Richard Lueras appeals from a judgment entered after the trial court sustained without leave to amend a demurrer to his verified first amended complaint (the First Amended Complaint). After the foreclosure sale of his home, Lueras sued Bank of America, N.A., successor by merger to BAC Home Loans Servicing, LP (Bank of America), ReconTrust Company, N.A. (ReconTrust), and Federal National Mortgage Association, commonly called and referred to as "Fannie Mae." The First Amended Complaint asserted causes of action for negligence, breach of contract, violation of the Perata Mortgage Relief Act (Civ. Code, § 2923.5), fraud/misrepresentation, unfair and unlawful practices (Bus. & Prof. Code, § 17200), and to quiet title.
The First Amended Complaint included no allegations directed specifically to Fannie Mae, and we therefore affirm the judgment in its favor. As to Bank of America and ReconTrust, we affirm the judgment as to the causes of action for violation of Civil Code section 2923.5 and to quiet title, but, in all other respects, reverse and remand to permit Lueras to amend the First Amended Complaint.
The key fact alleged in the First Amended Complaint is that a mere 13 days before Bank of America foreclosed on Lueras's home, Bank of America falsely represented in writing to Lueras that no foreclosure sale would occur while Lueras was being considered for "other foreclosure avoidance programs." In so doing, Bank of America expressly and in writing informed Lueras he "will not lose [his] home during this review period." A Bank of America representative also informed Lueras the pending foreclosure sale would be postponed. Nevertheless, days later, Bank of America foreclosed on Lueras's home.
Another key point is the trial court sustained a demurrer without leave to amend to the First Amended Complaint — i.e., Lueras had filed only two complaints in a complicated and evolving area of law before facing dismissal. Given the standard of review and California's policy of liberality in granting of amendments, Lueras should be given an opportunity to amend the First Amended Complaint.
In reviewing the order sustaining the demurrer, we accept the factual allegations of the First Amended Complaint as true. (Committee for Green
In March 2007, Lueras refinanced his home loan in the amount of $385,000. The monthly payment on the 30-year loan was $1,965.10. To secure the loan, a trust deed against Lueras's home was recorded.
Lueras made every monthly payment due until he and his wife suffered financial hardship. In 2009, Lueras requested a loan modification from the lender, Bank of America, under the Home Affordable Modification Program (HAMP).
In 2009, Fannie Mae instituted the HomeSaver Forbearance program, which was available to those who did not qualify for HAMP loan modifications. According to the First Amended Complaint, "[t]he program was supposed to lead to a permanent plan so that the borrower could `save' their [sic] home and in the interim offer the owner a 6 month plan reducing the monthly payment by 30% to 50% less than the current mortgage payment." Fannie Mae's Announcement 09-05R,
Although Lueras requested a HAMP loan modification, "Bank of America apparently offered [him] the Forbearance program instead of the HAMP program." In a letter dated August 17, 2009, Bank of America notified Lueras that "you qualify for the Fannie Mae HomeSaver Forbearance™ program" and, as a consequence, he was eligible for reduced mortgage payments for a period of up to six months. The letter stated: "Under the HomeSaver Forbearance program, we are working with Fannie Mae, a government-sponsored enterprise, to reduce your mortgage payment by up to 50% for up to 6 months while we work with you to find a long-term solution."
Lueras accepted Bank of America's offer for reduced monthly payments under the HomeSaver Forbearance program by entering into a forbearance agreement (the Forbearance Agreement), which was attached as an exhibit to the First Amended Complaint. The Forbearance Agreement reduced the monthly payments on Lueras's home loan to $1,101.16 for six months, commencing on September 16, 2009. The Forbearance Agreement stated the "Deferral Period Payment" commenced on September 16, 2009, and ended on the earliest of (1) six months from "the execution date by Servicer"; (2) "execution of an agreement with Servicer for another resolution of my default under my loan Documents ..."; or (3) "my default under the terms of this Agreement." The Forbearance Agreement stated: "The Servicer will suspend any scheduled foreclosure sale, provided I continue to meet the obligations under this Agreement."
The Forbearance Agreement also stated: "During the Deferral Period, Servicer will review my Loan to determine whether additional default resolution assistance can be offered to me. At the end of the Deferral Period either (1) I will be required to recommence my regularly scheduled payments and to make additional payment(s), on terms to be determined by Servicer, until all past due amounts owed under the Loan documents have been paid in full, (2) I will be required to reinstate my Loan in full, (3) Servicer will offer to modify my Loan[,] (4) Servicer will offer me some other form of payment assistance or alternative to foreclosure, on terms to be determined solely by Servicer ..., or (5) if no feasible alternative can be identified, Servicer may commence or continue foreclosure proceedings or exercise other rights and remedies provided Servicer under the Loan Documents."
Meanwhile, Lueras submitted to Bank of America all information required to determine whether he qualified for a HAMP loan modification. In October 2010, while Lueras waited for Bank of America's determination, he was served with a notice of default by the trustee, ReconTrust. The notice of default stated the total amount in arrears was $64,424.98 as of October 19, 2010. It was not until this notice of default was recorded that Bank of America began to explore with Lueras alternatives to foreclosure. At that point, Lueras enlisted the aid of the California Attorney General's Office, which agreed to monitor and assist with the loan modification process on behalf of Lueras.
In December 2010, Lueras requested a loan modification package from Fannie Mae. In January 2011, Lueras returned the completed package to Fannie Mae, which sent a copy of it to Bank of America. The completed package included over 100 pages of documents from Lueras.
In February 2011, Lueras was served with a notice of trustee's sale with a scheduled sale date of February 22, 2011. Bank of America rescheduled the sale date a total of four times, ultimately setting the sale for May 18, 2011.
The First Amended Complaint alleged that Bank of America eventually determined Lueras was eligible for a HAMP loan modification and made an oral offer to modify the loan. Lueras accepted the offer. But, the First Amended Complaint also alleged that, in a letter dated May 5, 2011, Bank of America informed Lueras he was not eligible for a HAMP loan modification. The May 5, 2011 letter, which was attached as an exhibit to the First Amended Complaint, stated Bank of America was reviewing Lueras's financial information "to determine if there are other options available to you" and that Bank of America "will contact you within 10 days to let you know what other options are available to you and the next steps you need to take." The May 5 letter also stated: "If a foreclosure sale of your home is currently pending and on hold, that hold will continue and remain in effect while you are considered for other foreclosure avoidance programs." While advising Lueras not to ignore any foreclosure notices, the letter stated, "you will not lose your home during this review period."
In a letter to Lueras, dated May 6, 2011, Bank of America informed him it was reviewing his financial documents to determine whether he was eligible for a HAMP loan modification. The May 6 letter, which was attached as an exhibit to the First Amended Complaint, stated Lueras would receive one of three possible responses: (1) notification he had been approved for a trial period plan under HAMP, (2) notification he was not eligible for a HAMP loan modification, or (3) more information was needed to make a decision.
Lueras immediately contacted Bank of America about the May 6 letter. He was informed the letter was sent in error as his application had already "been approved" by Bank of America. Whitaker told Lueras the trustee's sale, which had been rescheduled for May 18, 2011, would be reset, pending approval by Fannie Mae. On Lueras's copy of the May 6, 2011 letter is this handwritten note: "per Nancy [¶] `sent in error' ... [¶] 5/18 reset ... [¶] already approved."
During May 2011, Lueras made many contacts with Fannie Mae, Bank of America, and the California Attorney General's Office, but "[n]o response was ever received stating why the foreclosure was proceeding." Lueras never received a further response — oral or written — from Bank of America, advising whether he was or was not eligible for a loan modification program. He likewise never received notice from Fannie Mae that it had denied him a loan modification.
According to the First Amended Complaint, the Making Home Affordable Program guidelines require the loan servicer to wait 30 days from the date of denial of a HAMP loan modification before foreclosing so the borrower can appeal the decision.
On May 18, 2011, Lueras was informed by the California Attorney General's Office that the foreclosure sale would be conducted on that date. Minutes later, Lueras's home was sold at the foreclosure sale to H and K Acquisitions, LLC. H and K Acquisitions, LLC, was named as a defendant in the First Amended Complaint but is not a party to this appeal.
