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Steele v. Wells Fargo Bank N.A.

United States District Court, W.D. Washington, Seattle

June 26, 2018

KEVIN D. STEELE, et al., Plaintiffs,
WELLS FARGO BANK N.A., et al., Defendants.




         Defendants Wells Fargo Bank, N.A. (“Wells Fargo”) and HSBC Bank USA, N.A., as Trustee for Wells Fargo Asset Securities Corporation, Mortgage Pass-Through Certificates, Series 2007-7 (“HSBC”)[1] (collectively, “Moving Defendants”) move to dismiss Plaintiffs Kevin D. Steele and Stephanie A. Steele's (collectively, “the Steeles”) complaint under Federal Rule of Civil Procedure 12(b)(6). (See MTD (Dkt. # 13); see also Compl.); Fed.R.Civ.P. 12(b)(6). The Steeles oppose the motion. (See Resp. (Dkt. # 16).) The court has reviewed the motion, the relevant portions of the record, and the applicable law. Being fully advised, [2] the court GRANTS the motion and DISMISSES the Steeles' complaint with leave to amend within 14 days.


         The Steeles purchased a residence located at 20705 S.E. 24th Street, Sammamish, Washington 98075 (“the Property”). (Compl. at 2.) On February 16, 2007, Mr. Steele executed an Initial Interest Note (“Note”) in the original amount of $999, 000.00 in favor of Wells Fargo. (MTD, Ex. A (attaching a copy of the Note).)[3] The Note is secured by a Deed of Trust on the Property in favor of Wells Fargo. (Id., Ex. B (attaching copy of the Deed of Trust).)[4] The Deed of Trust is recorded in the records of King County, Washington, under Recorder's Number 20070228001463.[5] (See id.) HSBC, as Trustee, is the current beneficiary of the Deed of Trust. (Id., Exs. C-E.)

         Mr. Steele failed to timely make all payments due on the Note since at least 2011 when Defendant Quality Loan Service Corporation of Washington (“QLSCW”) first filed a Notice of Trustee's Sale with the King County Recorder's Office.[6] (Id., Ex. C (attaching Notice of Trustee's Sale); see also Compl. at 2 (“Plaintiffs began experiencing financial hardship leading to a default in Mortgage payments . . . .”).) In connection with a potential foreclosure, Wells Fargo sent Mr. Steele a letter dated June 3, 2014, notifying his of certain pre-foreclosure options pursuant to RCW 61.24.031. (Id., Ex. D (attaching June 3, 2014, letter).)[7] The June 3, 2014, letter informs Mr. Steele that he may request a meeting with Wells Fargo “to assess [his] financial ability to modify or restructure the loan obligation or consider other alternatives to foreclosure.” (Id. at 3.) The letter listed “possible outcomes of the meeting, ” including “a temporary or permanent loan modification” and “an agreement to conduct a short sale.” (Id.)

         As of the most recent Notice of Trustee's Sale, which was filed in 2017, Mr. Steele's arrearage on the Note reached $430, 658.41. (Id. Ex. E.) On October 12, 2017, QLSCW recorded a Notice of Trustee's Sale, which scheduled a foreclosure sale for the Property on February 16, 2018. (Id.) On January 30, 2018, the Steeles filed this lawsuit seeking to enjoin the trustee's sale. (See Compl.) Moving Defendants assert that QLSCW did not perform a foreclosure sale on February 16, 2018. (See MTD at 3.)

         The Steeles allege that Wells Fargo indicated a willingness to consider a review of their financial circumstances to determine their eligibility for a short-sale of the Property. (Compl. at 3.) The Steeles also allege that they have “attempt[ed] to modify” their Note with Wells Fargo. (Id. at 4.) The Steeles do not claim that they qualify for a short sale of the Property or for a modification of the Note. (See generally id.) But the Steeles generally allege claims for (1) “Short Sale, ” (2) “Mortgage Modification, ” (3) “Preliminary Injunction, ” and (4) a violation of Washington's Consumer Protection Act (“CPA”), RCW ch. 19.86. (Id. at 3-4.) Moving Defendants seek to dismiss each claim. (See generally MTD.) The court now considers Moving Defendants' motion.

