Cabanilla
v. Wells Fargo Bank
Filed 4/17/13 Cabanilla v. Wells Fargo Bank CA4/2
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
WILEHADO
T. CABANILLA,
Plaintiff and Appellant,
v.
WELLS
FARGO BANK, N.A.,
Defendant and Respondent.
E055041
(Super.Ct.No. CIVDS1006067)
OPINION
APPEAL from the Superior Court of
Bernardino County.
Donna G. Garza, Judge. Affirmed
in part and reversed in part.
Wilehado T. Cabanilla, in pro. per.,
for Plaintiff and Appellant.
Kutak Rock, Jeffrey S. Gerardo,
Steven M. Dailey, and Antoinette P. Hewitt for Defendant and Respondent.
Defendant Wells Fargo Bank, N.A.,
foreclosed on a trust deed after plaintiff allegedly defaulted on payment of a
wrongful foreclosure and intentional infliction of emotional distress. The trial court entered an order granting
defendant’s demurrer to a second amended complaint. Plaintiff appeals from a judgment entered
after the demurrer was sustained.
Plaintiff contends the trial court
erred because (1) the original promissory note was extinguished by a modified
loan agreement; (2) the notice of default on the original promissory note was
void; (3) the trustee had no authority to foreclose the trust deed for nonpayment
of the original note; (4) the notice of default was in violation of Civil Code
section 2923.5
name="_ftnref1" title="">[1]; and (5) the
foreclosure sale was void, and the court therefore lacked authority to require
plaintiff to tender past due payments and to post a bond.
In addition, plaintiff argues that
the trial court erred in sustaining a demurrer to a second cause of action for
intentional infliction of emotional distress.
We
reverse the judgment from the order granting the demurrer on the wrongful
foreclosure cause of action, and we affirm the trial court’s order granting the
demurrer on the intentional infliction of emotional distress cause of
action.
I
STANDARD OF
REVIEW
A
demurrer is used to test the sufficiency of the factual allegations of the
complaint to state a cause of action.
(Code Civ. Proc., § 430.10, subd. (e).)
The facts pled are assumed to be true, and the only issue is whether
they are legally sufficient to state a cause of action.
“In
reviewing the sufficiency of a complaint against a general demurrer, we are
guided by long-settled rules. ‘
pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.]
We also consider matters which may be judicially noticed.’ [Citation.]
Further, we give the complaint a reasonable interpretation, reading it
as a whole and its parts in their context.
[Citation.] When a demurrer is
sustained, we determine whether the complaint states facts sufficient to
constitute a cause of action.
[Citation.] And when it is
sustained without leave to amend, we decide whether there is a reasonable
possibility that the defect can be cured by amendment: if it can be, the trial
court has abused its discretion and we reverse; if not, there has been no abuse
of discretion and we affirm.
[Citations.] The burden of
proving such reasonable possibility is squarely on the plaintiff. [Citation.]â€
(Blank v. Kirwan (1985) 39
Cal.3d 311, 318.)
II
ALLEGATIONS
OF THE SECOND AMENDED COMPLAINT
AND
PROCEDURAL HISTORY
The second amended complaint
attempts to state a cause of action for wrongful foreclosure and a cause of
action for intentional infliction of emotional distress. As noted above, we assume the facts stated in
the complaint are true.
name="_ftnref2" title="">[2] The only question is the legal sufficiency of
the facts pleaded.
Plaintiff borrowed $364,000 from
“First Franklin, a Division of Nat. City Bank of In†[sic] on May 10, 2006. The note was an adjustable rate note, payable
with interest only for the first two years.
It was secured by a deed of trust on plaintiff’s residence.
At some point, defendant became the
beneficiary of the note and deed of trust.
By letter dated August 5, 2009, defendant, doing business as America’s
Servicing Company, formally offered to modify and restructure the loan. A proposed loan modification agreement was
enclosed with the letter. The primary
change was from an adjustable interest rate of 7.25 percent to a fixed rate of
5 percent.
Plaintiff signed and returned the
loan modification agreement on August 26, 2009.
