Vergara v. Heritage Community Credit Union

Filed 9/18/07 Vergara v. Heritage Community Credit Union CA3

NOTTOBEPUBLISHED

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

THIRD APPELLATE DISTRICT

(PLACER)

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Because Gonzalo Vergara defaulted on his mortgage payments, his lender, Heritage Community Credit Union, had an attorney, Steven Melmet, act as its trustee in order to conduct a nonjudicial foreclosure sale. After Vergara sued Heritage and Melmet on various theories, the trial court sustained their demurrers without leave to amend. Vergara, formerly a California attorney who proceeds in this court in propria persona, timely filed his notice of appeal from the judgment and proceeds in this court in propria persona. We shall affirm.

STANDARD AND SCOPE OF APPELLATE REVIEW

When we determine whether a plaintiff has stated a good cause of action we consider the pleaded facts, as well as facts judicially noticeable, not contentions, deductions or conclusions of law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; Dryden v. Tri-Valley Growers (1977) 65 Cal.App.3d 990, 997.)

The facts and theories we will discuss are not all the same as those presented to the trial court. Vergara bases his appeal largely on the claim that the trial court abused its discretion in not granting him leave to file a second amended complaint.

Unlike most other appellants, an appellant challenging a demurrer is allowed to propose new facts and theories on appeal, that is, facts not presented to the trial court, to demonstrate that it should have granted leave to amend. (Code Civ. Proc., 472c, subd. (a).) However, The burden is on plaintiffs to show that amendment can save the complaint. (Mangini v. Aerojet-General Corp. (1991) 230 Cal.App.3d 1125, 1151.) Typically in such cases the appellant sets out the proposed new facts in the opening brief. (E.g., Live Oak Publishing Co. v. Cohagan (1991) 234 Cal.App.3d 1277, 1286.) Here, however, a proposed second amended complaint is contained in the record on appeal, and Vergara states it encapsulates all of his claims. For this reason we will evaluate that proposed complaint to see if it states any good cause of action. Therefore, we need not discuss the procedural arguments resolved by the trial court, pertaining to prior complaints.

Each defendants entitlement to judgment ordinarily is assessed based on the facts and law applicable to that defendant. (See Frazee v. Seely (2002) 95 Cal.App.4th 627, 636 [summary judgment case].) Here, however, Vergaras pleadings and briefing conflates the actions and liabilities of the parties. Because it makes no difference to the analysis, we will not analyze the differences; we will conclude that none of the theories Vergara presses on appeal states a cause of action against either defendant.

PROPOSED SECOND AMENDED COMPLAINT

This complaint alleges the following chronological facts.

Vergara bought a Roseville house in March 2000, for about $337,000. Heritage loaned him most of the money and issued two separate deeds of trust, securing a first loan of about $309,000 and a supplemental loan of $16,200.

Vergara and his wife were named on the deeds of trust. Although he later pleaded that he transferred his interest to his wife, he controlled all relevant actions and therefore we will refer to him alone.

At some point Heritage assigned the senior note to CUNA Mutual Mortgage. However, later pleaded facts show that Heritage continued to take some relevant actions regarding the senior note, and CUNA is not a defendant in this case.

Vergara failed to make payments on the senior note and in January 2001, the home went into foreclosure for the amount of $5,667two months mortgage payments due. (Further dates in this part are to 2001.) Vergara set out the purported text of the notice of default, which we will quote later.

Melmet acted as the foreclosure trustee. Vergara alleged that Heritage did not reveal the existence of the second deed of trust to defendant Melmet[.] In the Notice of Default, no mention was made [of] the second note as being in default. He also alleged Melmet failed to properly ascertain the state of the title.

In May, Melmet issued a Notice of Sale for June 1, listing only the note securing the first deed of trust as being in default. The notice of sale made no mention of the second note as being in default. Heritage gave Vergara a 30-day extension, changing the sale date to July 2. But on June 29, Vergara filed for bankruptcy.

On August 1, Heritage filed a bankruptcy claim on the junior note for $16,454.27. A few days later, CUNA filed a bankruptcy claim on the senior note for $303,182.94, plus over $21,000 in other charges.

Despite the automatic stay provisions of the Bankruptcy Code, Vergara brought the junior note current, and continued to make payments on it.

