Siliga v. Mortgage Electronic Registration Systems, Inc.

Filed 8/27/13
CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

JOHNNY SILIGA et al., B240531

Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC454905)
v.

MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC., et al.,

Defendants and Respondents.

APPEAL from a judgment of the Superior Court of Los Angeles County,

Gregory W. Alarcon, Judge. Affirmed.

Law Offices of Nick A. Alden and Nick A. Alden for Plaintiffs and Appellants.

Locke Lord, Conrad V. Sison and Daniel A. Solitro for Defendants and

Respondents.

_______________________________________
 Johnny Siliga and Fa‟alagilagi Siliga appeal a judgment dismissing their

complaint against Mortgage Electronic Registration Systems, Inc. (MERS), Quality

Loan Services Company (QLS) and Deutsche Bank National Trust Company (Deutsche

Bank) after the sustaining of a demurrer without leave to amend. The Siligas allege four

counts arising from a nonjudicial foreclosure. They challenge MERS‟s authority to

assign the deed of trust and the note to Deutsche Bank and QLS‟s authority to record

a notice of default. They also contend they are entitled to leave to amend their

complaint to correct particular defects. We conclude that they have shown no error and

will affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

1. Factual Background

The Siligas executed a deed of trust in June 2004 against real property, their

primary residence, located in Carson, California. The deed of trust secured a $280,000

promissory note in favor Accredited Home Lenders, Inc (Accredited). The deed of trust

identified the Siligas as “Borrower” and Accredited as “Lender.”

The deed of trust stated, “MERS is a separate corporation that is acting solely as

a nominee for Lender and Lender‟s successors and assigns. MERS is the beneficiary

under this Security Instrument.” It stated further, “The beneficiary of this Security

Instrument is MERS (solely as nominee for Lender and Lender‟s successors and

assigns) and the successors and assigns of MERS,” and “Borrower understands and

agrees that MERS holds only legal title to the interests granted by Borrower in this

Security Instrument, but, if necessary to comply with law or custom, MERS (as

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nominee for Lender and Lender‟s successors and assigns) has the right to exercise any

or all of those interests, including, but not limited to, the right to foreclose and sell the

Property, and to take any action required of Lender including, but not limited to,

releasing and canceling this Security Instrument.”

QLS recorded a notice of default and election to sell under deed of trust on

March 24, 2010. The notice of default stated that QLS was acting as agent for the

beneficiary. A Corporate Assignment of Deed of Trust was recorded on April 28, 2010,

stating that MERS was assigning to Deutsche Bank the deed of trust “[t]ogether with the

note or notes therein described or referred to . . . . ” Deutsche Bank executed

a substitution of trustee in May 2010 naming QLS as the new trustee, and the document

was recorded on May 19, 2010. QLS recorded a notice of trustee‟s sale on August 19,

2010.

The trustee‟s sale was postponed and apparently has not occurred to this date.

2. Trial Court Proceedings

The Siligas filed a complaint in February 2011 and filed a first amended

complaint against MERS, QLS and Deutsche Bank in May 2011. They allege in

pertinent part that (1) MERS as nominee for the lender had no authority to assign the

deed of trust and the note to Deutsche Bank; (2) Deutsche Bank had no authority to

commence a nonjudicial foreclosure because it was never validly assigned and did not

possess the promissory note; (3) the defendants failed to comply with the statutory

requirement of attempting to contact the borrower in person or by telephone to assess

the borrower‟s financial situation and explore options to avoid foreclosure before

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recording a notice of default (Civ. Code, § 2923.5, subd. (a)(2)); (4) the notice of

trustee‟s sale was recorded before the expiration of the 90-day waiting period required

under former Civil Code section 2923.52, subdivision (a); and (5) QLS failed to timely

post a notice of trustee‟s sale on the property and failed to timely notify them of the

sale.

The Siligas plead counts for (1) breach of contract, alleging that QLS breached

the deed of trust by recording a notice of default before it was appointed as trustee;

(2) violation of statutory duties, alleging that the defendants‟ acts and omissions set

forth above violated numerous statutory requirements; (3) unfair business practices,

alleging that the same acts and omissions constituted unlawful or unfair business

practices under the unfair competition law (Bus. & Prof. Code, § 17200 et seq.); and

(4) quiet title, seeking to invalidate all adverse claims of interest in the property. They

filed an ex parte application for a temporary restraining order at the time they filed their

first amended complaint. The trial court denied the application.1

Deutsche Bank and MERS filed a general demurrer to each count alleged in the

first amended complaint. They argued that the Siligas failed to state any valid cause of

action because they failed to allege that they had tendered the amount due. They also

argued, among other things, that (1) the Siligas‟ attacks on the defendants‟ authority to

act in connection with the foreclosure were groundless; (2) the declaration in the notice

of default satisfied Civil Code section 2923.5, subdivision (a)(2); (3) former Civil Code

1
We affirmed the denial in an unpublished opinion (Siliga v. Mortgage Electronic
Registration Systems, Inc. (Feb. 9, 2012, B233000)).

