2013-00146390-CU-OR

Gloria Thomas vs. Ocwen Loan Servicing LLC

Nature of Proceeding: Hearing on Demurrer to First Amended Complaint (Ocwen Loan)

Filed By: Finlay, T. Robert

Defendant Ocwen Loan Service, LLC,’s (“Ocwen”) demurrer to Plaintiffs Gloria
Thomas, individual and on behalf of Daisy Boyd’s (collectively “Plaintiffs”) first
amended complaint (“FAC”) is ruled upon as follows.

Both parties’ 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.)

This is an action arising out of Plaintiffs’ refinancing of a loan on her home. Plaintiff
Daisy Boyd is Plaintiff Gloria Thomas’ mother and co-mortgagor. Ms. Boyd passed
away in June 2009. In essence, Plaintiffs alleges that, after they experienced problems
making payments on the loan, they refinanced / modified existing loans with lenders
who, without their knowledge, added balances to the outstanding principal. Plaintiffs
allege the following. In August 1998, they financed the purchase of their home for
$137,057. Between 2002 and 2005, Plaintiffs executed Deeds of Trusts with various
entities to secure financing. Plaintiffs allege that with each transaction, the financing
secured was for an amount more than Plaintiffs owed on their loan at the time.
Defendant DCS Mortgage Inc. (“DCS”) and Plaintiffs executed a Deed of Trust in favor
of DCS to secure financing of $369,000 in December 2005. (FAC, ¶22.) In January
2006, Plaintiffs executed a modification agreement which modified the terms of their
loan. In 2009, Defendant Option One (“Option One”) and Plaintiffs entered into a loan
modification agreement in the amount of $394,099.45. (Id. ¶ 24.) This amount was
more than the amount owed on Plaintiffs’ loan at the time. (Id.) In October 2008,
Option One caused to be recorded Notice of Default. (Id., ¶ 25.) The Notice of Default
was rescinded in March 2009. (Id.) In December 2009, Defendant Sand Canyon
recorded a Notice of Default, which was rescinded in June 2010. (Id. ¶ 26.) In
November 2010, the beneficial interest in Plaintiffs’ Deed of Trust was transferred to
Sand Canyon Corp. (Id. ¶ 27.) In January or February 2012, Plaintiffs received a loan
modification agreement which indicated that the new balance was $462,019.88. (Id.)
Because Plaintiffs had gone into foreclosure, Plaintiffs felt she had no other option and
accepted the modification. (Id. ¶ 28.) In early 2013, the servicing of Plaintiffs’ loan
was transferred to Ocwen. (Id.) In early 2013, Ocwen informed Ms. Thomas that it
was or would be foreclosing on the loan. (Id. ¶ 35.)

The FAC alleges that following causes of action against Ocwen: Predatory Lending
(COA 1), Accounting (COA 2) and, Elder Financial Abuse (COA 4).

Elder Abuse

Plaintiffs’ opposition did not address Ocwen’s demurrer to this cause of action. The
Court construes Plaintiffs’ failure to oppose the demurrer as a concession on the
merits. Accordingly, the demurrer to this cause of action is SUSTAINED with leave to
amend.

Predatory Lending (Financial Code §§4970-4979.8)

Ocwen demurs to this cause of action on the grounds that it did not originate the loan
is SUSTAINED with leave to amend.

Pursuant to Financial Code §4973(l)(1), “a person who originates a covered loan shall
not steer, counsel, or direct any prospective consumer to accept a loan product with a
risk grade less favorable than the risk grade that the consumer would qualify for based
on that person’s then current underwriting guidelines, prudently applied, considering
the information available to that person, including the information provided by the
consumer.” (Fin. Code §4973(l)(1) [emphasis added].)