The bankruptcy trustee objected to Heritages claim on the junior note because it appears to duplicate CUNAs claim on the senior note. On February 26, 2002 (further dates are to 2002), the bankruptcy case was dismissed when Vergara failed to keep up with the payment plan. Vergara does not plead that the bankruptcy court ever ruled on the bankruptcy trustees objection.

In March, Vergara tendered payment of about $2,600 towards the senior note to CUNA, and sought a payment plan to make up the arrearages. CUNA refused the payment. Vergara does not allege that he tendered any other amount in response to the notice of default. He continued to pay on the junior note, keeping it current until June.

Also in March, Melmet conducted the sale delayed by the bankruptcy (see Knapp v. Doherty (2004) 123 Cal.App.4th 76, 82 & fn. 2 (Knapp)), and Heritage bought the house for about $337,000. Vergara does not allege that this sale amount created any surplus for other claimants.

Because Heritage held both notes, its interest in the junior note was extinguished under Californias anti-deficiency laws. (See Evans v. California Trailer Court, Inc. (1994) 28 Cal.App.4th 540, 549-552.)

Vergara alleged he did not receive notice of the sale from defendants stating that both notes were in default or that the junior Deed was current.

Vergara claimed that his payments on the junior note despite the automatic stay were new and valuable consideration, causing him to believe his home was protected from the July 2, 2001 Notice of Sale which only listed the first deed as being in default. Vergara also asserted that because he had tendered payments on the senior note after the bankruptcy case was dismissed, he was not in default as stated in the notice of default.

Vergara pleads irrelevant facts about his eviction from the property, despondency, attempt to kill his wife, resignation from the State Bar and so forth.

Vergara pleads that six weeks after the sale, Heritage

sold the house for about $415,000, which created what he calls a windfall of about $78,000, which he attributes to the $12,000 in home improvements he had made and market conditions in Placer County during the relevant time periods. Accordingly, he requested an accounting of profits, but Heritage declined to share the windfall with him.

The proposed complaint was divided into a number of claims, styled as nine separate causes of action for relief, which we need not detail here, as most are not pressed on appeal.

In response to the demurrer to the first amended complaint, judicial notice established thattwo separate deeds of trust secured the two notes, and that the deed securing the larger note was recorded first.

DISCUSSION

Plaintiff is not entitled to special treatment simply because he chose to prosecute this appeal without counsel. (Doranv. Dreyer (1956) 143 Cal.App.2d 289, 290.) Plaintiffs briefs are confusing. To focus our discussion we will set out four of his headed claims and explain why we disagree with each.

We do not address his two other argument headings, which pertain to the standard of review and the claim leave to amend should have been granted, as they are subsumed within our discussion of Vergaras substantive arguments. Further, we decline to address belated claims raised in the reply brief (Kahnv. Wilson (1898) 120 Cal. 643, 644), claims which fall outside headed claims (Landa v. Steinberg (1932) 126 Cal.App. 324, 325), and claims made without adequate analysis and authority (Diamond Springs Lime Co. v. American River Constructors (1971) 16 Cal.App.3d 581, 608).

I. The Non-Judicial Foreclosure Sale of Appellants Home was Defective Because the Notice of Default Incorrectly Stated the Default.

Vergara contends the notice of default did not accurately state the default. He pleaded the purported language of the notice of default, but in connection with a reconsideration motion the trial court impliedly took judicial notice of the actual document recorded on February 1, 2001. That document states the default amount is $6,666.35 as of 1/31/2001, and will increase until your account becomes current. (Bold print in original.) Such a statement is required by statute. (Civ. Code, 2924c, subd. (b)(1).)

The notice of default also states: That a breach of, and default in, the obligations for which such Deed of Trust is security has occurred in that payment has not been made of: The installment of principal, interest & impounds which became due on 11/01/2000 and all subsequent installments, together with late charges, advances, assessments, and attorney fees, if any.

Vergara asserts that the use of the phrase if any renders the notice of default a nullity from end to end because it is impossible to tell what the alleged breach is.