He paid the first payment on the due date, October 1, 2009. He also made the November payment, on October
30, 2009. The payments were accepted by
defendant.
Nevertheless, in November 2009, NDEx
West LLC (NDEx), acting on behalf of defendant, dba America’s Servicing
Company, notified plaintiff that he was in default on the original 2006
loan. NDEx requested payment of
$42,838.94 within 30 days. Plaintiff
responded by forwarding a copy of the modification agreement. NDEx forwarded the response to defendant. Plaintiff then made the December 2009 and
January 2010 payments.
Despite the payments, defendant
recorded a notice of default and
election to sell under the deed of trust on January 12, 2010. The notice contained a declaration pursuant
to section 2923.5. The trustee’s sale
was set for May 6, 2010.
We will continue with the procedural
history, although not all of it is included in the complaint. The court file in our record shows that
plaintiff filed suit on May 4, 2010.
Plaintiff also requested a preliminary injunction. The preliminary injunction was granted on
September 13, 2010, on condition that plaintiff post a bond and deposit funds
totaling $34,517.88. The order stated
that if the deposit and monthly payments were not made, defendant could proceed
with foreclosure. On October 19, 2010,
the preliminary injunction order was vacated because the required sums had not
been deposited.
Defendant demurred to plaintiff’s
complaint on grounds of uncertainty on August 31, 2010. The first amended complaint was filed on
October 29, 2010, and another demurrer was filed on November 18, 2010. The demurrer to the first amended complaint
was heard on February 9, 2011, and decided March 7, 2011. The demurrer was sustained as to the
emotional distress cause of action and overruled as to the wrongful foreclosure
cause of action. The court’s minute
order states, “court deems the original notice of default null and void†and
“court finds plaintiff was not in default at the time the original notice of
default was recorded. Defendant bank
should start the foreclosure process again and comply with Civil Code [section]
2923.5.â€
title="">[3] (Capitalization omitted.)
Despite the court’s order, a
trustee’s sale was held two days later, on March 9, 2011. The property was conveyed to Deutsche Bank
National Trust. A notice to vacate
property was then sent to plaintiff, together with a three-day notice to quit.
Plaintiff filed his second amended
complaint on April 7, 2011. Defendant
filed another demurrer on May 12, 2011.
Hearing was held on June 23, 2011.
The court sustained the demurrer on the emotional distress cause of
action without leave to amend and continued the hearing for further briefing on
the wrongful foreclosure cause of action.
The continued hearing was held on
July 27, 2011. The court ruled: “The
court does find that tender is required based on the California ‘Aceves’
case. Plaintiff states that his last
payment was 1-4-2010 and defendant confirms that there have been no payments
for the last 18 months. [¶] The court determines that the loan
modificati[o]n is part of the original note/loan agreement. [¶]
Plaintiff is ordered to post a bond in the amount of $50,000.00 within
30 days.â€
A subsequent hearing was held on
September 14, 2011. The court found that
plaintiff had failed “to tender and, for that reason, sustained the Demurrer to
this cause of action without leave [to] amend.â€
A motion for reconsideration was heard and denied on October 13,
2011. Notice of appeal was filed on
November 10, 2011, and an amended notice of appeal was filed on November 18,
2011.
III
ISSUES
Two primary issues are apparent from
the allegations of the complaint and the procedural history.
First, we note that the trustee’s
sale occurred on March 9, 2011, only two days after the court had found the
notice of default to be void and ordered defendant to “start over†with a
notice of default that complied with section 2923.5.
alleged facts are by themselves sufficient to support a cause of action for
wrongful foreclosure.
The second issue is whether, based
on the facts alleged in the complaint, the trial court abused its discretion in
ordering plaintiff to deposit substantial sums in court and to post a $50,000
bond. Having made such orders, the trial
court sustained the demurrer without leave to amend when the deposits were not
made.
After considering these issues, we
will discuss the sustaining of the demurrer as to the intentional infliction of
emotional distress cause of action.
IV
DISCUSSION
“‘A nonjudicial foreclosure sale is
accompanied by a common law presumption that it “was conducted regularly and
fairly.†[Citations.] This presumption may only be rebutted by
procedural irregularity.
