Case Name: Amalia Santiago, et al. v. Bank of America, N.A., et al.
Case No.: 2015-1-CV-286268

Currently before the Court are the following matters: (1) the motion by defendant Nationstar Mortgage, LLC (“Nationstar”) for judgment on the pleadings as to the third amended complaint (“TAC”) of plaintiffs Amalia Santiago (“Amalia”), Ricardo Santiago, and Dorcas Santiago (collectively, “Plaintiffs”); and (2) the demurrer by defendant Bank of America (“BANA”) to the TAC of Plaintiffs.

Factual and Procedural Background

This is a wrongful foreclosure action brought by Plaintiffs against several defendants, including BANA and Nationstar. Plaintiffs purchased certain real property in San Jose (“Subject Property”) in 2005, which was financed through a secured loan obtained from BANA. (TAC, ¶ 9.)

In July 2012, Plaintiffs received a U.S. Department of Justice Loan Modification application package from BANA, stating they met the criteria to apply for a new government modification program that would significantly reduce their loan payments. (TAC, ¶ 10.) Amalia contacted BANA in response and spoke with an authorized representative from BANA’s Loan Department. (Id., at ¶ 12.) The representative advised that a loan modification was available for Plaintiffs’ loan; they needed to be behind on their mortgage payments to receive a loan modification; and they would be approved for a loan modification. (Ibid.) Based on the promise of loan modification approval, Amalia, on behalf of all Plaintiffs, began the loan modification process with BANA. (Id., at ¶ 13.)

In mid-August 2012, Plaintiffs completed the loan modification package and submitted it to BANA. (TAC, ¶ 14.) The following day, Amalia called BANA and was informed that she needed to refax her loan modification documents to BANA and her documents would then be submitted to BANA’s underwriting department. (Ibid.) Amalia complied with the request that same day. (Ibid.)

Approximately one week later, Amalia spoke with BANA’s Account Manager who told her that Plaintiffs were approved for a permanent loan modification under the U.S. Department of Justice Loan Modification Program. (TAC, ¶ 15.) When Amalia contacted BANA to follow up, another authorized representative of BANA told her that the loan modification was still in underwriting and asked her to submit additional documents. (Id., at ¶ 16.) Shortly thereafter, Amalia faxed all of the requested loan modification documents to BANA. (Id., at ¶ 17.)

Subsequently, Amalia spoke to different authorized representatives of BANA on multiple occasions and was told each time to submit additional documents. (TAC, ¶¶ 18-19, 22-27.) Plaintiffs complied and submitted everything as requested, but Amalia was continually told by various BANA representatives that her loan modification was still in process. (Ibid.) During this time, Amalia was also advised by BANA that it could not communicate with her because she had filed for bankruptcy. (Id., at ¶ 20.) In fact, she had never filed for bankruptcy. (Ibid.) Amalia then had to prove to BANA that she never filed for bankruptcy, which further delayed the loan modification process. (Ibid.)

On September 14, 2013, Amalia contacted BANA and was told that “the private investor on Plaintiffs’ loan, U.S. Bank, does not participate in loan modifications” and that BANA transferred servicing of the loan to Nationstar. (TAC, ¶ 28.)

In October 2013, Amalia contacted Nationstar to discuss the loan modification process with BANA. (TAC, ¶ 29.) An authorized representative of Nationstar informed her that a loan modification was available but she would have to restart the process. (Id., ¶ at 30.) The representative also told her that if Plaintiffs followed all instructions and completed the loan modification package as requested, their application would be approved for a loan modification with Nationstar. (Ibid.) Plaintiffs then submitted their loan modification package to Nationstar. (Id., ¶¶ at 31-32.)

Thereafter, Amalia spoke with various representatives from Nationstar and was told that Plaintiffs’ application was still under review, they needed to submit additional documents, and they would be approved for a loan modification with Nationstar. (TAC, ¶¶ 33-37.) Plaintiffs complied and submitted everything Nationstar requested. (Ibid.) Amalia was also provided with a single point of contact, but she was unable to reach the assigned representative. (Id., at ¶¶ 38, 42, 44.)

When Amalia spoke with an authorized representative of Nationstar on October 8, 2014, she was told a loan modification “would never be approved because the investor on Plaintiffs’ loan does not participate in loan modifications,” and it was too late to save her home or submit a loan modification package. (TAC, ¶ 41.) The representative further stated that Nationstar had not logged any of Amalia’s calls and had no record of receiving any of Plaintiffs’ loan modification documents. (Ibid.) Despite this conversation, Nationstar still encouraged Plaintiff to pursue loan modification and told Amalia her loan modification documents would be resubmitted to underwriting under Nationstar’s in-house loan modification program. (Id., at ¶¶ 42-43.)