Lueras filed this lawsuit in June 2011. The complaint asserted causes of action for negligence, breach of contract, breach of contract (third party
Lueras filed the First Amended Complaint, which asserted causes of action for negligence (against Bank of America, ReconTrust, and Fannie Mae), breach of contract (against Bank of America and Fannie Mae), violation of Civil Code section 2923.5 (against Bank of America and ReconTrust), fraud/misrepresentation (against Bank of America and Fannie Mae), unfair and unlawful practices (against Bank of America and Fannie Mae), and quiet title (against Bank of America, ReconTrust, and Fannie Mae). The trial court sustained without leave to amend Bank of America, ReconTrust, and Fannie Mae's demurrer to the First Amended Complaint and ordered it dismissed with prejudice. Lueras timely appealed from the subsequently entered judgment of dismissal.
Bank of America, ReconTrust, and Fannie Mae move to strike several portions of Lueras's reply brief referring to a December 19, 2007 letter, of which Lueras requested we take judicial notice. The motion is made on the ground the request for judicial notice was improper and, therefore, those portions of Lueras's reply brief, which reference the December 19, 2007 letter, should be stricken. We grant the motion.
By separate order, we previously denied Lueras's request for judicial notice; we therefore decline to consider those portions of Lueras's reply brief which are supported solely by the December 19, 2007 letter. Those portions are (1) on page 4, the first full paragraph beginning "On December 19, 2007 Congress received letters"; and (2) from page 19, the fourth full paragraph beginning "In the letter dated December 19, 2007" through the third full paragraph on page 20, ending "investors would not lose their dividends."
We independently review a ruling on a demurrer to determine whether the pleading alleges facts sufficient to state a cause of action. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415 [106 Cal.Rptr.2d 271, 21 P.3d 1189].) In so doing, "[t]he complaint must be liberally construed and survives a general demurrer insofar as it states, however inartfully, facts disclosing some right to relief." (Longshore v. County of Ventura (1979) 25 Cal.3d 14, 22 [157 Cal.Rptr. 706, 598 P.2d 866].)
"On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend, ... [w]e give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] Further, we treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law. [Citations.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse. [Citation.]" (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865 [62 Cal.Rptr.3d 614, 161 P.3d 1168].)
At the outset, and as part of our discussion of the standard of review, we address the argument that some or all of Lueras's claims are not viable because the foreclosure sale has been rescinded and "any equity Lueras might have in the property remains." In opposition to the demurrer to the First Amended Complaint, Lueras acknowledged, "the trustee was able to rescind the foreclosure sale" and, in his reply brief, argues, "[t]he rescission of the trustee's deed upon [sale] does not moot Mr. Lueras'[s] claims."
In reviewing the judgment, we are limited to the well-pleaded facts of the complaint and matters subject to judicial notice. (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126 [119 Cal.Rptr.2d 709, 45 P.3d 1171]; Walgreen Co. v. City and County of San Francisco (2010) 185 Cal.App.4th 424, 433 [110 Cal.Rptr.3d 498].) The First Amended Complaint did not allege rescission of the foreclosure sale. No party has requested we take judicial notice of anything establishing such rescission. No party has explained what "rescission" means in this context, briefed the legal consequences of a rescission on possible future attempts to foreclose, or informed us of the status of any current foreclosure proceedings. No party has argued that statements of Lueras's counsel constitute judicial admissions.
In short, nothing in the record permits us to consider the foreclosure sale to have been rescinded or the legal significance of any such rescission in
In the first cause of action of the First Amended Complaint, for negligence, Lueras alleged Bank of America and ReconTrust breached a duty of care in the handling of his application for a loan modification and in foreclosing his property. Bank of America and ReconTrust argue Lueras failed to allege, and cannot allege, the existence of a duty of care.
We start by identifying the allegedly negligent conduct by Bank of America and ReconTrust because our analysis is limited to "the specific action the plaintiff claims the particular [defendant] had a duty to undertake in the particular case." (Vasquez v. Residential Investments, Inc. (2004) 118 Cal.App.4th 269, 280 [12 Cal.Rptr.3d 846].) In the first cause of action, Lueras alleged that Bank of America and ReconTrust owed him a duty of care to (1) handle his loan "in such a way to prevent foreclosure and forfeiture of his property"; (2) "determine modification approvals, explore and offer foreclosure alternatives with Mr. Lueras prior to default"; (3) "exercise reasonable care and skill in timely and accurately responding to customer requests and inquiries"; (4) "record proper land records"; (5) "properly service the loan"; (6) "ensure chain of title prior to foreclosing"; and (7) "stop all foreclosure sales that are unlawful."
In Nymark, supra, 231 Cal.App.3d at page 1092, the court held a lender owed no duty of care to a borrower in preparing an appraisal of the real property security for the loan when the purpose of the appraisal is to protect the lender by satisfying it that the collateral provided adequate security for the loan. The court reached this holding by considering the six factors identified in Biakanja v. Irving (1958) 49 Cal.2d 647 [320 P.2d 16] (Biakanja) to determine whether to recognize a duty of care. (Nymark, supra, at p. 1098.) Those factors are (1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of harm to the plaintiff, (3) the degree of certainty that the plaintiff suffered injury, (4) the closeness of the connection between the defendant's conduct and the injury suffered, (5) the moral blame attached to the defendant's conduct, and (6) the policy of preventing future harm. (Ibid.)
The Nymark court stressed the purpose of the appraisal was to protect the lender's interest and was not intended to assure the borrower the collateral was sound or to induce him to enter into the loan transaction. (Nymark, supra,
In Ragland v. U.S. Bank National Assn., supra, 209 Cal.App.4th at page 207, a borrower contended the lender misadvised her to miss a loan payment in order to be considered for a loan modification. The borrower alleged the lender negligently caused her severe emotional distress by then failing to modify her loan and selling her home in a foreclosure sale. (Id. at p. 205.) Affirming summary adjudication of a cause of action for negligent infliction of emotional distress, a panel of this court concluded, "[t]he undisputed facts established there was no relationship between [the borrower] and [the lender] giving rise to a duty the breach of which would permit [the borrower] to recover emotional distress damages based on negligence." (Id. at p. 208.)
Some federal district courts in California have concluded a lender owes no duty of care to a borrower to modify a loan. In Armstrong v. Chevy Chase Bank, FSB (N.D.Cal., Oct. 3, 2012, No. 5:11-cv-05664 EJD) 2012 U.S.Dist. Lexis 144125, pp. *11-*12, the court explained: "[A] loan modification, which at its core is an attempt by a money lender to salvage a troubled loan, is nothing more than a renegotiation of loan terms. This renegotiation is the same activity that occurred when the loan was first originated; the only difference being that the loan is already in existence. Outside of actually lending money, it is undebatable that negotiating the terms of the lending relationship is one of the key functions of a money lender. For this reason, `[n]umerous cases have characterized a loan modification as a traditional money lending activity.'" (See Diunugala v. JP Morgan Chase Bank, N.A. (S.D.Cal., Oct. 3, 2013, No. 12cv2106-WQH-NLS) 2013 U.S.Dist. Lexis 144326, p. *10 ["Absent special circumstances, there is no duty for a servicer to modify a loan."]; Sanguinetti v. CitiMortgage, Inc. (N.D.Cal., Sept. 11, 2013, No. 12-5424 SC) 2013 U.S.Dist. Lexis 130129, p. *17 ["Loan modifications are part of the lending process, and negotiating a lending agreement's terms is one of a bank's key functions."]; Bunce v. Ocwen Loan Servicing, LLC (E.D.Cal., July 17, 2013, No. CIV. 2:13-00976 WBS EFB) 2013 U.S.Dist. Lexis 100111, p. *15 [agreeing with Armstrong v. Chevy Chase Bank, FSB that lender does not owe duty in loan modification activities]; Kennedy v. Bank of America, N.A. (N.D.Cal., Apr. 26, 2012, No. 12-CV-952 YGR) 2012 U.S.Dist. Lexis 58636, pp. *21-*22 [lender owes borrower no duty of care in process of approving loan modification]; Dooms v. Federal Home Loan Mortgage Corp. (E.D.Cal., Mar. 31, 2011, No. CV F 11-0352 LJO DLB) 2011 U.S.Dist. Lexis 38550, p. *28 ["The [lender] owed no duty of
Other United States District Courts have concluded a lender might owe a borrower a duty of care in negotiating or processing an application for a loan modification. (See Ansanelli v. JP Morgan Chase Bank, N.A. (N.D.Cal., Mar. 28, 2011, No. C 10-03892 WHA) 2011 U.S.Dist. Lexis 32350, pp. *21-*22 [allegation that lender offered plaintiffs a loan modification and "engage[d] with them concerning the trial period plan" was sufficient to create duty of care]; Becker v. Wells Fargo Bank, NA, Inc. (E.D.Cal., Nov. 30, 2012, No. 2:10-cv-02799 LKK KJN PS) 2012 U.S.Dist. Lexis 170729, pp. *34-*35 [complaint stated claim against lender for negligence during the loan modification process]; Crilley v. Bank of America, N.A. (D. Hawaii, Apr. 26, 2012, Civ. No. 12-00081 LEK-BMK) 2012 U.S.Dist. Lexis 58469, p. *29 [denying motion to dismiss because plaintiffs "have pled sufficient facts to support a finding that Defendant went beyond its conventional role as a loan servicer by soliciting Plaintiffs to apply for a loan modification and by engaging with them for several months" regarding the modification]; Garcia v. Ocwen Loan Servicing, LLC (N.D.Cal., May 10, 2010, No. C 10-0290 PVT) 2010 U.S.Dist. Lexis 45375, pp. *7-*11 [plaintiff's allegations of lender's conduct in handling application for loan modification pleaded a duty of care].)
