Ozkay v. Equity Wave Lending, Inc.

[3] 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA [6] 7 ESER OZKAY, et al., Case No. 20-cv-08263-JST 8 Plaintiffs, ORDER GRANTING PRELIMINARY INJUNCTION v. [9] Re: ECF No. 13 10 EQUITY WAVE LENDING, INC., et al., Defendants. [12] 13 Having granted Plaintiffs’ ex parte application for a temporary restraining order, at issue 14 now is the Court’s order to show cause why a preliminary injunction should not issue to continue 15 to restrain and enjoin the sale of Plaintiffs’ Property pending trial in this action. ECF No. 13. 16 To be entitled to a preliminary injunction, a plaintiff must satisfy the familiar four-factor 17 test: A plaintiff “must establish that he is likely to succeed on the merits, that he is likely to suffer 18 irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, 19 and that an injunction is in the public interest.” Am. Trucking Ass’ns, Inc. v. City of Los Angeles, [20] 559 F.3d 1046, 1052 (9th Cir. 2009) (quoting Winter v. Nat. Res. Def. Council, 555 U.S. 7 , 20 21 (2008)). To grant preliminary injunctive relief, a court must find that “a certain threshold showing 22 [has been] made on each factor.” Leiva-Perez v. Holder, 640 F.3d 962, 966 (9th Cir. 2011) (per 23 curiam). Assuming that this threshold has been met, “‘serious questions going to the merits’ and a 24 balance of hardships that tips sharply towards the plaintiff can support issuance of a preliminary 25 injunction, so long as the plaintiff also shows that there is a likelihood of irreparable injury and 26 that the injunction is in the public interest.” All. for the Wild Rockies v. Cottrell, 632 F.3d 1127 , 27 1135 (9th Cir. 2011). 1 claims, Plaintiffs’ remaining causes of action are based on two theories. The first involves 2 allegations that Defendants improperly conditioned the reinstatement of their loan on the curing of 3 the default of a senior lien on the Property. The second involves allegations that Defendants failed 4 to adhere to the terms of a previous loan modification agreement. Finding that Plaintiffs are likely 5 to prevail on the first theory, the Court does not reach the remainder of Plaintiff’s arguments. 6 California Civil Code Section 2924c “provides that when a mortgage loan is accelerated 7 due to default, the borrower can reinstate the loan” by making certain payments within a certain 8 period of time. Sutton v. Eagle Vista Equities LLC, No. 19-cv-03880-EMC, 2020 WL 571056 , at 9 *5 (N.D. Cal. Feb. 5, 2020). Specifically, “[r]einstatement requires payment of: the defaults 10 identified in the notice of default, defaults on ‘recurring obligations,’ and reasonable costs, 11 expenses, and fees incurred in enforcing the obligation or security.” In re Takowsky, No. ADV 12 11-02468, 2014 WL 5861379 , at *4 (B.A.P. 9th Cir. Nov. 12, 2014) (quoting Cal. Civ. Code 13 § 2924c(a)(1)). “Recurring obligations” include amounts of principal and interest on the loan 14 subject to the deed of trust and amounts advanced on any senior liens “due after the notice of 15 default is recorded.” Cal. Civ. Code § 2924c(a)(1). 16 Foreclosure is a “drastic sanction” and a “draconian remedy,” Baypoint Mortg. Corp. v. 17 Crest Premium Real Estate etc. Trust, 168 Cal. App. 3d 818, 827, 830 , (1985), and therefore the 18 statutory requirements “must be strictly followed,” Bisno v. Sax, 175 Cal. App. 2d 714 , 720 19 (1959). California law “provides that the power of sale shall not be exercised until the notice of 20 default, stating that a breach of an obligation has occurred, has been recorded.” Anderson v. Heart 21 Fed. Sav. & Loan Assn., 208 Cal. App. 3d 202, 214 (1989) (internal quotations, alterations, and 22 citations omitted). “The person relying upon the notice of default is ‘bound’ by its provisions, and 23 ‘cannot insist upon any grounds of default other than those stated in that notice.’” Sys. Inv. Corp. 24 v. Union Bank, 21 Cal. App. 3d 137, 153 (1971) (quoting Tomczak v. Ortega, 240 Cal. App. 2d 25 902, 904 (1966)). “If the ‘particular default’ noticed is cured the deed of trust must be 26 reinstated.” Anderson, 208 Cal. App. 3d at 211 (citation omitted) (emphasis in original). For 27 example, in Anderson, the court held that a trustor who tenders adequate payment to cure the 1 obligation, and that a trustee is not entitled to insist on payment of obligations not set forth in the 2 notice of default as a condition of reinstatement. Id. at 213-14 . 