On October 24, 2014, Amalia filed a complaint against Nationstar with the California Department of Business Oversight. (TAC, ¶ 45.) Nationstar informed Amalia that due to her complaint, her loan modification application review was put on hold. (Id., at ¶ 46.) A representative also told Amalia not to contact Consumer Affairs or Consumer Financial Protection Bureau. (Id., at ¶ 47.) The representative added that Plaintiffs’ loan modification would be approved and the single point of contact previously assigned to them would work on the loan modification. (Ibid.) Amalia then contacted Nationstar and was told by multiple representatives that the loan modification was back in the underwriting process. (Id., at ¶ 48.) In January 2015, Plaintiffs’ single point of contact informed Amalia that she needed Amalia’s bank statements to continue the loan modification review. (Id., at ¶ 49.) Amalia submitted her bank statements as requested, but did not hear back from Nationstar regarding her documents or the in-house loan modification. (Ibid.)

Around March 2015, Nationstar recorded a Notice of Default and Election to Sell Under Deed of Trust (“NOD”) against the Subject Property. (TAC, ¶ 50.) Plaintiffs only became aware of the same when they received a letter from Santa Clara County. (Ibid.) During this time, other representatives at Nationstar confirmed that the investor on Plaintiffs’ loan does not participate in loan modifications. (Id., at ¶ 51.) Plaintiffs are now in active foreclosure. (Id., at ¶ 52.) Plaintiffs allege that had they known that BANA and Nationstar did not have the contractual authority to modify their loan because of limitations in their servicing agreements with the investor on their loan, they would have reinstated their loan years ago or sought other solutions or relief. (Ibid.)

Based on the foregoing, Plaintiffs filed a complaint against several defendants, including BANA and Nationstar, on September 29, 2015. Plaintiffs filed the operative TAC on November 10, 2016, alleging the following causes of action: (1) fraud (against BANA and Nationstar); (2) negligent misrepresentation (against BANA and Nationstar); (3) negligence (against BANA and Nationstar); and (4) violations of the unfair competition law (“UCL”) (against BANA, Nationstar, Veriprise Processing Solutions, LLC).

Discussion

I. Nationstar’s Motion for Judgment on the Pleadings

Nationstar moves for judgment on the pleadings as to each and every cause of action of the TAC on the ground of failure to state sufficient facts to state a cause of action. (See Code Civ. Proc., § 438, subd. (c)(1)(B)(ii).)

A. Request for Judicial Notice

In support of its motion, Nationstar filed a request for judicial notice of: (1) Deed of Trust recorded on June 10, 2005; (2) the NOD recorded on March 9, 2015; and (3) the Notice of Trustee’s Sale recorded on June 16, 2015.

Each item is a recorded real property record that is relevant to issues under review. The request for judicial notice is therefore GRANTED. (See Evid. Code, § 452, subd. (c); see also Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-265, disapproved on other grounds; Gbur v. Cohen (1979) 93 Cal.App.3d 296, 301.)

B. Legal Standard

“Judgment on the pleadings is akin to a demurrer and is properly granted only if the complaint does not state facts sufficient to state a cause of action against that defendant.” (Shea Homes Limited Partnership v. County of Alameda (2003) 110 Cal.App.4th 1246, 1254.) The court accepts as true all material factual allegations, giving them a liberal construction, but it does not consider conclusions of fact or law, opinions, speculation, or allegations contrary to law or judicially noticed facts. (Ibid.) The grounds for the motion must appear on the face of the complaint and in any matters subject to judicial notice. (Code Civ. Proc., § 438, subd. (d).)

C. First and Second Causes of Action – Fraud and Negligent Misrepresentation

In order to state a fraud claim, a plaintiff must plead: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of the statement’s falsity (scienter); (3) intent to defraud; (4) justifiable reliance; and (5) resulting damage. (Lazar v. Super. Ct. (1996) 12 Cal.4th 631, 638 (“Lazar”).) The elements of negligent misrepresentation are similar to intentional fraud, except there is no requirement of scienter or intent to defraud. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 173-74 (“Small”); Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519.) Fraud and negligent misrepresentation claims must be pled with specificity. (Lazar, supra, 12 Cal.4th at p. 645; Small, supra, 30 Cal.4th at p. 184.)