We disagree. Read in context, if any refers to and only to the portion of the sentence beginning with together, so that the stated defaults consists of the following:

(1) the installment due on November 1, 2000 (which consists of principal, interest & impounds), and,

(2) all subsequent installments, and,

(3) if any, late charges, advances, assessments and attorney fees.

The if any clause refers to consequential sums which may or may not be owing, in addition to the monthly installments, due to the failure the pay those installments. The notice of default clearly states that the monthly installments have not been made and sets out the exact amount owing as of the date of recordation. Vergara concedes he did not make these payments.

Vergara relies on a misreading of our opinion in Anderson v. Heart Federal Sav. & Loan Assn. (1989) 208 Cal.App.3d 202 (Anderson), a case arising on summary judgment. The statute discussed in Anderson has been amended to abrogate one part of Anderson, but we need not discuss that amendment in this case. (Stats. 1990, ch. 657, 3, p. 3159.)

A portion of Civil Code section 2924 requires that a notice of default must contain a statement that a breach of the obligation for which the mortgage or transfer in trust is security has occurred, and [must set] forth the nature of each breach actually known to the beneficiary. (Civ. Code, 2924.) This requires a clear statement of the default to enable a defaulter to know what he or she has to do to cure the default and avoid foreclosure. (Anderson, supra, 208 Cal.App.3d at pp. 211-212; see Ung v. Koehler (2005) 135 Cal.App.4th 186, 202; System Inv. Corp. v. Union Bank (1971) 21 Cal.App.3d 137, 153.)

The notice of default in Anderson specified the default as: payment has not been made of: payment of principal and interest which became due on April 15, 1983; all subsequent installments which become due; delinquent taxes and/or assessments, if any; late charges, if any; proof of current hazard insurance, if applicable; advances, if any; interest on such advances. (Anderson, supra, 208 Cal.App.3d at p. 206.)

We held the phrase if any in reference to some items rendered the notice of default uncertain as to those items:

The notice of default conditions the claims of breach of the obligations to pay taxes (and advances for insurance) with the proviso if any. This qualifier, which claims only a potential ground of default, does not square with the requirement of section 2924 that the notice identify a breach which has occurred. That requirement is necessary to the invocation of the power of sale which shall not be exercised . . . until the notice requirements have been met. (Anderson, supra, 208 Cal.App.3d at p. 213.)

However, we also found that the notice of default clearly stated the amount of principal and interest due at the time of recordation. (Anderson, supra, 208 Cal.App.3d at pp. 209, 215-217.) The uncertainty caused by if any did not grammatically apply to that amount. The reason we reversed summary judgment in favor of the lender was not because the notice of default was uncertain as to the principal and interest installments, but because as to those installments there was a triable issue whether the borrower had tendered an amount sufficient to cure his default. In other words, the lender in Anderson could not rely on the default of installments because there was a factual dispute about whether a default had occurred as to those installments, and could not rely on the default of other claimed items because as to those claimed items the if any phrase rendered the notice of default uncertain. (Id. at pp. 215-217.)

Anderson cuts against Vergaras argument. As to installments that Vergara concededly did not make, the if any language does not apply. Because the notice of default accurately stated that those payments had not been made, it was adequate to support the foreclosure sale. (See Anderson, supra, 208 Cal.App.3d at pp. 205, 215-217; Knapp, supra, 123 Cal.App.4th at pp. 98-99.)

Vergara also argues the currency of the junior note somehow created uncertainty about the amounts due under the senior note. He fails to provide any authority for his view that a notice of default based on one note must say anything about any other notes which may be secured by the same property.

Vergara also asserts that because he tendered about $2,600 after his bankruptcy petition was dismissed, and asked for a payment plan, that he had somehow cured the default, specified in the notice of default as over $6,000. His argument seems to be that because the notice of default refers to his failure to make all subsequent installments, and he tried to pay an installment in March 2002, the notice of default became inaccurate. Put another way, he believes that he can retroactively invalidate the notice of default. He cites no authority for this proposition: The notice of default speaks as of the time of its recordation.

Vergara also claims that because he paid on the junior note, the statement in the notice of default that he had not paid all installments was incorrect. This claim fails because the notice of default pertains to and only to the senior note and Vergara fails to show any legal requirement that it had to address the status of the junior note.

