Case Name:   Nelson R. Diaz, et al. v. Ocwen Loan Servicing, LLC, et al.

Case No.:       1-14-CV-263128

In this action arising from a failed mortgage loan modification, plaintiffs Nelson R. Diaz and Jennifer Diaz (“Plaintiffs”) allege that defendant Ocwen Loan Servicing, LLC (“Ocwen”) informed them, after Plaintiffs had been promised that a loan modification was forthcoming for over two years, that its loan servicing agreement with U.S. Bank National Association, as trustee for Residential Funding Mortgage Securities I, Inc., Mortgage Pass-Through Certificates, Series 2007-S1 (“U.S. Bank”) did not allow for modification of Plaintiffs’ loan. (Complaint, ¶ 1.)  Plaintiffs allege that Ocwen’s predecessor, GMAC Mortgage, LLC (“GMAC”), had instructed Plaintiffs to default on their monthly mortgage payments in order to qualify for a loan modification, and their loan is now in active foreclosure.  (Complaint, ¶¶ 10 and 32.)

On April 2, 2014, Plaintiffs filed this action, asserting claims for: (1) fraud (against Ocwen and U.S. Bank); (2) negligent misrepresentation (against Ocwen); (3) negligence (against Ocwen); (4) intentional infliction of emotional distress (against Ocwen); (5) wrongful foreclosure (against all defendants); and (6) violations of Business and Professions Code section 17200, et seq. (against all defendants).

Currently before the Court is the demurrer of defendants Ocwen, U.S. Bank, and Western Progressive Trustee LLC, dba Western Progressive, LLC (collectively, “Defendants”) to each cause of action asserted in the complaint.  Defendants contend that each cause of action is uncertain and fails to state a claim.  (Code Civ. Proc., § 430.10, subds. (e) and (f).)

Request for Judicial Notice

Defendants’ request for judicial notice of the deed of trust, assignment thereof, notice of default, and notice of trustee’s sale regarding the property at issue is GRANTED.  These documents are relevant to the factual background of this action, and their authenticity is not challenged.  (See Evid. Code § 452, subd. (h) [facts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy are an appropriate subject of judicial notice]; People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2 [only relevant matters are subject to judicial notice]; Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264 [“courts have taken judicial notice of the existence and recordation of real property records, including deeds of trust, when the authenticity of the documents is not challenged”].)

Uncertainty

The demurrer pursuant to Code of Civil Procedure section 430.10, subdivision (f) is OVERRULED as to each cause of action.  Uncertainty is a disfavored ground for demurrer and is typically sustained only where the pleading is so unintelligible that the responding party cannot reasonably respond.  (See Khoury v. Maly’s of California, Inc. (1993) 14 Cal App 4th 612, 616 [“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.”]; Richelle L. v. Roman Catholic Archbishop (2003) 106 Cal.App.4th 257, 266 [“in ruling on a demurrer, the trial court … [must ignore] [e]rroneous or confusing labels attached by the inept pleader … if the complaint pleads facts which would entitle the plaintiff to relief”], citation omitted.)  Here, each claim in the complaint is clearly alleged.

The First Cause of Action

The demurrer to the first cause of action for fraud is OVERRULED.

Defendants contend that Plaintiffs fail to allege a clear promise by Ocwen’s predecessor to provide Plaintiffs with a loan modification and facts demonstrating such a promise damaged Plaintiffs.  However, Plaintiffs allege that a representative of Ocwen’s predecessor, GMAC, told them in March 2011 that a loan modification was an available option for their loan and instructed them to default on their monthly mortgage payments in order to qualify.  (Complaint, ¶ 10.)  After they began withholding their payments, Plaintiffs were informed that they “would receive a modification.”  (Complaint, ¶ 11.)  GMAC and then Ocwen continued to review Plaintiffs’ application and request information from Plaintiffs in connection therewith until April 10, 2013, when Plaintiffs received a letter from Ocwen stating that their loan modification was denied.  (Complaint, ¶¶ 12-22.)  On October 14, 2013, Plaintiffs received another letter from Ocwen stating that their loan fell outside the requirements for a modification established by the loan owner (U.S. Bank).  (Complaint, ¶ 28.)  Plaintiffs contend that these facts demonstrate a modification had never been an “option” for them.  They allege that they “would have reinstated their loan back in early 2011, or sought other solutions or relief” had they known that modification was not an option (Complaint, ¶ 31), and are now in foreclosure as a result of the “insurmountable default … created through the modification process” (Complaint, ¶ 1).

While Defendants argue that a statement that a loan modification is an “available option” is too vague to support a claim for promissory estoppel specifically, the issue on demurrer is whether Plaintiffs plead any claim for fraud.  The statement that a modification was available to Plaintiffs is a misrepresentation of fact adequate to support a claim for fraud.  (See OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal. App. 4th 835, 845 [a “misrepresentation (false representation, concealment, or nondisclosure)” is a required element of a claim for fraud].)  As to causation, Defendants state without explanation that Plaintiffs’ allegation that they did not explore other options to pay their default is inadequate, and do not address the allegation that Plaintiffs would have reinstated their loan in 2011 had they known modification of their mortgage was not an option.  However, these allegations are adequate to survive demurrer.  (See Bushell v. JPMorgan Chase Bank, N.A. (2013) 220 Cal.App.4th 915, 930-931 [allegations that plaintiffs detrimentally relied on Chase’s promise to permanently modify their loan “by repeatedly contacting Chase, by repeatedly preparing documents at Chase’s request, by discontinuing efforts to pursue a refinance from other financial institutions or to pursue other means of avoiding foreclosure, and by losing their home and making it unlikely they could purchase another one” adequately supported the damages element of a fraud claim; see also Phillips v. TLC Plumbing, Inc. (2009) 172 Cal.App.4th 1133, 1139 [causation is ordinarily a question of fact and may be decided as a question of law only “if on undisputed facts there can be no reasonable difference of opinion on causal nexus”].)  While Defendants state that Plaintiffs were already in default when they contacted GMAC to request a loan modification and admit that “‘financial hardship’, and nothing else” caused their default, these conclusions are not alleged in the complaint.  (See Complaint, ¶ 10 [stating merely that Plaintiffs contacted GMAC after experiencing financial hardship and alleging that Plaintiffs withheld their mortgage payments only after GMAC instructed them to do so].)

