Filed 7/17/13 Steinke v. Bank of America CA4/2

                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
 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 This opinion has not been certified for publication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.


           IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                   FOURTH APPELLATE DISTRICT

                                                 DIVISION TWO



RICHARD P. STEINKE et al.,

         Plaintiffs and Appellants,                                      E055944

v.                                                                       (Super.Ct.No. INC1104174)

BANK OF AMERICA, N.A.,                                                   OPINION

         Defendant and Respondent.




         APPEAL from the Superior Court of Riverside County. Randall Donald White,

Judge. Affirmed.

         The Law Office of Gary Kreep and Gary G. Kreep for Plaintiffs and Appellants.

         Bryan Cave, Stuart W. Price, Sean D. Muntz, and Ofunne N. Edoziem for

Defendant and Respondent.




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                                   I. INTRODUCTION

       On November 14, 2011, plaintiffs and appellants, Richard P. and Carolyn K.

Steinke, filed a first amended complaint to set aside a foreclosure sale. A second cause of

action, for alleged bad faith negotiation and fraud, was also alleged.

       On January 31, 2012, the trial court sustained defendant and respondent, Bank of

America, N.A.’s (the Bank), demurrer to the first amended complaint without leave to

amend.

       Plaintiffs appeal.

                              II. STANDARD OF REVIEW

       A demurrer tests the sufficiency of the factual allegations of the complaint to state

a cause of action. (Code Civ. Proc., § 430.10, subd. (e).)

       In reviewing a general demurrer, 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. ‘We treat the demurrer as admitting all material facts properly 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


                                              2
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.]” (Blank v. Kirwan

(1985) 39 Cal.3d 311, 318.)

       Our standard of review is de novo: “Treating as true all material facts properly

pleaded, we determine de novo whether the factual allegations of the complaint are

adequate to state a cause of action under any legal theory, regardless of the title under

which the factual basis for relief is stated. [Citation.]” (Burns v. Neiman Marcus Group,

Inc. (2009) 173 Cal.App.4th 479, 486.)

A. The First Amended Complaint

       The first amended complaint alleges that plaintiffs owned a home in Coachella. In

June 2005, plaintiffs executed a promissory note for $227,800, secured by a deed of trust

on the property. Plaintiffs allege, on information and belief, that the note was

subsequently transferred to Countrywide Financial Corporation (Countrywide) and then

to the Bank. However, they also allege that the Bank does not hold the original note.

       On July 19, 2010, plaintiffs began negotiations with the Bank to modify the note.

The negotiations failed on October 18, 2010, and plaintiffs listed the property for sale.

       The broker, John Feehan, found a short sale buyer who offered $105,000 for the

property. The offer was rejected and the Bank postponed the foreclosure sale in order to

obtain an appraisal of the property. In the meantime, Feehan found a very comparable




                                              3
property that recently sold for $128,000. The prospective buyer then raised his or her

offer to $128,000.

       The Bank allegedly used two different negotiators to communicate with Feehan.

The Bank subsequently set a price of $140,000 for the property and Feehan’s prospective

buyer increased the offer price accordingly.

       On April 14, 2011, a Bank supervisor told Feehan that it needed the HUD-1

paperwork on that day to postpone a foreclosure sale set for Monday, April 18. Feehan

immediately forwarded the requested information to the Bank.

       Nevertheless, the Bank proceeded with the foreclosure sale without any further

notice to plaintiffs. The opening bid was set at $103,400. Plaintiffs allege, on

information and belief, that the Bank “did not clearly represent” the property as an

improved lot. The Bank purchased the property at the foreclosure sale for $103,400.

       The first cause of action, which incorporates the general allegations, is a cause of

action to set aside the nonjudicial sale. Plaintiffs request that the Bank produce an

“original copy” of the promissory note. They argue that only the note holder is

authorized to begin foreclosure proceedings.

       Plaintiffs cite a number of Commercial Code sections to support their argument.

They contend that only the person holding the note has standing to enforce it.

       However, the law is clear that “California’s nonjudicial foreclosure scheme is set

forth in Civil Code sections 2924 through 2924k, which ‘provide a comprehensive

framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale


                                               4
contained in a deed of trust.’ [Citation.] ‘These provisions cover every aspect of

exercise of the power of sale contained in a deed of trust.’ [Citation.] ‘The purposes of

this comprehensive scheme are threefold: (1) to provide the creditor/beneficiary with a

quick, inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect

the debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly

conducted sale is final between the parties and conclusive as to a bona fide purchaser.’

