Bella Perez v. Mers ( 2020 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
BELLA PEREZ; ENRIQUE PEREZ, No. 18-16584
Plaintiffs-Appellants,
D.C. No.
v. 2:17-cv-01790-
TLN-EFB
MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC.; U.S.
BANK, N.A., as trustee for the
Lehman XS Trust 2006-14N
Mortgage Pass-Through Certificates,
Series 2006-14N,
Defendants-Appellees.
Appeal from the United States District Court
for the Eastern District of California
Troy L. Nunley, District Judge, Presiding
BELLA PEREZ; ENRIQUE PEREZ, No. 18-17230
Plaintiffs-Appellants,
D.C. No.
v. 3:17-cv-04880-
JD
MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC.; THE
BANK OF NEW YORK MELLON, OPINION
Defendants-Appellees.
2 PEREZ V. MERS
Appeal from the United States District Court
for the Northern District of California
James Donato, District Judge, Presiding
Submitted February 13, 2020 *
San Francisco, California
Filed May 11, 2020
Before: Ronald M. Gould and Mary H. Murguia, Circuit
Judges, and Gary Feinerman, ** District Judge.
Opinion by Judge Gould
SUMMARY ***
California Law / Foreclosure
The panel affirmed the district court’s dismissals for
failure to state claims of two actions brought by plaintiff
homeowners against the Mortgage Electronic Registration
Systems, Inc. and banks, challenging the banks’ authority to
foreclose on their properties.
*
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
**
The Honorable Gary Feinerman, United States District Judge for
the Northern District of Illinois, sitting by designation.
***
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
PEREZ V. MERS 3
Plaintiffs owned properties in Sacramento and San
Pablo, and neither of the properties were ultimately
foreclosed. Plaintiffs sought declaratory relief and
cancellation of instruments as to the banks and MERS, and
quiet title as to only the banks.
The panel held that California law does not permit
borrowers to bring judicial actions to challenge a foreclosing
party’s authority to foreclose on the borrower’s property
before a foreclosure has taken place. Because the California
Supreme Court had not yet addressed the question of
whether preemptive, pre-foreclosure actions were viable
under California law, the panel looked to the relevant
decisions of the California intermediate appellate courts.
The panel held that plaintiffs did not state any valid claims
under California law, and affirmed the district court’s
dismissal of plaintiffs’ complaints.
The panel held that the district court did not abuse its
discretion by denying plaintiffs leave to amend because the
proposed amendments would not have changed the
determination that the action was impermissible under
California law.
COUNSEL
Mark W. Lapham, Law Offices of Mark W. Lapham,
Danville, California, for Plaintiffs-Appellants.
Jan T. Chilton, Severson & Werson, San Francisco,
California; Kerry W. Franich, Severson & Werson, Irvine,
California; Ian A. Rambarran, Betsy S. Kimball, and
4 PEREZ V. MERS
Lindsey N. Casillas, Klinedinst PC, Sacramento, California;
for Defendants-Appellees.
OPINION
GOULD, Circuit Judge:
These cases, in which we apply California law because
of our diversity jurisdiction, present the question of whether
California law permits borrowers to bring judicial actions to
challenge a foreclosing party’s authority to foreclose on the
borrower’s property before a foreclosure has taken place.
Plaintiffs-Appellants Bella and Enrique Perez
(“Appellants”) filed two such pre-foreclosure actions here.
In both actions, Appellants sued Mortgage Electronic
Registration Systems, Inc. 1 (“MERS”) and the banks
holding their two mortgages—U.S. Bank, National
Association (“U.S. Bank”) in No. 18-16584, and Bank of
New York Mellon in No. 18-17230. Appellants brought
these actions to challenge the banks’ authority to foreclose
on their properties. The district courts dismissed the
complaints for failure to state plausible claims for relief
under California law. We have jurisdiction under 28 U.S.C.
§ 1291, and we affirm.
I.
Appellants own two California properties that are at
issue in these appeals: a West Sacramento property (Perez v.
1
MERS is a subscription-based service that tracks changes in
mortgage servicing rights and beneficial ownership interests in loans
secured by residential properties.
PEREZ V. MERS 5
MERS & U.S. Bank, N.A., No. 18-16584 [“Perez I”]) and a
San Pablo property (Perez v. MERS & Bank of New York
Mellon, No. 18-17230 [“Perez II”]).
A.
In Perez I, Appellants executed a deed of trust in 2006 to
secure a note for $399,000 on their property in West
Sacramento. The deed of trust identified Dollar Mortgage
Corporation (“Dollar”) as the lender and Defendant-
Appellee MERS as the beneficiary for Dollar and Dollar’s
“successors and assigns.” The mortgage loan was sold four
times between 2005 and 2006; Defendant-Appellee U.S.
