Filed 8/29/18 Crawford v. JPMorgan Chase Bank, N.A. CA3

NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

—-

TY CRAWFORD,

Plaintiff and Appellant,

v.

JPMORGAN CHASE BANK, N.A., et al.,

Defendants and Respondents.

C077554

(Super. Ct. No. 34-2013-00140046CUORGDS)

Plaintiff Ty Crawford borrowed over $615,000, secured by his residence in Orangevale, California. Crawford alleges that when he borrowed this sum, his monthly income was $7,500. Crawford further alleges his mortgage broker and lender intentionally misstated his monthly income as $21,167 on his loan application to ensure the loan would be approved by the underwriters. Neither the original lender nor the mortgage broker are respondents here.

Crawford’s initial loan had an adjustable rate interest starting at 1 percent, but quickly increasing to almost 7 percent. Thus, although his initial payments were just over $1,500 per month, his payments rose to over $4,200 in less than three years. Although Crawford was given two loan modifications, his second modification required him to make monthly payments of over $3,400, which he was apparently unable to pay because a notice of default was recorded approximately seven months after the second modification.

The respondents are two loan servicers EMC Mortgage Corp. (EMC) and JP Morgan Chase Bank, N.A. (JP Morgan), the beneficiary of the deed of trust Wells Fargo Bank, N.A. (Wells Fargo), and the trustee under the deed of trust California Reconveyance Company (CRC). Crawford amended his complaint twice. The trial court sustained the defendants’ demurrers to the first and second amended complaint. Crawford argues he stated valid causes of action for negligence and declaratory relief.

We shall conclude the trial court properly sustained defendant’s demurrers to Crawford’s negligence cause of action without leave to amend because defendants had no duty to offer him a loan modification he could afford, and he has not alleged any facts to indicate defendants abused the loan modification process. The defendants’ demurrer to Crawford’s cause of action for declaratory relief was also properly sustained without leave to amend because he had no standing to allege that the assignment of his promissory note and deed of trust were voidable.

We shall affirm the judgment of the trial court.

FACTUAL AND PROCEDURAL BACKGROUND

Crawford alleges that he borrowed $615,913 from defendant Greenpoint Mortgage Funding (Greenpoint) in December 2005. Defendant Global Equity Lending (Global) brokered the loan. Global submitted Crawford’s loan application to Greenpoint, and the application intentionally misstated Crawford’s monthly income as $21,167, even though his monthly income was actually only $7,500. The loan’s initial interest rate was 1 percent, but it quickly increased to almost 7 percent on February 1, 2006. The initial monthly payments of $1,811.69 or less were so low that they did not keep up with the accrued interest. The monthly payments increased in August 2008 to $4,280.89. Greenpoint told Crawford he could simply refinance in August 2008 to get a more reasonable payment. Crawford refinanced through EMC in August 2008. He refinanced again in April 2012.

The loan was secured by a deed of trust on Crawford’s residence. In 2012, the deed of trust was assigned to defendant Wells Fargo, and defendant CRC was substituted as trustee of the deed of trust. It is alleged that defendant JP Morgan was the loan servicer.

On November 14, 2012, CRC recorded a notice of default and election to sell under the deed of trust. The loan was at that time $21,831.96 in arrears. On February 19, 2013, CRC recorded a notice of trustee’s sale, the sale to take place on March 12, 2013. The unpaid balance of the loan as of that date was $781,554.60.

Crawford filed this action on March 7, 2013. On May 17, 2013, the trial court ordered the litigation stayed so the parties could engage in loan modification discussions. On November 26, 2013, the parties notified the court that the stay should be lifted.

Although Crawford named Greenpoint and Global as defendants in this action, they are not parties to this appeal. Crawford has dismissed Greenpoint with prejudice. The only respondents are JP Morgan, CRC, Wells Fargo, and EMC.

In April 2014, defendants and respondents filed a demurrer to Crawford’s first amended complaint, which alleged causes of action for reformation, negligence, and declaratory relief. Crawford’s negligence cause of action against EMC and JP Morgan alleged defendants breached their duty of care by failing to properly credit payments, failing to properly remove late fees and charges, and failing to properly evaluate Crawford’s financial condition and offer them a loan modification. The trial court sustained the demurrer as to the reformation and negligence causes of action without leave to amend.

