2018-00242170-CU-OR

Paulette L. Hacker vs. Ditech Financial, LLC

Nature of Proceeding: Hearing on Demurrer to Plaintiff’s Complaint

Filed By: Wolfe, Stuart B.

*** If oral argument is requested, the parties must at the time oral argument is requested notify the clerk and opposing counsel of the causes of action that will be addressed at the hearing. The parties are also reminded that pursuant to local court rules, only limited oral argument is permitted on law and motion matters. ***

Defendant DiTech Financial, LLC’s demurrer to Plaintiff Paulette Hacker’s complaint is ruled upon as follows.

Defendant’s request for judicial notice is granted. In taking judicial notice of the recorded land documents, the court accepts the fact of their existence, not the truth of their contents. (Herrera v. Deutsche Bank Nat’l Trust Co. (2011) 196 Cal.App.4th 1366, 1375; Kalnoki v. First American Trustee Servicing Solutions LLC (2017) 8 Cal.App.5th 23, 36-37 [trial court properly took judicial notice of recorded land documents and properly found that the recorded deed of trust was the “legally operative document designating the beneficiary”).) Likewise, in taking judicial notice of court filings, the court accepts the fact of their existence, not the truth of their contents. (See

Professional Engineers v. Dep’t of Transp. (1997) 15 Cal.4th 543, 590 (judicial notice of findings of fact does not mean that those findings of fact are true); Steed v. Department of Consumer Affairs (2012) 204 Cal.App.4th 112, 120-121.)

Overview

This action arises out a line of equity on Plaintiff’s home. In December 1997, Plaintiff and her then-husband, Chris Hacker (“Chris”) obtained a mortgage loan that was secured by a deed of trust (“DOT”). In January 2008, the loan was fully paid off and title re-conveyed. Around that time, Chris quitclaimed all his interest to Plaintiff as part of a marital settlement agreement under their divorce decree.

Later in January 2008, Plaintiff contacted co-defendant ELoan, Inc. (“ELoan”) to inquire about an equity line of credit. She applied for a loan of $150,000 in her own name. Plaintiff also mentioned that she was transferring title to a time share in Maui, Hawaii. The ELoan agent represented that he could save her $500 if she sent the originals to ELoan and it filed those papers for her as part of the loan. Plaintiff sent the originals to ELoan which included Chris’ name and information, including his signature. Plaintiff was advised that she did not qualify and was denied.

Two weeks later, Plaintiff received a call from ELoan advising her that they would send her money, stating that ELoan had “changed its mind.” She received a check two weeks later, and was advised that she was not required to sign any loan documents. The promissory note which Plaintiff signed as part of the denied loan application stated that her payments would be $871 per month at 5.5% fixed for 30 years.

ELoan then sold her loan to Citibank. She received a notice from Citibank indicating that her monthly payments would be in excess of $1060 per month. Overtime, the monthly payments increased to $1422.

In 2014, Citibank transferred the loan to GreenTree. In May 2016, the loan was transferred to Defendant and Plaintiff began receiving foreclosure threats in Chris’ name. Defendant advised her that she signed documents allowing him to have access to her loan and that they received those documents in 2014. Plaintiff denies that she gave such permission.

In 2017, Plaintiff continued to receive mail in Chris’ name. Defendant advised that correspondence was sent in Chris’ name because he signed the DOT. Plaintiff obtained a copy of the 2008 DOT which shows Chris’ signature on it. Plaintiff alleges that Chris never signed the DOT, nor was he involved in any of the transaction negotiations. She alleges the signature is fraudulent.

On October 17, 2017 a Notice of Default was recorded.

In January 2018, Plaintiff submitted a loan modification application. Plaintiff was

granted a TPP and made 8 trial payments. Plaintiff alleges that Defendant failed to honor the final loan modification.

On January 23, 2018, a Notice of Sale was recorded. Fearing foreclosure, Plaintiff agreed verbally on the phone to a “paperless” Fannie Mae refinance to her loan in order to reduce her payment.

On July 17, 2018, a Trustee’s Deed Upon Sale (“TDUS”) was recorded.

The complaint asserts the following causes of action: (1) breach of contract; (2) breach of implied duty of good faith and fair dealing; (3) fraud; (4) violation of Civ. Code §2923.5; violation of Civ. Code §2924.11; (5) wrongful foreclosure; (6) negligent misrepresentation; (7) negligence; (8) promissory estoppel; (9) promissory fraud; (10) cancellation of instruments, and (11) violation of B&P Code §17200.

Defendant demurs to each for failure to state sufficient facts.

