Ray v. U.S. Bank Trust, N.A.

Background

Randall David Ray sued U.S. Bank Trust, N.A., as trustee for LSF10 Master Participation Trust (LSF10), and Caliber Home Loans, Inc. The case began in California state court after foreclosure proceedings involving property identified in the complaint as 22435 Moyers Street in Castro Valley, and LSF10 removed it to federal court.

According to the allegations accepted as true for purposes of the motion, Ray obtained a $438,662 loan from Ameriquest Mortgage Company in 2004, secured by a deed of trust on the property. The deed of trust was later assigned to CitiFinancial Mortgage Company and then to LSF10. A notice of default was recorded in February 2020, and a notice of sale was recorded in May 2021. The opinion’s background states that a trustee’s deed recorded on November 9, 2021, reported that the property had been sold to Michelle Vasey for $763,600. In its later discussion, however, the opinion refers to the foreclosure sale as occurring on September 8, 2021.

Ray asserted five claims against LSF10 and Caliber: wrongful foreclosure; breach of the implied duty of good faith and fair dealing; cancellation of instruments; violations of California Business and Professions Code section 17200, which addresses unfair competition; and quiet title. LSF10 moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to state a legally recognized claim. Caliber filed a separate motion and did not join LSF10’s motion.

Analysis

Wrongful foreclosure. Ray alleged that the foreclosure was defective because Trustee Corps recorded the notice of default without a recorded substitution of trustee and because Caliber did not contact him before the notice of default was recorded. The court noted that Ray appeared to abandon the substitution theory. It held that California Civil Code section 2923.5 could not support a wrongful-foreclosure claim after the property had already been sold because the remedy for violating that statute is postponement of a sale before it occurs. The court dismissed this claim and did not reach LSF10’s separate argument about Ray’s failure to offer to pay the loan balance.

Good faith and fair dealing. Ray argued that LSF10 failed to credit all payments made under the deed of trust before recording the notice of default. The court found these allegations conclusory because Ray did not identify when or how payments were allegedly misapplied and offered no factual support for his assertion that the notice of default was inaccurate. The court dismissed this claim.

Cancellation of instruments. Ray sought cancellation of the notice of default and related recorded documents. His complaint relied on alleged problems with the evidence supporting the notice of default and the substitution of trustee; in his opposition, he also relied on allegedly uncredited payments and the failure to contact him before the notice of default. The court concluded that Ray had abandoned or failed to support the substitution and evidence theories, that the payment theory was conclusory, and that section 2923.5 could not provide a basis for relief after the sale. The court concluded that both theories failed.

Unfair competition. Ray alleged that LSF10 engaged in unlawful, unfair, or fraudulent business practices by recording documents without reliable and competent evidence and by exposing him to unnecessary fees, charges, and penalties. The court first addressed standing, meaning the requirement that a private plaintiff allege an economic injury caused by the challenged conduct. The court held that Ray did not allege facts showing that LSF10’s conduct, rather than his default on the loan, caused the loss of his home. It dismissed the unfair-competition claim.

Quiet title. Ray sought a ruling determining ownership of the property. The court held that LSF10 no longer had an interest in the property because it had been sold to a third party. Therefore, Ray could not state a quiet-title claim against LSF10, and the court dismissed that claim.

Disposition

The court granted LSF10’s motion to dismiss with leave to amend and dismissed Ray’s claims against LSF10 with leave to amend. The court did not grant or deny Caliber’s motion. Instead, because Caliber’s arguments were substantially similar, the court ordered Ray to show cause in writing by May 9, 2023, why Caliber’s motion should not also be granted. The court stated that an amended complaint had to be filed by May 31, 2023. Donna M. Ryu, Chief Magistrate Judge, signed the order.