2013-00147195-CU-OR

Katie Feldman vs. Paramount Equity Mortgage
Katie Feldman vs. Paramount Equity Mortgage

Nature of Proceeding: Hearing on Demurrer to First Amended Complaint

Filed By: Hart, Kate E.

Defendants Bank of America (“BANA”) and Reconstruct Company, N.A.’s demurrer to
Plaintiffs Katie and Brian Feldman’s First Amended Complaint (“FAC”) is ruled upon as
follows.

Defendants’ request for judicial notice is granted. (See Poseidon Devel., Inc. v.
Woodland Lane Estates, LLC (2007) 152 Cal.App.4th 1106, 1117-18; see also
Startford Irrig. Dist. v. Empire Water Co. (1941) 44 Cal.App.2d 61, 68 [recorded land
documents, not contracts, are the subject of judicial notice on demurrer].) The court,
however, does not accept the truth of any facts within the judicially noticed documents
except to the extent such facts are beyond reasonable dispute. (See Poseidon Devel.,
152 Cal.App.4th at 1117-18.) see also Fontenot v. Wells Fargo Bank, N.A. (2011) 198
Cal.App.4th 256, 265 (“[A] court may take judicial notice of the fact of a document’s
recordation, the date the document was recorded and executed, the parties to the
transaction reflected in the recorded document, and the document’s legally operative
language, assuming there is no genuine dispute regarding the document’s
authenticity.”)

In this foreclosure action, Plaintiffs allege causes of action for intentional and negligent
misrepresentation, negligence, violations of Civil Code §§ 2923.55, 2924, 2924c(6),
2923.6 and Bus. & Prof. Code § 17200. Plaintiffs allege that the original lender,
Paramount Equity Mortgage made numerous misrepresentations in connections with a
refinance of their loan in 2007. They allege that they tried to obtain a modification from
BANA and in connection with the attempted modification, BANA made certain
misrepresentations, negligently handled their application, and committed numerous
other violations of the non-judicial foreclosure statutes.

Tender

Defendants’ demurrer to the entire FAC on the basis that Plaintiffs failed to allege
tender is overruled. Regardless of whether an allegation of tender is required in this
action, Plaintiffs alleged that they unconditionally offer to tender any amount due after
an offset for damages to the “true beneficiary under the deed of trust or holder of the
note in due course…” (FAC ¶ 48.) This is sufficient for pleading purposes. Further
Plaintiffs alleged a cause of action for wrongful foreclosure in violation of Civil Code §
2923.55 which section is essentially identical to former Section 2923.5 for which tender
th
was not required. (Mabry v. Superior Court (2010) 185 Cal.App.4 208.) Thus, even if
tender were required for some of the causes of action, and tender had not been
adequately alleged, the demurrer to the entire complaint on this basis must be
overruled as tender is clearly not required for all causes of action.

Home Affordable Modification Program (“HAMP”)

Defendants’ demurrer to the First, Second, Third, and Seventh Causes of Action on
the basis that Plaintiffs lack standing to allege violations of HAMP is overruled.
Whether or not there is a private right of action under HAMP [and the Court would note
that numerous courts have rejected a private right of action. Sutcliffe v. Wells Fargo
Bank, N.A., 283 F.R.D. 533, 553 (N.D. Cal. 2012) ], the Court notes that in none of the
causes of action are Plaintiffs actually seeking to enforce HAMP but rather have
alleged that Defendants made misrepresentations with respect to whether or not
Plaintiffs would be evaluated under HAMP guidelines.

First and Second Causes of Action (Intentional and Negligent Misrepresentation)

Defendants’ demurrer is sustained with leave to amend for failure to state facts
sufficient to constitute a cause of action.

Plaintiffs allege four misrepresentations, three of which are related to the loan
origination and the fourth related to an alleged misrepresentation by BANA that
Plaintiffs would be evaluated for loan modification under HAMP.

With respect to the loan origination misrepresentations, Plaintiffs allege that
Defendants are liable for co-defendant Paramount Equity Mortgage’s conduct (five
years prior to the Deed of Trust being assigned to BANA) because pursuant to the
assignment of the Deed of Trust, BANA is the successor in interest to Paramount and
“assumed all liabilities of [Paramount] associated with the note and deed of trust” or
that “there was an express or implied agreement of assumption of liabilities between
[Paramount] and [BANA]. (FAC ¶ 38.) For pleading purposes, these allegations are
sufficient as successor liability for tort claims may exist where there is an express or
implied agreement of assumption. (Fisher v. Allis-Chalmers Corp. Product Liability
th
Trust (2002) 95 Cal.App.4 1182, 1188.)