In opposition to the demurrer, Plaintiffs concede that Ocwen did not originate the loan.
They argue instead that Ocwen is a necessary party because it is servicing the loan
which Plaintiffs allege is inflated in principal balance and no relief can be obtained
absent cooperation. The Court is not convinced, however, that merely because
Ocwen is a necessary party it can be held liable for damages for the purported
predatory lending. Indeed, Plaintiffs proffer no legal authority that Ocwen can be held
liable for damages in this instance.

Accounting

The demurrer is SUSTAINED with leave to amend. First, Plaintiffs fail to demonstrate
that Ocwen owed them a duty of care. While Plaintiffs argue that a fiduciary duty
exists in lender-borrower transactions, Ocwen is not alleged to have been a lender.
Ocwen is alleged as the servicer of the loan. Second, Plaintiffs fail to allege facts that
there is a balance due from Ocwen. Plaintiffs conclusorily allege that “the amount of
money defendants owe to plaintiff is unknown and cannot be determined without an
accounting.” (FAC, ¶72.)

The Court grants leave to amend as this is Ocwen’s first challenge to the complaint.

Plaintiffs may file and serve a second amended complaint (“SAC”) by no later than
May 23, 2014, Response to be filed and served within 10 days thereafter, 15 days if
the SAC 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 SAC 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.

Item 10 2013-00146390-CU-OR

Gloria Thomas vs. Ocwen Loan Servicing LLC

Nature of Proceeding: Hearing on Demurrer to First Amended Complaint (Sand Canyon Corp)

Filed By: Bauer, Bruce T.

**If any party requests oral argument, then at the time the request is made, the
requesting party must inform the court and opposing counsel of the specific
cause(s) of action and/or issue(s) on which oral argument is sought.**

The court rules as follows on the demurrer of Defendant Sand Canyon Corporation
(“Sand Canyon”) to Plaintiff Gloria Thomas’ (“Thomas”) first amended complaint
(“FAC”):

This is a nonjudicial foreclosure case. Thomas is suing on behalf of herself and her
deceased mother’s estate. (Thomas’ mother allegedly died in 2009.) Thomas alleges
that August 1998, she financed the purchase of their home for $137,057. Thomas
alleges that Sand Canyon is or was at some point her lender, mortgage servicer and
beneficiary under a deed of trust. (FAC ¶¶ 8-10.)

Between 2002 and 2005, Thomas executed Deeds of Trusts with various entities to
secure financing. Thomas alleges that with each transaction, the financing secured
was for an amount more than that owed on the loan at the time. Defendant DCS
Mortgage Inc. (“DCS”) and Thomas executed a Deed of Trust in favor of DCS to
secure financing of $369,000 in December 2005. (FAC, ¶22.) In January 2006,
Thomas executed a modification agreement which modified the terms of the loan. In
2009, Sand Canyon provided a loan modification agreement in the amount of
$394,099.45. (Id. ¶ 24.) This amount was more than the amount owed on the loan at
the time. (Id.) In October 2008, Sand Canyon caused to be recorded a Notice of
Default. (Id., ¶ 25.) The Notice of Default was rescinded in March 2009. (Id.) In
December 2009, Sand Canyon recorded another Notice of Default, which was
rescinded in June 2010. (Id. ¶ 26.) In November 2010, the beneficial interest in the
Deed of Trust was transferred to Sand Canyon. (Id. ¶ 27.) In January or February
2012, Thomas received a loan modification agreement which indicated that the new
balance was $462,019.88. (Id.)

Thus, Thomas essentially alleges that, after she experienced problems making
payments on the loan, she refinanced / modified existing loans with lenders who,
without her knowledge, added balances to the outstanding principal. Thus, for
example, Thomas alleges that Sand Canyon “paid itself $70,000” and later “paid itself
$175,000… .” (FAC, ¶ 47.) Thomas alleges that she did not discover this scheme
until March or April 2013. (Id., ¶¶ 30-32.) Her loan servicer allegedly commenced the
foreclosure process in 2013 as well.