At oral argument, Vergara suggested that Melmet could be liable based on his negligence in conducting the sale, and suggested Melmet was liable for breach of fiduciary duties. For the reasons stated elsewhere, we conclude Vergara has not pleaded any actionable irregularities in the sale. Further, Melmet, although nominally a trustee, was not a trustee with fiduciary duties to Vergara. Just as a panda is not an ordinary bear, a trustee of a deed of trust is not an ordinary trustee. (Stephens, Partain & Cunningham v. Hollis (1987) 196 Cal.App.3d 948, 955.) The duties of a trustee under a deed of trust are strictly limited and defined by the contract of the parties and the statutes. (I. E. Associates v. Safeco Title Ins. Co. (1985) 39 Cal.3d 281, 287-288.) Thus, to the extent that Vergara seeks to hold Melmet liable for the loss of the windfall, for failing to act as Vergaras fiduciary in conducting the sale, he fails to state a claim against Melmet.

II. Appellant Provided Additional and Valuable Consideration Under the Second Deed of Trust. Such New and Valuable Consideration Bestow[s] New . . . Interests in the Home not Extinguished by the Foreclosure.

Despite the automatic bankruptcy stay, Vergara began making payments to keep the junior note current. Nowhere in his briefs or pleadings does he explain why he did this, and because the foreclosure sale on the senior note did not generate a surplus, these payments proved to be a waste of money.

Vergara asserts that these payments represented new consideration giving him an interest in the property springing afterand therefore not affected bythe notice of default. He then sets out mathematical formulae that he claims describe the legal relationships between the parties, and reasons that he now has some interest in the proceeds of Heritages sale of the house six weeks after the foreclosure sale.

Vergara does not cite legal authority in support of this claim. He does provide a hornbook quotation for the proposition that any detriment will support a promise. That is not an adequate proposition to support his argument. Any interests Vergara could derive from the junior note were subordinate to the interests the lender deriving from the sale based on the senior note. (See 4 Witkin, Summary of Cal. Law (10th ed. 2005) Secured Transactions in Real Property, 48; 4 Miller & Starr, Cal. Real Estate (3d ed. 2000) Deeds of Trust and Mortgages, 10:208, 10:213.) Because Vergara does not allege that the foreclosure sale left a surplus, there was nothing to satisfy the junior note or any other claims. (Cf. Caito v. United California Bank (1978) 20 Cal.3d 694, 701.)

III. The Foreclosure Sale was Defective because the Price Obtained was Grossly Inadequate and the Conduct of the Sale was Unfair and Irregular.

Heritage sold the property for a higher price than it paid at the foreclosure sale. Vergara asserts he is entitled to share in what he describes as the windfall. Not so.

The California Supreme Court has explained that even a large difference in price between the foreclosure sale and market value does not of itself establish any actionable wrong:

Neither appraisal nor judicial determination of fair market value is required as part of nonjudicial foreclosure of real property securing a loan. [Citation.] Nor is there any requirement that the sales price approximate the fair market value of the property. [I]t is settled that Where there is no irregularity in a nonjudicial foreclosure sale and the purchaser is a bona fide purchaser for value, a great disparity between the sales price and the value of the property is not a sufficient ground for setting aside the sale. (Dreyfuss v. Union Bank ofCalifornia (2000) 24 Cal.4th 400, 409 (Dreyfuss).)

Vergara asserts that gross inadequacy of price coupled with even slight unfairness or irregularity is a sufficient basis for setting the sale aside. This is an almost correct statement of law, with the proviso that the irregularity must have contributed to the inadequate sale price or injured the trustor. (Knapp, supra, 123 Cal.App.4th at pp. 93-97; 6 Angels, Inc. v. Stuart-Wright Mortgage, Inc. (2001) 85 Cal.App.4th 1279, 1284-1285; Lo v. Jensen (2001) 88 Cal.App.4th 1093, 1098; Whitman v. Transtate Title Co. (1985) 165 Cal.App.3d 312, 323.) But Vergara has failed to show any irregularity in the foreclosure sale, only the fact that the lender later sold the property for more money.

