a writ of supersedeas, which stayed their eviction from the property until the conclusion of this appeal. The parties also submitted additional cases and argument for our consideration after the briefing was completed. These included at our request that they focus on whether, assuming plaintiffs could bring a post-foreclosure cause of action to cancel the sale of the property, the deed was void or voidable and whether plaintiffs were required to allege tender of the delinquent amount owed to Wells Fargo. At oral argument, the parties addressed these issues and the matter was submitted.


I. The Court’s Demurrer and Preliminary Injunction Rulings

A. Standard of Review for Demurrers

In reviewing an order sustaining a demurrer “[w]e independently evaluate the complaint, construing it liberally, giving it a reasonable interpretation, reading it as a whole, and viewing its parts in context. [Citation.] Treating as true all material facts properly pleaded, we determine de novo whether the factual allegations of the complaint are adequate to state a cause of action under any legal ...

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