Plaintiffs’ claims are based on (1) statements by Nationstar’s authorized representatives that Plaintiffs would be approved for a loan modification and (2) representations by Nationstar’s authorized representatives that a loan modification was available. (TAC, ¶¶ 67-77.)

To the extent the claims are based on statements regarding approval of Plaintiffs’ loan modification, Plaintiffs fail to allege an actionable misrepresentation. An “actionable misrepresentation must be made about past or existing facts; statements regarding future events are merely deemed opinions.” (California Public Employees’ Retirement System v. Moody’s Investors Service, Inc. (2014) 226 Cal.App.4th 643, 662.) The statements that Plaintiffs would be approved for a loan modification are statements about future events and, therefore, are merely deemed opinions.

Next, to the extent the claims are based on representations regarding the availability of a loan modification, Plaintiffs fail to allege sufficient facts showing justifiable reliance. Plaintiffs allege that the representations regarding the availability of a loan modification were false because Nationstar did not have the contractual authority to modify their loan given the terms of its servicing agreement with the investor. (TAC, ¶¶ 67-68, 70-71.) Plaintiffs further allege that they justifiably relied on the representations regarding the availability of a loan modification “by following [Nationstar’s] instructions in applying for government and in-house modifications” and not exploring “other options such as pursuing a refinance from other financial institutions, arranging to borrow funds from family and/or friends to bring their loan current.” (Id., at ¶ 75.) However, Plaintiffs alleged that they were informed as early as September 14, 2013, that the investor on their loan did not participate in loan modifications. (Id., at ¶¶ 28, 59.) These allegations reveal that Plaintiffs were already aware that the investor on their loan did not participate in loan modifications at the time Nationstar’s authorized representatives made the alleged representations regarding the availability of a loan modification. (Id., at ¶¶ 28-30.) Consequently, Plaintiffs could not have justifiably relied on the statements by Nationstar’s authorized representatives that a loan modification was available. (See Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239 [“whether a party’s reliance was justified may be decided as a matter of law if reasonable minds can come to only one conclusion based on the facts”].)

Furthermore, with respect to the claim for intentional misrepresentation, Plaintiffs fail to include any allegations in the TAC providing that that alleged misrepresentations were made with the intent to induce their reliance. Rather, Plaintiffs merely allege that Nationstar did not intend to grant their loan modification. (TAC, ¶ 72.) This allegation does not demonstrate that Nationstar made the alleged misrepresentations with the intent to induce Plaintiffs’ reliance.

For these reasons, the motion for judgment on the pleadings as to the first and second causes of action is GRANTED without leave to amend. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 (“Goodman”) [plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading]; see also Davies v. Sallie Mae, Inc. (2008) 168 Cal.App.4th 1086, 1097 (“Davies”) [appellate court determined that trial court did not abuse its discretion in sustaining a demurrer without leave to amend after plaintiff had two previous opportunities to amend the complaint].)

D. Third Cause of Action – Negligence

Nationstar argues that Plaintiffs fail to sufficiently allege that it owed them a duty of care. Nationstar also contends that even if it owed them a duty of care, there are no allegations showing that it breached that duty.
Two essential elements of a cause of action for negligence are that the defendant owed the plaintiff a duty of care and breached that duty. (Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941, 944 (“Alvarez”).) There is no express legal duty to grant a loan modification, but there is a current split of authority as to whether a servicer owes a duty of care to a borrower when reviewing his or her application. (See Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 67 (“Lueras”); Alvarez, supra, 228 Cal.App.4th at pp., 948-949.) On that issue, the Court finds the conclusion reached in Lueras most persuasive. (See Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456 [“the rule under discussion [stare decisis] has no application where there is more than one appellate court decision, and such appellate decisions are in conflict. In such a situation, the court exercising inferior jurisdiction can and must make a choice between the conflicting decisions”].)
Lueras states that “[i]f the modification was necessary due to the borrower’s inability to repay the loan, the borrower’s harm, suffered from denial of a loan modification, would not be closely connected to the lender’s conduct. If the lender did not place the borrower in a position creating a need for a loan modification, then no moral blame would be attached to the lender’s conduct.” (Lueras, supra, 221 Cal.App.4th at 67.) Plaintiffs admit they began the loan modification process in July 2012 with BANA, a year before Nationstar acquired their loan. (TAC, ¶¶ 13, 28-29.) Therefore, Nationstar did not place Plaintiffs in the position to need a loan modification as it did not assume the liabilities of BANA and had nothing to do with their original loans. (See id. at ¶¶ 28-29.) Accordingly, just as in Lueras, Nationstar acted in its role as a lender of money and had no common law duty to offer, consider, or approve their loan modification. (Lueras, supra, 221 Cal.App.4th at 68.)
Lueras further states that a lender only owes “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, supra, 221 Cal.App.4th at 67.) As such, Nationstar only had a duty not to make material misrepresentations about the status of an application for a loan modification.

