Filed 12/3/14 Welker v. JPMorgan Chase Bank CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
JAMES WELKER,
Plaintiff and Appellant, G050241
v. (Super. Ct. No. INC1104432)
JPMORGAN CHASE BANK, N.A., et al., OPINION
Defendants and Respondents.
Appeal from a judgment of the Superior Court of Riverside County, John
G. Evans, Judge. Affirmed.
James Welker, in pro. per., for Plaintiff and Appellant.
Bryan Cave, Sean D. Muntz, Aileen M. Hunter, and Katherine M. Harrison
for Defendants and Respondents JPMorgan Chase Bank, N.A. and EMC Mortgage.
Barrett Daffin Frappier Treder & Weiss, Edward A. Treder, Madeleine K.
Lee and Darlene P. Hernandez for Defendant and Respondent NDEx West.
* * *
Plaintiff James Welker filed a preemptive suit to challenge a nonjudicial
foreclosure of his home. In a 37-page verified complaint, he claimed that Mortgage
Electronic Registration System, Inc. (MERS), had rendered most of the home mortgage
industry a fraud and that the parties claiming the right to foreclose on his home did not, in
fact, have that right. Describing the complaint as “canned” and lacking specific factual
allegations, the trial court sustained a demurrer without leave to amend. We agree with
the court’s characterization and affirm.
FACTS
Welker’s lengthy second amended complaint (SAC) can be distilled into a
few short facts.
Welker owns and lives in property located in Rancho Mirage, California.
Welker financed the acquisition with an adjustable rate promissory note and deed of trust
that names defendant Hyperion Capital Group LLC, as the lender. The deed of trust
names MERS as the beneficiary. The promissory note Welker executed was transferred
by defendant EMC Mortgage Company to a trust that pooled and securitized the note
along with other notes.
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Welker apparently defaulted on his loan. In May 2010 defendant NDEx
West LLC, prepared and recorded a notice of default with respect to Welker’s promissory
note and deed of trust. Welker did not know of any recorded document or chain of title
indicating anyone other than Hyperion Capital Group as the lender. In July 2010, MERS,
as nominee for Hyperion Capital Group, assigned the deed of trust to defendant Wells
1
Welker does not admit this in so many words, but neither does he deny it.
What he does say is, “Defendants would also falsely assure Plaintiff that his loan would
be modified and induced him to stop making payments so that he could obtain a
modification.”
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Fargo Bank N.A., as trustee for defendants “Certificate Holders of Structured Asset
Mortgage Investment II, Inc., [and] Bear Stearns Mortgage Funding Trust 2006-AR5”
(the securitization trust). That transfer was void, according to Welker, because the
relevant pooling and service agreement governing the securitization trust did not permit
the trust to acquire properties after December 30, 2006.
In April 2011, “Plaintiff began making his request and notices of erroneous
records to Defendant NDEx West LLC, and other Defendants. These requests provided a
notice and account or Loan validation request form. This form has never been properly
addressed or provided by any of the Defendants.” Based on this fact, Welker alleges that
the entire foreclosure process was fraudulent.
In May 2011, defendants (it is unclear which one) sold Welker’s home
through the nonjudicial foreclosure process at a trustee’s sale to defendant Wells Fargo
Bank, N.A., as trustee for the securitization trust. In June 2011, a rescission of the
trustee’s deed upon sale was recorded in Riverside County. A second notice of default
was recorded in August 2011.
The remainder of Welker’s complaint is a diatribe against banks, MERS,
and the home mortgage industry in general. The gist is that the industry is rife with fraud
and the system is designed to cheat county recorder offices out of fees. Welker’s
complaint sums it up as follows: “This action seeks to redress the economic and public
harm to Plaintiff, and California Counties and similarly situated citizens who have
defendant [MERS] listed named [sic] in their Deeds of Trust. The harm arises from, but
is not limited to, the failure to record required mortgage assignments and instruments that
have adversely affect [sic] real estate titles in county recording or land title offices along
with many other structural and material defects resulting from the MERS encumbrance
upon land titles.”