After oral argument, we invited the parties to submit supplemental briefs on three recent opinions, including Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872 [153 Cal.Rptr.3d 546] (Jolley), which addressed whether a construction lender owed a duty of care to the borrower. In Jolley, the plaintiff and Washington Mutual Bank (WaMu) entered into a construction loan agreement by which the plaintiff borrowed $2,156,000 to renovate a house for use as rental property. (Id. at pp. 877, 878.) Problems arose due to WaMu's alleged failure to properly disburse loan proceeds, and WaMu agreed to modify the loan based on an expansion of the construction project. (Id. at p. 878.) Several months after the last disbursement, WaMu was closed by the Office of Thrift Supervision and placed in receivership under the Federal Deposit Insurance Corporation. (Id. at p. 879.) Certain of WaMu's assets, including the construction loan, were acquired by the defendant bank. (Ibid.)
Soon thereafter, the plaintiff ceased making payments on the loan, claiming he had been forced to default by WaMu's breaches and negligence in the funding of the construction loan. (Jolley, supra, 213 Cal.App.4th at p. 880.) The plaintiff tried to obtain a loan modification from the defendant and was told "there was a `high probability'" the defendant would modify the loan to
The plaintiff sued the defendant for various causes of action, including negligence, fraud, breach of contract, and promissory estoppel. (Jolley, supra, 213 Cal.App.4th at p. 881.) The trial court granted summary judgment, and the Court of Appeal reversed. (Id. at pp. 877-878.) On the negligence cause of action, the Court of Appeal recognized the general rule that a financial institution does not owe a duty of care to a borrower when the institution acts within its traditional role as a lender of money. (Id. at p. 898.) The Court of Appeal concluded, however, the general rule did not apply to the facts of the case. The court explained: "When considered in full context, the cases show the question is not subject to black-and-white analysis — and not easily decided on the `general rule.' We conclude here, where there was an ongoing dispute about WaMu's performance of the construction loan contract, where that dispute appears to have bridged the [Federal Deposit Insurance Corporation]'s receivership and Chase's acquisition of the construction loan, and where specific representations were made by a Chase representative as to the likelihood of a loan modification, a cause of action for negligence has been stated that cannot be properly resolved based on lack of duty alone." (Ibid.)
The Court of Appeal did not end its analysis there. The court next considered the six factors identified in Biakanja, supra, 49 Cal.2d 647, for determining whether to impose a duty of care. (Jolley, supra, 213 Cal.App.4th at pp. 899-901.) The court assessed those factors and concluded they compelled the conclusion the defendant owed the plaintiff a duty to review his request for a loan modification in good faith. (Id. at pp. 899-901.)
The Jolley court acknowledged it was dealing with a construction loan, not a residential home loan "where, save for possible loan servicing issues, the relationship ends when the loan is funded." (Jolley, supra, 213 Cal.App.4th at p. 901.) "By contrast, in a construction loan the relationship between lender and borrower is ongoing, in the sense that the parties are working together over a period of time, with disbursements made throughout the construction period, depending upon the state of progress towards completion. We see no reason why a negligent failure to fund a construction loan, or negligent delays in doing so, would not be subject to the same standard of care." (Ibid., fn. omitted.) Despite limiting its holding to construction loans, the Jolley court went to great lengths, in dictum, to explain the "no-duty rule is only a general rule" and to suggest that a lender may be liable for negligence in its handling
The Jolley court reviewed recent federal and state legislation directed at aiding resident homeowners at risk of losing their homes through foreclosure, and concluded that, while the new legislation did not directly apply to construction loans, it "sets forth policy considerations that should affect the assessment whether a duty of care was owed to [the plaintiff] at that time." (Jolley, supra, 213 Cal.App.4th at p. 905.) If the new legislation supports imposition of a duty of care on a construction lender, then it would support imposition of such a duty of care on a lender of home loans.
We disagree with Jolley to the extent it suggests a residential lender owes a common law duty of care to offer, consider, or approve a loan modification, or to explore and offer foreclosure alternatives. As the Jolley court recognized, "there is no express duty on a lender's part to grant a modification under state or federal loan modification statutes." (Jolley, supra, 213 Cal.App.4th at p. 903.) In Aspiras v. Wells Fargo Bank, N.A. (2013) 219 Cal.App.4th 948, 952, 963-964 [162 Cal.Rptr.3d 230], the court distinguished Jolley and declined to impose a duty of care on an institutional lender in handling a loan modification. The Aspiras court agreed with the federal district courts that had held, "`offering loan modifications is sufficiently entwined with money lending so as to be considered within the scope of typical money lending activities.'" (Aspiras v. Wells Fargo Bank, N.A., supra, at p. 964.)
Lueras did not allege Bank of America and ReconTrust did anything wrongful that made him unable to make the original monthly loan payments. Lueras did not allege Bank of America and ReconTrust caused or exacerbated his initial default by negligently servicing the loan. To the contrary, he alleged his inability to make the payments was caused by financial hardship due to the "drastically decreased ... demand of his services of his contracting business" and his wife's loss of employment. Lueras's allegations that Bank of America and ReconTrust owed him duties to "follow through on their own agreements," to comply with consumer protection laws, and to stop foreclosure sales that were unlawful fail to state a cause of action for negligence because such duties, if any, are imposed by the loan documents and the Forbearance Agreement, statutes, or regulations. If Bank of America and ReconTrust failed to "follow through" on those agreements, then Lueras's remedy lies in breach of contract, not negligence.
Thus, the First Amended Complaint did not, and cannot as a matter of law, state a claim for negligence based on Bank of America's alleged failure to offer Lueras a loan modification.
In the second cause of action of the First Amended Complaint, for breach of contract, Lueras asserted two theories: (1) Bank of America breached the deed of trust by failing to tender him the difference between the amount of the indebtedness and the auction price of his home at the foreclosure sale and (2) Bank of America breached the Forbearance Agreement.
Bank of America argues the first theory is no longer viable because the foreclosure sale has been rescinded. As we have explained, in reviewing the judgment, we are limited to the well-pleaded facts of the complaint and matters subject to judicial notice. (Zelig v. County of Los Angeles, supra, 27 Cal.4th at p. 1126.) The First Amended Complaint did not allege rescission of
Under the second theory, Lueras alleged Bank of America breached the Forbearance Agreement "by terminating the `Deferral Period' although the Servicer (i) never executed the Agreement, (ii) never offered another resolution of any default such as a modification, pre-foreclosure sale or deed in lieu of foreclosure, or (iii) found Mr. Lueras [in] default under the program."
"A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties." (Civ. Code, § 1643.) "The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the
We nonetheless reject this argument on the merits for two reasons. First, Bank of America accepted payments during the deferral period and was entitled to receive a $200 incentive fee "upon successful reporting to Fannie Mae of the initiation of a HomeSaver Forbearance plan and the collection of one payment under the forbearance plan." (Announcement 09-05R, supra, at p. 32 <https://www.fanniemae.com/content/announcement/0905.pdf> [as of Oct. 31, 2013].) Under those circumstances, Bank of America's failure to sign the Forbearance Agreement did not render it unenforceable. (Barroso v. Ocwen Loan Servicing, LLC (2012) 208 Cal.App.4th 1001, 1012-1013 [146 Cal.Rptr.3d 90] [lender's failure to sign and return loan modification contract was not a condition precedent precluding formation of a binding contract].)