Breach of Contract and Breach of Implied Duty of Good Faith and Fair Dealing

The demurrer on the ground that Plaintiff to attach a copy of the agreement, set forth the material terms verbatim or plead the legal effect of the agreement is SUSTAINED with leave to amend.

Plaintiff appears to allege that Defendant breached the TPP. Yet, no TPP is attached to the complaint, nor has Plaintiff set forth the material terms verbatim or plead the legal effect. Plaintiff merely alleges that she made 8 trial payments in the amount of $937.91 per month, but Defendant failed to honor the full and final loan modification. These allegations are insufficient.

The breach of covenant of good faith and fair dealing is “a supplement to an existing contract,” (McClain v. Octagon Plaza, LLC, (2008) 159 Cal.App.4th 784, 799.) Since Plaintiff fails to sufficiently allege a breach of the TPP, the demurrer to the breach of covenant of good faith and fair dealing is also SUSTAINED with leave to amend.

Fraud

The demurrer is SUSTAINED with leave to amend. In this cause of action, Plaintiff only alleges that ELoan made false representations to Plaintiff. There are no allegations directed against Defendant.

Negligent Misrepresentation and Promissory Fraud

These causes of action appear to be based on Defendant’s failure to abide by the TPP. Similar to the breach of contract cause of action, these causes of action are insufficient in that they fail to allege the terms of the TPP, any purported

misrepresentations made to Plaintiff regarding the TPP, or attach the TPP itself. The demurrer is SUSTAINED with leave to amend.

Violation of Civ. Code §2923.5

Civ. Code §2923.5 requires certain contacts be made with the borrower prior to a notice of default being recorded.

Defendant claims that the Declaration of Compliance attached to the NOD demonstrates that it complied with Section 2923.5. Although the Court has taken judicial notice of the Declaration of Compliance, the Court does not accept the truth of the contents asserted therein. The Court declines to follow the unpublished federal district court case cited by Defendant. The demurrer is OVERRULED.

The demurrer on the ground that Plaintiff fails to allege a “material violation” is also OVERRULED. Here, given that Plaintiff alleges that Defendant engaged in the very conduct prohibited by Civil Code § 2923.5 the Court concludes that for pleading purposes, the violation is “material.”

In reply, Defendant claims that Plaintiff has no remedy under this section since “the only remedy a borrower can pursue based upon a lender’s or servicer’s violation of California Civil Code §2923.5 is not damages, but a postponement of the foreclosure sale to allows the requirement communications to take place.” (Reply, 3:28-4:2 [citing Mabry v. Sup. Court (2010) 185 Cal.App. 4th 208, 2014].) The Court need not address this new argument in reply. In any event, Mabry was decided before the HBOR was enacted in 2013, and is inapplicable given that Plaintiff’s home has already been sold.

Violation of Civ. Code §2924.11

The demurrer to the dual-tracking cause of action is SUSTAINED with leave to amend. Civ. Code §2924.11 requires that a “complete” loan modification application must be submitted. Here, Plaintiff fails to allege that she submitted a “complete” loan modification application.

Wrongful Foreclosure

“A wrongful foreclosure is a common law tort claim. It is an equitable action to set aside a foreclosure sale, or an action for damages resulting from the sale, on the basis that the foreclosure was improper. [Citation.] The elements of a wrongful foreclosure cause of action are: ‘“(1) [T]he trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the party attacking the sale…was prejudiced or harmed; and (3) … the trustor or mortgagor tendered the amount of the secured indebtedness or was excused from tendering.”’ [Citation.] ‘[M]ere technical violations of the foreclosure process will not give rise to a tort claim; the foreclosure must have been entirely unauthorized on

the facts of the case.’” (Sciarratta v. U.S. Bank Nat’l Assn. (2016) 247 Cal.App.4th 552, 561-562.)

Defendant insists that foreclosure sale was not illegal, fraudulent, or willfully oppressive, and that the violation of Civ. Code §2923.5 is merely a “technical violation.” Defendant further argues that Plaintiff fails to allege prejudice or harm and credible tender.

In opposition to the motion, Plaintiff simply asserts that because her other causes of action are viable, the wrongful foreclosure cause of action must also be valid. Plaintiff, however, fails to address the merits of Defendant’s argument. The Court construes Plaintiff’s failure to address the merits the argument as a concession on the merits. Thus, the demurrer is SUSTAINED with leave to amend.

Negligence

With respect to this cause of action, Plaintiff alleges that Defendant’s loan servicing was carelessly done because it failed to issue a final loan modification.