Welker asserted causes of action for (1) violation of Business and
Professions Code section 17200; (2) “Civil Conspiracy & Conspiracy to Violate Business
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and Professions Code [and] California False Claims Acts”; (3) cancellation of the notices
of default; (4) declaratory relief regarding whether defendants have a security interest; (5)
injunctive relief; (6) breach of the implied covenant of good faith and fair dealing with
regard to a consent decree some defendants entered into with the Federal Trade
Commission in an unrelated case; (7) fraud; (8) “Invalid Assignment”; (9) accounting;
(10) “Intentional Misrepresentation”; (11) declaratory relief that “Defendants Notice of
Default executed prior to being substituted as the Trustee”; (12) violation of the False
Claims Act (Gov. Code, § 12650 et seq.); (13) conversion; and (14) conspiracy to commit
conversion.
Defendants JPMorgan Chase Bank, N.A., EMC Mortgage Company, and
NDEx West LLC demurred. The court sustained the demurrer without leave to amend,
stating, “This is a canned complaint that could apply to virtually any non-judicial
foreclosure carried out since the home loan securitization process began. No California
court has found that MERS lacks authority to foreclose.” Welker timely appealed.
DISCUSSION
Welker raises three issues on appeal. First, the court “misapprehended”
Welker’s claims when it said, “No California court has found that MERS lacks authority
to foreclose”—Welker denies making this claim. Second, the court erroneously took
judicial notice of various documents, converting a demurrer into the equivalent of an
unauthorized summary judgment motion. Third, the securitization trust did not validly
hold Welker’s note because the trustee was only authorized to purchase deeds of trust
during 2006, and the transfer of Welker’s deed of trust occurred after that time, and thus
the wrong party attempted to foreclose. We conclude Welker’s lawsuit fails because, in
the absence of prejudice, which he has not shown, he is not entitled to preemptively
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challenge a nonjudicial foreclosure on the basis that the foreclosing party has no authority
to do so.
“We independently review the ruling on a demurrer and determine de novo
whether the complaint alleges facts sufficient to state a cause of action. [Citation.] We
assume 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. [Citation.] We construe the pleading in a reasonable manner and read the
allegations in context. [Citation.] We affirm the judgment if it is correct on any ground
stated in the demurrer, regardless of the trial court’s stated reasons.” (Fremont Indemnity
Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 111.)
From a steady line of recent cases in this state, the rule has emerged that a
homeowner generally may not challenge a nonjudicial foreclosure on the basis that the
wrong party is foreclosing without specific facts indicating it is the wrong party, together
with prejudice to the homeowner.
The first of this modern line of cases was Gomes v. Countrywide Home
Loans, Inc. (2011) 192 Cal.App.4th 1149 (Gomes). There, as here, the homeowner
defaulted on a home loan with a deed of trust that identified MERS as the beneficiary.
(Id. at p. 1151.) The notice of default was sent, and a nonjudicial foreclosure process
initiated, by parties not on the original deed of trust. (Id. at pp. 1151-1152.) The
homeowner filed suit, alleging he did not know the identity of the note’s beneficial
owner, and alleged on information and belief that the parties carrying out the foreclosure
process were not acting with the rightful owner’s authority. (Id. at p. 1152.) The trial
court sustained a demurrer. (Id. at p. 1153.)
The Gomes court affirmed. It premised its holding on the nature of
California’s nonjudicial foreclosure scheme (Civ. Code, §§ 2924-2924k), which provides
“‘a comprehensive framework for the regulation of a nonjudicial foreclosure sale
pursuant to a power of sale contained in a deed of trust.’ [Citation.] ‘These provisions
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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.’” (Gomes, supra, 192 Cal.App.4th at p. 1154.)
