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Trinh v. Wells Fargo & Co.

United States District Court, S.D. California

November 16, 2017

KIMTHU TRINH, Plaintiff,
v.
WELLS FARGO & COMPANY ., Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS

          HON M. JAMES LORENZ UNITED STATES DISTRICT JUDGE

         Pending before the Court in this mortgage foreclosure action is a motion to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), filed by Defendant Wells Fargo & Company ("Wells Fargo" or "Defendant"). Plaintiff filed an opposition and Defendant replied. For the reasons which follow, the motion is granted in part and denied in part. Plaintiff's request for leave to amend is granted.

         I. Background

         Plaintiff owns a residence in San Diego, California ("Property"). (Compl. at 2.) She financed it with a $500, 000 mortgage loan issued by Wells Fargo's predecessor. (Id. at 8.) She made regular monthly payments until August 2012, when she was laid off. (Id.) From March 2014 through February 2015, Keep Your Home California made the payments on Plaintiff's behalf. (Id.) In mid-2015, Plaintiff applied for a loan modification, which was denied. (Id.) She applied again in May 2016, but her application was again denied, and her appeal of the denial was unsuccessful. (Id.) Plaintiff maintains that Wells Fargo wrongfully denied her application and related appeal because it was relying on erroneous income amounts. (Id. at 8-9.) On July 7, 2016, Plaintiff made a loan modification application under Defendant's Unemployment Program, based on "substantially changed financial circumstances." (Id. at 9.) With the assistance of the Urban League of San Diego, she reapplied on July 26, 2016. (Id.) She received no acknowledgment of, or response to, her July 2016 applications. Instead, on August 2, 2016, she received a Notice of Default, and on August 8, 2016, she received a Notice of Foreclosure. (Id.)

         Plaintiff filed a complaint in state court alleging state law claims for violation of the California Homeowner's Bill of Rights ("HBOR"), specifically Civil Code Sections 2923.6 and 2924.10.[1] She also asserts negligence, quiet title, violation of California's Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq. ("UCL"), and requests an accounting. Defendant removed the action to this Court based on diversity of citizenship under 28 U.S.C. § 1332, and then moved to dismiss pursuant to Rule 12(b)(6) for failure to state a claim.

         II. Discussion

         A motion under Rule 12(b)(6) tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is warranted where the complaint lacks a cognizable legal theory. Shroyer v. New Cingular Wireless Serv., Inc., 622 F.3d 1035, 1041(9th Cir. 2010) (internal quotation marks and citation omitted). Alternatively, a complaint may be dismissed where it presents a cognizable legal theory, yet fails to plead essential facts under that theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984).

         In reviewing a Rule 12(b)(6) motion, the Court must assume the truth of all factual allegations and construe them most favorably to the nonmoving party. Huynh v. Chase Manhattan Bank, 465 F.3d 992, 997, 999 n.3 (9th Cir. 2006). However, legal conclusions need not be taken as true merely because they are couched as factual allegations. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Similarly, "conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss." Pareto v. Fed. Deposit Ins. Corp., 139 F.3d 696, 699 (9th Cir. 1998).

         A. Violation of California Civil Code Section 2923.6

         In her first cause of action Plaintiff contends that Defendant violated § 2923.6(c) when it recorded a Notice Default while her application for loan modification was pending. Section 2923.6(c) states:

If a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower's mortgage servicer, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale, or conduct a trustee's sale, while the complete first lien loan modification application is pending. A mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale or conduct a trustee's sale until any of the following occurs:
(1) The mortgage servicer makes a written determination that the borrower is not eligible for a first lien loan modification, and any appeal period pursuant to subdivision (d) has expired.
(2) The borrower does not accept an offered first lien loan modification within 14 days of the offer.
(3) The borrower accepts a written first lien loan modification, but defaults on, or otherwise breaches the borrower's obligations under, the first lien loan modification.

(Emphasis added.) Plaintiff's theory is that because she did not receive any response to or acknowledgement of her July 2016 applications, Defendant was prohibited from recording a Notice of Default or Notice of Foreclosure.

         Defendant counters based on the exception provided in § 2923.6(g), which states in pertinent part:

In order to minimize the risk of borrowers submitting multiple applications for first lien loan modifications for the purpose of delay, the mortgage servicer shall not be obligated to evaluate applications from borrowers who have already been evaluated . . ., unless there has been a material change in the borrower's financial circumstances since the date of the borrower's previous application and that change is documented by the borrower and submitted to the mortgage servicer.

         Plaintiff alleged that prior to her July 2016 applications, she had applied twice and was denied. (Compl. at 8-9). With respect to her July 2016 applications, she alleges that she had "substantially changed financial circumstances" in that her "employment situation [was] in flux until [she and the other borrowers could] find steady work." (Id. at 9.) She also alleged that she faxed a "completed application and all documents."

         Plaintiff's allegations are sufficient to state a claim for a § 2923.6(c) violation despite her previous loan modification applications. Plaintiff's July 2016 applications are not before the Court as a part of the complaint, and Defendant has not sought judicial notice, see United States v. Corinthian Colleges,655 F.3d 984, 999 (9th Cir. 2011), to determine whether Plaintiff documented a material change in her financial circumstances. Defendant may raise the issue and ...


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