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Chaghouri v. Wells Fargo Bank, N.A.

United States District Court, N.D. California

January 5, 2015

HYATT CHAGHOURI, individually and as Trustee for the Elias Gaby Chaghouri and Hayat Kaitlyn Chaghouri Irrevocable Trust, Plaintiff,
WELLS FARGO BANK, N.A., Defendant.



The instant action was removed from the Superior Court of California, County of San Mateo, by Notice of Removal filed April 1, 2014. Defendant Wells Fargo Bank, N.A. ("Wells Fargo") previously filed a motion to dismiss, to which Plaintiff Hyatt Chaghouri responded by filing her First Amended Complaint ("FAC") on April 29, 2014. (Dkt. No. 19.) The FAC alleges claims for: (1) violation of Cal. Civil Code § 2924.17; (2) breach of the implied covenant of good faith and fair dealing; (3) fraud; and (4) negligent misrepresentation. (Dkt. No. 19.) Defendant Wells Fargo now moves to dismiss the FAC on the grounds that: (1) Plaintiff lacks standing; (2) Plaintiff has not stated a claim upon which relief can be granted; and (3) Plaintiff's claims are time barred.

Having carefully considered the papers submitted and the pleadings in this action, and for the reasons set forth below, the Court hereby DENIES the Motion to Dismiss. The Court rejects Wells Fargo's argument that the claim under California Civil Code section 2924.17 should be dismissed because Plaintiffs are not "borrowers" covered by its protections. Similarly, Plaintiff has alleged her remaining claims sufficiently, and with the required particularity, and has alleged a basis for her standing as an individual as well as a trustee for the trust.


The following summary of facts is drawn from the allegations in the FAC, which the Court accepts as true for purposes of the motion to dismiss, and the matters properly subject to judicial notice.[1]

Plaintiff brings the instant action individually and as trustee for the Elias Gaby Chaghouri and Hayat Kaitlyn Chaghouri Irrevocable Trust. On June 21, 2004, Plaintiff, acting individually, transferred title to Property located at 20 Atlantic Blvd., San Bruno, California to Fadi E. Chaghouri, Trustee and Gaby Chaghouri, Trustee of the Elias Gaby Chaghouri and Hayat Kaitlyn Chaghouri Irrevocable Trust of 2004 (the "Trust"). (Request for Judicial Notice ("RJN"), Exh. A.)

In August, 2006, the Trust took out a mortgage loan from World Savings Bank, FSB secured by a deed of trust recorded against the property. (RJN, Exh. B; FAC ¶ 7.) Plaintiff signed the Deed of Trust, as trustee for the Trust. (RJN, Exh. B, p. 15.) World Savings later changed its name to Wachovia Mortgage, FSB. (RJN, Exh. C.) Wachovia Mortgage then merged into Wells Fargo and it thereby became the beneficiary under the deed of trust. (RJN, Exh. D; FAC ¶ 7.) The deed of trust secured a debt in the amount of $495, 000. ( Id. at p. 2.)

In December 2012, Plaintiff was current on her mortgage payments but sought a better interest rate on her loan, so she contacted Wells Fargo about her options. Plaintiff alleges that she was told her only option would be to apply for a loan modification. (FAC ¶ 10.) She submitted an application in December of 2012, but was notified on January 28, 2013, that her application had been denied because she was "not at risk of default." (FAC ¶ 10.) Plaintiff alleges that in January or February 2013, she spoke with a representative at Wells Fargo, Jeff Shomion, who advised her that the only way she could obtain a modification was to miss three months of mortgage payments and then submit an application. When Plaintiff expressed concern about missing payments, Shomion told Plaintiff that while she was applying for and being reviewed for a loan modification, Wells Fargo would not initiate foreclosure proceedings against the property. In reliance on these statements, Plaintiff did not make her February 2013 payment despite being ready, willing, and able to make the payments. (FAC ¶ 11.)