3 Defendants argue that subsection (b) of Section 2924c permits them to foreclose even 4 though Plaintiffs have tendered the amounts set forth in the May 19 notice of default because 5 Plaintiffs have not also cured a senior U.S. Bank lien. ECF No. 19 at 13-14. Subsection (b) 6 requires beneficiaries, like Defendants, to include language in the Notice of Default that the 7 beneficiary or mortgagee “may require as a condition to reinstatement that you provide reliable 8 written evidence that you paid all senior liens, property taxes, and hazard insurance 9 premiums.” Cal. Civ. Code § 2924c(b)(1). The California legislature added the quoted language 10 from subsection (b) with the intent “to supersede the holding in Anderson v. Heart Federal 11 Savings . . . to the extent that decision restricted the ability of mortgagees and beneficiaries under 12 trust deeds to demand payment of all amounts in default under the terms of an obligation secured 13 by a mortgage or trust deed as a condition to reinstatement of the obligation and avoidance of a 14 sale of the security property to satisfy the obligation.” Stats. 1990, ch. 657. 15 Relying on subsection (b), Defendants argue that they “requested reliable written evidence 16 from the Plaintiffs that they had paid all senior liens,” and that Plaintiff Eser Ozkay promised to 17 provide it but has not done so. ECF No. 19 at 6. They contend that Plaintiff is in default under the 18 senior loan to U.S. Bank and has been since September of 2019. Id. Since he has failed to 19 provide evidence that the U.S. Bank loan is current, they contend that subsection (b) gives them 20 the right to foreclose under the May 2019 Notice of Default. 21 The Court is not persuaded by this argument. The Court concludes that while Section 22 2924c superseded Anderson in part, the legislature did not abrogate Anderson’s holding that a 23 notice of default must contain a clear statement of all alleged defaults in order to inform the 24 borrower what he or she has to do to cure the default. See In re Takowsky, 2014 WL 5861379 , at 25 *6. Thus, the inclusion of language in the notice of default that the beneficiary “may” require 26 payment of senior liens as a condition of reinstatement is not sufficient – the beneficiary must 27 identify the specific obligation in question and make clear that payment of the lien is a 1 requirement. Id.1 Enforcing this requirement does not, to quote the California legislature, 2 undermine the lender’s ability to “demand payment of all amounts in default under the terms of an 3 obligation secured by a mortgage or trust deed as a condition to reinstatement of the obligation 4 and avoidance of a sale of the security property to satisfy the obligation.” See Stats. 1990, ch. 657. 5 It merely requires that the lender actually make such a demand beyond merely indicating that they 6 may do so. 7 As applied here, this means that Defendants cannot require payment of the U.S. Bank 8 senior lien as a condition of setting aside the Notice of Default because the Notice did not identify 9 that lien. ECF No. 9 at 10; see also Notice of Default, ECF No. 9-2 at 6-7. Defendants are not 10 entitled to condition reinstatement on payment of the senior lien until they issue a new and 11 different Notice of Default listing that lien as a “particular default.” See Anderson, 208 Cal. App. 12 3d at 211. 