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section 2923.52 was inapplicable; (4) the Siligas had suffered no injury and therefore

lacked standing under the unfair competition law; and (5) the Siligas were not entitled to

quiet title. They filed a request for judicial notice of certain recorded documents in

support of their demurrer. The Siligas opposed the demurrer and also requested judicial

notice of certain documents.2

The trial court filed a signed order ruling on the demurrer on July 14, 2011. It

stated that the Siligas‟ first, third and fourth counts and part of their second count were

based on the allegation that MERS had no authority to assign the deed of trust to

Deutsche Bank. It noted the language in the deed of trust that “ „MERS (as nominee for

Lender and Lender‟s successors and assigns) has the right to exercise any or all of those

interests, including, but not limited to, the right to foreclose . . . . ‟ ” Citing Gomes v.

Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1157 (Gomes), for the

proposition that MERS as nominee for the lender has the authority to initiate

a nonjudicial foreclosure as stated in the deed of trust, the court concluded that MERS

also had the authority to assign the deed of trust. The court therefore sustained the

demurrer without leave to amend as to the entire complaint with the exception of that

part of the second count alleging the violation of Civil Code section 2923.5.

The order stated further that notwithstanding the sustaining of the demurrer to

most of the complaint, the trial court would discuss each count further “to determine

2
No ruling on the requests for judicial notice appears in the record on appeal.

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what the outcome of their pleading would have been had that cause of action not been

barred.” The order then proceeded to discuss each count.

The Siligas filed a request for the dismissal without prejudice of their second

count as to the alleged violation of Civil Code section 2923.5. The trial court clerk

entered a dismissal on January 25, 2012, as requested. The court entered a signed order

on March 27, 2012, dismissing the remainder of the complaint with prejudice in

accordance with its ruling on the demurrer.3 The Siligas timely appealed the judgment.

CONTENTIONS

The Siligas contend (1) MERS had no authority to assign the deed of trust and

the note; (2) the provision in the deed of trust granting authority to MERS is

unconscionable; (3) the notice of default is invalid because QLS had no authority to

record it; (4) they are entitled to leave to amend their complaint to allege damages for

breach of contract more specifically; (5) they are entitled to leave to amend their count

for unfair business practices; and (6) they have adequately alleged a count for quiet title.

DISCUSSION

1. Standard of Review

A demurrer tests the legal sufficiency of the factual allegations in a complaint.

We independently review the sustaining of a demurrer and determine de novo whether

the complaint alleges facts sufficient to state a cause of action or discloses a complete

defense. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.) We assume

3
A signed order of dismissal is an appealable judgment. (Code Civ. Proc.,
§§ 581d., 904.1, subd.(a)(1).)

6
the truth of the properly pleaded factual allegations, facts that reasonably can be inferred

from those expressly pleaded and matters of which judicial notice has been taken.

(Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) We construe the

pleading in a reasonable manner and read the allegations in context. (Ibid.) We must

affirm the judgment if the sustaining of a general demurrer was proper on any of the

grounds stated in the demurrer, regardless of the trial court‟s stated reasons. (Aubry v.

Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)

It is an abuse of discretion to sustain a demurrer without leave to amend if there

is a reasonable probability that the defect can be cured by amendment. (Schifando v.

City of Los Angeles, supra, 31 Cal.4th at p. 1082.) The burden is on the plaintiff to

demonstrate how the complaint can be amended to state a valid cause of action. (Ibid.)

The plaintiff can make that showing for the first time on appeal. (Careau & Co. v.

Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1386.)

2. The Siligas Cannot Maintain a Preemptive Judicial Action Challenging
the Defendants’ Authority to Foreclose

“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 contained in

a deed of trust.‟ (Moeller v. Lien (1994) 25 Cal.App.4th 822, 830 [30 Cal.Rptr.2d 777]

(Moeller ).) „These provisions cover every aspect of exercise of the power of sale

contained in a deed of trust.‟ (I. E. Associates v. Safeco Title Ins. Co. (1985) 39 Cal.3d

281, 285 [216 Cal.Rptr. 438, 702 P.2d 596].) „The purposes of this comprehensive

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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.‟ (Moeller, at

p. 830.) „Because of the exhaustive nature of this scheme, California appellate courts

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

statute.‟ (Lane v. Vitek Real Estate Industries Group (E.D.Cal. 2010) 713 F.Supp.2d

1092, 1098; see also Moeller, at p. 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.)

