Hernandez v. Residential Credit Solutions, Inc.

LUZ MARIA HERNANDEZ, et al., Plaintiffs, v. RESIDENTIAL CREDIT SOLUTIONS, INC., et al., Defendants.

Case No. 5:16-cv-02022-RMW

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION

June 7, 2016

ORDER DISMISSING FEDERAL CLAIMS AND REMANDING CASE TO STATE COURT

Re: Dkt. Nos. 8, 9, 11, 13

Presently before the court are four motions to dismiss the complaint alleging illegal foreclosure that plaintiffs Luz Hernandez and Marco Zesati originally filed in state court: (1) Motion to Dismiss by defendants Countrywide Home Loans, Inc., dba America's Wholesale Lender; CWMBS, Inc.; and Bank of America, N.A.¹ (collectively "Countrywide"), Dkt. No. 8; (2) Motion to Dismiss by defendant Residential Credit Solutions, Inc. ("RCS"), Dkt. No. 9; (3) Motion to Dismiss by defendant Mortgage Electronic Registrations Systems, Inc. ("MERS"), Dkt. No. 11; and (4) Motion to Dismiss by defendant The Bank of New York Mellon, formerly known as The Bank of New York as Trustee for the Certificate Holders of CWMBS, Inc., CHL Mortgage Pass-through Trust 2007-J2 Mortgage Pass-through Certificates, Series 2007-J2 (hereinafter "BNYM"),² Dkt. No. 13.³ For the reasons set forth below, the court dismisses plaintiffs' federal claims and remands the remaining state law claims to the Monterey County Superior Court.

I. BACKGROUND

A. Judicial Notice

Defendants request that the court take judicial notice of several documents that are referenced in plaintiffs' complaint or its attachments. See Dkt. Nos. 7, 10, 12, 14. In ruling on a motion to dismiss, "courts may take into account documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the [plaintiff's] pleading." Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152, 1160 (9th Cir. 2012) (citation omitted). Accordingly, this court takes judicial notice of the specific documents cited below that were recorded in the Monterey County Recorder's Office and that relate to ownership of the Promissory Note and Deed of Trust on the Hernandez home. This court need not rule on defendants' requests for judicial notice for documents not cited below because this order does not rely on such documents that are not cited.

B. Factual Background and Procedural History

The complaint alleges that on or about April 25, 2007, plaintiff Luz Hernandez signed a Promissory Note and obtained a $447,000 mortgage loan from Countrywide with her husband Angel Hernandez. Dkt. No. 1-1 ("Compl.") ¶ 29. The loan was secured by a Deed of Trust over the Hernandez residence at 53600 Pine Canyon Road, King City, California.⁴ Id. ¶¶ 8, 29; Dkt. No. 7-2 (Deed of Trust).⁵ The Deed of Trust defined the "lender" as Countrywide Home Loans, Inc. dba America's Wholesale Lender. Dkt. No. 7-2 at 2. The Deed of Trust identified non-party Monterey Recon Trust Company, NA as the "trustee." Id. The Deed of Trust also identified defendant MERS as a "beneficiary." Id.

The exact chain of events that followed is not entirely clear from the face of the complaint, but eventually the Hernandez home went into foreclosure. It appears that on October 7, 2011, Recontrust Company filed a Notice of Default with the Monterey County Recorder. Compl. Ex. G, Dkt. No. 1-1 at ECF p. 129. On May 1, 2015, Quality Loan Service filed another Notice of Default. Compl. Ex. E, Dkt. No. 1-1 at ECF p. 121. On January 13, 2016, Quality Loan Service filed a Notice of Trustee's Sale indicating that the Hernandez home would be sold on February 10, 2016. Compl. Ex. D, Dkt. No. 1-1 at ECF p. 118. On February 18, 2016, defendant RCS filed a Trustee's Deed Upon Sale with the Monterey County Recorder indicating that the Hernandez home had been sold to defendant BNYM. Compl. Ex. C, Dkt. No. 1-1 at ECF p. 114.

In general terms, the complaint alleges that prior to the foreclosure proceedings, the loan was securitized, but the Promissory Note was not properly transferred to defendant BNYM. Compl. ¶ 30. As a result, plaintiffs contend, the loan was rendered invalid. See id. ¶¶ 29-43. Moreover, plaintiffs contend, none of the named defendants had a legal right to foreclose. See id. ¶¶ 57-58. Attached to the complaint is a forensic audit of Ms. Hernandez's loan documents purportedly prepared by an organization called Certified Forensic Loan Auditors LLC. See Compl. ¶ 31, Ex. A-B. Plaintiffs also contend that Countrywide failed to make required disclosures and gave Ms. Hernandez a loan that Countrywide knew or should have known that Ms. Hernandez would not be able to repay. See id. ¶¶ 51-55.