Second, while a forbearance agreement that modifies a note and deed of trust is subject to the statute of frauds (Secrest v. Security National Mortgage Loan Trust 2002-2 (2008) 167 Cal.App.4th 544, 552-554 [84 Cal.Rptr.3d 275]), here, in contrast, the Forbearance Agreement states: "
Lueras argues the deferral period under the Forbearance Agreement has not ended and Bank of America continues to have an obligation under the Forbearance Agreement to suspend foreclosure and offer him assistance. The
We reject the argument the deferral period under the Forbearance Agreement has not ended. Section 2 of the Forbearance Agreement sets forth a table showing the amount and due dates for six "Deferral Period Payment[s]," with the first payment due on September 16, 2009, and the final payment due on March 1, 2010. Following this table, the Forbearance Agreement sets forth the provision regarding the beginning and ending of the "Deferral Period." Other than the six payments set forth in the table, the Forbearance Agreement identifies no other deferral period payments.
Lueras's breach of contract cause of action is based primarily on section 2.C of the Forbearance Agreement, labeled "Additional Assistance" (boldface omitted). The first sentence of section 2.C states that "[d]uring the Deferral Period, Servicer[
Section 2.C, on its face, thus expressly required Bank of America to "review" Lueras's loan to determine "whether additional default resolution assistance can be offered." The Forbearance Agreement did not expressly require Bank of America to offer Lueras a loan modification or an alternative to foreclosure.
However, in 2009, Announcement 09-05R was issued to provide "additional policy clarification and instruction" on HAMP and the HomeSaver Forbearance program. (Announcement 09-05R, supra, at p. 1, boldface omitted <https://www.fanniemae.com/content/announcement/0905.pdf> [as of Oct. 31, 2013].) As to the HomeSaver Forbearance program, Announcement 09-05R states: "During the six month period of forbearance, the servicer should work with the borrower to identify the feasibility of, and implement, a more permanent foreclosure prevention alternative. The servicer should evaluate and identify a permanent solution during the first three months of the forbearance period and should implement the alternative by the end of the sixth month." (Announcement 09-05R, supra, at p. 32, italics added.)
We conclude these provisions of Announcement 09-05R must be read into HomeSaver Forbearance agreements. West, supra, 214 Cal.App.4th 780, is instructive. In West, a panel of this court addressed whether a residential borrower stated a cause of action against a residential lender for breach of a trial period plan (TPP) under HAMP. (West, supra, at pp. 796-799.) The borrower alleged the lender had breached the TPP by failing to offer her a permanent loan modification after she had complied with all of the terms of the TPP. (Ibid.) The United States Department of the Treasury, HAMP supplemental directive 09-01 (Apr. 6, 2009) provides that if the borrower complies with all of the TPP's terms and conditions, the loan modification becomes effective on the first day of the month following the trial period. (West, supra, at p. 797.) Following Wigod v. Wells Fargo Bank, N.A. (7th Cir. 2012) 673 F.3d 547 (Wigod), a panel of this court held that if the borrower complies with all of the terms of the TPP, then the lender must offer the borrower a permanent loan modification. (West, supra, at pp. 796-799.) Although the TPP in West, unlike the one in Wigod, did not expressly include such a proviso, this court concluded it was imposed by the United States Department of the Treasury through HAMP supplemental directive 09-01. (West, supra, at p. 797.) To make the TPP lawful and enforceable, it had to be interpreted to include the requirements of that directive. (Id. at pp. 797-798.)
West dealt with a TPP under HAMP, and this case deals with a forbearance agreement under the HomeSaver Forbearance program. For that reason, Bank of America argues in its supplemental brief that West is inapplicable. While HAMP and the HomeSaver Forbearance program differ, the guiding principle of West — i.e., that a TPP under HAMP must be interpreted to include United States Department of the Treasury directives — is applicable here. Announcement 09-05R is similar to United States Department of the Treasury, HAMP supplemental directive 09-01 and sets forth "policy clarification and instruction" regarding the HomeSaver Forbearance program. (Announcement 09-05R, supra, at p. 1, boldface omitted <https://www.fanniemae.com/content/announcement/0905.pdf> [as of Oct. 31, 2013].) Bank of America does not assert it was not required to follow Announcement 09-05R. Thus, "the reasonable interpretation of the [Forbearance] Agreement — and the one necessary to make it lawful and in compliance with [the HomeSaver Forbearance program]" is that the Forbearance Agreement includes the obligations imposed by Announcement 09-05R. (West, supra, 214 Cal.App.4th at p. 798.)
As quoted above, Announcement 09-05R states the lender "should work with the borrower" to identify and implement a permanent foreclosure prevention alternative, "should evaluate and identify" a permanent loan solution, and "should implement" the alternative by the end of the six-month deferral period. (Announcement 09-05R, supra, at p. 32, italics added <https://www.fanniemae.com/content/announcement/0905.pdf> [as of Oct. 31, 2013].) Bank of America argues the word "should" is permissive rather than mandatory and, therefore, Announcement 09-05R imposed no obligation on them to offer a loan modification or other alternative to foreclosure. In his supplemental brief, Lueras argues the word "should" must be interpreted to mean Bank of America "was obligated to evaluate and identify a permanent solution."
We agree with Bank of America the word "should" in Announcement 09-05R is not mandatory; however, we reject the notion the word "should" in that announcement is entirely permissive and imposes no responsibilities or obligations whatsoever on loan servicers. Under the variety of definitions offered, "should" in the very least imposes a moral obligation or a strong recommendation, and can mean a duty or necessity. Interpreting "should" as imposing some obligation on the loan servicer is in keeping with the purpose of Announcement 09-05R, which was issued to provide policy clarification and instruction to loan servicers for implementation of the HomeSaver Forbearance program. The sense of moral obligation, strong recommendation, preference, or propriety imparted by the word "should" equates with good faith; that is, although Bank of America had no contractual duty to offer
"The covenant of good faith finds particular application in situations where one party is invested with a discretionary power affecting the rights of another. Such power must be exercised in good faith." (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc., supra, 2 Cal.4th at p. 372.) Accordingly, while the word "should" as used in Announcement 09-05R gives a loan servicer discretion to work with a borrower to identify the feasibility of a foreclosure prevention alternative, and to evaluate and implement a permanent solution, that discretionary power must be exercised in good faith.
As it stands, the First Amended Complaint alleged Bank of America "never offered another resolution of any default such as a modification, pre-foreclosure sale or deed in lieu of foreclosure." Although the Forbearance Agreement did not impose on Bank of America the obligation to offer Lueras a loan modification or an alternative to foreclosure, we conclude Lueras should be given leave to amend to state a claim for breach of contract in light of our interpretation of the Forbearance Agreement.
Bank of America argues Lueras failed to allege damages from breach of the Forbearance Agreement. In the First Amended Complaint, Lueras alleged that, as a result of Bank of America's breach of contract, he sustained damages of at least $25,000, "representing moni[e]s collected by Defendants
In this opinion, the rights and obligations under the Forbearance Agreement are being identified and described in a definitive way for the first time. Lueras has not had the opportunity to formulate and allege a theory of damages based on our construction of the Forbearance Agreement. We certainly cannot say at this stage that Lueras is unable as a matter of law to allege breach of contract damages. As there is "a reasonable possibility" (City of Dinuba v. County of Tulare, supra, 41 Cal.4th at p. 865) that Lueras could amend to allege recoverable damages, leave to amend must be granted.
The First Amended Complaint did not seek postponement of the foreclosure sale and alleged the sale had been conducted. The third cause of action therefore did not state and cannot as a matter of law state a claim for violation of Civil Code section 2923.5.
The First Amended Complaint alleged Bank of America made the following false representations:
1. "Bank of America represented it wanted to help plaintiffs maintain ownership of their home through the language of the [Forbearance A]greement which states `Under the HomeSaver Forbearance program, we are working with Fannie Mae, a government sponsored enterprise, to reduce your mortgage payment by up to 50% for up to 6 months while we work with you to find a long-term solution. This is not a permanent payment reduction, but it will allow you to stay in your home as we work together to find a solution.'"
2. "The [Forbearance] Agreement reinforced the representation that Bank of America and Fannie Mae would work with Mr. Lueras to find `a long term solution' on the second page where it stated the Deferral Period would continue until `execution of an agreement with Servicer for another resolution of my default....'"
3. "Bank of America led plaintiff to believe that defendants were going to work with [him] so [he] could stay in [his] home so long as [he] made the requested payments."
4. "[O]n May 5, 2011[,] Bank of America sent another letter stating it would contact Mr. Lueras in 10 days to explore alternatives to foreclosure."