Bank has owned the loan since 2006.
In 2009, a notice of default and a notice of trustee’s sale
were issued against Appellants for failure to make payments
on their loan. A sale was scheduled, but it did not take place,
and the complaint did not allege any subsequent actions
taken to foreclose on the property.
After briefing concluded during the motion to dismiss
stage, Appellants filed a case notification to inform the
district court they had received a new notice of default less
than a month after filing their original complaint. There are
no allegations that this notice of default resulted in a
foreclosure or that any further action was taken to foreclose
on the property.
B.
In Perez II, Appellants executed a deed of trust in 2006
to secure a note for $440,000 on their property in San Pablo.
The deed of trust identified American Mortgage Express
Corporation (“American Mortgage Express”) as the original
lender and Defendant-Appellee MERS as the beneficiary for
6 PEREZ V. MERS
American Mortgage Express and American Mortgage
Express’s “successors and assigns.” The loan was sold three
times; Defendant-Appellee Bank of New York Mellon
currently owns the loan.
There are no allegations that any foreclosure proceedings
have been initiated against Appellants relating to this
property. The record indicates that Appellants are
consistently making their mortgage payments and are not in
default.
C.
Appellants filed the underlying actions against MERS
and the banks in California state court. Both actions were
removed to federal court based on diversity jurisdiction.
In each action, Appellants filed claims seeking
declaratory relief and cancellation of instruments as to the
banks and MERS, and quiet title as to only the banks. They
sought declarations that the banks had no legal rights in the
underlying notes or deeds of trust, and that the banks did not
have authority to collect mortgage payments or to initiate
foreclosure proceedings. Appellants sought unencumbered
titles to their properties and permanent injunctions to prevent
the banks from collecting mortgage payments or foreclosing
on the properties. Appellants base their claims for relief on
alleged defects in the assignments of the underlying deeds of
trust, such that, Appellants contend, the banks never
received any beneficial interest in the loans. The district
PEREZ V. MERS 7
courts dismissed the complaints for failure to state plausible
claims for relief under California law. 2
II.
Appellants seek reversal of the district courts’ dismissals
of their complaints. We review a district court’s dismissal
of a complaint de novo. Yagman v. Garcetti, 852 F.3d 859,
863 (9th Cir. 2017). “To survive a motion to dismiss, a
complaint must contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
We apply California law to these removed diversity
actions. Vestar Dev. II, LLC v. Gen. Dynamics Corp.,
249 F.3d 958, 960 (9th Cir. 2001).
A.
Appellants’ claims are premised on the theory that they
can preemptively challenge the banks’ authority to foreclose
on their properties by filing judicial actions before any
nonjudicial foreclosure has taken place. The controlling
question before us is whether such preemptive, pre-
foreclosure actions are viable under California law.
When interpreting California law, we are bound by the
decisions of the California Supreme Court, the state’s
highest court. Vestar, 249 F.3d at 960. If there are no such
decisions, and “where there is no convincing evidence that
2
In Perez II, the district court dismissed the original complaint with
leave to amend. The district court then dismissed the amended complaint
without leave to amend because the amended complaint failed to add
“any new or different operative facts.”
8 PEREZ V. MERS
the state supreme court would decide differently, a federal
court is obligated to follow the decisions of the state’s
intermediate appellate courts.” Id. (quoting Lewis v. Tel.
Emps. Credit Union, 87 F.3d 1537, 1545 (9th Cir. 1996)).
The California Supreme Court has not directly answered
the question of whether preemptive, pre-foreclosure actions
are viable under California law. 3 In Yvanova v. New Century
Mortg. Corp., 365 P.3d 845, 858–59 (Cal. 2016), the
California Supreme Court held that, in an action for
wrongful foreclosure, borrowers have standing to challenge
prior assignments of the note if they allege the assignment
was void, as compared to voidable. The California Supreme
Court expressly limited its holding to post-foreclosure
actions for wrongful foreclosure, explaining that the holding
did not apply to borrowers who “attempt to preempt a
threatened nonjudicial foreclosure by a suit questioning the
foreclosing party’s right to proceed,” id. at 848, or to
borrowers who bring “action[s] for injunctive or declaratory
3
Before deciding Yvanova, the California Supreme Court granted
review of a pre-foreclosure action in Keshtgar v. U.S. Bank, 334 P.3d
686 (Cal. 2014), but deferred a decision until after the court reached a
decision in Yvanova. After Yvanova, the California Supreme Court
decided not to reach the underlying question raised in Keshtgar—the
viability of preemptive, pre-foreclosure actions—and instead vacated
and remanded the decision for the Court of Appeal to reconsider in light
of Yvanova. See Keshtgar v. U.S. Bank, 368 P.3d 921 (Cal. 2016). On
remand, the Court of Appeal held that Yvanova did not displace prior
California precedent that preemptive actions to prevent foreclosure are
not allowed. See Keshtgar v. U.S. Bank, No. B246193, 2016 WL
4183750, at *3 (Cal. Ct. App. Aug. 8, 2016).