However, Plaintiffs’ allegations regarding discovery of all of the alleged loan origination
misrepresentations are currently barred by the three year statute of limitations
governing fraud based causes of action. Indeed, Plaintiff was required to specifically
facts showing the time and manner of discovery of the alleged fraud, and the inability
to have made the earlier discovery despite reasonable diligence. (Fox v. Ethicon Endo
th
-Surgery, Inc. (2005) 35 Cal.4 797, 808.) Here, Plaintiffs allegations that they did not
realize there were any problems with their loan which originated in 2007, until 2012
when they realized they would not be able to refinance as promised and did not “truly
discover the misconduct of Defendants until they retained counsel in May 2013” are
insufficient and fail to set forth facts demonstrating an inability to have discovered the
misconduct earlier despite the exercise of reasonable diligence.

In addition, Plaintiffs’ fraud based claims are insufficiently pled as they are not pled
with the requisite level of specificity. The heightened particularity requirement
necessitates pleading facts that “show how, when, where, to whom, and by what
means the representations were tendered.” (Lazar v. Superior Court (1996) 12 Cal.4th
631, 645.) When fraud is alleged against a corporate defendant, the plaintiff must
specifically allege their authority to speak, to whom they spoke, what they said or
wrote, and when it was said or written. ( Tarmann v. State Farm Mutual Auto Ins. Co.
th
(1991) 2 Cal.App.4 153, 157.) With respect to all of the alleged misrepresentations,
Plaintiffs fail to specifically allege who made the representations, their authority to
speak, what exactly was said, etc. Indeed, for example, Plaintiffs simply allege that
representations were made by an “Employee/Representative/Agent…given authority
[to speak]”, that the representations were made in mid-2007 and in early to mid-2013.
(FAC ¶¶ 50-65; 72-73.) These general and conclusory allegations are insufficient.

As a result, the demurrer to the first and second causes of action are sustained with
leave to amend.
Third Cause of Action (Negligence)

Defendants’ demurrer is sustained with leave to amend for failure to state facts
sufficient to constitute a cause of action. Here, Plaintiffs allege that Defendants owed
them a duty of care in connection with “the processing of Plaintiffs’ loan modification
applications.” (FAC ¶ 83.) It alleges that the duty was breached when Defendants “fail
[ed] to accurately process their loan modification application and upon information and
belief acted negligently in the handling of Plaintiffs’ loan modification application by
misplacing or losing documents. (FAC ¶ 84.)

Defendants cite to the general rule that a financial institution generally owes no duty of
care to a borrower where the institution’s involvement does not exceed the scope of a
conventional lender of money. (Nymark v. Heart Federal Sav. & Loan Assoc. (1991)
231 Cal.App.3d 1089, 1096.) Nymark does not stand for the proposition that a lender
never owes a duty of care to a borrower. Even when the lender is acting as a
conventional lender, the no-duty rule is only a general rule. (Osei v. Countrywide
Home Loans (E.D.Cal. 2010) 692 F.Supp.2d 1240, 1249.) Nymark does not support
the sweeping conclusion that a lender never owes a duty of care to a borrower. A duty
may be alleged based on the loan modification relationship and representations made
to the borrower. A loan modification is the renegotiation of loan terms, which falls
squarely within the scope of a lending institution’s conventional role as a lender of
money. A lender’s obligation to offer, consider, 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.” (Lueras v. BAC Home Loans Servicing, LP (2013) 221
th
Cal.App.4 49, 67.) Plaintiffs attempt to rely upon dicta set forth in Jolley v. Chase
th
Home Finance, LLC (2013) 213 Cal.App.4 872, 901, a case involving a construction
loan which suggested that based upon an analysis of the Biakanja factors, a lender of
home loans may owe a duty even in its traditional role as a lender of money.
However, Lueras expressly rejected Jolley’s suggestion. “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.” (Id.) Thus, Plaintiffs’ opposition, essentially relying entirely on Jolley
fails to show that a duty of care was owed under the circumstances set forth in the
complaint. As a result, the demurrer is sustained with leave to amend.

Fourth Cause of Action (Violation of Civil Code § 2923.55)

Defendants’ demurrer is overruled. Pursuant to Civil Code § 2923.55, a mortgagee,
trustee, beneficiary, or authorized agent may not record a notice of default until 30
days after either contacting the borrower to discuss foreclosure alternatives or satisfied
the due diligence requirements in attempting to contact the borrower. Plaintiffs alleged
that they were never contacted prior to the 30 days before the notice of default was
recorded and that the declaration in the notice of default saying they had been
contacted was false. (FAC ¶¶ 88-89.)