Here, the alleged misrepresentations that form the basis of Plaintiffs’ claim for negligence are not misrepresentations about the status of Plaintiffs’ application for a loan modification or about the date, time or status of a foreclosure sale. (See TAC, ¶ 88(a)-(h).) Therefore, Plaintiffs fail to allege sufficient facts demonstrating that Nationstar had a duty not to make the alleged misrepresentations.

Accordingly, the motion for judgment on the pleadings as to the third cause of action is GRANTED without leave to amend. (See Goodman, supra, 18 Cal.3d at p. 349 [plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading]; see also Davies, supra, 168 Cal.App.4th at p. 1097 [appellate court determined that trial court did not abuse its discretion in sustaining a demurrer without leave to amend after plaintiff had two previous opportunities to amend the complaint].)

E. Fourth Cause of Action – Violation of the UCL

The facts alleged in support of this claim are the same as those stated in support of the first three causes of action. (TAC, ¶¶ 100-110.) The viability of a UCL claim stands or falls with the antecedent substantive causes of action. (Krantz v. BT Visual Images, LLC (2001) 89 Cal.App.4th 164, 178 (“Krantz”).) Since Plaintiffs have not adequately alleged any other cause of action, their UCL claim necessarily fails.

Consequently, the motion for judgment on the pleadings as to the fourth cause of action is GRANTED without leave to amend. (See Goodman, supra, 18 Cal.3d at p. 349 [plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading]; see also Davies, supra, 168 Cal.App.4th at p. 1097 [appellate court determined that trial court did not abuse its discretion in sustaining a demurrer without leave to amend after plaintiff had two previous opportunities to amend the complaint].)

II. BANA’s Demurrer

BANA demurs to each and every cause of action of the TAC on the grounds of uncertainty and failure to allege facts sufficient to constitute a cause of action. (See Code Civ. Proc., § 430.10, subds. (e) & (f).)

A. Legal Standard

The function of a demurrer is to test the legal sufficiency of a pleading. (Trs. Of Capital Wholesale Elec. Etc. Fund v. Shearson Lehman Bros. (1990) 221 Cal.App.3d 617, 621.) Consequently, “[a] demurrer reaches only to the contents of the pleading and such matters as may be considered under the doctrine of judicial notice.” (South Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732, internal citations and quotations omitted; see also Code Civ. Proc., § 430.30, subd. (a).) “It is not the ordinary function of a demurrer to test the truth of the [ ] allegations [in the challenged pleading] or the accuracy with which [the plaintiff] describes the defendant’s conduct. [ ] Thus, [ ] the facts alleged in the pleading are deemed to be true, however improbable they may be.” (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958, internal citations and quotations omitted.) However, while “[a] demurrer admits all facts properly pleaded, [it does] not [admit] contentions, deductions or conclusions of law or fact.” (George v. Automobile Club of Southern California (2011) 201 Cal.App.4th 1112, 1120.)

B. First and Second Causes of Action – Fraud and Negligent Misrepresentation

BANA argues that Plaintiffs’ fraud claims are time-barred because the statute of limitations for fraud claims is, at most, three years and Plaintiffs fail to allege sufficient facts warranting application of the delayed discovery rule. Thus, BANA concludes that any allegations regarding conduct that occurred prior to September 29, 2012 are time-barred. In opposition, Plaintiffs assert that it was only until late 2013 when they discovered that BANA’s communications with them were misrepresentations and as such their fraud claims are not time-barred.

The statute of limitations for any cause of action on the ground of fraud is three years from the date of “the discovery, by the aggrieved party, of the facts constituting the fraud.” (Code Civ. Pro., § 338, subd. (d).) On demurrer, the statute of limitations defect must clearly and affirmatively appear on the face of the pleading. (E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1315-16 (“E-Fab”).) To be entitled to the benefit of the delayed discovery rule a plaintiff must specifically plead the time and manner of discovery and show the following: (1) the plaintiff had an excuse for late discovery; (2) the plaintiff was not at fault in discovering facts late; (3) the plaintiff did not have actual or presumptive knowledge to be put on inquiry; (4) the plaintiff was unable to make earlier discovery despite reasonable diligence. (E-Fab, supra, 153 Cal.App.4th at pp. 1316-18.)