Crawford’s declaratory relief cause of action alleged that the Trust (identified in the second amended complaint as the Structured Asset Mortgage Investments II Inc., Greenpoint Mortgage Funding Trust 2006-AR3, Mortgage Pass Through Certificates, Series 2006-AR3) was required to possess Crawford’s deed of trust within 90 days of the closing date of the Trust (July 27, 2006) in order to maintain the Trust’s status as a REMIC (Real Estate Mortgage Investment Conduit), but the assignment did not occur until around November 2, 2012. He alleged the assignment was therefore void ab initio, and the Trust did not own the deed of trust. Crawford sought a judicial determination of defendants’ interest in the property. The trial court sustained the demurrer to the declaratory relief cause of action with leave to amend, because the complaint alleged conclusions rather than facts, the Trust was not defined in the complaint, the complaint was fatally uncertain, and the complaint did not allege prejudice.

Thereafter, Crawford filed a second amended complaint alleging a single cause of action for declaratory relief. The amended declaratory relief cause of action, after defining the Trust, alleged there was never a valid assignment of the deed of trust to the Trust because the assignment did not occur within 90 days of the closing date of the Trust, as was necessary for the Trust to maintain its status as a REMIC. The assignment was thus a void act, and as a result the Trust did not hold the deed of trust to Crawford’s property. Crawford sought a judicial determination as to whether defendants had an enforceable interest in the property. Crawford alleged he was prejudiced because he had been making his mortgage payments to the wrong entity and remained fully indebted to the original lender.

The trial court sustained defendant’s demurrer to the second amended complaint. Citing this court’s decision in Mendoza v. JPMorgan Chase Bank, N.A. (2014) 228 Cal.App.4th 1020, (judg. vacated & cause remanded for further consideration in light of Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919), the trial court found that a borrower such as Crawford lacks standing to challenge the securitization of his loan. Absent standing, the trial court stated, the complaint does not present a justiciable controversy as against defendants.

DISCUSSION

The purpose of a demurrer is to test whether, as a matter of law, the properly pleaded facts in the complaint state a cause of action under any legal theory. (Intengan v. BAC Home Loans Servicing LP (2013) 214 Cal.App.4th 1047, 1052.) On appeal from a judgment dismissing the complaint after the trial court has sustained a demurrer without leave to amend, we assume the truth of all facts properly pleaded, as well as facts of which the trial court properly took judicial notice. (Ibid.) We do not assume the truth of contentions, deductions, or conclusions of law. (Ibid.)

We review the trial court’s decision denying leave to amend for abuse of discretion. (Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 273-274, disapproved on another point in Yvanova v. New Century Mortgage Corp., supra, 62 Cal.4th 919.) In making our decision we determine whether there is a reasonable possibility the plaintiff could cure the defect with an amendment. (Id. at p. 274.) The plaintiff has the burden of proving than an amendment would cure the defect. (Ibid.) Where there is no reasonable possibility that a plaintiff can cure a defect in a complaint with an amendment, an order sustaining a demurrer without leave to amend is not an abuse of discretion. (Id. at pp. 273-274.) Crawford challenges the trial court’s rulings on demurrer as to his negligence and declaratory relief causes of action.

I

Negligence

To prevail on a negligence claim, a plaintiff is required to plead and prove that defendants owed him a legal duty, that defendants breached the duty, and that the breach was a proximate or legal cause of plaintiff’s injuries. (Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 477.) Plaintiff’s complaint is vague as to all of these elements.

The complaint alleges the following duties: (1) to properly disclose true and accurate information about payments due and owing; (2) to properly apply any modification or restructuring programs that defendants represented they would apply; and (3) to inform Crawford of the proper restrictions that the investor placed on the loan.

The actions Crawford alleges were breaches of duty are: (1) failing to properly credit payments; (2) failing to properly remove late fees and charges; and (3) failing to properly evaluate Crawford’s financial condition and offer him a loan modification that would allow him to make the required payments and pay off the loan.

The only allegation of damages is the nonspecific claim: “As a proximate result of the negligence referred to hereinabove, [Crawford has] been damaged in an amount that will be proven at trial.”

We can quickly dispose of Crawford’s claim that defendants breached a duty to offer him a loan modification he could afford. There exists no such common law duty. “[L]enders have no duty to offer or approve a loan modification . . . .” (Rossetta v. CitiMortgage, Inc. (2017) 18 Cal.App.5th 628, 638.) “A lender’s obligations to offer . . . or approve loan modifications and to explore foreclosure alternatives are created solely by the loan documents, statutes, regulations, and relevant directives and announcements from the United States Department of the Treasury, Fannie Mae, and other governmental or quasi-governmental agencies.” (Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 67.)