[Citation.] ‘Because of the exhaustive nature of this scheme, California appellate courts

have refused to read any additional requirements into the non-judicial foreclosure

statute.’ [Citations.]” (Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th

1149, 1154 (Gomes).)

         Gomes continues with a quote from Moeller v. Lien (1994) 25 Cal.App.4th 822,

834: “It would be inconsistent with the comprehensive and exhaustive statutory scheme

regulating nonjudicial foreclosures to incorporate another unrelated cure provision into

statutory nonjudicial foreclosure proceedings.” (Gomes, supra, 192 Cal.App.4th at p.

1154.)

         Gomes also states: “By asserting a right to bring a court action to determine

whether the owner of the Note has authorized its nominee to initiate the foreclosure

process, Gomes is attempting to interject the courts into this comprehensive nonjudicial

scheme. As Defendants correctly point out, Gomes has identified no legal authority for

such a lawsuit. Nothing in the statutory provisions establishing the nonjudicial




                                              5
foreclosure process suggests that such a judicial proceeding is permitted or

contemplated.” (Gomes, supra, 192 Cal.App.4th at p. 1154.)

       The same is true here. Plaintiffs are challenging ownership of the Note and are

trying to impose a requirement that the trustee must show standing to conduct the

foreclosure sale, i.e., they seek to impose a further requirement on the foreclosing trustee

which is not supported by the comprehensive statutory scheme.

       As Gomes states: “However, nowhere does the statute provide for a judicial action

to determine whether the person initiating the foreclosure process is indeed authorized,

and we see no ground for implying such an action. [Citation.]” (Gomes, supra, 192

Cal.App.4th at p. 1155.) Accordingly, we follow Gomes and reject this argument.

       Plaintiffs also allege that the Bank did not give them notice of the foreclosure sale.

However, they allege that the sale was scheduled to take place on April 18, 2011, and

they were damaged when it did so.

       In this regard, Civil Code section 2924g, subdivision (d) provides, in pertinent

part: “The notice of each postponement and the reason therefor shall be given by public

declaration by the trustee at the time and place last appointed for sale. . . . No other

notice of postponement need be given.” Thus, plaintiffs were required to assume the sale

would proceed at the previously set day and time and the Bank was not required to give a

special notice of postponement (or nonpostponement) to them.

       Plaintiffs also allege that the Bank did not clearly represent the property as an

improved lot at the foreclosure sale. They contend this is an irregularity in the sale.


                                              6
        They cite several cases, discussed below, that allow a foreclosure sale to be set

aside when the sale has been “improperly, unfairly or unlawfully conducted, or is tainted

by fraud . . . .”

        A second cause of action is for bad faith negotiation and fraud. Plaintiffs allege

they complied with all of the Bank’s requirements for a short sale, including finding a

qualified buyer, but the Bank proceeded with the foreclosure sale without providing

notice to plaintiffs. As a result, the prospective buyer was prevented from attending the

sale and offering a bid higher than the sale price. Plaintiffs allege they were damaged

because the Bank purchased the property at the price of $103,400, and could have sold it

at a higher price if the prospective buyer had been able to attend the sale.

B. The Trial Court’s Decision

        The trial court sustained the demurrer without leave to amend. On the first cause

of action, the court found that plaintiffs had failed to plead tender of the amount due, that

there is no requirement that the original note be produced, that Civil Code section 2924 et

seq. are the governing procedural sections, and that plaintiffs had notice of the

foreclosure sale.

        On the second cause of action, the trial court ruled that plaintiffs failed to prove

fraud with specificity, the alleged misrepresentation made at the foreclosure sale was not

made for their benefit, and that the alleged failure to approve the short sale is an

insufficient ground of fraud.




                                               7
C. Fraud Allegations

       Plaintiffs first argue that they pled the elements of fraud with specificity.

       “The elements of fraud, which give rise to the tort action for deceit, are (1) a

misrepresentation, (2) with knowledge of its falsity, (3) with the intent to induce

another’s reliance on the misrepresentation, (4) justifiable reliance, and (5) resulting

damage. [Citation.] The tort of negligent misrepresentation, a species of the tort of

deceit [citation], does not require intent to defraud but only the assertion, as a fact, of that

which is not true, by one who has no reasonable ground for believing it to be true.”

(Conroy v. Regents of University of California (2009) 45 Cal.4th 1244, 1255.)

       Plaintiffs argue they sufficiently alleged each of these elements. With regard to

the reliance element, plaintiffs only state that “in reliance on [the Bank’s] false

misrepresentation, no bids were submitted on subject property.” (Capitalization omitted.)

