Granados v. City National Bank

Background

Elizabeth Granados moved for a preliminary injunction to continue preventing Wharton Note Company from foreclosing on her property. In July 2023, the court had granted Granados’s request for a temporary restraining order after finding that the balance of hardships favored her because the foreclosure was imminent. The parties later agreed several times to extend that order and postpone the preliminary-injunction hearing.

The opinion states that Granados and her former husband obtained a $120,000 second-position mortgage from City National Bank in 2005 and defaulted in 2010. The bank accelerated the loan. After Granados’s former husband filed for bankruptcy in 2012, Granados alleged that the loan remained her responsibility because only her name appeared on the mortgage. She further alleged that she stopped receiving statements or notices by 2015 and believed the loan had closed and was no longer accruing interest.

In 2022, Granados received notice that the loan’s servicing rights and ownership had been transferred to Wharton Note Company. In 2023, Wharton recorded a notice of default stating that $239,278.00 was owed, including monthly interest charged since 2015, and later recorded a notice of trustee’s sale. Granados’s second amended complaint alleges violations of the federal Truth in Lending Act, the Fair Debt Collection Practices Act, federal mortgage-servicing regulations, several California statutes governing default notices, and California’s Unfair Competition Law.

Legal standard

A preliminary injunction is an extraordinary court order issued before a final judgment. The person seeking it must show a likelihood of success on the merits, likely irreparable harm without the order, that the balance of hardships favors the person seeking relief, and that the injunction serves the public interest. Under the Ninth Circuit’s sliding-scale approach, serious questions on the merits may sometimes suffice if the other required factors are also shown. But the court does not need to consider the remaining factors if the required threshold showing on the merits is absent.

The court also explained that preliminary relief must have a sufficient connection to the claims in the underlying lawsuit and must be the same general type of relief that could be awarded after a final judgment.

Court’s reasoning

The court found that Granados had not made the required threshold showing. It identified a disconnect between her theory of liability and the relief she requested. Granados alleged that delays in collecting the loan and failures to communicate its status caused improperly assessed interest, fees, and other debt. But, the court reasoned, even if those allegations were proven, Granados had not explained why that conduct would make Wharton liable for wrongful foreclosure.

The court also noted that Granados alleged that the mortgage default and the start of foreclosure proceedings occurred years before the notice violations and improper interest and fee assessments that she identified as the misconduct beginning in 2015. Based on the timeline in her own complaint, the court found it illogical to conclude that the alleged later misconduct caused the original default and foreclosure.

The court further observed that Granados did not bring a wrongful-foreclosure claim. Instead, she asserted federal and state claims concerning mortgage-loan notice requirements. Granados did not cite authority showing that success on those claims would entitle her to stop the foreclosure. The court stated that her federal claims appeared to seek damages, attorney fees, and costs rather than an order stopping foreclosure. Although she alleged that an injunction might be available for some state claims, she still failed to connect the requested injunction to the conduct alleged in the complaint.

The court also stated that, in a wrongful-foreclosure action based on irregularities in the foreclosure process, a borrower generally must show that the secured debt was tendered or that tender was excused. The court noted that Granados had not technically pleaded a wrongful-foreclosure claim. In addition, the court found that her amended complaint had not cured previously identified defects in her Unfair Competition Law claim, including the failure to adequately allege that the asserted notice, fee, and interest practices caused her claimed injury.

Disposition

The court DENIED Granados’s motion for a preliminary injunction. It TERMINATED the temporary restraining order issued earlier in the case. The court also set a case-management conference for January 14, 2025, and directed the parties to file a joint case-management statement by January 7, 2025.