As to Crawford’s other allegations, they suffer from at least two deficiencies: (1) the breaches of duties Crawford asserts are not supported by allegations of fact; and (2) there are no allegations of fact indicating how any alleged breaches damaged Crawford.

A. Duty

This court has stated that “as a general rule, a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.” (Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1096.) In those cases that fall outside the “general rule” we engage in a balancing of factors set forth in Biakanja v. Irving (1958) 49 Cal.2d 647, 650 (Biakanja). (Nymark, at p. 1098.) “[T]he test for determining whether a financial institution owes a duty of care to a borrower-client ‘ “involves the balancing of various factors, among which are [1] the extent to which the transaction was intended to affect the plaintiff, [2] the foreseeability of harm to him, [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.)

“‘[Duty] is a shorthand statement of a conclusion, rather than an aid to analysis in itself . . . . But it should be recognized that “duty” is not sacrosanct in itself, but only an expression of the sum total of those considerations of policy which lead the law to say that the particular plaintiff is entitled to protection.’ ” (Dillon v. Legg (1968) 68 Cal.2d 728, 734, quoting Prosser, Law of Torts, (3d ed. 1964) at pp. 332-333.) The decisions that have established a duty on behalf of the lender or servicer in cases like this one, have found a duty, after applying the Biakanja factors, where the lender or servicer has undertaken to renegotiate a loan modification, but breached the duty to exercise reasonable care in processing the loan modification application. No such facts were alleged here.

Thus, in Rossetta v. CitiMortgage, Inc., supra, 18 Cal.App.5th at page 640, this court held that a lender may owe a duty when it “voluntarily undertake[s] to renegotiate a loan” because “the lender usually has greater bargaining power and fewer incentives to exercise care.” The significant facts in that case were that the lender refused to consider a loan modification application until the borrower was three months delinquent, and the lender directed the borrower’s behavior in a way that exceeded the role of a conventional lender, including repeatedly requesting submission of the same documents and insisting that the borrower submit nonexistent documents. (Id. at pp. 634, 641.)

Likewise Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941, 946, 949 (Alvarez), held that although a lender has no duty to offer, consider, or approve a loan modification, if it agrees to consider modification of the plaintiffs’ loan, the lender has a duty to exercise reasonable care in processing the loan modification application. “The borrower’s lack of bargaining power, coupled with conflicts of interest that exist in the modern loan servicing industry, provide a moral imperative that those with the controlling hand be required to exercise reasonable care in their dealings with borrowers seeking a loan modification.” (Id. at p. 949.)

Also in Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 881, the court determined the lender might owe a duty where the borrower was told “on many occasions” that there was a “‘high probability’” that the lender would modify the loan, and that as a result of these representations, the borrower was induced to borrow more to finish his construction project. Instead of agreeing to a loan modification, the lender demanded payment in full of the loan. (Ibid.) The plaintiff claimed the lender breached a duty to review his loan modification request in good faith. (Id. at p. 899.) The court agreed that the lender might have a duty because of its “upbeat prediction of the availability of a loan modification” and the fact that the lender “benefited from prolonging the loan renegotiation period . . . .” (Id at p. 900.)

Finally in Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1158-1159, the loan servicer told the borrowers they would be evaluated for a loan modification, which would be granted if all the servicer’s requests were met. Modification applications were repeatedly denied on the ground the necessary documents had not been received, even though the borrowers had submitted all requested documents. (Id. at p. 1159.) The borrowers were told they had to be delinquent in their payments to qualify for a modification. (Id. at p. 1159.) The borrowers were instructed to make reduced payments, which they believed were part of a trial payment plan. (Ibid.) When the borrowers attempted to resume making regular payments, the servicer refused to accept them. (Ibid.) Based on these actions, the court, applying the Biakanja factors, concluded the servicer owed a duty of care with respect to the loan modification process. (Id. at p. 1183.)

Here, however, there are no allegations of improper handling of a loan modification negotiation. Instead, the wrongful acts claimed are failing to properly credit payments and failing to properly remove late fees and charges. Absent a complaint that pleads more than these bare facts, there is not even a way to apply the Biakanja factors. As to the first factor, the extent to which the transaction was intended to affect the plaintiff, it is not clear what transaction plaintiff is claiming to be the problem. The complaint alleges a loan and two modifications. The original loan appears to be the problematic transaction for the reason that Crawford borrowed more money than he could afford on his income. The defendants here had no hand in the original loan transaction, however. It is foreseeable that Crawford would be harmed by a failure to credit payments and remove incorrect charges, but foreseeability alone is not enough to impose a duty. (Kesner v. Superior Court (2016) 1 Cal.5th 1132, 1149.) While Crawford may have suffered injury, it is not at all clear that the injury was caused by any conduct of the defendants. There is also no way to assess the defendant’s moral blame because, again, it is not clear they did anything blameworthy, and on these allegations it is impossible to assess the policy of preventing future harm. Thus, applying the Biakanja factors, we conclude Crawford has not pled sufficient facts to allege defendants had a duty of care apart from their contractual obligations.