Given the exhaustive nature of the system, the court rejected the
homeowner’s argument that the statutory scheme, by “‘necessary implication,’” permits a
homeowner to “test whether the person initiating the foreclosure has the authority to do
so.” (Gomes, supra, 192 Cal.App.4th at p. 1155.) “Section 2924, subdivision (a)(1)
states that a ‘trustee, mortgagee, or beneficiary, or any of their authorized agents’ may
initiate the foreclosure process. 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.] Significantly,
‘[n]onjudicial foreclosure is less expensive and more quickly concluded than judicial
foreclosure, since there is no oversight by a court, “[n]either appraisal nor judicial
determination of fair value is required,” and the debtor has no postsale right of
redemption.’ [Citation.] The recognition of the right to bring a lawsuit to determine a
nominee’s authorization to proceed with foreclosure on behalf of the noteholder would
fundamentally undermine the nonjudicial nature of the process and introduce the
possibility of lawsuits filed solely for the purpose of delaying valid foreclosures.” (Id. at
p. 1155.)
Despite this apparently inflexible rule, Gomes, supra, 192 Cal.App.4th at
page 1155 distinguished three similar federal district court cases where plaintiffs were
permitted to proceed with a cause of action on the basis that, in those cases, the plaintiff
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identified a “specific factual basis for alleging that the foreclosure was not initiated by
the correct party.” (Id. at p. 1156.)
This language gave rise to a split of authority concerning whether a plaintiff
may ever bring a cause of action to challenge a foreclosing party’s authority in the
context of a nonjudicial foreclosure, and our Supreme Court has recently granted review
of a case on the issue. (Yvanova v. New Century Mortgage Corp., review granted Aug.
27, 2014, S218973.) The only case to hold a plaintiff can bring such a claim is Glaski v.
Bank of America (2013) 218 Cal.App.4th 1079 (Glaski).
In Glaski, the homeowner’s note and deed of trust were transferred to a
securitization trust, and, as in our case, plaintiff alleged the transfer was defective
because “the attempted transfers were made after the closing date of the securitized trust
holding the pooled mortgages . . . .” (Glaski, supra, 218 Cal.App.4th at p. 1082.) “We
conclude that a borrower may challenge the securitized trust’s chain of ownership by
alleging the attempts to transfer the deed of trust to the securitized trust (which was
formed under N.Y. law) occurred after the trust’s closing date. Transfers that violate the
terms of the trust instrument are void under New York trust law, and borrowers have
standing to challenge void assignments of their loans even though they are not a party to,
or a third party beneficiary of, the assignment agreement.” (Id. at p. 1083.)
With respect to standing, Glaski reasoned that while third parties have no
standing to challenge an assignment merely voidable at the election of the assignor, a
homeowner may challenge an assignment that is void. (Glaski, supra, 218 Cal.App.4th at
pp. 1094-1095.) Interpreting a New York statute that has generated conflicting
interpretations among various courts, the Glaski court concluded the best interpretation
was that the attempted transfer to the securitization trust was void. This conclusion, it
reasoned, “protects the beneficiaries of the . . . Securitized Trust from the potential
adverse tax consequence of the trust losing its status as a [real estate mortgage investment
conduct] trust under the Internal Revenue Code.” (Id. at p. 1097.)
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Glaski distinguished Gomes on two grounds. First, it narrowly interpreted
Gomes as limited to challenges to the ability of the nominee, MERS, to participate in the
foreclosure process. (Glaski, supra, 218 Cal.App.4th at pp. 1098-1099.) Second, the
court relied on the “specific factual basis” language Glaski employed to distinguish the
federal cases. (Id. at p. 1099.) Glaski found the plaintiff’s allegations had met that
requirement.