         III. ANALYSIS A. Legal Standard

         When considering a motion to dismiss under Rule 12(b)(6), the court construes the complaint in the light most favorable to the nonmoving party. Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). The court must accept all well-pleaded allegations of material fact as true and draw all reasonable inferences in favor of the plaintiff. See Wyler Summit P'ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 661 (9th Cir. 1998). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1003 (9th Cir. 2010). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.

         The court, however, need not accept as true a legal conclusion presented as a factual allegation. Id. Although the pleading standard announced by Federal Rule of Civil Procedure 8 does not require “detailed factual allegations, ” it demands more than “an unadorned, the-defendant-unlawfully-harmed-me accusation.” Id. (citing Twombly, 550 U.S. at 555). A pleading that offers only “labels and conclusions or a formulaic recitation of the elements of a cause of action” will not survive a motion to dismiss under Rule 12(b)(6). Id.

         B. Claims for a “Short Sale, ” Note “Modification, ” and an Injunction[8]

         Mr. Steele argues that the court should enjoin the Property's sale in foreclosure on “equitable grounds” to provide Wells Fargo with sufficient time to determine whether the Note is subject to modification or whether Wells Fargo will agree to a short sale.[9](Compl. at 3.) Wells Fargo argues that the Steeles fail to identify any legal, equitable, statutory, or common law grounds that would justify restraining the trustee's sale. (MTD at 5; see also generally Resp.) In its June 3, 2014, letter to Mr. Steele, Wells Fargo identified a loan modification agreement or an agreement to accept a short sale of the Property as “possible outcomes” of a meeting between Mr. Steele and Wells Fargo. (Mot. Ex. D at 3.) However, Wells Fargo did not promise either one of these outcomes. (See id.) Moreover, Wells Fargo was under no legal obligation to agree to either possibility. See Bhatti v. Guild Mortg. Co., No. C11-0480JLR, 2011 WL 6300229, at *10 (W.D. Wash. Dec. 16, 2011) (denying motion to amend complaint to state a claim for wrongful foreclosure because the defendant “was under no legal obligation to approve a short sale on Plaintiff's property or to approve a loan modification prior to the institution of foreclosure proceedings”); see also Vu Nguyen v. Aurora Loan Servs., LLC, 614 Fed.Appx. 881, 884 (9th Cir. 2015) (ruling that the district court did not err in dismissing the plaintiff's breach of contract and promissory estoppel claims because the plaintiff “fail[ed] to plead facts demonstrating a clear and unambiguous promise by [the defendant] to offer [the plaintiff] a loan modification that would prevent foreclosure”).

         The Steeles' reliance on RCW 61.24.031 is also unavailing. (See Compl. at 3.) Under RCW 61.24.031, the beneficiary of the deed of trust “must first attempt to communicate with the borrower who is in default through a series of statutorily prescribed methods.” Brown v. Wash. State Dep't of Commerce, 359 P.3d 771, 774 (Wash. 2015) (citing RCW 61.24.031). “The beneficiary must send a letter to the borrower containing certain information, including that the borrower should contact a housing counselor to discuss mediation . . . .” Id. (citing RCW 61.24.031(1)(c)). “If the borrower responds . . ., the notice of default cannot issue for at least 90 days.” Id. (citing RCW 61.24.031(1)(a)). The statute provides that during this 90-day period, the parties “shall attempt to reach a resolution, ” such as a loan modification. RCW 61.24.031(1)(f)(4). Nevertheless, “[a]fter the relevant time period elapses and if the parties have not agreed to modify the loan, the trustee or beneficiary may then issue the notice of default.” Brown, 359 P.3d at 774 (citing RCW 61.24.031(a)(1)). Here, Wells Fargo sent the statutorily required letter on June 3, 2014. (See MTD, Ex. D.) Although the parties “shall attempt” to resolve the issue short of a foreclosure, there is ...

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