       The Bank argues there were no facts alleged which show justifiable reliance. The

only facts alleged were that, at the sale, the Bank misrepresented that the property was an

unimproved lot. This misrepresentation was not made to plaintiffs, but only to persons

attending the foreclosure sale.

       We agree with the trial court and the Bank that the allegation was insufficient to

support a fraud claim: “A fraudulent misrepresentation is one made with the knowledge

that it is or may be untrue, and with the intention that the person to whom it is made act

in reliance thereon. [Citations.] It must appear, however, not only that the plaintiff acted

in reliance on the misrepresentation but that he was justified in his reliance. [Citations.]”


                                               8
(Seeger v. Odell (1941) 18 Cal.2d 409, 414.) In the present case, any such

misrepresentation was made to the persons attending the foreclosure sale, and plaintiffs

have not stated facts sufficient to show they justifiably relied on any such

misrepresentation.

       Under the stated facts, any such reliance would have been attributable to the

potential buyer’s failure to bid because of a belief that the property was unimproved.

However, a potential buyer might just as well be encouraged to bid if it independently

knew that the subject property was improved. There was simply no showing of

justifiable reliance based on plaintiffs’ theory of the case.

       “Moreover, reliance, one of the elements necessary to state a cause of action in

fraud or deceit is not adequately pled. Plaintiffs must show ‘actual’ reliance, i.e., that the

representation was an ‘“immediate cause”’ that altered their legal relations. [Citation.]

Besides actual reliance, plaintiff must also show ‘justifiable’ reliance, i.e., circumstances

were such to make it reasonable for plaintiff to accept defendant’s statements without an

independent inquiry or investigation. [Citation.]” (Wilhelm v. Pray, Price, Williams &

Russell (1986) 186 Cal.App.3d 1324, 1331-1332.) Plaintiffs have failed to adequately

plead actual and justifiable reliance here.

       Nor was there any showing of damages. Plaintiffs only argue that they were

damaged by having a foreclosure sale on their credit record. Assuming that this is true, it

is a consequence of their default on their mortgage loan. Obviously, a lender is entitled

to rely on its security for a mortgage loan when the borrower defaults.


                                               9
       We agree with the Bank that the sale was intended to allow the Bank to recoup

some of its losses caused by plaintiffs’ failure to pay the amounts due on the mortgage.

A bank’s pursuit of the security for a mortgage loan following the borrower’s default is

not intended to benefit plaintiffs. An artificially low sales price does not damage

plaintiffs. If anything, it damages the mortgagor because the bank recovers less on its

security for the mortgage loan.

       Plaintiffs have simply failed to show any actionable defect in the foreclosure sale.

“‘“As a general rule, there is a common law rebuttable presumption that a foreclosure

sale has been conducted regularly and fairly.” [Citations.] Accordingly, “[a] successful

challenge to the sale requires evidence of a failure to comply with the procedural

requirements for the foreclosure sale that caused prejudice to the person attacking the

sale.” [Citation.] . . . [T]he presumption must prevail when the record lacks substantial

evidence of a prejudicial procedural irregularity. [Citation.]’ [Citations.]” (Knapp v.

Doherty (2004) 123 Cal.App.4th 76, 96.)

       We also agree with the Bank that plaintiffs have failed to allege actionable fraud

during the short sale negotiations. The Bank was not required to sell to the potential

buyer identified by plaintiffs, nor was it required to renotice the foreclosure sale. As

noted above, the sale had been noticed for April 18, 2011, and plaintiffs were not entitled

to assume it had been postponed without the Bank’s specific agreement to postpone the

sale. (Civ. Code, § 2924g.)




                                             10
D. Applicability of the Tender Rule

       “An allegation of tender of the indebtedness is necessary when the person seeking

to set aside the foreclosure sale asserts the sale is voidable due to irregularities in the sale

notice or procedure. [Citations.] ‘“The rationale behind the rule is that if [the borrower]

could not have redeemed the property had the sale procedures been proper, any

irregularities in the sale did not result in damages to the [borrower].”’ [Citation.]” (West

v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 801-802.)

       In the present case, there is no allegation of tender in the first amended complaint.

Instead, plaintiffs argue that tender was not required because the Bank lacked standing to

conduct the foreclosure sale. Specifically, plaintiffs contend the purported trustee,

ReconTrust, was not the trustee of record and therefore had no authority to conduct the

foreclosure sale or to deliver a valid deed. Plaintiffs cite the Notice of Default and

Election to Sell under Deed of Trust dated October 15, 2010 and recorded on October 19,

2010. They also rely on the Substitution of Trustee and Assignment of Deed of Trust

dated October 20, 2010 and recorded October 27, 2010. Because the assignment was

executed after the notice of default, they argue that ReconTrust acted before it was

authorized to do so.

