2013-00146669-CU-OR

Lisa Carlson vs. Bank of America

Nature of Proceeding: Hearing on Demurrer
Nature of Proceeding: Hearing on Demurrer

Filed By: Cammarata, Michelle M.

Defendant Bank of America, N.A.’s (“BANA”) demurrer to Plaintiffs Lisa and Kevin
Carlson’s First Amended Complaint is ruled upon as follows.

The Court considered Plaintiffs’ opposition served one day late, though the Court must
note that it fails to meaningfully address many of the points raised in BANA’s demurrer.

Defendant’s request for judicial notice is granted.

In this foreclosure action, Plaintiffs allege causes of action for violations of the Home
Owners’ Bill of Rights (“HBOR”) and causes of action for fraud and negligent
misrepresentation.

First, Second, and Third Causes of Action (HBOR causes of action)

BANA’s demurrer to these causes of action on the basis that they are premature
because there are no current foreclosure proceedings is overruled. BANA argues that
the HOBR was enacted to ensure that as part of the nonjudicial foreclosure process,
borrowers are considered for foreclosure alternatives and that the process only
commences once a notice of default has been recorded. It reasons that since
Plaintiffs failed to allege the a NOD was recorded or attach a copy to the FAC that
these HBOR causes of action are premature.

The Court disagrees. Liberally construing the FAC, as it must on a demurrer [Code
Civ. Proc., § 452], the Court finds that Plaintiffs, while they may not have specifically
alleged that a NOD was recorded on a specific date, have alleged facts showing that
the foreclosure process has commenced. Indeed, the FAC is replete with such facts.
Plaintiffs allege, for example, that BANA representatives advised them that “the
foreclosure process would continue.” (FAC ¶ 11.) They allege that they received a
Notice of Default. (FAC ¶ 13.) They allege that their “home is currently in
foreclosure.” (FAC ¶¶ 41, 49.) Plaintiffs have alleged facts from which it can easily be
inferred that a NOD has been recorded, despite an express allegation that it was
recorded, and that the foreclosure process has commenced such that their HBOR
causes of action are not premature. The demurrer to the first, second and third causes
of action on this basis is overruled.

First Cause of Action (Violation of Civil Code § 2923.7)

The demurrer is overruled despite the fact that Plaintiffs failed to address BANA’a
arguments as to this cause of action. Civil Code § 2923.7 requires that a servicer
establish a single point of contact in the foreclosure prevention alternative process. A
single point of contact is defined as “an individual or team of personnel each of whom
has the ability and authority to perform the responsibilities” required by Section 2923.7.
(Civ. Code § 2923.7(e).)

Plaintiffs’ allegation that BANA “advised” them that “April Walker” was their single point
of contact is not an admission that BANA complied with Section 2923.7 as BANA
argues. Indeed, Plaintiff alleged that they tried to contact Ms. Walker on numerous
occasions to confirm that the foreclosure would be paused during the loan modification
application process but were unable to do so. (FAC ¶¶ 11, 13) Plaintiffs were instead
transferred to different individuals, specifically, Jonathan Weiss and Carlos Lopez,
each of whom provided Plaintiffs differing information regarding the status of the
foreclosure process (inconsistently, Weiss indicated that Plaintiffs could ignore the
Notice of Default they received while Lopez indicated that the foreclosure would
proceed). Plaintiffs alleged that they requested a single point of contact but instead
“were given several different contact people with differing information in violation of
California Civil Code, Section 2923.7.” (FAC ¶ 19.) Liberally construing the
allegations as it must, the Court finds that Plaintiffs sufficiently alleged that they were
not given a single individual or even a team with the ability/authority to perform the
responsibilities” required by Section 2923.7. While BANA argues Plaintiffs failed to
allege how they were damaged, the damage is the fact that they were not provided the
requisite single point of contact as required by the statute. The demurrer to this cause
of action is therefore overruled.

Second Cause of Action (Violation of Civil Code § 2924.18)

The demurrer to this cause of action is overruled, again despite Plaintiffs’ failure to
address BANA’s arguments directed to this cause of action. Civil Code § 2924.18(a)
(1) prohibits a “mortgage servicer, trustee, mortgagee, beneficiary, or authorized
agent” from recording a NOD where a borrower has submitted a completed loan
modification application. Here, Plaintiffs alleged that they received a NOD while the
loan modification process was pending and that BANA proceeded with foreclosure in
violation of Section 2924.18. (FAC ¶ 25.)

