The Court of Appeal of the State of California, First Appellate District, recently upheld a trial court’s demurrer without leave to amend in a case in which a judicially noticed Purchase and Assumption Agreement (“P&A Agreement”) contradicted the borrower’s allegations that a subsequent purchaser of the loan had no authority to foreclose on her property.

A copy of the opinion can be found at:  Link to Opinion.

In 2004, a borrower obtained a $450,000 loan secured by a deed of trust recorded against her property. In 2008, the lender and first beneficiary failed and a receiver was appointed. The receiver then sold the mortgage loan at issue to a second beneficiary and the transaction was memorialized in September 2008 in a P&A Agreement.

In March 2011, the foreclosure trustee recorded a notice of default claiming that the borrower was in arrears of $60,984.42. The deed of trust was then assigned to a third beneficiary and notice of sale was recorded.

In January 2012, the borrower filed the first of three lawsuits challenging foreclosure.  The borrower voluntarily dismissed the first lawsuit without prejudice. She then filed a second lawsuit, which she ultimately voluntarily dismissed without prejudice after the defendants’ demurrer was sustained with leave to amend.

In July 2013, the foreclosure trustee executed a third notice of sale, and the borrower then filed her third lawsuit.  In her latest lawsuit, the borrower alleged that the assignment of the deed of trust to the third beneficiary and foreclosure proceedings were both initiated without authority.

The defendants filed a demurrer and request for judicial notice. The trial court granted the request for judicial notice and sustained the demurrer with leave to amend. In the amended complaint, borrower asserted six causes of action:  cancellation of instruments under Cal. Civil Code section 3412; unfair competition under Cal. Business and Professions Code section 17200 et seq.; foreclosure commenced by entity lacking a beneficial interest in violation of sections 2924, subdivision (a)(6) and “2924(f)(3)” [sic]; declaratory relief; and two causes of action for alleged violation of the California Homeowner Bill of Rights (HBOR).  None of the claims alleged any wrongful foreclosure or alleged that the property was sold.

The defendants again filed a demurrer and request for judicial notice as to the P&A Agreement.  The trial court granted the request for judicial notice and sustained the demurrer without leave to amend, and dismissed the case.

The borrower then appealed.  The Appellate Court focused on the defendants’ argument that the borrower’s allegations regarding the third beneficiary and trustee’s supposed lack of authority to enforce the deed of trust was contradicted by matters subject to judicial notice – namely, the P&A Agreement.

Assuming that borrower had standing to assert a claim involving the P&A Agreement, the Appellate Court held that the borrower did not present any argument to challenge the trial court’s determination that the lack of authority to enforce the deed of trust was contradicted by the P&A Agreement.

By failing to present a challenging argument, the Appellate Court held that the borrower waived her claim that the finding was in error.  Even if borrower had not waived her claim to finding the trial court was erroneous in its ruling, the Appellate Court found no error in the trial court’s ruling.

The basis of borrower’s claim that the defendants lacked authority to initiate foreclosure proceedings were allegations that the judicially noticed P&A Agreement did not include the second beneficiary of the promissory note. Therefore, the borrower argued, the second beneficiary of the promissory note never became beneficiary and could not convey authority to foreclose.

However, the Appellate Court noted that the P&A agreement stated that the secondary beneficiary purchases all mortgage servicing rights and obligations of the first beneficiary.  The Court held that the borrower failed to challenge the trial court’s determination that the P&A Agreement was subject to judicial notice, and failed to explain why the P&A Agreement did not cover the entity to which the lender sold her loan.

Thus, the Appellate Court found that the judicially noticed P&A Agreement contradicted the borrower’s allegations.

Secondly, the Appellate Court held that the borrower did not address how she could amend her complaint to assert a valid cause of action, and therefore forfeited any argument that the trial court abused its discretion in sustaining the demurrer without leave to amend.

Accordingly, the Appellate Court affirmed the trial court’s dismissal without leave to amend as the judicially noticed P&A Agreement contradicted the borrower’s allegations.