       At most, plaintiffs allege a procedural defect in the foreclosure process. Tender

was therefore required under West.

       Neither party cites the leading case on this issue, Lona v. Citibank, N.A. (2011)

202 Cal.App.4th 89. Lona states the general tender rule stated above and then describes


                                               11
four exceptions to the tender rule. Generally, these are: (1) tender is not required if the

action attacks the validity of the underlying debt; (2) tender is not required if there is a

counterclaim or setoff against the beneficiary; (3) tender may not be required where it

would be inequitable to impose such a condition on the party challenging the sale; and (4)

no tender will be required when the trustor is not required to rely on equity to attack the

sale because the trustee’s deed is void on its face.

       While the parties have not given us their views on the applicability of these

exceptions, it appears that only the third exception is applicable here. Considering that

exception, we find that it would be inequitable to require tender of the entire debt due

when foreclosure results from nonpayment of the mortgage and it appears that the

homeowner is unable to tender the entire amount due. In this case, the notice of default

states that the Bank would return the account to good standing upon payment of all past

due payments plus permitted costs and expenses. Since this was the only amount

demanded by the Bank to reinstate the loan, this is the amount that the borrower was

equitably required to tender.

       “The [defendants] argue [plaintiff] was not entitled to relief on her 15th cause of

action for rescission because she failed to tender the amount necessary to cure the default.

The [defendants] explain: ‘Whenever there is a challenge to the validity of the trustee’s

sale, there is an attempt to have the sale set aside to have the title restored. The action is

in equity, and when the trustor seeks to set the sale aside, he [or she] is required to do

equity before the court will exercise its equitable powers. Therefore, as a condition


                                              12
precedent to an action by the trustor to set aside the trustee’s sale on the grounds that the

sale is voidable, the trustor must pay, or offer to pay, the secured debt, or at least all of

the delinquencies and costs due for redemption, before he [or she] commences his [or

her] action, or in his [or her] complaint. Without an allegation of such a tender in the

complaint that attacks the validity of the sale, the complaint does not state a cause of

action.’ [Citation.]” (Onofrio v. Rice (1997) 55 Cal.App.4th 413, 423-424.) In other

words: “‘[A] tender may not be required where it would be inequitable to do so.’

[Citation.]” (Id. at p. 424.)

       In Lona, the court, in discussing the third exception to the tender rule, relied on

Humboldt Sav. Bank v. McCleverty (1911) 161 Cal. 285. In that case, the court held that

it would be inequitable to require defendant to pay, or offer to pay, a debt of $57,000 to

attack the sale of her $5,000 homestead. (Id. at p. 291.)

       The conclusion to be drawn from these cases is that tender is an equitable

principle, and the trial court should consider in each case whether tender is required as a

matter of equity. In the present case, the trial court did decide that full tender of the

amount due was required. While we find the trial court’s exercise of discretion

questionable in view of the Bank’s demand in the notice of default, plaintiffs have not

addressed the issue in their brief and, accordingly, have not met their burden of

demonstrating error.




                                              13
E. Denial of Leave to Amend the Complaint

       “Leave to amend is properly denied when the facts are not in dispute and the

nature of the claim is clear, but there is no liability under substantive law. [Citation.]

‘[All] intendments weigh in favor of the regularity of the trial court proceedings and the

correctness of the judgment. Unless clear error of abuse of discretion is demonstrated,

the trial court’s judgment of dismissal following the sustaining of defendants’ demurrer

will be affirmed on appeal [citation].’ [Citation.]” (Wilhelm v. Pray, Price, Williams &

Russell, supra, 186 Cal.App.3d at p. 1330.)

       “To show abuse of discretion, plaintiff must show in what manner the complaint

could be amended and how the amendment would change the legal effect of the

complaint, i.e., state a cause of action. [Citations.] This showing may be made either in

the trial court or on appeal. [Citation.]” (Buller v. Sutter Health (2008) 160 Cal.App.4th

981, 992.)

       Plaintiffs acknowledge this burden and their duty to demonstrate how the

amendment will change the legal effect of the complaint, citing Swift v. Department of

Corrections (2004) 116 Cal.App.4th 1365, 1373, overruled on other grounds in Perez-

Torres v. State of California (2007) 42 Cal.4th 136, 145, footnote 4.