Because the complaint in this action was filed on September 29, 2015, allegations regarding fraud that occurred prior to September 29, 2012 are time-barred save for applying the delayed discovery rule.

Plaintiffs’ allege that they first learned that the alleged misrepresentations made by BANA’s authorized representatives were false on September 14, 2013. (TAC, ¶ 28.) However, Plaintiffs do not plead facts showing that they were lacked the ability to have made earlier discovery despite reasonable diligence. (E-Fab, supra, 153 Cal.App.4th at p. 1319 [“A plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence. The burden is on the plaintiff to show diligence, and conclusory allegations will not withstand demurrer.”].) Thus, to the extent the claims are based on alleged misrepresentations made prior to September 29, 2012, the claims are time-barred.

To the extent the claim against BANA is based on statements made after September 29, 2012, Plaintiffs fail to allege sufficient facts showing that those statements were false. (See Lazar, supra, 12 Cal.4th at p. 638 [a claim for fraud requires the plaintiff to plead facts showing that a false representation was made]; see also Small, supra, 30 Cal.4th at pp. 173-74.) Plaintiffs allege that BANA’s authorized representatives made the following statements after September 29, 2012: they needed to resubmit their loan modification application; additional documents were required; BANA could not communicate with Amalia because she supposedly filed for bankruptcy; the loan modification was still in process and under review; Plaintiffs’ loan file had been assigned to the appeal department and to an appeals specialist; the needed to complete another loan modification package; and their loan modification was still in underwriting. (TAC, ¶¶ 18-24.) The TAC does not include any allegations demonstrating that Plaintiffs did not need to submit additional documents or updated loan modification applications in order to have their loan modification application processed. Furthermore, there are no allegations in the TAC showing that Plaintiffs’ loan modification application was not undergoing review at the time the alleged statements were made. Additionally, the TAC does not include allegations demonstrating that BANA could talk to Amalia even though she had supposedly filed for bankruptcy. Finally, there are no allegations in the TAC indicating that Plaintiffs’ loan was not assigned to the appeal department and an appeals specialist.

Accordingly, the demurrer to the first and second causes of action is SUSTAINED without leave to amend. (See Goodman, supra, 18 Cal.3d at p. 349 [plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading]; see also Davies, supra, 168 Cal.App.4th at p. 1097 [appellate court determined that trial court did not abuse its discretion in sustaining a demurrer without leave to amend after plaintiff had two previous opportunities to amend the complaint].)

C. Third Cause of Action – Negligence

BANA contends that Plaintiffs’ negligence claim is time-barred as the claim must be brought within two years of the date of the alleged injury and it released the loan to Nationstar in September 2013. In opposition, Plaintiffs contend that “their inquires about the promised BANA loan modification continued even after the release of [their] loan to Nationstar.” (Opp’n., p. 11.)

A negligence claim must be brought within two years of the date of the alleged injury. (Code Civ. Proc., § 335.1.)

The Court finds Plaintiffs’ argument unpersuasive. Plaintiffs specifically allege that on September 14, 2013, a BANA representative told Amalia that the private investor on their loan does not participate in loan modifications. (TAC, ¶¶ 28, 59.) Thus, Plaintiffs received notice of all facts essential to the cause of action for negligence as to BANA’s conduct on September 14, 2013. Because this action was filed on September 29, 2015, Plaintiffs’ claim is time-barred.

For these reasons, the demurrer to the third cause of action is SUSTAINED without leave to amend. (See Goodman, supra, 18 Cal.3d at p. 349 [plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading]; see also Davies, supra, 168 Cal.App.4th at p. 1097 [appellate court determined that trial court did not abuse its discretion in sustaining a demurrer without leave to amend after plaintiff had two previous opportunities to amend the complaint].)

D. Fourth Cause of Action – Violation of the UCL

The facts alleged in support of this claim are the same as those stated in support of the first three causes of action. (TAC, ¶¶ 100-110.) The viability of a UCL claim stands or falls with the antecedent substantive causes of action. (Krantz, supra, 89 Cal.App.4th at p. 178.) Since Plaintiffs have not adequately alleged any other cause of action, their UCL claim necessarily fails.

Consequently, the demurrer to the fourth cause of action is SUSTAINED without leave to amend. (See Goodman, supra, 18 Cal.3d at p. 349 [plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading]; see also Davies, supra, 168 Cal.App.4th at p. 1097 [appellate court determined that trial court did not abuse its discretion in sustaining a demurrer without leave to amend after plaintiff had two previous opportunities to amend the complaint].)