[Citation.] The “mere inadequacy
of price, absent some procedural irregularity that contributed to the
inadequacy of price or otherwise injured the trustor, is insufficient to set
aside a nonjudicial foreclosure sale.
[Citations.]†[Citations.] It is the burden of the party challenging the
trustee’s sale to prove such irregularity and thereby overcome the presumption
of the sale’s regularity.’
[Citation.] In addition, under
section 2924, there is a conclusive statutory presumption created in favor of a
bona fide purchaser who receives a trustee’s deed that contains a recital that
the trustee has fulfilled its statutory notice requirements. [Citation.]â€
(Lona v. Citibank, N.A. (2011)
202 Cal.App.4th 89, fn. omitted.)
In discussing its earlier case of
428, the Lona court said, “In that
case, we addressed two grounds
for setting aside the trustee’s sale: (1) alleged irregularity in the procedure
coupled with inadequate price and (2) the lender’s alleged breach of an oral
agreement to postpone the trustee’s sale.
[Citation.] Other grounds for
setting aside a trustee’s sale in the case law include assertions that no
breach occurred, that the borrower was not in default, that the deed of trust was void, that the sale was the result of
sham bidding or an attempt to restrict competition in bidding, or that the
trustee did not have the power to foreclose.
[Citations.]†(
Cal.App.4th at p. 106, italics added.)
Of significance here, the court also held that “no tender will be
required when the trustor is not required to rely on equity to attack the deed
because the trustee’s deed is void on its face.
[Citation.]†(
At the hearing of July 27, 2011,
after obtaining further briefing on the issue, the trial court apparently
decided that the deed obtained through the foreclosure sale was voidable, not
void, and it therefore decided that tender was required, citing
Cal.App.4th 218. Since tender had not
been made, the demurrer was sustained.
In Aceves, the bank foreclosed on plaintiff’s home. Plaintiff sued the bank, and the bank
demurred. (Aceves v. U.S. Bank, supra,
192 Cal.App.4th at p. 224.) The trial
court sustained the demurrer, and the appellate court reversed in part. (Id.
at p. 225.) It held that plaintiff had
pleaded causes of action based on collateral estoppel and fraud. Plaintiff’s other claims, based on alleged
irregularities in the foreclosure process, were rejected. (Id.
at pp. 232.) The court found no irregularities justifying relief and thus did
not reach the issue of whether the sale was void or voidable. (Id.
at p. 231.) Nor did the court discuss
the issue of tender. Accordingly, the
case is not helpful on the issues presented here.
Plaintiff contends that the
foreclosure sale was void, and tender is only required when the sale is
voidable, not when it is void.
Plaintiff cites Dimock v. Emerald Properties (2000) 81 Cal.App.4th 868. In that case, decided on summary judgment,
the plaintiff claimed a foreclosure sale by a prior trustee was void because of
an earlier substitution of trustee. (
judgment motion. (Id. at p. 873.) The
appellate court reversed. Since
defendant failed to follow the statutory procedure for the substitution of
trustees, the sale was void. The case was reversed with directions to
quiet title in plaintiff. (
The court commented that Dimock was
not required to rely on equity in seeking to set aside a voidable deed. “Because Dimock was not required to rely upon
equity in attacking the deed, he was not required to meet any of the burdens
imposed when, as a matter of equity, a party wishes to set aside a voidable
deed. [Citation.] In particular, contrary to the defendants’
argument, he was not required to tender any of the amounts due under the
note.†(Dimock v. Emerald Properties, supra,
81 Cal.App.4th at p. 878.)
Plaintiff argues that the
foreclosure sale in this case is also void because it failed to comply with
statutory procedures: it was not supported by a valid notice of default, and it
was conducted in violation of the trial court’s order to “start over.â€
Defendant distinguishes
voidable, not void, and that tender is therefore required. It cites Little
v. CFS Service Corp. (1987) 188 Cal.App.3d 1354, 1358. That case helpfully discusses the meaning of
“void†and “voidable†and collects the various cases. Defendant quotes the following passage: “ . . . ‘[Defects]
and irregularities in a sale under a power render it merely voidable and not
void . . . .