5. "Bank of America concealed the fact that it was not going to identify a long term solution in order to `save' Mr. Lueras'[s] home from foreclosure."
The First Amended Complaint did not allege any misrepresentations attributed to Fannie Mae.
The First Amended Complaint alleged Lueras was led to believe "a long-term solution to keep [him] in [his] home was being worked on" and that his "home would not be sold in May 2011." The First Amended Complaint alleged Lueras did the following in reliance on the alleged misrepresentations:
2. He "[took] the time and t[ook] on the extra burden and expense of compiling and providing the information requested [in] which [he] had a right to privacy" and he "would not have spent [his] valuable money, time and efforts in attempting to modify [his] loan with Bank of America prior to default, if [he] had known that [he] would not have had a genuine opportunity to modify."
These allegations do not allege detrimental reliance. Continuing to make payments on the loan (reduced under the Forbearance Agreement) does not constitute detrimental reliance because Lueras already had the obligation to make those payments. In Auerbach v. Great Western Bank (1999) 74 Cal.App.4th 1172 [88 Cal.Rptr.2d 718], the plaintiffs asserted that a bank's promise to engage in good faith negotiations to modify a loan caused the plaintiffs to continue making payments on a note secured by undervalued property. The court rejected that theory because the plaintiffs had a contractual obligation to make payments on the note, notwithstanding the bank's promise to renegotiate its terms. (Id. at pp. 1185-1187.)
Nevertheless, the exhibits attached to the First Amended Complaint — including the Forbearance Agreement, the May 5, 2011 letter, and the May 6, 2011 letter — demonstrate there is a reasonable possibility the defects in the fraud cause of action can be cured by amendment. In the May 5, 2011 letter, Bank of America informed Lueras any pending foreclosure sale would be "on hold" while he was being considered for other foreclosure avoidance programs. Whitaker, a Bank of America representative, told him the May 5 letter was sent in error and he had been approved for a loan modification. In the May 6, 2011 letter, Bank of America informed Lueras it was reviewing his financial documents to determine whether he was eligible for a HAMP loan modification. When Lueras contacted Bank of America about the May 6
As explained above, Bank of America argues the trustee's sale conducted on May 18, 2011 was rescinded, and, therefore, Lueras suffered no damages. Even if we were to assume the trustee's sale was rescinded, we could not say as a matter of law that Lueras suffered no damages as a result of Bank of America's actions.
In the fifth cause of action of the First Amended Complaint, Lueras alleged Bank of America engaged in "deceptive business practices" in violation of California's unfair competition law (UCL), Business and Professions Code section 17200 et seq. He alleged Bank of America engaged in deceptive practices "with respect to mortgage loan servicing, foreclosure of residential properties and related matters" in violation of the UCL.
Bank of America argues Lueras failed to allege it engaged in any unlawful, unfair, or fraudulent practices. Bank of America also argues the trial court was correct in concluding Lueras lacked standing to sue under Business and Professions Code section 17204 (section 17204).
By defining "unfair competition" to include any unlawful act or practice, the UCL permits violations of other laws to be treated as independently actionable as unfair competition. (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., supra, 20 Cal.4th at p. 180.) "`[A]n "unfair" business practice occurs when that practice "offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers." [Citation.]' [Citation.]" (Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, 719 [113 Cal.Rptr.2d 399].) An unfair business practice also means "`the public policy which is a predicate to the action must be "tethered" to specific constitutional, statutory or regulatory provisions.'" (Scripps Clinic v. Superior Court (2003) 108 Cal.App.4th 917, 940 [134 Cal.Rptr.2d 101].) A fraudulent practice under the UCL "require[s] only a showing that members of the public are likely to be deceived" and "can be shown even without allegations of actual deception, reasonable reliance and damage." (Daugherty v. American Honda Motor Co., Inc. (2006) 144 Cal.App.4th 824, 838 [51 Cal.Rptr.3d 118].)
The Kwikset court held a plaintiff can satisfy the economic injury prong of the standing requirement in "innumerable ways" but listed four injuries that would qualify under section 17204: (1) the plaintiff surrendered more or acquired less in a transaction than the plaintiff otherwise would have; (2) the plaintiff suffered the diminishment of a present or future property interest; (3) the plaintiff was deprived of money or property to which the plaintiff had a
Bank of America argues Lueras cannot allege the threshold standing requirement because he had been in default for years before suing and his monthly payment under the Forbearance Agreement was less than his monthly payment under the note and deed of trust.
The question is whether Lueras should be granted leave to amend to try to satisfy the "caused by" prong. We believe there is a reasonable possibility that Lueras can cure the defect in the First Amended Complaint. As we explained in addressing the fraud cause of action, Bank of America informed Lueras any pending foreclosure sale would be "on hold" while he was being considered for other foreclosure avoidance programs. Whitaker of Bank of America told him the May 5, 2011 letter was sent in error and he had been approved for a loan modification. Lueras was told the foreclosure sale was to be rescheduled pending Fannie Mae's approval of his loan modification. Those allegations suggest Lueras can amend his UCL cause of action to
In Jenkins, supra, 216 Cal.App.4th at pages 519-521, the plaintiff alleged the defendants' unlawful, unfair, and fraudulent business practices caused her home to be subject to foreclosure. The Court of Appeal held the plaintiff failed to satisfy the "caused by" prong because she admitted in her complaint that she defaulted on her loan, thereby triggering the power of sale clause in the deed of trust that made her home subject to foreclosure. (Id. at pp. 522-523.) The court explained: "As [the plaintiff]'s home was subject to nonjudicial foreclosure because of [the plaintiff]'s default on her loan, which occurred before Defendants' alleged wrongful acts, [the plaintiff] cannot assert the impending foreclosure of her home (i.e., her alleged economic injury) was caused by Defendants' wrongful actions. Thus, even if we assume [the plaintiff]'s third cause of action alleges facts indicating Defendants' actions violated at least one of the UCL's three unfair competition prongs (unlawful, unfair, or fraudulent), [the plaintiff's complaint] cannot show any of the alleged violations have a causal link to her economic injury." (Id. at p. 523.)
This case is similar to Jenkins in that Lueras's default on the loan, not any conduct on the part of Bank of America, triggered foreclosure proceedings. Jenkins is distinguishable, however, because, in this case, Lueras might be able to allege that Bank of America's alleged misrepresentations about his loan modification and the status of the foreclosure sale, or Bank of America's failure to work with him in good faith to identify and to try to implement a permanent solution, caused him to lose his home through a foreclosure sale.
Since, we conclude, Lueras should be given leave to amend to allege standing, we address whether he has alleged in the First Amended Complaint unlawful, unfair, or fraudulent practice on the part of Bank of America. Lueras alleged Bank of America violated the UCL in these nine ways:
1. "Refusing to offer a `resolution' of the default after leading [Lueras] to believe that the `HomeSaver' agreement would lead to another agreement that would [c]ure the Arrearages (which they never disclosed in amount)...."
3. "Failing to stop the foreclosure process when Fannie Mae and Bank of America agreed to permanently modify Mr. Lueras['s] loan in May 2011 in violation of federal regulations that prohibit dual tracking."
4. "Failing to explore foreclosure alternatives with Mr. Lueras prior to filing the Notice of Default in violation of Civ[il] Code §2923.5 and the HomeSaver plan guidelines...."
5. "Inserting deceitful language in the forbearance plan using phrases such as `HomeSaver' `long term solution['] and `resolution of my default' leading the public and ... Lueras to believe that they were going to be offered some type of permanent solution so that they could save their home if they signed the agreement, supplied the information requested and made all of the payments on time."
6. "Failing to make a determination or identify a permanent solution so that the public like ... Lueras could save their home[s] by the third month of the plan in violation of the HomeSaver Guidelines quoted above in breach of industry standards set by 15 [United States Code section] 1639a."
7. "Falsely representing that ... Lueras did not qualify for HAMP modification when, in fact ... Lueras did qualify for a HAMP modification in breach of industry standards set by 15 [United States Code section] 1639a."
8. "Auctioning off the home for less than the amount owed, yet refusing to reduce the principal which would have resulted in a positive NPV [(net present value)] in breach of industry standards set by 15 [United States Code section] 1639a."
