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Rosales v. Wells Fargo Bank, N.A.

United States District Court, N.D. California, San Jose Division

September 24, 2014

CARMEN ROSALES, et al., Plaintiffs,
WELLS FARGO BANK, N.A., et al., Defendants.



This lawsuit follows a series of irregular transactions regarding a home located at 1837 Drew Avenue in Mountain View, California ("the Home"). Plaintiffs Antonio Rosales ("Antonio") (now deceased) and his wife Carmen Rosales ("Carmen")[1] filed this action as an adversary proceeding in the Bankruptcy Court for the Northern District of California. Plaintiffs had filed for bankruptcy in an effort to save the Home from foreclosure. Following withdrawal of the bankruptcy reference, Plaintiffs filed the operative second amended complaint ("SAC")[2] in this Court on November 18, 2013, asserting state and federal claims against a number of individuals and entities who allegedly defrauded Plaintiffs of their equity in the Home.

Two sets of Defendants separately move for dismissal of the SAC under Federal Rule of Civil Procedure 12(b)(6): (1) North American Title Company ("NATC") and (2) Wells Fargo Bank, N.A., as trustee for the Certificateholders of Structured Asset Mortgage Investments II Inc., Bear Stearns Mortgage Funding Trust 2006-AR-3, Mortgage Pass-Through Certificates, Series 2006-AR3 ("Wells Fargo"); JPMorgan Chase Bank, N.A. ("JPMorgan"); and EMC Mortgage, LLC ("EMC"). The Court has considered the parties' briefing as well as the oral argument presented at the hearing on July 10, 2014. For the reasons discussed below, both motions are GRANTED with leave to amend.


Plaintiffs Antonio and Carmen were born in Mexico and subsequently became permanent residents of the United States. They never became fluent or literate in English. In 1994, Plaintiffs wished to buy the Home, but their real estate agent told them that they would not qualify for a loan. Plaintiffs transferred the down payment to their oldest daughter, Socorro Rosales ("Socorro"); Socorro and her husband, Brigido Avila ("Brigido"), purchased the home using the down payment provided by Plaintiffs. Plaintiffs, Socorro, and Brigido took up residence in the Home.

In September 2000, Socorro and Brigido moved out of the Home. Title was transferred to Plaintiffs jointly with their son, Salvador Rosales ("Salvador") (now deceased). Salvador's wife, Vicky, later was added to the title. Thereafter, Salvador and Vicky resided in the Home with Plaintiffs. In 2002, at Salvador's request, Plaintiffs refinanced the Home and gave the cash proceeds of the refinance to Salvador.

"Beginning in 2004, and thereafter, Carmen was the subject of a conservatorship for the gravely disabled with the Santa Clara Public Guardian serving as her conservator and lacked capacity to sign any documents." SAC ¶ 39.

In 2006, Salvador told Plaintiffs that he had arranged for a refinance that would reduce the interest rate on the Home loan and reduce the monthly mortgage payments. On July 15, 2006, Salvador and Vicky took Plaintiffs to the office of Defendant, Inc. ("Mortgagepointer"), a mortgage broker. Plaintiffs signed a number of documents that were in English and were not translated into Spanish, including a grant deed that conveyed title to the Home to Salvador and Vicky as joint tenants. Plaintiffs claim that they did not understand that they were signing away title to the Home. Salvador and Vicky also signed documents, including a grant deed that reconveyed title to the Home to Plaintiffs, Salvador, and Vicky as tenants in common. Both grant deeds were signed and notarized by Alisha Carroll ("Carroll") on July 15, 2006 but, as discussed below, they were recorded on different dates. Carroll was "employed and/or hired and paid" by NATC, the escrow agent.

NATC recorded the first grant deed (conveying title to Salvador and Vicky) on August 17, 2006. On the same date, a Deed of Trust dated August 10, 2006 was recorded, reflecting that Salvador and Vicky had taken a loan against the Home in the amount of $340, 000 ("Deed of Trust"). The Deed of Trust named Bear Stearns Residential Mortgage Corporation ("Bear Sterns") as the lender; Mortgage Electronic Registration System ("MERS"), acting as a nominee for Bear Stearns, as the beneficiary; and NATC as the trustee. EMC serviced the loan. NATC recorded the second grant deed (reconveying title to Plaintiffs, Salvador, and Vicky) on August 29, 2006.

