United States District Court, S.D. California
ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANT'S MOTION TO DISMISS
JAMES LORENZ UNITED STATES DISTRICT JUDGE
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.
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.)
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. 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
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).
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).
Violation of California Civil Code Section 2923.6
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
(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
(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.
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.
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."
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