Summary of Decision: In a recent decision, the California Court of Appeals, Sixth Appellate District held that the trial court improperly took judicial notice of U.S. Bank, N.A.’s (“USB”) recorded Declaration of Compliance with California Civil Code section 2923.5 (“Section 2923.5”) in sustaining USB’s demurrer. In reversing the trial court, the Appellate Court reasoned that even though the Declaration was recorded with a Notice of Default, whether USB actually complied with Section 2923.5 was the type of fact reasonably subject to dispute, and thus, not a proper subject of judicial notice.
Factual Background and Trial Court ruling: In December 2003, the plaintiff obtained a loan of $1.5 million, which was secured by a deed of trust on her residential property in Saratoga, California. The deed of trust identified the plaintiff as the “Borrower,” Gateway as the “Lender,” Financial Title Company as “Trustee,” and MERS as “acting solely as a nominee for Lender and Lender’s successors and assigns.” MERS is also identified as “the beneficiary under this Security Instrument.” The deed of trust further stated that “Borrower understands and agrees that MERS holds only legal title to the interests granted by the Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property.” After the plaintiff stopped making payments pursuant to the terms of the promissory note, NDEx, which identified itself as an agent for MERS, served the plaintiff with a notice of default on June 10, 2009. A declaration of compliance with section 2923.5 was recorded with the notice of default.
The plaintiff’s second amended complaint alleged nine causes of action, one of which was for unlawful business practices (Bus. & Prof. Code, § 17200 et seq.) alleging that USB failed to comply with Section 2923.5 because it did not contact or attempt to contact her to discuss her options to avoid foreclosure prior to filing the notice of default.
USB filed a demurrer to the second amended complaint. In support of its demurrer, USB requested judicial notice of, among other documents, the Notice of Default and Declaration of Compliance with Section 2923.5. The trial court granted the request for judicial notice, sustained the demurrer without leave to amend, and dismissed the action with prejudice.
Appellate Court’s Analysis: The Appellate Court reasoned that whether a defendant has complied with a statute is a question of fact. The second amended complaint alleged USB failed and refused to evaluate the plaintiff’s finances and did not comply with the requirements of section 2923.5 because it did not contact the plaintiff until “on or about July 10, 2009,” which was after it had recorded the notice of default on June 12, 2009. Therefore, the Court held that there was a question of fact as to whether USB complied with Section 2923.5. The Court noted that judicial notice of the Declaration of Compliance with Section 2923.5 was inappropriate to the extent that the trial court concluded that it established compliance with the statute.
Takeaway: The Appellate Court’s ruling stands for the proposition that a foreclosing party cannot conclusively establish its compliance with Section 2923.5 by requesting judicial notice of a recorded a Declaration. If California courts apply this ruling at the pleading stage, it may be very difficult to successfully demur to specific allegations involving non-compliance with Section 2923.5.