Defendants’ argument that Plaintiffs failed to allege that they were prejudiced by any
irregularity in the foreclosure process as a result of any failure to be contacted prior to
the NOD being recorded is rejected. Indeed, while Defendants are correct that
Plaintiffs admit they were in contact with BANA regarding a loan modification, Plaintiffs
alleged that they were prejudiced by Defendants’ failures to comply with Section
2923.55 because they were not made aware of other foreclosure alternatives, besides
a loan modification, prior to the NOD being recorded. (FAC ¶ 98.) The authority cited
by Defendants does not relate to this situation and deals instead with situations where
no prejudice could be shown. Indeed, the one unpublished non-binding federal
decision they cite to dealing with a similar situation, in fact supports Plaintiffs’ theory. (
Pantoja v. Countrywide Home Loans, Inc. (N.D.Cal. 2009) 640 F.Supp.2d 1177, 1186
[plaintiffs needed to allege that they were either not contacted pursuant to the then
applicable Section 2923.5(a) or that any such contact was deficient in order to
adequately allege that a notice of default did not comply with the law].) Here, at least
for pleading purposes, Plaintiffs have not simply alleged a procedural irregularity in the
foreclosure process (e.g., notice of sale sent to incorrect address yet they had actual
notice of the sale) but rather a fundamental failure to have been provided the
information regarding foreclosure alternatives which Section 2923.55 clearly requires
prior to initiation of the foreclosure process.

Fifth Cause of Action (Violation of Civil Code § 2924)

Defendants’ demurrer is sustained with leave to amend for failure to state facts
sufficient to constitute a cause of action. Plaintiffs allege that the Notice of Default is
void because Defendants had no authority to issue it. They allege that the assignment
of the deed of trust to BANA and all subsequent documents are void because the note
and deed of trust were transferred to a securitized trust. Normally, borrowers lack
standing to challenge an assignment of his or her loan. However, allegations of post-
closing date transfers of a loan into a securitized trust are sufficient to state a basis for
concluding that the attempted transfer is void, thus giving the borrower standing to
th
challenge the assignment. (Glaski v. Bank of America (2013) 218 Cal.App.4 1079,
1082.) Plaintiff, however, fails to allege that the subject assignment was after the
securitized trust had closed, instead only alleging that the deed of trust and loan were
transferred to a securitized trust. (FAC ¶ 104.) They allege that “an assignment to the
securitized trust would be [sic] late assignment and would be void…” (FAC ¶ 105.)
But there are no facts alleged to indicate when exactly the trust closed and thus no
facts alleged which would allow Plaintiffs standing to challenge the assignment under
Glaski. On this basis alone, the demurrer is sustained.

The Court need not address Defendants’ remaining argument in support of this cause
of action as Plaintiffs do not contend in their opposition that the subject documents
were invalid simply because it was securitized.

Sixth Cause of Action (Violation of Civil Code § 2923.6)

Defendants’ demurrer is sustained with leave to amend. Defendants argue that a
violation of Section 2923.6, which precludes recordation of a notice of default or sale
or conducting a trustee’s sale while a loan modification application is pending, requires
that the borrower have submitted a completed loan modification application and that
Plaintiffs made no such allegation. Plaintiffs apparently concede this point and state
that they “can amend this claim by alleging that the application they submitted was, in
fact, complete.” (Oppo. 12:22-23.)

Seventh Cause of Action (Violation of Bus. & Prof. Code § 17200)

Defendants’ demurrer is overruled. Plaintiffs alleged that Defendants committed
unlawful acts when they violated Civil Code §§ 2923.55 and 2924 and Penal Code ¶
115.5. As set forth above, Plaintiffs adequately alleged a cause of action for violation
of Civil Code § 2923.55 and therefore have stated a cause of action for violation of the
unlawful prong of Bus. & Prof. Code § 17200. Defendants argument that Section
2923.55 cannot be utilized as a predicate for an unlawful claim because Section
2923.55 only provides a remedy of postponing the sale is rejected. Indeed, Bus. &
Prof. Code § 17200 borrows violations of other laws and treats them as independently
actionable under Section 17200. (Farmers Ins. Exch. v. Superior Court (1992) 2 Cal.4
th 377, 383.) In fact, Section 17200 allows a remedy even where the underlying statute
itself provides no private right of action. (California Med. Assn. v. Aetna U.S.
th
Healthcare of Calif., Inc. (2001) 94 Cal.App.4 151, 169.) Further, remedies under
17200 are cumulative to remedies provided by the borrowed underlying statute. (Bus.
& Prof. Code § 17205.) Finally the Court rejects the argument Plaintiff failed to allege
standing, specifically that they lost money or property as a result of the alleged
unlawful business practice. Indeed, they alleged that as a result of the practice, they
were “induced to participate in the modification process instead of seeking other
alternatives. Further Plaintiffs spent time and money engaging in the modification
process and gave Defendants access to personal financial data that Defendants were
not otherwise entitled to receive.” (FAC ¶ 118.) This is a sufficient allegation for
pleading purposes of injury in fact as required by Bus. & Prof. Code § 17204.)

As a result, the demurrer is sustained with leave to amend as to the first, second, third,
fifth and sixth, and overruled as to the fourth and seventh causes of action. Where
leave was given, Plaintiffs may file and serve an amended complaint no later than April
1, 2014. Defendants shall file and serve their responses within 10 days thereafter, 15
days if the amended complaint is served by mail. (Although not required by any
statute or rule of court, Plaintiffs are requested to attach a copy of the instant minute
order to the amended complaint to facilitate the filing of the pleading.)

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