However, substantially defective sales have been held void where the
defect lay in a particular as to which the statutory provision was regarded as
mandatory . . . .’
[Citation.]†(
The Little court concluded: “In
sum, this case involves a serious notice defect which was directly prejudicial
to individuals who could reasonably have relied on the statutory notice
requirements for protection of their interests; a prompt halt to completion of
the transaction as soon as the notice defect became evident; and an immediate
restoration of the parties to the status quo, including payment of interest to
the purported buyer for the time during which his money was unavailable to him
for his use. No conclusive presumption
has arisen which would prevent any party from challenging the giving of proper
notice. Under all these circumstances,
the trial court properly declared the purported sale to be void
(Little v. CFS Service Corp.,
supra, 188 Cal.App.3d at p. 1361; see generally 1 Bernhardt, Cal.
Mortgages, Deeds of Trust and Foreclosure Litigation (Cont.Ed.Bar) §§ 7.67
– 7.67C.)
Turning to plaintiff’s argument in
the present case, there are at least two prejudicial defects in the sale.
support the sale. As noted above, the
trial court found that the prior notice of default was “null and void,†that
defendant should “start over†in the foreclosure process by filing a new notice
of default, and that compliance with section 2923.5 was recommended.
Nevertheless, the defendant
proceeded with a foreclosure sale only two days after the March 7 hearing. No new notice of default was recorded, and
the statutory three‑month waiting period was ignored. (§ 2924, subd. (c).) The plaintiff therefore had no opportunity to
make a presale attack on a new notice of default. The purpose of the waiting period is to allow
opportunity for just such an attack.
“A foreclosure sale must be
predicated on a valid, material default in the obligation secured. It is axiomatic that the breach for which a
lender seeks to foreclose must in fact constitute a default under the terms of
the note and the deed of trust. The
trustor’s failure to make timely payments of principal and interest, as and
when due under the terms of the promissory note, ordinarily constitutes a
sufficiently material default under the deed of trust to permit
foreclosure. However, particular
attention must be given to any notice or grace periods provided by the
obligation to be in default.†(2
Bernhardt, Cal. Mortgages, Deeds of Trust and Foreclosure Litigation,
The primary problem in the present
case is that the defendant did not comply with statutory procedures for a
foreclosure action. The sale lacked a
valid notice of default, as required by section 2924, and the defendant did not
give plaintiff the requisite statutory time to attack the proposed foreclosure
sale as required by section 2924, subdivision (c). These were clearly prejudicial
foreclosure sale.
The lack of
compliance with section 2935.5 is an additional but less clear statutory
violation.
The leading case on section 2935.5
is Mabry v. Superior Court (2010) 185
Cal.App.4th 208. The case generally held
that section 2935.5 may be enforced by a private right of action, but the
remedy is limited to obtaining a postponement of an impending foreclosure sale
to permit the lender to comply with section 2935.5. It also held that tender is not required in
an action under section 2923.5. (
However, lack of compliance with
section 2923.5 does not give rise to a private cause of action when the
foreclosure sale has already been held.
(Mabry v. Superior Court,
214-215.) Obviously, this holding gives
the lender some incentive to hold the sale promptly after the expiration of the
notice period and before an action based on section 2923.5 has been filed in
order to eliminate the possibility of such an action. In our case, the sale, which was held two
days after the court ruling, did not give plaintiff any opportunity to
challenge the sale under section 2923.5.
The Mabry court said, “If section 2923.5 is not complied with, then
there is no valid notice of default and, without a valid notice of default, a
foreclosure sale cannot proceed.†(
nothing in section 2923.5 that even hints that noncompliance with the statute
would cause any cloud on title after an otherwise properly conducted foreclosure sale. We would merely note that under the plain
language of section 2923.5, read in conjunction with section 2924g, the only
remedy provided is a postponement of the sale before it happens.†(Id.
at p. 235, first italics added.) But a
foreclosure sale without a notice of default is simply not a properly conducted
foreclosure sale.