9. "Representing in the May 16, 2011[
Nos. 1, 4, 5, 6, and 8 do not constitute unlawful, unfair, or fraudulent practices. As to Nos. 1, 5, and 6, the Forbearance Agreement did not require
Although the Forbearance Agreement did not require Bank of America to offer Lueras a loan modification, we concluded above that the Forbearance Agreement did impose on Bank of America the duty to act in good faith to evaluate and try to identify a permanent solution during the first three months of the forbearance period, and to implement an identified alternative by the end of the sixth month. In light of this interpretation of the Forbearance Agreement, Lueras should be given leave to amend his UCL cause of action.
As to No. 4 — failure to explore foreclosure alternatives — we concluded above that Lueras failed to state a cause of action for violation of Civil Code section 2923.5. No. 8 — selling Lueras's home for less than the amount owed — does not state a UCL claim because Lueras alleged in the breach of contract cause of action that Bank of America sold his home for more than the amount of the indebtedness and failed to tender him the difference. The breach of contract allegations were incorporated into the UCL cause of action.
Lueras does not challenge the validity of the underlying debt. He alleged he refinanced his home for $385,000 in 2007 and he executed a deed of trust to secure the loan. Instead, he argues tender of the indebtedness is not required to quiet title because (1) making payments under the Forbearance Agreement constituted a tender of the debt, and (2) tender would not have been required to halt or set aside a foreclosure sale.
In his supplemental brief, Lueras argues Pfeifer v. Countrywide Home Loans, Inc. (2012) 211 Cal.App.4th 1250 [150 Cal.Rptr.3d 673] supports his contention that tender of the indebtedness was unnecessary to maintain the quiet title action. In Pfeifer, the Court of Appeal held that the borrowers stated a claim for wrongful foreclosure and declaratory and injunctive relief, based on allegations the lenders failed to comply with certain face-to-face interview requirements imposed by the Federal Housing Administration deed of trust before conducting an otherwise valid nonjudicial foreclosure. (Id. at p. 1255.) The face-to-face interview and other servicing requirements imposed by federal regulations were conditions precedent to acceleration of the debt and foreclosure. (Ibid.) The Court of Appeal concluded the borrowers were not required to tender the indebtedness before seeking to enjoin the foreclosure sale because "to permit a foreclosure when the lender has not complied with the requirements that may have prevented any need for a foreclosure would defeat a salient purpose of the ... regulations." (Id. at p. 1280.) In addition, tender of the indebtedness is required only to set aside a completed sale, and is not required in an action to prevent a foreclosure sale. (Ibid.)
Pfeifer v. Countrywide Home Loans, Inc. and the other tender cases are inapplicable here because Lueras has not sued to set aside or prevent a foreclosure sale. In the sixth cause of action, he sought to quiet title to the property, which he cannot do without paying the outstanding indebtedness.
The judgment in favor of Fannie Mae is affirmed. The judgment as to the causes of action for violation of Civil Code section 2923.5 and to quiet title is affirmed. In all other respects, the judgment in favor of Bank of America and ReconTrust is reversed and the matter is remanded to the trial court with directions to grant Lueras leave to file an amended complaint. Lueras shall recover costs incurred on appeal.
Ikola, J., concurred.
I concur in those portions of the majority opinion which conclude the trial court correctly sustained the
There are three core areas of disagreement between my views and the views expressed by my colleagues in the majority opinion.
First, the majority refuses to acknowledge what the parties themselves do not dispute — there is no foreclosure upon which this wrongful foreclosure action can be based. Lueras admitted the trustee's sale was rescinded before the trustee's deed was recorded, and Lueras alleged he was never deprived of ownership or possession of his home. The trial court properly considered these facts when ruling on the demurrers and we are required to do the same when reviewing the propriety of those rulings. The consequence of the majority's refusal to do so is akin to allowing a wrongful death action to proceed when the alleged victim did not die.
Second, despite recognizing the long-standing rule that a residential lender does not owe any duty of care to a borrower, the majority stretches to create an exception, and concludes a residential lender does owe a duty of care to not make misrepresentations about the status of an application for a loan modification or about the date, time, or status of a foreclosure sale. There is no such exception. Furthermore, the majority fails to analyze whether Lueras pleaded or demonstrated a reasonable possibility he can plead facts sufficient to establish the elements of a negligent misrepresentation cause of action against Bank of America. Lueras did not and cannot plead any such facts.
Third, the majority concedes the breach of contract cause of action is hopelessly deficient, but asserts the provisions of Fannie Mae Announcement 09-05R (Announcement 09-05R) must be "read into" the forbearance agreement to circumvent those deficiencies. The majority cites no case which has followed this approach or found a borrower has a private contractual right to sue a lender for money damages based upon alleged noncompliance with Announcement 09-05R. Moreover, this approach violates basic principles of contract law and injects uncertainty into California residential lending.
The majority summarizes some of the factual allegations, and fails to note many of the glaring factual omissions in the verified first amended complaint. All of the factual allegations and omissions I find material are set out below. Of necessity there is some repetition, but only to keep everything in proper context.
Lueras owned the property (Property) and occupied it as his primary residence at all relevant times, through and including the date on which the first amended complaint was filed. Lueras did not allege he ever was deprived of ownership or possession of the Property.
In March 2007, Lueras refinanced the Property with a 30-year adjustable rate $385,000 loan (Loan) originated by Gateway Business Bank (Gateway). Gateway, a potentially indispensable party, was not named as a defendant in the first amended complaint and is not a party to this appeal.
The Loan was evidenced by a promissory note (Note) and secured by a deed of trust (Deed of Trust) which encumbered the Property. The Deed of Trust was attached to the first amended complaint.
Lueras did not allege Gateway subsequently retained or sold the Note and the beneficial interest under the Deed of Trust. Thus, the identity of the current lender under the Note and Deed of Trust (collectively Loan Documents) is uncertain.
Bank of America (as successor to Countrywide Home Loans Servicing) was the servicer of the Loan. Lueras did not allege Bank of America was a party to the Loan Documents.
Lueras did not allege Fannie Mae was a party to the Loan Documents. Moreover, Lueras did not allege the Loan was owned or insured by Fannie Mae.
Lueras's regular monthly payment on the Loan was $1,965.10. Lueras has not made a full regular monthly payment on the Loan since December 2008.
In August 2009, more than eight months after Lueras stopped making regular monthly payments on the Loan, Bank of America offered him a forbearance agreement (Forbearance Agreement) and Lueras accepted.
The Forbearance Agreement required Lueras to make reduced monthly payments on the Loan in the amount of $1,101.16 during the deferral period. Bank of America agreed to apply these reduced monthly payments to the delinquent full regular monthly payments on the Loan.
The Forbearance Agreement provides, "The Servicer will suspend any scheduled foreclosure sale, provided I continue to meet the [reduced monthly payment] obligations under this [Forbearance] Agreement."
The Forbearance Agreement also provides, "If this Agreement terminates, however, then any pending foreclosure action ... may be immediately resumed from the point at which it was suspended, and no new notice ... will be necessary to continue the foreclosure action, all rights to such notices being hereby waived...."
Lueras agreed, "Upon termination of this [Forbearance] Agreement, if I have not entered into another agreement with Servicer to cure or otherwise resolve my default under the Loan Document [sic] or reinstated my Loan in full, the Servicer will have all of the rights and remedies provided by the Loan Documents...."
Lueras acknowledged, "I further understand and agree that the Servicer is not obligated or bound to make any modification of the Loan Documents or provide any other alternative resolution of my default under the Loan Documents."
Lueras made reduced payments on the Loan during the six-month deferral period under the Forbearance Agreement beginning in September 2009 and ending in March 2010, and "beyond for four more months."
Lueras has not made any payment on the Loan since July 2010.
In October 2010, more than three months after Lueras stopped making reduced monthly payments, and more than 22 months after he stopped making regular monthly payments, ReconTrust Company (ReconTrust) recorded and served a Notice of Default (the Notice of Default) on Lueras.
The Notice of Default advised Lueras of his rights under the Loan Documents to cure the payment default and reinstate the Loan to avoid acceleration and sale. Lueras did not allege he exercised his right to pay the delinquent amount, cure the default, and reinstate the Loan.
In February 2011, more than six months after Lueras stopped making reduced monthly payments, and more than 25 months after Lueras stopped making regular monthly payments, ReconTrust recorded and served a Notice of Trustee's Sale (Notice of Sale).
The trustee's sale was originally set for February 22, 2011, and was subsequently postponed three times to "3/2/11, 4/1/11, and 5/4/11."
On May 5, 2011, Bank of America sent Lueras a letter stating he did not qualify for a modification under the Home Affordable Modification Program (HAMP).