California courts have refused to allow trustors to delay the nonjudicial

foreclosure process by pursuing preemptive judicial actions challenging the authority of

a foreclosing “beneficiary” or beneficiary‟s “agent.” (Jenkins v. JPMorgan Chase

Bank, N.A. (2013) 216 Cal.App.4th 497, 511 (Jenkins); Gomes, supra, 192 Cal.App.4th

at pp. 1154-1156 & fn. 5.) Such an action is “preemptive” if the plaintiff alleges no

“specific factual x” for the claim that the foreclosure was not initiated by the correct

person. (Jenkins, supra, at p. 512.) A preemptive suit does not seek a remedy for

specified misconduct in the nonjudicial foreclosure process, which may provide a basis

for a valid cause of action. Instead, a preemptive suit seeks to create an additional

requirement for the foreclosing party, apart from the comprehensive statutory

requirements, by requiring the foreclosing party to demonstrate in court that it is

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authorized to initiate a foreclosure. (Ibid.) “[A]llowing a trustor-debtor to pursue such

an action, absent a „specific factual basis for alleging that the foreclosure was not

initiated by the correct party‟ would unnecessarily „interject the courts into [the]

comprehensive nonjudicial scheme‟ created by the Legislature, and „would be

inconsistent with the policy behind nonjudicial foreclosure of providing a quick,

inexpensive and efficient remedy. [Citation.]‟ ” (Id. at p. 512; italics in original.)

3. The Siligas Fail to Adequately Allege that MERS Lacked Authority
to Assign the Deed of Trust and the Note

The Siligas argue that MERS had no authority to assign the deed of trust and the

note essentially for three reasons. First, they argue that any authority given to MERS by

Accredited as the lender lapsed when Accredited went out of business. Second, they

argue that MERS had no authority to assign the note, and an assignment of a deed of

trust without an assignment of the note is invalid as a matter of law. Third, they argue

that MERS required Accredited‟s written authorization to assign the deed of trust and

the note in order to satisfy the statute of frauds, and there is no evidence that MERS had

such written authorization.

Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 267

(Fontenot), explained: “MERS is a private corporation that administers a national

registry of real estate debt interest transactions. Members 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

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without requiring recordation in the public records. [Citation.] [¶] Ordinarily, the

owner of a promissory note secured by a deed of trust is designated as the beneficiary of

the deed of trust. [Citation.] Under the MERS System, however, MERS is designated

as the beneficiary in deeds of trust, acting as „nominee‟ for the lender and granted the

authority to exercise legal rights of the lender.”

California courts have held that a trustor who agreed under the terms of the deed

of trust that MERS, as the lender‟s nominee, has the authority to exercise all of the

rights and interests of the lender, including the right to foreclose, is precluded from

maintaining a cause of action based on the allegation that MERS has no authority to

exercise those rights. (Gomes, supra, 192 Cal.App.4th at p. 1157; Herrera v. Federal

National Mortgage Assn. (2012) 205 Cal.App.4th 1495, 1505 (Herrera).) The deed of

trust itself, attached to the Siligas‟ complaint, establishes as a factual matter that MERS

has the authority to exercise all of the rights and interests of the lender.4 (Gomes, supra,

at p. 1157; Herrera, supra, at p. 1505.) The authority to exercise all of the rights and

interests of the lender necessarily includes the authority to assign the deed of trust.

(Herrera, supra, at p. 1505.)

The Siligas cite Civil Code section 2356, subdivision (a)(2) and (3), which states

that an agent‟s authority terminates upon the death of the principal or the principal‟s

4
The facts alleged in the complaint and those judicially noticeable fail to establish
that the provision in the deed of trust granting MERS the authority to foreclose is
unconscionable. Contrary to the Siligas‟ argument, this provision does not purport to
authorize MERS to initiate a foreclosure in violation of the law, is not “unfairly
one-sided” or “ „ “ „overly harsh‟ ” ‟ ” (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th
1064, 1071), and therefore is not substantively unconscionable.