Plaintiffs commenced this lawsuit in Monterey County Superior Court on March 17, 2016. Dkt. No. 1-1. Plaintiffs' complaint asserts the following causes of action:

1. Lack of Standing to Foreclose;

2. Fraud in the Concealment;

3. Fraud in the Inducement;

4. Intentional Infliction of Emotional Distress;

5. Quiet Title;

6. Slander of Title;

7. Declaratory Relief;

8. Violations of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., as amended;

9. Violations of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601 et seq.; and

10. Rescission.

Id. Defendant Countrywide Home Loans Inc. removed the case to this court on April 18, 2016 based on federal question jurisdiction over plaintiffs' TILA and RESPA claims and supplemental jurisdiction over plaintiffs' state law claims. Dkt. No. 1. No party filed an objection to removal.

Countrywide filed a motion to dismiss on April 21, 2016, Dkt. No. 6, but subsequently re-noticed the motion to dismiss with a different hearing date, Dkt. No. 8. RCS, MERS, and BYNM filed motions to dismiss on April 28, 2016. Dkt. Nos. 9, 11, 13. Plaintiffs did not file written responses to any of the defendants' motions to dismiss. The court held a hearing on the instant motions on June 3, 2016. Plaintiff Zesati appeared telephonically at the hearing, as did counsel for defendants.

II. ANALYSIS

A. Motions to Dismiss

Defendants argue that plaintiffs' complaint fails to state a claim on which relief can be granted. Under Federal Rule of Civil Procedure 12(b)(6), a party may move to dismiss a complaint for failure to state a claim upon which relief can be granted. Such a motion tests the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In considering whether the complaint is sufficient, the court must accept as true all of the factual allegations contained in the complaint. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). However, the court need not accept as true "allegations that contradict matters properly subject to judicial notice or by exhibit" or "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (citation omitted). While a complaint need not allege detailed factual allegations, it "must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 678 (internal citation omitted).

1. TILA

Claim 8 of the complaint alleges that defendants violated the Truth in Lending Act by "failing to provide Plaintiff with accurate material disclosures" and "not taking into account the intent of the State Legislature in approving this statute which was to fully inform home buyers of the pros and cons of adjustable rate mortgages in a language (both written and spoken) that they can understand and comprehend." Compl. ¶ 133. Plaintiffs allege that because of defendants' conduct, they lost substantial equity in their home and were unable to refinance the home or obtain any modification of their loan. Id. ¶¶ 135-36. Claim 10 of the complaint seeks rescission based in part on the alleged TILA violations.

Defendants argue, among other things, that plaintiffs' TILA claims are time-barred. Claims for damages under the TILA are subject to a one-year statute of limitations, running from the date of consummation of the transaction. 15 U.S.C. § 1640(e); King v. State of Cal., 784 F.2d 910, 915 (9th Cir. 1986). Claims for rescission are subject to a three-year statute of limitations. Beach v. Ocwen Fed. Bank, 523 U.S. 410, 411-12 (1998). Claims for damages under the TILA may be subject to equitable tolling in appropriate circumstances, but claims for rescission are not subject to equitable tolling. Beach, 523 U.S. at 412-13. In the instant case, Ms. Hernandez obtained the home loan at issue in 2007 but did not file suit until 2016. Moreover, the complaint contains no allegations to explain the delay in filing suit that would suggest that equitable tolling might apply. At the hearing on the instant motions, after this court indicated to the parties that it was inclined to find that the statute of limitations barred plaintiffs' federal claims, plaintiffs did not argue that there are any facts that would toll the statute of limitations. Plaintiff Zesati indicated that he had understood that the statute of limitations began to run at the time of foreclosure, but he cited no authority in support of this argument that would refute the authority cited by defendants.

Accordingly, this court finds that plaintiffs' TILA claims are time-barred.

2. RESPA

Claim 9 of plaintiffs' complaint alleges that "Defendants violated RESPA because the payments between the Defendants were misleading and designed to create a windfall." Compl. ¶ 146. Plaintiffs assert that "[t]he interest and income that Defendants have gained is disproportionate to the situation Plaintiff [sic] find themselves...