In April 2013, after Plaintiff was three months late on her payments as instructed by Shomion, she submitted a complete loan modification application. When she called Wells Fargo a few days later to confirm receipt of the application, she was told that it was incomplete and she needed to submit additional documents. (FAC ¶ 12.) In May 2013, Plaintiff called Wells Fargo again and was told that her application was complete and was under review. (FAC ¶ 13.) A few weeks after that, Plaintiff again called Wells Fargo and spoke to a different representative who told her that there was no loan modification file for her at all, prompting her to submit a new application. (FAC ¶ 14.) In June 2013, Wells Fargo rejected her application based on Plaintiff's rental income being too low, prompting Plaintiff to call and correct the rental income and resulting in an assurance that she should qualify for a modification and should apply again. (FAC ¶ 15.) Between July 2013 and November 2013, Plaintiff re-submitted and updated applications, and was again told by various Wells Fargo agents that her applications were missing documents or were rejected based upon information that was incorrect. (FAC ¶ 16.) Plaintiff submitted another loan modification application in November 2013. (FAC ¶ 17.) Despite Wells Fargo's receipt of the application, on December 16, 2013, Wells Fargo recorded a Notice of Default ("NOD") to initiate foreclosure proceedings against Plaintiff. ( Id. ) The NOD stated that the Trust failed to pay installments of principal, interest, impounds and late charges which became due on December 15, 2012. (FAC ¶ 17.) Plaintiff alleges that the NOD is inaccurate because it lists the date of default as December 15, 2012, even though she made a payment in January 2013. (FAC ¶ 17.) The NOD attaches a declaration signed by Christopher Smith, VP of Loan Documentation for Wells Fargo, indicating that Wells Fargo had exercised due diligence in contacting the "borrowers, " listed as both Hyatt Chaghouri and The Elias Gaby Chaghouri and Hayat Kaitlyn Chaghouri Irrevocable Trust, pursuant to California Civil Code 2923.55(f) to assess their financial situation and explore options for the borrower to avoid foreclosure. (RJN, Exh. F, at 32-33.)


A. California Civil Code Section 2924.17

Wells Fargo argues that Plaintiff has failed to allege a plausible claim for violation of California Civil Code section 2924.17. Section 2924.17 requires that any documents filed in connection with a foreclosure such as a notice of default "shall be accurate and complete and supported by competent and reliable evidence." Cal. Civ. C. § 2924.17(a). It further requires that, "[b]efore recording or filing any documents described in subdivision (a), a mortgage servicer shall ensure that it has reviewed competent and reliable evidence to substantiate the borrower's default and the right to foreclose, including the borrower's loan status and loan information." Cal. Civ. C. § 2924.17(b). Wells Fargo contends that section 2924.17, which specifically incorporates the term "borrower" and references the requirements of Section 2923.55, does not apply here because a "borrower" under the statute is limited to natural persons, and therefore excludes trusts. See Cal. Civ. C. §§ 2924.17(b), 2920.5.

The Court has, at Wells Fargo's request, taken judicial notice of the Notice of Default Wells Fargo filed to initiate foreclosure on the subject property. As previously indicated, that Notice of Default includes a Declaration of Compliance, as required by California Civil Code section 2923.55(c), signed by a Wells Fargo agent. The contact requirements in section 2923.55(c) were part of the same legislation that added the accuracy requirements in section 2924.17 that Plaintiff invokes here. The Declaration of Compliance indicates that both Hyatt Chaghouri and The Elias Gaby Chaghouri and Hayat Kaitlyn Chaghouri Irrevocable Trust were "borrowers" for the subject property. (RJN, Exh. F, at 32.) The form declaration includes an option that "No contact was required by the mortgage servicers because the individual(s) identified above did not meet the definition of "borrower" pursuant to subdivision (e) [now subdivision (c)] of California Civil Code § 2920.5." ( Id. ) That option was not selected. Instead, Wells Fargo, in this declaration of compliance with the statutory requirements, treated both the Trust and Hyatt Chaghouri individually as "borrowers" for purposes of compliance with the statutory requirements.

Whatever general argument Wells Fargo may have about the applicability of the Homeowners' Bill of Rights to deeds of trust where a family trust is the "borrower, "[2] the fact that Wells Fargo treated Hyatt Chaghouri and the Trust as "borrowers" for purposes of the Notice of Default precludes Wells Fargo's argument against their borrower status in this case and particularly in a claim that Wells ...

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