As with all negligence claims, the threshold question is whether the defendant owed a duty of care to the plaintiff and it is well established that this question is one of law which the Court alone answers after considering the various factors identified by the California Supreme Court in Biakanja v. Irving (1958) 49 Cal.2d 64. (See also, Rossetta v. CitiMortgage, Inc. (3DCA 2017) 5 Cal.App.5th 628, 637-638; Witkin, Summary of Cal. Law (9th ed. 1988), Torts §732.) As the Third District recently explained, the “general rule” is that lenders (and servicers) do not owe borrowers a duty of care unless their involvement in a transaction goes beyond their “conventional role as a mere lender of money” but added that “California Courts of Appeal have not settled on a uniform application of the Biakanja factors in cases that involve a loan modification.” (Rossetta, at 637.)

Plaintiff relies mainly on Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941. Cal.App.4th 941. In Alvarez, the plaintiffs alleged the lender breached its duty of care by failing to review their loan modification applications in a timely manner, foreclosing on their properties while they were under consideration for a HAMP modification, misplacing their applications, and mishandling them by relying on incorrect salary information. The Alvarez court held that if a lender 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 949.)

Here, Plaintiff’s allegations do not rise to the level of Alvarez and Plaintiff fails to allege

any facts showing that Defendant’s acts exceeded the conventional role of a lender of money. (Nymark v. Heart Fed. Sav. & Loan Ass’n (1991) 231 Cal.App.3d 1089.)

The demurrer on the ground that Plaintiff fails to sufficiently allege a duty is SUSTAINED with leave to amend.

Promissory Estoppel

To state a claim for promissory estoppel Plaintiff is required to allege “(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise was made; (3) his reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” (Laks v. Coast Fed. Sav. & Loan Ass’n (1976) 30 Cal.App.3d 885, 890.) The allegations must establish a promise “definite enough that a court can determine the scope of the duty[,] and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages.” (Aceves v. U.S. Bank, N.A. (2011) 192 Cal.App.4th 1031, 1044.)

Here, Plaintiff alleges that Defendant “promised Plaintiff that they would have everything resolved by the sale date and not to worry about anything.” (Complaint, ¶ 132.) This vague allegation is not clear and unambiguous in its terms. The demurrer is SUSTAINED with leave to amend.

Cancellation of Instruments

Plaintiff alleges that the “forms and contents of the TDUS” are fraudulent and should be cancelled. She further alleges that “Defendants violated the law in failing to discuss the loan and Plaintiff’s alternatives at any point in time and proceeded with taking the steps necessary to conduct a non-judicial foreclosure in clear violation of the aforementioned statutes.” (Complaint, ¶ 153.)

A written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be delivered up or canceled.” (Civ. Code § 3412.)

Defendant demurs on the ground that “Plaintiff fails to sufficiently allege any ground or rationally which could possibly seek to invalidate the TDUS.” (Demurrer, 24:13-14.) The Court disagrees since Plaintiff has sufficiently alleged a Civ. Code §2923.5 cause of action. The demurrer is OVERRULED

Violation of B&P Code §17200.

Given that the Court has overruled the Civ. Code §2923.5 cause of action which form the underlying basis for this cause of action, the demurrer is OVERRULED. The Court also rejects Defendant’s argument that Plaintiff lacks standing because she fails to

allege and “injury in fact.” Here, Plaintiff alleges that her home was foreclosed upon due, in part, to Defendant’s failure to comply with Civ. Code §2923.5.

Where leave to amend is granted, Plaintiff may file and serve a first amended complaint (“FAC”) by no later than February 14, 2019, Response to be filed and served within 30 days thereafter, 35 days if the FAC is served by mail. (Although not required by any statute or rule of court, Plaintiff is requested to attach a copy of the instant minute order to the FAC to facilitate the filing of the pleading.)

The minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or further notice is required.

The Court notes that the notice of demurrer incorrectly designates that the hearing will be held in Department 53 at 2:00 p.m. This matter is assigned to Department 54. Hearings in Department 54 are scheduled for 9:00 a.m. Moving party shall notify Plaintiff’s counsel forthwith of the proper time and department. If either party intends to request oral argument, but is unavailable at 9:00 a.m., the parties shall meet and confer regarding a mutually convenient hearing date. Defendant shall then contact the Clerk in Department 54 by no later than 4:00 p.m. on January 29, 2019 to advise the Clerk of the new hearing date.

Moving counsel’s notice of motion does not provide notice of the Court’s tentative ruling system, as required by Local Rule 1.06. Moving counsel is directed to contact Plaintiff’s and advise counsel of Local Rule 1.06 and the Court’s tentative ruling procedure and the manner to request a hearing. If moving counsel is unable to contact Plaintiff’s counsel prior to hearing, moving counsel is ordered to appear at the hearing in person or by telephone.