The FAC contains causes of action against Sand Canyon for Predatory Lending in
Violation of California Financial Code §§ 4970-4979.8, Fraud, Accounting, and Elder
Financial Abuse [W&I Code §§ 15610 et seq.]. Sand Canyon now demurs to each of
these causes of action on grounds of uncertainty and failure to state a cause of action.

Uncertainty

The demurrers are OVERRULED.

The allegations, including allegations grouping multiple defendants together, are not so
uncertain that Sand Canyon cannot frame a response. Demurrers for uncertainty are
disfavored and are only granted where the complaint is so muddled that the defendant
cannot reasonably respond. The favored approach is to clarify theories in the
complaint through discovery. (See Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4
th 612, 616; 1 Weil & Brown, Cal. Practice Guide, Civ. Proc. Before Trial (Rutter 2013),
§ 7:85, p. 7(l)-39.)

Failure to State a Cause of Action

The First Cause of Action Predatory Lending in Violation Financial Code §§
4970-4979.8.

The demurrer is SUSTAINED with leave to amend.

Sand Canyon argues first that the demurrer should be sustained because there are no
allegations that it “originated” any loan. Thus, Sand Canyon argues that Thomas has
failed to state any cause of action based on the subject statutes, which regulate the
origination of loans.

The court rejects Sand Canyon’s argument. The statutes upon which the first cause of
action is predicated clearly apply to instances of refinancing. (See American Fin.
Svcs. Assn. v. City of Oakland (2005) 34 Cal.4th 1239, 1246; see id. at 1257 [“In
drafting [former] Division 1.6 [of the Finance Code], the Legislature balanced two
compelling and competing considerations, i.e., the need to protect particularly
vulnerable consumers from predatory lending practices and the concern that
homeowners not be unduly hindered in accessing the equity in their own homes”]
[brackets and underlining added].) Thomas characterizes the subject loan
transactions as “refinance[s],” (FAC at 1:28), and she alleges that these refinances,
which she also characterizes as “modifications,” increased her principal balances.
Given these allegations, the court will not sustain the demurrer merely because Sand
Canyon is not alleged to have made the original loan.

Next, Sand Canyon argues that the first cause of action is defective because it lacks
sufficient allegations that the transactions at issue involved “covered loans” as defined
at Financial Code § 4970(b):

“Covered loan” means a consumer loan in which the original principal
balance of the loan does not exceed the most current conforming loan
limit for a single-family first mortgage loan established by the Federal
National Mortgage Association in the case of a mortgage or deed of trust,
and where one of the following conditions are met:

(1) For a mortgage or deed of trust, the annual percentage rate at
consummation of the transaction will exceed by more than eight percentage points the yield on Treasury securities having comparable
periods of maturity on the 15th day of the month immediately preceding
the month in which the application for the extension of credit is received
by the creditor.

(2) The total points and fees payable by the consumer at or before
closing for a mortgage or deed of trust will exceed 6 percent of the total
loan amount.

(See also id. § 4970(d) [defining “consumer loan”].) Thomas counters that, because
she has alleged in conclusory fashion that her loan is “covered,” and because the court
must accept all her allegations as true for purposes of demurrer, Sand Canyon’s
argument is unavailing.

The court disagrees with Thomas because statutory causes of action must be pleaded
with specificity. (See, e.g., Zipperer v. County of Santa Clara (2005) 133 Cal. App. 4th
1013, 1020.) Because Thomas has not alleged specific facts demonstrating that the
transactions at issue involved covered loans, the court sustains the demurrer. The
court grants Thomas leave to amend the first cause of action.

Finally, Sand Canyon argues that the first cause of action is time-barred. This
argument is predicated on Sand Canyon’s apparent contention that the only loan in
which it played a role was originated in 2005 and, therefore, is outside applicable
statutes of limitations. However, Thomas alleges that Sand Canyon is liable for a loan
modification agreement executed in 2012. (See FAC, ¶ 27.) If the modification is
separately actionable, then it overcomes any statute of limitations. Sand Canyon
argues that it cannot be liable for the modification because the modifying party was
non-party American Home Mortgage Servicing, Inc. (“AHMSI”). And, although Thomas
has alleges that Sand Canyon is also known as AHMSI, Sand Canyon counters that
documents attached to its request for judicial notice prove that it does not operate as
AHMSI.