As part of the loan transaction, Salvador and Vicky received cash proceeds in excess of $135, 000. Plaintiffs claim that they had no idea that they were removed from the title to the Home, that Salvador and Vicky had taken a loan against the property in their own names, that the amount of indebtedness against the Home had increased, or that Salvador and Vicky had pulled equity out of the Home. As had been his practice, Antonio continued giving Salvador cash to make the mortgage payments. There are no allegations indicating to whom Salvador made the payments or the amounts that he paid.

On a date not disclosed in the SAC, Vicky moved out of the Home and filed for divorce from Salvador. On November 27, 2008, Salvador died suddenly at the age of thirty-four. Thereafter, Antonio began making loan payments directly to the servicer, EMC, which was when he learned that Plaintiffs were not named on the loan. EMC nonetheless accepted Antonio's payments. While not clear from the SAC, it appears that Antonio's payments were not enough to cover the monthly loan amount due; it may be that the monthly loan payment had increased a result of the loan entered into by Salvador and Vicky. Vicky did not make loan payments after Salvador died and the loan went into default even though Antonio was making monthly payments. A Notice of Default and Election to Sell under Deed of Trust was filed in the office of the Santa Clara County Recorder on May 21, 2010. Vicky filed for bankruptcy in July 2010.

On July 10, 2010, MERS assigned its rights as beneficiary under the Deed of Trust to Wells Fargo. On August 2, 2010, Wells Fargo substituted NDEx West, LLC ("NDEx West") as trustee under the Deed of Trust in place of NATC. In November 2010, EMC, the loan servicer, stopped accepting Antonio's monthly payment, stating that only Salvador and Vicky were borrowers on the loan and that Plaintiffs' payments would not be accepted. On November 16, 2010, NDEx West recorded a Notice of Trustee's Sale, reciting an unpaid loan balance of $411, 688.74. Plaintiffs consulted with Community Legal Services in East Palo Alto ("CLS") and only then did they learn the full extent of the 2006 transactions. Plaintiffs sought modification of the loan, which request was denied on the ground that Plaintiffs were not parties to the loan.

In March 2011, Plaintiffs filed for bankruptcy. Wells Fargo filed a secured claim in the amount of $418, 885.35, which was the outstanding loan balance including arrears in the amount of $36, 831.55. On February 1, 2012, Plaintiffs filed the present action as an adversary proceeding in the bankruptcy. The operative SAC, filed in this Court after withdrawal of the bankruptcy reference, asserts claims against Vicky; Mortgagepointer and its principals, Jagdeep Kapoor and Rana Saluja; NATC, which was the escrow agent on the 2006 loan and the original trustee under the Deed of Trust; JPMorgan as successor to the lender, Bear Stearns; EMC, the loan servicer; Wells Fargo, which became the beneficiary under the Deed of Trust in July 2010; Carroll, the notary who notarized the two July 15, 2006 grant deeds; and the Estate of Salvador Rosales.

Plaintiffs allege claims for: (1) violation of the Fair Housing Act ("FHA"), [4] 42 U.S.C. § 3605(a); (2) violation of California Civil Code § 1632; (3) fraud; (4) aiding and abetting fraud; (5) financial elder abuse under California Welfare & Institutions Code § 15600; (6) aiding and abetting elder financial abuse; (7) unfair business practices under California Business & Professions Code § 17200; (8) wrongful foreclosure; (9) negligence; (10) quiet title; and (11) declaratory relief.


A. Rule 12(b)(6)

"A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted tests the legal sufficiency of a claim.'" Conservation Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts as true all well-pled factual allegations and construes them in the light most favorable to the plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the Court need not "accept as true allegations that contradict matters properly subject to judicial notice" or "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (internal quotation marks and citations omitted). While a complaint need not contain detailed factual allegations, it "must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its ...

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