B. Damage

Apart from the problem of finding a duty, Crawford has alleged no facts from which a trier of fact could conclude that the defendants’ negligent conduct damaged him. Crawford does not allege that defendants’ failure to credit payments and remove late fees led to over payment, or was the cause of his default on the loan which led to foreclosure proceedings.

Because Crawford has alleged neither facts giving rise to a duty, nor facts indicating defendants’ actions caused his damage, the trial court properly sustained the demurrer on the negligence cause of action.

Crawford argues we should reverse the trial court’s decision to sustain the demurrer without leave to amend because the trial court found no duty without considering the Biakanja factors, and because subsequent to the trial court’s decision, Alvarez, supra, 228 Cal.App.4th 941, concluded that a plaintiff may in some cases be able to allege facts showing a defendant owes a borrower a duty of care in the loan modification process. Crawford asserts that even if we determine that he has failed to allege sufficient facts to find defendants owed him a duty of care, he can amend the negligence claim to allege further facts.

It is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility the defect can be cured by amendment. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.) Crawford has the burden to prove that an amendment would cure the defect. (Fontenot v. Wells Fargo Bank, N.A., supra, 198 Cal.App.4th at p. 274.) Crawford argues he has never been afforded the opportunity to amend his negligence claim in accordance with Alvarez, supra, 228 Cal.App.4th 941, and since he has never been told whether his allegations are deficient, he cannot now tell the court what allegation he would add to cure the deficiencies.

We will not return the case for further amendment. Despite three iterations of the complaint, defendant has asserted no factual allegations showing the defendant’s abused the loan modification process in the manner of the cases cited above, or wrongfully collected penalties and late fees. Plaintiff should not have to be told by the court what to allege. He is required merely to allege “the essential facts of his case with reasonable precision and with particularity sufficient to acquaint a defendant with the nature, source and extent of his cause of action.” (Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 245.) It is not improper to sustain a demurrer without leave to amend where it is “ ‘ “probable from the nature of the defects and previous unsuccessful attempts to plead that plaintiff cannot state a cause of action.” ’ [Citations.]” (Krawitz v. Rusch (1989) 209 Cal.App.3d 957, 967.)

II

Declaratory Relief

Crawford’s declaratory relief cause of action alleges that Internal Revenue Code section 860, et seq. required the Trust to possess his deed of trust within 90 days of the Trust’s closing date in order to maintain its status as a REMIC. New York law, in turn, states that “[i]f the trust is expressed in the instrument creating the estate of the trustee, every sale, conveyance or other act of the trustee in contravention of the trust, except as authorized by this article and by any other provision of law, is void.” (N.Y. Est. Powers & Trusts Law § 7-2.4 (2018).) He alleges that because the Trust did not possess the deed of trust within 90 days of the Trust’s closing date, the assignment was void, and defendants have no enforceable interest in the property. He claims he has been prejudiced because he has been making payments to the wrong entity and remains fully indebted to the original lender.

Crawford does not have standing to raise this claim. Crawford’s declaratory relief cause of action is governed by this court’s holding in Mendoza v. JPMorgan Chase Bank, N.A. (2016) 6 Cal.App.5th 802 (Mendoza). In Mendoza, as here, the plaintiff alleged that a postclosing date transfer into a New York securitized trust was void. (Id. at p. 805.) Following the Supreme Court’s decision that a borrower has standing to allege that an assignment of a promissory note and deed of trust is void, but not voidable (Yvanova v. New Century Mortgage Corp., supra, 62 Cal.4th 919), Mendoza held that a postclosing date transfer into a New York securitized trust is merely voidable, and a borrower does not have standing to challenge alleged irregularities in the securitization of the loan. (Mendoza, supra, 6 Cal.App.5th at p. 805.)

Mendoza is squarely on point here, thus the trial court correctly sustained the demurrer on the declaratory relief cause of action.

DISPOSITION

The judgment is affirmed. Defendants shall recover their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1) & (2).)

/s/

Blease, Acting P. J.

We concur:

/s/

Murray, J.

/s/

Duarte, J.