Vergara cites Angell v. Superior Court (1999) 73 Cal.App.4th 691 in support of his claim, but that case is inapposite. There, the lendersought to nullify a foreclosure sale based on its mistake in thinking that there were two separate deeds of trust securing two notes; the notice of default only accounted for one of the two notes secured by the deed of trust and was therefore defective. The court held that because the sale price was grossly inadequate and the notice of default was defective, the trustee properly nullified the sale. (Id. at pp. 699-702.) Here, two separate deeds of trust secured two notes, and the notice of default correctly stated the default and specified the applicable deed of trust.

Vergara claims the lender must have known property values had increased and he asserts the lender had some duty to share that increase with him, or to bid more at the sale, as a matter of good faith. However, he fails to provide authority supporting this claimed duty. He cites to a hoary New Hampshire case, to the effect that compliance with statutory notice requirements is not always enough to satisfy a trustees duty to try to achieve the best sale price. (Wheeler v. Slocinski (1926) 82 N.H. 211 [131 A. 598, 600-601].) Similarly, in California, a foreclosure sale is made in publicto the highest bidder (Civ. Code, 2924g, subd. (a), 2924h, subd. (c)) and the trustee owes a duty to conduct the sale fairly and openly and to secure the best possible price for the benefit of the trustor. (Block v. Tobin (1975) 45 Cal.App.3d 214, 221.) But this does not mean that under California lawa lender must share in any surplus if it resells the property for more money than it paid at the foreclosure sale.

Vergaras loan papers allowed Heritage to foreclose in the event of default. There is no breach of duty when a party does that which is explicitly allowed by an agreement, or simply declines to renegotiate an agreement. (See Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 373-374; Storek & Storek, Inc. v. Citicorp Real Estate, Inc. (2002) 100 Cal.App.4th 44, 61-64.)

Although Vergara asserts defendants should have taken more measures to get a better price at the foreclosure sale, he does not say what they should have done and in particular he does not allege that the sale itself was irregular (such as by bid rigging, improper timing and so forth).

Because he has failed to show any irregularity in the public sale Vergara can point to and only to the fact that Heritage resold the property for more money, a fact which of itself is not actionable. (Dreyfuss, supra, 24 Cal.4th at p. 409.) If Vergara thought the foreclosure price offered by Heritage was too low, he was free to bid more, like anyone else. He claims in passing that the alleged problems with the notice of default prevented him from bidding at the sale, but he offers no reason why this was so.

IV. Requested Relief must be Granted because it is a Suitable Remedy which Safeguards Appellants Due Process Rights without Undue Harm to Respondents Interests.

Vergara makes an equitable argument which we quote:

With respect to the remedial nature of appellants requested relief, appellant asserts that the Kaldor-Hicks test of efficiency is the proper guide to determine the relative harms to each party. The Kaldor-Hicks test of efficiency asks whether the proposed allocation of resources (or remedy), as compared to the alternative, will make at least one person better off in such a degree that the gain will be sufficient to compensate all persons who are made worse-off.

In support of this bold request for us to redistribute the wealth so as to do what we think is best for society, Vergara cites a law review article cited in a treatise. He provides no authority indicating the Kaldor-Hicks test has been adopted in California. Instead, California follows the Pomeroy primary right theory, in which a judicial action consists of a primary right possessed by the plaintiff, a corresponding primary duty owed by the defendant and a delict by the defendant which breaches the primary right and duty. (4 Witkin, Cal. Procedure (4th ed. 1997) Pleading,  24, p. 85; see Miranda v. Shell Oil Co. (1993) 17 Cal.App.4th 1651, 1658 [following Witkin].)

Vergara also argues his rights will be protected by allowing him to file a second amended complaint so a trier of fact will evaluate its merits; he views this as a suitable remedy and an efficient allocation of resources. But because the proposed second amended complaint fails to state any legal claim for relief, allowing it to be filed would be futile: There is no right to go to trial on a complaint that does not state a claim for relief. His vague assertion that For every wrong there is a remedy, (Civ. Code, 3523) does not satisfy the requirement that Vergara, as the appellant on demurrer, must show that some actionable wrong was done to him, as indicated by his proposed complaint.

DISPOSITION

The judgment is affirmed. Vergara shall pay Melmets and Heritages costs on appeal.

MORRISON , J.

We concur:

SIMS , Acting P.J.

ROBIE , J.