A secondary problem with the
foreclosure sale is that defendant, for whatever reason,
court’s ruling, which invalidated the notice of default and required defendant
to “start over†with a new notice of default.
Despite the order, the foreclosure sale was held two days later. This clear disregard of the court order was
an additional statutory violation reason for setting aside the sale as void
(§ 2924g, subd. (c)(1) [“[t]he trustee shall postpone the
sale . . . [¶] . . . [u]pon the order
of any court of competent jurisdictionâ€].)
If the rule were otherwise, lenders
could simply ignore presale procedures, hold the sale as quickly as possible,
and then contend that tender of all sums due was required to challenge the
sale. This would be a heavy burden on
most borrowers, who are in a foreclosure situation simply because they lack the
funds to cure a default.
Postsale remedies are extremely
limited, especially when the property was sold at the foreclosure sale to a
bona fide purchaser for value. (See
generally Melendrez v. D&I
Investment, Inc. (2005) 127 Cal.App.4th 1238, 1249-1250; 1 Bernhardt, Cal.
Mortgages, Deeds of Trust and Foreclosure Litigation, supra, § 7.60.) But such remedies do exist when the sale is
void and when, as here, there is no allegation that the buyer was a bona fide
purchaser.
For these reasons, we find that the
trial court erred in sustaining defendant’s demurrer to the wrongful
foreclosure cause of action. The
complaint states facts which are legally sufficient to state a cause of
action. As discussed above, the trial
court based its decision on a lack of tender of funds, but tender was not
required because plaintiff was relying on a void foreclosure sale, not a
voidable sale.
name="_ftnref7" title="">[7]
V
INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS
“The elements of a cause of action
for intentional infliction of emotional distress are well settled. A plaintiff must allege that (1) the
defendant engaged in extreme and outrageous conduct with the intention of
causing, or reckless disregard of the probability of causing, severe emotional
distress to the plaintiff; (2) the plaintiff actually suffered severe or
extreme emotional distress; and (3) the outrageous conduct was the actual and
proximate cause of the emotional distress.
[Citation.] ‘“Whether treated as
an element of the prima facie case or as a matter of defense, it must also
appear that the defendants’ conduct was unprivileged.â€â€™ [Citation.]â€
(Ross v. Creel Printing &
Publishing Co., Inc. (2002) 100 Cal.App.4th 736, 744-745, fn. omitted.)
Plaintiff’s original complaint was
for “severe mental suffering damages.â€
After a demurrer for uncertainty, plaintiff filed an amended complaint
for intentional infliction of emotional distress. Defendant filed another demurrer, and hearing
was held on March 7, 2011. The court
sustained the demurrer to the intentional infliction of emotional distress
cause of action, finding that the facts alleged were not sufficient to sustain
a cause of action. Leave to amend was
granted, and plaintiff filed his second amended complaint on April 7,
2011.
In his second amended complaint,
plaintiff alleges that the facts stated in support of his first cause of action
were outrageous acts done with the intent to cause plaintiff to suffer severe
mental distress. He further alleges that
he did suffer severe mental distress and that the acts were authorized or
ratified by corporate officers. Finally,
he requests punitive damages from defendant.
Defendant’s demurrer to the second
amended complaint was heard on June 23, 2011.
The court sustained the demurrer to the emotional distress cause of
action without leave to amend “on the grounds that plaintiff after three
attempts is unable to plead the requisite outrageous and intent elements, and
any claim is subject to Well Fargo litigation and economic interest
privileges.†(Capitalization
omitted.)
Plaintiff now argues that he
satisfied the factual elements of the cause of action because defendant “is the
only bank to have foreclosed a trustor’s property for the non-payment of a
non-existing note. . . . [Defendant] is the only bank who
proceeded to sell in a foreclosure sale of a trustor’s property barely two days
after a superior court ruled that its notice of default is null and void; that
the trustor is not in default; and that it must start the foreclosure anew to
comply with section 2923.5.â€
Defendant contends that its actions
were not sufficient to constitute outrageous conduct, that the element of
intent was not alleged, and that the litigation and economic interest
privileges apply.