Immediately after receiving the May 5 letter, "[Lueras] contacted Nancy Whitaker at Bank of America who advised plaintiffs [sic] that that letter was sent by a third party `home retention' vendor and was an error. Ms. Whitaker further advised that plaintiffs were put into a program that was already approved ... [and s]he just needed Fannie Mae's approval."
On May 6, 2011, Bank of America sent Lueras another letter stating his financial documents were being reviewed to determine if he qualified for a HAMP modification.
Immediately after receiving the May 6 letter, Lueras contacted Bank of America and was "informed this letter was sent in error as plaintiffs [sic] had already `been approved' by the bank. Nancy Whitaker of Bank of America advised that the scheduled Trustee's Sale of May 18, would be reset, pending approval of FANNIE MAE."
Lueras implied but did not allege there was an "actual sale" on May 18, 2011. Lueras also did not allege he was deprived of ownership or possession of the Property as a result of that sale.
Lueras did allege he retained ownership and possession of the Property at all relevant times up to and including the date the first amended complaint was filed.
Lueras repeatedly admitted the trustee's sale was rescinded before the trustee's deed was recorded. These admissions were made in his written briefs and oral arguments both in the trial court and in this court, all as described below.
At the hearing on the demurrers to the original complaint, counsel for Lueras admitted, "I should inform the court that the sale was rescinded, so we are now at pre-foreclosure status."
Similarly, in his opposition to the demurrers to the first amended complaint, Lueras again admitted "after this lawsuit was filed the trustee was able to rescind" the trustee's sale.
And, at the hearing on the demurrers to the first amended complaint, counsel for Lueras admitted, "as the court properly noted in the tentative ruling, there was a rescission in this case."
In his opening brief on appeal, Lueras admitted, "after this lawsuit filed, the trustee was able to rescind" the trustee's sale; "the [trial] court focused on the sale that was rescinded after the litigation ensued"; and "as the [trial c]ourt noted, the sale had been rescinded."
Likewise, in his reply brief on appeal, Lueras admitted and argued, "[t]he rescission of the trustee's deed upon [sic] does not moot Mr. Lueras' claims"; "after the lawsuit was filed, BANA [Bank of America] rescinded the trustee's deed upon sale"; and "the trustee's deed upon sale was not recorded...."
Finally, at oral argument in this court, counsel for Lueras admitted there is no record of the trustee's sale, the trustee's deed was never recorded, and Lueras still has title to and possession of the Property.
"When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff. [Citation.]" (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [216 Cal.Rptr. 718, 703 P.2d 58].)
"`To satisfy that burden on appeal, a plaintiff "must show in what manner he can amend his complaint and how that amendment will change the legal
No authority commands or even suggests these pleading requirements do not apply unless the plaintiff has been given more than two bites at the apple. We are required to affirm the ruling if there is any ground on which the demurrer could have been properly sustained. (Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 752 [154 Cal.Rptr.3d 394].) Also, leave to amend should not be granted where an amendment would be futile. (Newell v. State Farm General Ins. Co. (2004) 118 Cal.App.4th 1094, 1100 [13 Cal.Rptr.3d 343].) It is axiomatic, "The law neither does nor requires idle acts." (Civ. Code, § 3532.)
We accept the factual allegations of the verified first amended complaint as true. "`We also consider matters which may be judicially noticed.' (Serrano v. Priest (1971) 5 Cal.3d 584, 591 [96 Cal.Rptr. 601, 487 P.2d 1241].)" (Blank v. Kirwan, supra, 39 Cal.3d at p. 318.) To that end, I take judicial notice (Evid. Code, § 452, subd. (d)) the trial court's final minute order ruling on the demurrers expressly relied upon the fact that, "plaintiff admits in the Opposition that the foreclosure sale was rescinded."
We also take into account briefs and arguments, which are "reliable indications of a party's position on the facts as well as the law, and a reviewing court may use statements in them as admissions against the party. [Citations.]" (9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 335, p. 386.) Likewise, "[a]n express concession or assertion in a brief is frequently treated as an admission of a legal or factual point, controlling in the disposition of the case. [Citations.]" (Id., § 704, p. 773.)
One court citing Witkin held an admission in the opening brief was "the equivalent of a concession," which, taken together with the failure to allege a necessary element, "controls the disposition of the case." (Federer v. County of Sacramento (1983) 141 Cal.App.3d 184, 186 [190 Cal.Rptr. 187].) Another court also citing Witkin relied on concessions made by the plaintiff's counsel during oral argument to show there was no basis for a cause of action. (DeRose v. Carswell (1987) 196 Cal.App.3d 1011, 1019, fn. 3 [242 Cal.Rptr. 368], superseded by statute on another ground as stated in Ramona v. Superior Court (1997) 57 Cal.App.4th 107, 112-113, fn. 6 [66 Cal.Rptr.2d 766].)
Similarly, in Setliff v. E. I. Du Pont de Nemours & Co. (1995) 32 Cal.App.4th 1525 [38 Cal.Rptr.2d 763] the court affirmed an order sustaining a demurrer without leave to amend and stated, "Plaintiff's papers in opposition are reliable indications of his position on the facts and we may use these statements as admissions against him. [Citation.]" (Id. at p. 1536.) Likewise, in Rodas v. Spiegel (2001) 87 Cal.App.4th 513 [104 Cal.Rptr.2d 439], the court declared, "We also may, and shall, take judicial notice of admissions in plaintiff's opposition to the demurrer. (Evid. Code, § 452, subd. (d).)" (Id. at p. 518.)
In sum, we are not permitted to turn a blind eye to Lueras's admissions the trustee's sale was rescinded before the trustee's deed was recorded. These admissions are consistent with his verified affirmative allegations he was never deprived of ownership or possession of the Property. These admissions were properly considered by the trial court when ruling on the demurrers, without any objection by Lueras. We are required to do the same when reviewing the propriety of those rulings.
The long-standing rule that a residential lender does not owe any duty of care to a borrower is well settled and summarized in the majority opinion. I would only add that all of the reasons why a residential lender owes no such duty to a borrower apply with even greater force to a servicer, even though courts are not always careful to differentiate between the duties of lenders and the duties of servicers. (Somera v. IndyMac Federal Bank, FSB (E.D.Cal., Mar. 3, 2010, No. 2:09-cv-01947-FCD-DAD) 2010 WL 761221, p. *5.)
Applying the no-duty rule to the negligence claim, the majority recognizes Bank of America did not owe Lueras a duty to offer, consider, or approve a loan modification, or to explore and offer foreclosure alternatives, or to handle the Loan in any other way so as to prevent foreclosure. I agree. These are all core functions well within the scope of the conventional role of a residential lender and the no-duty rule applies.
"As is true of negligence, responsibility for negligent misrepresentation rests upon the existence of a legal duty ... owed by a defendant to the injured person. [Citation.] The determination of whether a duty exists is primarily a question of law. [Citation.]" (Eddy v. Sharp (1988) 199 Cal.App.3d 858, 864 [245 Cal.Rptr. 211].) "[T]he test for determining whether a financial institution owes a duty of care to a borrower-client `"involves the balancing of various factors...."' [Citations.]" (Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1098 [283 Cal.Rptr. 53].)
Without balancing the various factors discussed in Nymark, the majority discovers a duty which has never before been recognized. But there is no reasoned basis for making any distinction between these residential lender-borrower communications and other residential lender-borrower communications. Communications about the status of a modification application or a trustee's sale are also core functions well within the scope of the conventional role of a residential lender. Hence, the no-duty rule applies equally to negligence and negligent misrepresentation claims in this situation.
Furthermore, the rights and duties of lenders and borrowers regarding these communications are set forth in the Loan Documents and applicable law, including the federal Truth in Lending Act (15 U.S.C. § 1601 et seq.) and the California statutory nonjudicial foreclosure statutes (Civ. Code, §§ 2924 through 2924k.). It is inconsistent with these comprehensive and exhaustive statutory schemes to incorporate common law negligent misrepresentation claims in this context. (Cf. Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1154 [121 Cal.Rptr.3d 819]; Residential Capital v. Cal-Western Reconveyance Corp. (2003) 108 Cal.App.4th 807, 824-829 [134 Cal.Rptr.2d 162].)
Leaving aside the duty question, Lueras did not request leave to plead a negligent misrepresentation cause of action. But even if he had, Lueras also did not demonstrate a reasonable possibility he can plead "`"(1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5)
Lueras alleged both oral and written misrepresentations by Bank of America about the status of the loan modification application and the trustee's sale.