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incapacity to contract unless the agent‟s power is coupled with an interest in the subject

of the agency. They argue that MERS‟s authority was terminated upon Accredited‟s

going out of business and filing for bankruptcy protection. But they do not allege in

their complaint that Accredited has gone out of business, dissolved or suffered either

death or an incapacity to contract in any manner. Accredited‟s chapter 11 bankruptcy

petition, which we have judicially noticed at the Siligas‟ request, relates to

a reorganization and shows neither the company‟s death nor an incapacity to contract.

The Siligas have not alleged facts showing any lapse in MERS‟s authority to assign the

deed of trust and the note on this basis; nor do they argue, if given the opportunity, that

they could do so.

The Siligas also fail to allege facts supporting the conclusion that MERS lacked

authority to assign the note. “The extent of MERS‟s authority as a nominee was defined

by its agency agreement with the lender, and whether MERS had the authority to assign

the lender‟s interest in the note must be determined by reference to that agreement.

[Citations.] Accordingly, the allegation that MERS was merely a nominee is

insufficient to demonstrate that MERS lacked authority to make a valid assignment of

the note on behalf of the original lender.” (Fontenot, supra, 198 Cal.App.4th at

pp. 270-271.) The Siligas allege that “MERS did not and could not have assigned the

Promissory Note to DEUTSCHE BANK,” but they allege no specific factual basis for

this claim. Absent a specific factual basis, this claim amounts to a preemptive claim

seeking to require the foreclosing party to demonstrate in court its authority to initiate

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a foreclosure. Such a claim is invalid and subject to demurrer.5 (Jenkins, supra,

216 Cal.App.4th at pp. 511-513; Gomes, supra, 192 Cal.App.4th at pp. 1154-1156

& fn. 5.) Similarly, the claim that there is no evidence that MERS had written

authorization to assign the deed of trust and the note is merely a challenge to the

foreclosing party to prove in court its authority to initiate a foreclosure. This claim fails

for the same reason.

4. QLS Had the Authority to Record the Notice of Default

The Siligas contend QLS had no authority to record the notice of default because

it was not the trustee at the time. A notice of default may be recorded by a “trustee,

mortgagee, or beneficiary, or any of their authorized agents.” (Civ. Code, § 2924,

subd. (a)(1).) The notice of default stated that QLS recorded the notice of default not as

trustee but as agent for the beneficiary. This was proper, and the Siligas have shown no

error in this regard.

5. The Siligas Fail to Adequately Allege any Prejudice Resulting from
an Alleged Irregularity in the Foreclosure Process

Separate and apart from the foregoing, the Siligas fail to allege any facts showing

that they suffered prejudice as a result of any lack of authority of the parties

participating in the foreclosure process. The Siligas do not dispute that they are in

5
We reject the argument that MERS as nominee of the original lender could not
assign the note because it did not possess the note. The Siligas allege no factual basis
for this argument, and there is no legal basis. (Fontenot, supra, 198 Cal.App.4th at
pp. 270-271.) Similarly, there is no legal basis for the claim that the foreclosing party
must possess the original note. Nothing in the foreclosure statutes imposes such
a requirement. (Debrunner v. Deutsche Bank National Trust Co. (2012)
204 Cal.App.4th 433, 440.)

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default under the note. The assignment of the deed of trust and the note did not change

the Siligas‟ obligations under the note, and there is no reason to believe that Accredited

as the original lender would have refrained from foreclosure in these circumstances.

Absent any prejudice, the Siligas have no standing to complain about any alleged lack

of authority or defective assignment. (Herrera, supra, 205 Cal.App.4th at

pp. 1507-1508; Fontenot, supra, 198 Cal.App.4th at p. 272.)

6. The Siligas Have Shown No Prejudicial Error as to the Sustaining of
the Demurrer to the Counts for Breach of Contract, Unfair Business
Practices and Quiet Title

The Siligas contend they are entitled to leave to amend their counts for breach of

contract and unfair business practices and contend they have adequately alleged a count

for quiet title. These contentions are based on the discussion in the latter part of the

order ruling on the demurrer. The trial court, however, expressly did not rely on that

discussion in sustaining the demurrer to those counts without leave to amend. Instead,

the order stated that the discussion explained as to each count “what the outcome of

their pleading would have been had that cause of action not been barred.” We conclude

that the discussion in the latter part of the order was not part of the trial court‟s decision

and that the Siligas have shown no prejudicial error based on that discussion.

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 DISPOSITION

The judgment is affirmed. Defendants shall recover their costs on appeal.

CERTIFIED FOR PUBLICATION

CROSKEY, J.

WE CONCUR:

KLEIN, P. J.

KITCHING, J.

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