PEREZ V. MERS 9
relief to prevent a foreclosure sale from going forward,” id.
at 855. 4
Because California’s highest court has not yet addressed
the question of whether preemptive, pre-foreclosure actions
are viable under California law, we look to the relevant
decisions of the California intermediate appellate courts.
See Vestar, 249 F.3d at 960.
In Gomes v. Countrywide Home Loans, Inc., 121 Cal.
Rptr. 3d 819, 822 (Cal. Ct. App. 2011), a defaulting
borrower brought a legal action to challenge whether the
defendants were authorized to foreclose on his property. The
Court of Appeal held that California’s comprehensive
statutory scheme for nonjudicial foreclosures did not permit
a borrower to bring a judicial action before a foreclosure had
taken place to challenge whether a foreclosing party was
authorized to foreclose. Id. at 824 (“[N]owhere 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.”). The intermediate appellate court reasoned that
allowing borrowers to bring such pre-foreclosure actions
would impermissibly interject courts into California’s
“comprehensive nonjudicial scheme” of foreclosure and
“fundamentally undermine the nonjudicial nature of the
4
Appellants ignore this express limitation in Yvanova and dedicate
most of their appellate briefing to argue that the assignments of their
deeds of trust are void, rather than voidable, premised on the theory that
the Yvanova holding applies to their pre-foreclosure cases. But we need
not reach the question of whether the assignments were allegedly void
or voidable because Yvanova’s holding does not apply to Appellants’
pre-foreclosure actions. See 365 P.3d at 848.
10 PEREZ V. MERS
process and introduce the possibility of lawsuits filed solely
for the purpose of delaying valid foreclosures.” Id.
In Jenkins v. JP Morgan Chase Bank, N.A., 156 Cal.
Rptr. 3d 912, 923 (Cal. Ct. App. 2013), a defaulting
borrower brought a preemptive judicial action in part to
determine whether the defendants had the authority to
initiate nonjudicial foreclosure on her property. The Court
of Appeal held that the borrower lacked a legal basis to bring
her preemptive action under California’s statutory scheme
for nonjudicial foreclosure. 5 Id. at 925. Reviewing prior
California appellate decisions, including Gomes, this second
California intermediate appellate court explained:
“California courts have refused to delay the nonjudicial
foreclosure process by allowing trustor-debtors to pursue
preemptive judicial actions to challenge the right, power, and
authority of a foreclosing ‘beneficiary’ or beneficiary’s
‘agent’ to initiate and pursue foreclosure.” Id. at 924.
In Saterbak v. JPMorgan Chase Bank, N.A., 199 Cal.
Rptr. 3d 790, 793 (Cal. Ct. App. 2016), a defaulting
borrower brought an action claiming that the foreclosing
party lacked authority to foreclose on her property because
the prior assignment of her deed of trust was void. Saterbak
was decided shortly after the California Supreme Court
decided Yvanova. The Court of Appeal examined the
Yvanova decision to determine whether it changed the
viability of preemptive, pre-foreclosure actions in
California. Id. at 795–96. This intermediate appellate court
held that Yvanova did not alter prior California precedent
barring pre-foreclosure suits because Yvanova was
5
In Yvanova, although the California Supreme Court disapproved
of Jenkins on some grounds, the court declined to review or address this
aspect of the Jenkins opinion. 365 P.3d at 854.
PEREZ V. MERS 11
“expressly limited to the post-foreclosure context.” Id.
at 796. Accordingly, the court dismissed the action, holding
that preemptive, pre-foreclosure actions were still not viable
under California law. Id. at 795.
But in Brown v. Deutsche Bank National Trust Co.,
201 Cal. Rptr. 3d 892, 896 (Cal. Ct. App. 2016), the Court
of Appeal, although not deciding the question of whether
pre-foreclosure actions are viable after Yvanova, noted that
the California Supreme Court could decide to extend its
limited holding in Yvanova to cover some pre-foreclosure
cases. The court explained that the reasoning in Yvanova
“raises the distinct possibility that [the California] Supreme
Court would conclude that borrowers have a sufficient injury
[from the initiation of foreclosure proceedings], even if less
severe [than the injury from wrongful foreclosure], to confer
standing to bring similar allegations before the [foreclosure]
sale.” Id.Although federal courts sitting in diversity cases cannot
initiate an alteration of California state law, it is possible that
the California Supreme Court could conclude that pre-
foreclosure suits are to be considered viable in certain
circumstances—as a federal district court decision cited by
Appellants predicted it might. Lundy v. Selene Finance,
L.P., No. 15-cv-05676, 2016 WL 1059423, at *13 (N.D. Cal.