The alleged oral misrepresentations were all made by Whitaker in early May 2011 and may be summarized as follows. First, Whitaker told Lueras the May 5 and May 6 letters had been sent in error. Second, she told him the loan modification application had been approved by Bank of America, subject to Fannie Mae approval. Third, she told him the trustee's sale would be reset, again pending Fannie Mae approval.
Regarding the statements the May 5 and 6 letters had been sent in error, Lueras did not allege and cannot allege these statements were untrue or that Whitaker had no reasonable ground for believing them to be true. Obviously, his entire case is predicated upon his alleged reliance on the truth of these statements.
Regarding the statement Bank of America had approved the loan modification application, subject to Fannie Mae approval, again Lueras did not allege this statement was untrue or Whitaker had no reasonable ground for believing it to be true. Besides, this statement is conditional, and he did not allege that condition was satisfied.
Regarding the statement the trustee's sale would be reset, while Lueras did allege this was untrue, he did not allege Whitaker said the trustee's sale had been reset. Instead he alleged she said it would be reset. So this statement is really a prediction about a future event, not a misrepresentation about a past or existing fact.
Lueras also did not allege any facts showing he justifiably relied on the statement the trustee's sale would be reset. In particular, Lueras did not allege he did or refrained from doing anything after this statement was made (on May 6, 2011) and before the trustee's sale occurred (on May 18, 2011). All of the alleged actions or inactions took place well before this statement was made.
Regarding all of these statements, Lueras did not allege and cannot allege any resulting damage. Again the trustee's sale was rescinded so Lueras was never deprived of ownership or possession of the Property.
Regarding the alleged written misrepresentations in the May 5 and 6 letters, Lueras cannot allege he reasonably relied on the contents of those
In conclusion, Lueras did not plead or demonstrate a reasonable possibility he can plead sufficient facts to establish the elements of a negligent misrepresentation cause of action against Bank of America based upon communications concerning the status of the loan modification application or the trustee's sale. Hence, there is no basis for granting Lueras's leave to allege a negligent misrepresentation cause of action.
Lueras alleged Bank of America breached the Forbearance Agreement by terminating the deferral period, and by failing to offer him a loan modification or some other resolution before commencing or resuming the foreclosure process. But Lueras did not plead sufficient facts to establish the elements of this claim.
Lueras did not plead any facts showing Bank of America breached the Forbearance Agreement "by terminating the `Deferral Period'...." Actually, Lueras did not plead any facts showing Bank of America terminated the deferral period at all. On this point, I agree with the majority opinion. Examining the first amended complaint as a whole reveals the parties intended the deferral period to terminate and it did terminate by its own terms no later than March 16, 2010.
Lueras also did not plead any facts showing Bank of America breached the Forbearance Agreement by failing to offer him a loan modification or some other resolution before commencing or resuming the foreclosure process. The Forbearance Agreement simply did not require Bank of America to do or abstain from doing any of the things Lueras complained of. Thus, Bank of America did not breach the Forbearance Agreement by failing to offer Lueras a loan modification or some other resolution before commencing or resuming the foreclosure process.
Recognizing the inevitability of this conclusion, the majority asserts the "provisions of [Fannie Mae] Announcement 09-05R must be read into" the Forbearance Agreement to circumvent these deficiencies. (Maj. opn., ante, at p. 73.) The majority has not cited any case which has followed this approach or found a borrower has a private contractual right to sue a lender for money
To begin with, the Forbearance Agreement is a contract between Lueras, as the borrower under the Loan Documents, and Bank of America, as the servicer and the ostensible agent of the lender under the Loan Documents. Fannie Mae is not a party to the Forbearance Agreement and Lueras did not allege the Loan is owned or insured by Fannie Mae. In short, it appears Fannie Mae is a complete stranger to the Forbearance Agreement with no contractual rights or obligations thereunder vis-à-vis the Loan.
Next, reading Announcement 09-05R into the Forbearance Agreement violates basic principles of contract formation and interpretation. Announcement 09-05R was not part of the Forbearance Agreement offer or acceptance. In fact, there is no reference to Announcement 09-05R in the Forbearance Agreement, and there is no ambiguity in the Forbearance Agreement which requires or even permits resort to this extrinsic evidence for interpretation. Doing so contradicts some of the express terms of the Forbearance Agreement, and renders other express terms meaningless.
The only case cited by the majority to support this radical departure from established law is West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780 [154 Cal.Rptr.3d 285]. West is legally and factually inapposite.
The contract at issue in West was a trial period plan (TPP) under HAMP, while the Forbearance Agreement at issue here is not. Indeed, the Forbearance Agreement bears no resemblance in form or function to a TPP under HAMP. They are different creatures which serve different purposes. A TPP tests the viability of an identified and agreed upon long-term solution. The Forbearance Agreement merely provides time to see if a viable long-term solution can be identified and agreed upon.
In addition, the TPP in West was still in effect, and the borrower tendered a timely reduced monthly payment just two days before the trustee's sale. (West v. JPMorgan Chase Bank, N.A., supra, 214 Cal.App.4th at p. 790.) Here, the Forbearance Agreement ended no later than March 16, 2010, and Lueras stopped making reduced monthly payments on July 1, 2010, more than nine months before the trustee's sale.
Lastly, the majority suggests the implied covenant of good faith and fair dealing may also be used to circumvent these deficiencies. Not so. "[A]n
Lueras did not plead any facts showing he was damaged by Bank of America's alleged termination of the deferral period or failure to offer him a loan modification or some other resolution before commencing or resuming the foreclosure process. Lueras was always obligated to repay the Loan, and the reduced monthly payments allegedly made during and after the deferral period, together with any late fees and charges resulting from his payment default, were always owed under the Loan Documents, separate and apart from the Forbearance Agreement.
Lastly, Lueras did not demonstrate a reasonable possibility he can plead sufficient facts to establish the elements of a breach of contract cause of action against Bank of America. It is not sufficient for Lueras to assert "an abstract right to amend." (Rakestraw v. California Physicians' Service (2000) 81 Cal.App.4th 39, 43 [96 Cal.Rptr.2d 354].) Again, he must set forth the legal authority for the claim, the elements of the claim, and the specific factual allegations that would establish each of those elements. (Rossberg v. Bank of America, supra, 219 Cal.App.4th at p. 1491.) Lueras made no attempt to meet this burden. Therefore, the demurrers to the breach of contract cause of action based upon the Forbearance Agreement were properly sustained without leave to amend. On this point the majority opinion's reliance upon the liberal policy regarding amendments to justify a contrary result is misplaced. (Id., at p. 1503.)
The majority states the elements of a fraud cause of action. They are the same as the elements of a negligent misrepresentation cause of action discussed above, with the exception of the knowledge element. (Aspiras v. Wells Fargo Bank, N.A., supra, 219 Cal.App.4th at p. 963, fn. 4.) Since the elements are essentially the same, all of the deficiencies in the negligent misrepresentation claim discussed above are also deficiencies in the fraud claim. There are additional deficiencies as well.
Lueras also alleged the May 5 letter stated Bank of America would contact Lueras in 10 days to explore foreclosure alternatives, but this statement was false, because the trustee's sale occurred before the 10 days had elapsed. Then again, Lueras alleged he relied on the fact he was told the May 5 letter had been sent in error, so any alleged reliance on the contents of that letter was unreasonable. Once more, he cannot have it both ways. Plus, his alleged reliance in making the reduced monthly payments ended in July 2010, more than 10 months before the May 5 letter was sent.
For all of these reasons, I agree with the majority the demurrers to the fraud cause of action were properly sustained. On the other hand, I do not agree with the majority, "the exhibits attached to the First Amended Complaint... demonstrate there is a reasonable possibility the defects in the fraud cause of action can be cured by amendment." (Maj. opn., ante, at p. 79.) The exhibits at issue are the May 5 and 6 letters.
On this point, the majority relies on the same faulty logic as Lueras.
And at any rate, Lueras did not and cannot allege any "specific damages" he suffered, because the trustee's sale was rescinded. (Rossberg v. Bank of America, supra, 219 Cal.App.4th at p. 1499.) Consequently, the demurrers to the fraud cause of action were properly sustained without leave to amend.
Finally, I disagree with the majority statement, "the allegation that Lueras's home was sold at a foreclosure sale is sufficient to satisfy the economic injury
The trial court correctly sustained the demurrers to the first amended complaint and did not abuse its discretion by denying leave to amend. The contrary decision by the majority represents a departure from settled law and creates uncertainty which may disrupt California residential lending. The judgment should be affirmed.