We agree with defendant that
creditors in pursuit of debtors may use permissible legal remedies to pursue
their economic interests in collecting a debt or foreclosing on their security
for their loan regardless of the distress caused by their legal actions.
“Undoubtedly an
insurance company is privileged, in pursuing its own economic interests, to
assert in a permissible way its legal rights and to communicate its position in
good faith to its insured even though it is substantially certain that in so
doing emotional distress will be caused.
[Citations.] . . . [¶] Nevertheless, the exercise of the privilege
to assert one’s legal rights must be done in a permissible way and with a good
faith belief in the existence of the rights asserted. [Citations.] It is well established that one who, in
exercising the privilege of asserting his own economic interests, acts in an
outrageous manner may be held liable for intentional infliction of emotional
distress. [Citations.] [¶]
Even if it could be said that defendants were asserting their legal
rights in good faith, they were not privileged to do so in an outrageous
manner.†(Fletcher v. Western National Life Ins. Co. (1970) 10 Cal.App.3d
376,395-396.)
Defendant relies on
supra, 100 Cal.App.4th 736. In that
case, the court said, “In the context of debt collection, courts have
recognized that the attempted collection of a debt by its very nature often
causes the debtor to suffer emotional distress.
[Citation.] ‘Frequently, the
creditor intentionally seeks to create concern and worry in the mind of the
debtor in order to induce payment.’
[Citation.] Such conduct is only
outrageous if it goes beyond ‘“all reasonable bounds of decency.â€â€™ [Citation.]â€
(Id. at p.745.) The court noted: “The assertion of an economic interest in
good faith is privileged, even if it causes emotional distress. [Citation.]
In debtor/creditor cases, the privilege is qualified, in that it can be
vitiated where the creditor uses outrageous and unreasonable means in seeking
payment. [Citation.]†(Id.
at p.745, fn. 4.)
Thus, the existence of a qualified
privilege to use normal means to collect a debt does not answer the key
question of whether the conduct here was so outrageous as to go “beyond ‘“all
reasonable bounds of decency.â€â€™â€ (
supra, 100 Cal.App.4th at p. 745.)
Defendant also cites the litigation
privilege of section 47, subdivision (b).
In this regard, section 2924, subdivision (d) states, “All of the
following shall constitute privileged communications pursuant to Section
47: [¶]
(1) The mailing, publication, and
delivery of notices as required by this section. [¶]
(2) Performance of the procedures
set forth in this article. [¶] (3)
Performance of the functions and procedures set forth in this article if
those functions and procedures are necessary to carry out the duties described
in Sections 729.040, 729.050, and 729.080 of the Code of Civil Procedure.â€
Thus, when a plaintiff fails to pay
amounts due on a deed of trust, a defendant may pursue its remedies by
foreclosing on its security knowing that tort actions for intentional
infliction of emotional distress are barred by the litigation privilege. In this case, plaintiff has not alleged any
outrageous conduct “beyond all reasonable bounds of decency†outside the
nonjudicial foreclosure process. We
therefore agree with the trial court that plaintiff’s factual allegations were
insufficient to state a tort cause of action for intentional infliction of
emotional distress. The trial court
properly sustained the demurrer to plaintiff’s second cause of action.
VI
DISPOSITION
The portion of the judgment sustaining
defendant’s demurrer to the first cause of action for wrongful foreclosure is
reversed. The portion of the judgment
sustaining defendant’s demurrer to the second cause of action for intentional
infliction of emotional distress is affirmed.
Plaintiff shall recover costs on
appeal.
NOT TO BE PUBLISHED IN OFFICIAL
REPORTS
RICHLI
Acting
P. J.
We concur:
MILLER
J.
CODRINGTON
J.
name="_ftn1" title=""> [1] Unless otherwise indicated, all further
statutory references are to the Civil Code.
name="_ftn2" title=""> [2] A number of
documents were attached to the second amended complaint. We also consider them to be factually true
for purposes of the demurrer.