13 The Court therefore finds that Plaintiffs have established that they are likely to succeed on 14 the merits of at least their § 2924c claim. The Court also finds that Plaintiffs are likely to suffer 15 irreparable harm in the absence of an injunction. See Cal. Civ. Code § 3387 (“It is to be presumed 16 that the breach of an agreement to transfer real property cannot be adequately relieved by 17 pecuniary compensation.”). Finally, the Court finds that the balance of equities and the public 18 interest tip in Plaintiff’s favor. “Causing a slight delay for Defendant’s sale of the Subject 19 Property is greatly outweighed by Plaintiff's potential loss of his home . . . . [And] it is in the 20 public interest that home foreclosure sales do not occur until the merits of an individual’s case 21 [have] been assessed.” Friedman v. Wells Fargo Bank N.A., No. 14-cv-00123-BRO(PLAX), 2014 22 WL 12572925 , at *2 (C.D. Cal. Jan. 23, 2014). 23 Lastly, the Court turns to the question of security. Rule 65(c) of the Federal Rules of Civil 24 Procedure provides that a district court may grant a preliminary injunction “only if the movant [25] 26 1 The Court is aware of the contrary holding in Grewe v. Clark, No. G047430, 2013 WL 5873268 , at *4 (Cal. Ct. App. Oct. 31, 2013). Unlike unpublished opinions of the federal courts, 27 unpublished California opinions have no persuasive or precedential value, cf. Haligowski v. 1 gives security in an amount that the court considers proper to pay the costs and damages sustained 2 || by any party found to have been wrongfully enjoined or restrained.” Fed. R. Civ. P. 65(c). The 3 district court retains discretion “as to the amount of security required, if any.” Johnson v. 4 Couturier, 572 F.3d 1067, 1086 (9th Cir. 2009) (internal quotation marks and citations omitted) 5 (emphasis in original). Defendants do not address the question of security in their opposition to 6 || Plaintiffs’ motion, and the Court will not set a bond amount based only on speculation.” See 7 Colonial Life & Accident Ins. Co. v. Stentorians-L.A. Cty. Black Fire Fighters, No. 2:13-cv-92358 CAS(FFMX), 2014 WL 12629695 , at *3 (C.D. Cal. Mar. 27, 2014) (“In fixing the amount of 9 security required, a court is not required to order security in respect of claimed economic damages 10 || that are no more than speculative.” (quoting /nt’/ Equity Invs., Inc. v. Opportunity Equity Partners 11 Ltd., 441 F. Supp. 2d 552, 566 (S.D.N.Y. 2006)). Plaintiffs are not required to give security a 12 pursuant to Federal Rule of Civil Procedure 65(c). 13 Accordingly, the Court orders that Defendants, and their agents and employees, are v 14 || ENJOINED from engaging in or performing, or causing to be performed, the sale of Plaintiffs’ 15 property, commonly known as 2275 Country Club Drive, Novato, CA 94949, based on the Notice 16 of Default recorded May 20, 2019, ECF No. 9-2 at 6, as well as any Notice of Trustee’s Sale based = 17 on or arising from the 2019 Notice of Default, see, e.g., ECF No. 9-2 at 17. 18 IT IS SO ORDERED. 19 Dated: December 28, 2020 20 JON S. TIGAR 2] ited States District Judge [23] 24 yp 25 > Although the Court raised the question of the total amount owing under the junior and senior liens at this morning’s hearing, the Court is not persuaded that a bond in that amount is 26 appropriate. “A preliminary injunction bond amount must provide compensation for damages ‘directly attributable to the improvidently issued injunction.’” Colonial Life, 2014 WL 12629695 07 at *3 (quoting 11A Charles A. Wright & Arthur R. Miller, Fed. Practice & Procedure § 2954 (2d ed.)). Assuming Defendants issue another Notice of Default containing all of the liens on which 28 they assert the right to foreclose, the Court does not see how Defendants will be damaged in the interim in the full amount of both liens.