       To meet this burden, plaintiffs allege that, since the demurrer was sustained, they

have received a report from a company that specializes in expert forensic mortgage

analysis. They state: “The report explains that the parties signing for Mortgage

Electronic Registration Service (hereinafter referred to as ‘MERS’) were actually


                                              14
ReconTrust employees. ReconTrust is a wholly owned subsidiary of [the Bank].”

Plaintiffs contend that this relationship created a material conflict of interest. Plaintiffs

also state that the report explains that these employees engaged in a practice known as

“robo-signing,” and that the signatures were forged. Finally, plaintiffs continue to argue

that there is no evidence of how Countrywide or Ryland Mortgage Company (Ryland)

came into ownership of the plaintiffs’ promissory note. They allege that the note was

securitized and no transfers are reflected in the county recording system.

        We find these new allegations to be insufficient to raise new causes of action.

        First, Ryland came into possession of plaintiffs’ promissory note when, as alleged

in the complaint, plaintiffs executed and delivered to Ryland, as the lender, a promissory

note.

        Secondly, plaintiffs allege that Ryland transferred the note to Countrywide and

Countrywide then transferred the note to the Bank, presumably after the Bank acquired

Countrywide. Subsequently, the note was securitized, presumably by use of the MERS

system.

        In Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, the court

explained the role of the MERS system in the securitization of real property debt

instruments. (Id. at p. 267.) One aspect of that role is that “[m]embers of the MERS

System assign limited interests in the real property to MERS, which is listed as a grantee

in the official records of local governments, but the members retain the promissory notes

and mortgage servicing rights. The notes may thereafter be transferred among members


                                              15
without requiring recordation in the public records. [Citation.]” (Ibid.) The courts

which have considered the system in detail “have generally, although by no means

universally, found that the use of MERS does not invalidate a foreclosure sale that is

otherwise substantively and procedurally proper.” (Ibid.)

       Fontenot cites Gomes as a recent case on this issue. (Fontenot v. Wells Fargo

Bank, N.A., supra, 198 Cal.App.4th at p. 268.) In Gomes, MERS was a defendant.

(Gomes, supra, 192 Cal.App.4th at p. 1150.) “Gomes defaulted on his loan payments,

and he was mailed a notice of default and election to sell—recorded on March 10,

2009—which initiated a nonjudicial foreclosure process. The notice of default was sent

to Gomes by ReconTrust, which identified itself as an agent for MERS. Accompanying

the notice of default was a declaration signed by an employee of Countrywide, which

apparently was acting as the loan servicer.” (Id. at pp. 1151-1152, fn. omitted.)

       The notice of default in the present case is also signed by a ReconTrust employee

as agent for MERS, the beneficiary. According to the notice of default, loan servicing is

provided by Bank of America Home Loans Servicing. As discussed above, courts,

including Gomes, have rejected similar challenges to MERS’s authority to foreclose.

(Gomes, supra, 192 Cal.App.4th at pp. 1157-1158.)

       We therefore conclude that plaintiffs have not shown that their new information

would establish any new cause of action for wrongful foreclosure. The mere fact that the

MERS system was used is legally irrelevant because, even if we accept the alleged

forgery and related alleged irregularities, plaintiffs have not shown how they have been


                                            16
prejudiced or damaged by use of the MERS system. As the Bank notes, plaintiffs do not

claim the foreclosure documents were false, and they do not deny they were in default.

Thus, the alleged irregularities could not have prejudiced them.

       “Prejudice is not presumed from ‘mere irregularities’ in the process. [Citation.]

Even if MERS lacked authority to transfer the note, it is difficult to conceive how

plaintiff was prejudiced by MERS’s purported assignment, and there is no allegation to

this effect. Because a promissory note is a negotiable instrument, a borrower must

anticipate it can and might be transferred to another creditor. As to plaintiff, an

assignment merely substituted one creditor for another, without changing her obligations

under the note.” (Fontenot v. Wells Fargo Bank, N.A., supra, 198 Cal.App.4th at p. 272;

see also Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495,

1507-1508 [Fourth Dist., Div. Two].)

       On this record, we find that plaintiffs have not met their burden of showing that

their complaint could be amended to allege the existence of a viable cause of action. We

therefore find that the trial court did not abuse its discretion in sustaining the Bank’s

demurrer without leave to amend.




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                                III. DISPOSITION

     The judgment is affirmed. The Bank shall recover its costs on appeal.

     NOT TO BE PUBLISHED IN OFFICIAL REPORTS


                                                           KING
                                                                             J.


We concur:

HOLLENHORST
          Acting P. J.

RICHLI
                       J.




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