Several cases both before and after Glaski have reached the opposite
conclusion. (E.g., Mendoza v. JPMorgan Chase Bank, N.A., review granted Nov. 12,
2014, C071882; Keshtgar v. U.S. Bank, N.A., review granted Oct. 1, 2014, B246193;
Siliga v. Mortgage Electronic Registration Systems, Inc. (2013) 219 Cal.App.4th 75
(Siliga); Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495
(Herrera); Jenkins v. JPMorgan Chase Bank, N.A. (2012) 216 Cal.App.4th 497
(Jenkins); Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256 (Fontenot).)
Federal courts have likewise largely rejected Glaski as unpersuasive. (See Kan v. Guild
Mortgage Co. (2014) 230 Cal.App.4th 736, 744 [collecting cases].) In particular, the
Second Circuit Court of Appeals has rejected Glaski’s analysis on the standing issue,
holding that under New York law an improper transfer to an investment trust is voidable,
not void, and thus a third party plaintiff has no standing to challenge such a transfer.
(Rajamin v. Deutsche Bank National Trust Co. (2d Cir. 2014) 757 F.3d 79, 90.)
In our view, the principal defect in Glaski is that court’s failure to assess
prejudice. A plaintiff alleging a defect in the assignment of a mortgage must demonstrate
prejudice. For example, in Siliga, where the plaintiffs made essentially the same
allegations as those made here, the court affirmed the sustaining of a demurrer on, among
other grounds, the plaintiffs’ inability to demonstrate prejudice: “the [plaintiffs] 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 [plaintiffs] do not dispute that
they are in default under the note. The assignment of the deed of trust and the note did
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not change the [plaintiffs’] obligations under the note, and there is no reason to believe
that . . . the original lender would have refrained from foreclosure in these circumstances.
Absent any prejudice, the [plaintiffs] have no standing to complain about any alleged lack
of authority or defective assignment.” (Siliga, supra, 219 Cal.App.4th. at p. 85.)
Likewise, in Fontenot, where the plaintiff also challenged a foreclosure based on an
invalid assignment of a mortgage, the court affirmed the sustaining of a demurrer on the
basis that plaintiff could not demonstrate prejudice: “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. Plaintiff effectively concedes
she was in default, and she does not allege that the transfer to HSBC interfered in any
manner with her payment of the note [citation], nor that the original lender would have
refrained from foreclosure under the circumstances presented. If MERS indeed lacked
authority to make the assignment, the true victim was not plaintiff but the original lender,
which would have suffered the unauthorized loss of a $1 million promissory note.”
(Fontenot, supra, 198 Cal.App.4th at p. 272.)
Not only did Glaski fail to analyze these holdings, but it does not even
mention the word “prejudice.” This omission is fatal to Glaski’s holding, and thus we
decline to follow it. In the absence of prejudice, a cause of action based on technicalities
in the chain of title serves no other purpose than to permit the borrower to continue living
in the home without paying for it. To the extent the various financial institutions
involved object to the manner or validity of the assignments involved, they can sort the
matter out themselves, probably without recourse to the courts. We see no benefit in
permitting a defaulted borrower to maintain such a suit in the absence of real harm to the
borrower.
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Welker’s suit is of precisely this ilk. Although he split his complaint up
into 14 causes of action, they all revolve around the claim that defendants are not
authorized by the true holder of the deed of trust to foreclose on his home. He does not
dispute that he is in default on the loan, nor does he claim he is willing or able to cure the
default. His complaint drones on and on about perceived injustices in the mortgage
market, but nowhere does he articulate specific prejudice from the allegedly improper
assignments of his deed of trust. Nor has he articulated below or in this court how he
could amend his complaint to allege prejudice. Accordingly, the court properly sustained
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defendants’ demurrers without leave to amend.
DISPOSITION
The judgment is affirmed. Defendants shall recover their costs incurred on
appeal.
IKOLA, J.
WE CONCUR:
FYBEL, ACTING P. J.
THOMPSON, J.
2
Given this analysis upon our own independent review of the complaint, we
do not reach Welker’s claim that the trial court misperceived his actual claim or that the
trial court improperly took judicial notice.
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