The Second and Third Causes of Action

The demurrer to the second cause of action for negligent misrepresentation and the third cause of action for negligence is OVERRULED.

Defendants contend that both of these claims fail because Plaintiffs were not owed a duty of care in connection with a loan modification as a matter of law.  However, while a lender does not owe a borrower any duties “to offer, consider, or approve loan modifications [or] to explore foreclosure alternatives” (outside of those created by statute, regulation, directive, or the loan documents themselves), it “does owe a duty to a borrower to not make material misrepresentations about the status of an application for a loan modification or about the date, time, or status of a foreclosure sale.”  (Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal. App. 4th 49, 67-68.)  Plaintiffs’ allegations concerning misrepresentations made by GMAC and Ocwen in connection with the loan modification process are thus adequate to state a claim for negligent misrepresentation.  (See Ragland v. U.S. Bank National Assn. (2012) 209 Cal. App. 4th 182, 196 [reversing summary judgment for defendant on negligent misrepresentation claim where it was alleged that lender represented to plaintiff that it could modify her loan, instructed her not to make her next mortgage payment in order to qualify, and then informed her that it could not accept any further mortgage payments].)  The third cause of action for negligence is largely premised on the same allegations, and consequently also states a claim.

With respect to the second cause of action, Defendants further argue that Plaintiffs fail to allege reliance, but their arguments on this point mirror those advanced in support of their demurrer to the first cause of action as to causation, and lack merit for the reasons discussed above.

The Fourth Cause of Action

The demurrer to the fourth cause of action for intentional infliction of emotional distress is OVERRULED.

As an initial matter, Defendants argue that this cause of action “group[s] all Defendants together” and “fail[s] to adequately distinguish the actions of [GMAC] and Defendant Ocwen.”  (Motion, p. 8.)  This argument would appear to pertain to Defendants’ demurrer on the ground of uncertainty, which the Court overrules.  The fourth cause of action is asserted against Ocwen alone and the facts that support it are clearly alleged.

Defendants further contend that Plaintiffs have failed to allege outrageous conduct in support of this claim.  “Whether conduct is outrageous is usually a question of fact.”  (Ragland v. U.S. Bank National Assn., supra, 209 Cal. App. 4th at p. 204.)  Here, the conduct alleged by Plaintiffs—GMAC’s instruction that Plaintiffs default on their mortgage to obtain a loan modification coupled with Ocwen’s subsequent denial of their modification request—is adequate to support a claim for intentional infliction of emotional distress at this juncture.  (Id. [reversing summary adjudication for defendant where it was alleged defendant “engaged in outrageous conduct by inducing [plaintiff] to skip [her] April loan payment, refusing later to accept loan payments, and selling her home at foreclosure”]; cf. Davenport v. Litton Loan Servicing, LP (N.D. Cal. 2010) 725 F. Supp. 2d 862, 884 [an “alleged certified mail failure and [defendant’s] refusal, after meeting with [plaintiff] and her legal representative, to modify her loan also do not, by themselves, qualify as outrageous”].)

The Fifth Cause of Action

The demurrer to the fifth cause of action for wrongful foreclosure is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

As urged by Defendants, Plaintiffs allege that their loan is still in the process of “active foreclosure” (Complaint, ¶ 32), and there is no cause of action for wrongful foreclosure where the process has not yet been completed via a foreclosure sale.  (See Rosenfeld v. JPMorgan Chase Bank, N.A. (N.D. Cal. 2010) 732 F. Supp. 2d 952, 961 [where there is no dispute that a foreclosure sale did not take place, a claim for wrongful foreclosure is premature because a “lender or foreclosure trustee may only be liable to the mortgagor or trustor for wrongful foreclosure if the property was fraudulently or illegally sold under a power of sale contained in a mortgage or deed of trust”], citing Munger v. Moore (1970) 11 Cal.App.3d 1, 7; Vega v. JP Morgan Chase Bank, N.A. (E.D. Cal. 2009) 654 F.Supp.2d 1104, 1113 [“a purported wrongful foreclosure claim is premature given there has been no foreclosure of the property”]; Pugh v. JPMorgan Chase Bank, N.A. (E.D. Cal. Oct. 22, 2013, No. 2:13-cv-01141-MCE-DAD) [2013 U.S. Dist. LEXIS 151873, *8-9] [same]; Canas v. Citimortgage, Inc. (C.D. Cal. July 2, 2013, SA CV 13-00322-DOC) [2013 U.S. Dist. LEXIS 93937, *12] [same].)

The Sixth Cause of Action

The demurrer to the sixth cause of action for violations of Business and Professions Code section 17200, et seq. is OVERRULED.

As discussed above, Defendants’ argument that the complaint admits it was Plaintiffs’ own financial hardship that caused their default lacks merit.  Defendants further contend that this claim fails because each of Plaintiffs’ other claims fails to state a claim.  However, given that a number of Plaintiffs’ claims survive demurrer, this argument is unavailing.

 

The currently-scheduled case management conference date (7-29-14) is CONTINUED to September 16, 2014 at 10:00 a.m. in Department 5.