Mar. 17, 2016) (noting that “this Court does conclude that if
the California Supreme Court decides to adopt Jenkins’s bar
to pre-foreclosure challenges, it will limit that bar only to
claims that lack any ‘specific factual basis’”). But the
existing California appellate cases demonstrate that, both
before and after Yvanova, California appellate courts have
dismissed preemptive, pre-foreclosure actions. There is no
convincing evidence the California Supreme Court would
12 PEREZ V. MERS
break with that precedent. 6 Thus, we follow the decisions of
the California appellate courts in holding that California law
does not permit preemptive actions to challenge a party’s
authority to pursue foreclosure before a foreclosure has
taken place.
B.
Here, it is undisputed that no foreclosures have taken
place. In Perez I, Appellants claim there was an initiation of
foreclosure proceedings, as they received a notice of default
in 2017 after filing their federal court complaint. But there
are no allegations that this notice resulted in a foreclosure.
In Perez II, Appellants do not allege any initiation of
foreclosure proceedings, and it appears that Appellants are
not even in default.
Because no foreclosures have taken place, Appellants’
suits are pre-foreclosure judicial actions that preemptively
challenge the banks’ authority to foreclose on their
properties in the future. Such actions are not viable under
California law. Appellants do not state any valid claims
6
The Ninth Circuit, in unpublished memorandum dispositions, has
also regularly held that Yvanova did not alter the existing California
precedent barring preemptive, pre-foreclosure suits. See, e.g., Wasjutin
v. Bank of Am., N.A., 732 F. App’x 513, 516–17 (9th Cir. 2018)
(“Nothing about Yvanova suggests that, contrary to longstanding
precedent on this point, California now allows an action for wrongful
foreclosure before a foreclosure takes place.”); Yagman v. Nationstar
Mortg., LLC, 699 F. App’x 634, 635 (9th Cir. 2017) (“Yvanova provides
no assistance to [a pre-foreclosure borrower]; his property has not been
subject to a nonjudicial foreclosure. As we have in the past, we join the
majority of courts that have declined to extend Yvanova.”). Because of
the number of such similar litigations and appeals, we now write for
publication to describe currently applicable California law.
PEREZ V. MERS 13
under California law, and we affirm the district courts’
dismissals of Appellants’ complaints.
III.
On appeal in Perez I, Appellants seek a determination
that the district court abused its discretion by dismissing the
complaint without leave to amend. 7 We review for abuse of
discretion the district court’s decision denying leave to
amend. A.E. ex rel. Hernandez v. Cty. of Tulare, 666 F.3d
631, 636 (9th Cir. 2012). If a complaint does not state a
plausible claim for relief, a “district court should grant leave
to amend even if no request to amend the pleading was made,
unless it determines that the pleading could not possibly be
cured by the allegation of other facts.” Lopez v. Smith,
203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (quoting Doe
v. United States, 58 F.3d 494, 497 (9th Cir. 1995)).
In Appellants’ opposition to the motion to dismiss, they
requested leave to amend if the district court determined the
complaint was “deficient.” The district court granted the
motion to dismiss without leave to amend. In Appellants’
opening appellate brief in Perez I, they contend that, if they
had been given the opportunity to amend their complaint,
they would have included additional arguments and
explanations as to why MERS lacked authority to execute
the assignment of the deed of trust, and they would have
attached the 2017 notice of default as an exhibit.
The district court did not abuse its discretion by denying
Appellants leave to amend. The proposed amendments
7
On appeal in Perez II, Appellants did not challenge the district
court’s denial of their request for leave to amend in their opening
appellate brief. We therefore deem this challenge waived. Tri-Valley
CAREs v. U.S. Dep’t of Energy, 671 F.3d 1113, 1129–30 (9th Cir. 2012).
14 PEREZ V. MERS
would not have changed the determination that the action
was a preemptive, pre-foreclosure action seeking to
challenge the banks’ authority to foreclose, and that such an
action is impermissible under California law. The notice of
default did not indicate that a foreclosure had taken place,
and thus the suit remained preemptive. The additional
arguments and explanations relating to MERS’s assignment
of the deed of trust are irrelevant here because they do not
change the fact that Appellants filed their suit preemptively.
The district court properly determined that permitting
Appellants leave to amend would be futile. Therefore, we
hold that the district court in Perez I did not abuse its
discretion by dismissing Appellants’ complaint without
granting leave to amend.
AFFIRMED.