The court is not persuaded that Sand Canyon’s request for judicial notice establishes
definitively that Sand Canyon has never operated as AHMSI. Rather, the issue
presents a factual question that cannot be resolved on demurrer. Accordingly, the
court rejects Sand Canyon’s statute-of-limitations arguments and overrules the
demurrer to the first cause of action.

The Second Cause of Action for Fraud

The demurrer is OVERRULED.

Sand Canyon argues that Thomas has not alleged enough factual specificity to state a
valid cause of action for intentional misrepresentation or promissory fraud. However,
Thomas’ allegations could also be construed to state fraudulent concealment, and
Sand Canyon has failed to address the adequacy of the allegations to state fraud on
such a theory. To the extent Sand Canyon implicitly argues that the specificity
requirements affecting affirmative fraud (e.g., what was said, who said it, by what
means and when) apply to concealment causes of action, the court rejects the
argument.

The Third Cause of Action for Accounting
The demurrer is OVERRULED.

First, Sand Canyon argues that the accounting cause of action fails because the
relationship between it and Thomas is purely contractual. However, the law does not
require a fiduciary or other relationship before Thomas may seek an accounting. (See
th
Teselle v. McLoughlin (2009) 173 Cal.App.4 156, 179.) The court thus rejects Sand
Canyon’s first argument.

Next, Sand Canyon argues that an accounting is unwarranted because any amount
allegedly owed may be calculated without an accounting. Thomas, however, alleges
the opposite. (See FAC, ¶ 72.) Because the court must accept Thomas’ allegations
as true at this juncture, (see, e.g., Apple Inc. v. Superior Court (2013) 56 Cal.4th 128,
142) it rejects Sand Canyon’s second argument as well. In reaching its conclusion, the
court notes that, unlike fraud or statutory causes of action, accounting need not be
pleaded with specificity.

Finally, Sand Canyon argues that the demurrer should be sustained because Thomas
has failed to allege that she is owed any balance. Because the allegations can be
construed to establish that Sand Canyon wrongfully increased her principal loan
balance and thus owes her amounts she paid toward that increase, the court rejects
this argument as well.

The Fourth Cause of Action for Elder Financial Abuse [W&I Code §§ 15610 Et
Seq.]

The demurrer is SUSTAINED with leave to amend.

Sand Canyon argues that this cause of action is defective for multiple reasons.
Thomas has not addressed these arguments, which the court construes as her
concession of the merits. The court nonetheless grants Thomas leave to amend
because this is the court’s first opportunity to rule on Sand Canyon’s objections to her
fourth cause of action.

Judicial Notice

Sand Canyon’s request of judicial notice is GRANTED. However, in taking judicial
notice of the documents at issue, the court accepts the fact of their existence and the
fact of their contents, not that their contents are accurate. (See Herrera v. Deutsche
Bank Nat’l Trust Co. (2011) 196 Cal.App.4th 1366, 1375.)

Conclusion

The demurrers to the first and fourth causes of action on grounds of failure to state a
valid cause of action are SUSTAINED with leave to amend.

The balance of the demurrers are OVERRULED.

No later than May 23, 2014, Thomas may file and serve a second amended complaint
(“SAC”); Sand Canyon to file and serve its responsive pleading(s) within 10 days
thereafter, 15 days if the SAC is served by mail. (Although not required by any statute
or rule of court, Thomas is requested to attach a copy of the instant minute order to the
FAC to facilitate the filing of the pleading.

Sand Canyon’s counsel are advised that the Sacramento County Superior Court’s
Local Rules were revised and renumbered as of 01/01/13. When giving notice of the
court’s tentative ruling system, counsel should cite Local Rule 1.06, not former Local
Rule 3.04.

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