As already discussed above, the Court has rejected BANA’a argument that Plaintiffs
failed to allege facts demonstrating that an NOD has been recorded and that
foreclosure proceedings have been commenced. Further, the Court recognizes
BANA’s point that this section only applies to a “depository institution chartered under
state or federal law…that, during its immediately preceding annual reporting period…
foreclosed on 175 or fewer residential real properties, containing no more than four
dwelling units that are located in California.” (Civ. Code § 2924.18(b).) However,
there is no authority cited for the proposition that Plaintiffs failure to specifically allege
that BANA is such an institution renders their cause of action deficient for pleading
purposes. The demurrer is overruled.

Third Cause of Action (Violation of Civil Code § 2924.10)

The demurrer is overruled again despite Plaintiffs’ failure to specifically address the
arguments directed to this cause of action. Section 2924.10 requires a servicer to
provide written acknowledgement of receipt of documentation within five business
days of receipt of the loan modification application and in that acknowledgment must
describe the loan modification process, include any applicable deadlines, expiration
dates, and describe any deficiency in the application.

Plaintiffs allege that they provided BANA with a complete loan modification application
but did not receive any “correspondence describing the loan modification
process.” (FAC ¶ 29.) This is sufficiently pleaded as Section 2924.10 required BANA
to describe the process in its written acknowledgment of Plaintiffs’ completed
application. The Court is aware that a servicer is not liable for a violation of Section
2924.10 if it remedies any violation prior to recordation of trustee’s deed upon sale.
(Civil Code § 2924.12(c).) However, BANA is incorrect that the allegations show the violation was remedied. Indeed, BANA’s argument that it informed Plaintiffs it had
received all documents after initially sending a denial letter for “missing documents”
does not demonstrate that it remedied the alleged violation at issue here, specifically,
BANA’s alleged failure to describe the loan modification process as required by
Section 2924.10(a)(1). These allegations sufficiently allege conduct by BANA which
violated Section 2924.10.

Further, BANA’s argument that Plaintiffs are not entitled to injunctive relief hinges upon
its already rejected contention that Plaintiffs failed to allege foreclosure proceeding
have commenced.

The demurrer is overruled.

Fourth Cause of Action (Fraud)

The demurrer is overruled. The Court first rejects the argument that the cause of
action, as pled, is barred by the statute of limitations. BANA’s argument in this regard
relies upon its attempt to re-write the FAC to argue that the fraud cause of action is
based upon conduct that occurred in September 2009 when BANA purchased the
subject loan from Taylor Bean Whitaker. Not so, despite the fact that Plaintiffs’
opposition almost entirely fails to address this point, instead arguing that the cause of
action did not accrue until they could no longer afford the increased mortgage
payments caused by BANA’s representation that they owed back taxes and insurance.
Indeed, the fourth cause of action is based on the allegation that in “October 2010,
Defendant BANA mortgage loan representative, Lorna Humphreys, with authority to
speak on BANA’s behalf, represented to Plaintiffs that they owed back property taxes
and insurance amount [sic] to $10,583.” (FAC ¶ 36.) Plaintiffs allege that the
representations were false as they were not behind on their taxes and insurance. (Id.
¶ 37.) The complaint was filed on June 12, 2013, less than three years after the
alleged misrepresentation by Humphreys and thus within CCP § 338(d). Thus the
demurrer on the basis that the fraud cause of action is barred by the statute of
limitations is overruled.

Further, the Court finds that the fraud cause of action is pled with the requisite
specificity. 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.) BANA simply argues that Plaintiffs failed to sufficiently
allege facts showing the authority for Lorna Humprheys to speak on its behalf. The
Court disagrees, in that Plaintiffs allege that she was BANA’s “mortgage loan
representative, with authority to speak on BANA’s behalf…” (FAC ¶ 36.) These
allegations are sufficient for pleading purposes as Ms. Humprheys title, “mortgage loan
representative” supports the allegation that she had authority to speak on BAN’s behalf
regarding Plaintiffs’ mortgage with BANA.

The Court also rejects BANA’s argument that the cause of action is deficient because
it is premised on Taylor Bean Whitaker’s failure to properly account for tax payments
and it is not liable for such conduct. Again, however, BANA is attempting to re-write
the FAC. The fraud causes of action are premised on BANA’s conduct, specifically, its
alleged affirmative representation that Plaintiffs’ owed $10,583 in back taxes and that
BANA knew this was false because it had, or should have had, the documents from
Taylor Bean Whitaker showing that they did not owe such money. Thus Plaintiffs
adequately pled BANA’s knowledge or the representation’s falsity. They do not,
however, seek to hold BANA liable for any conduct of Taylor Bean Whitaker.

The Court further rejects the argument that Plaintiffs failed to allege justifiable reliance.
Plaintiffs alleged that they reasonably relied on Ms. Humphreys’ representation that
they owed back taxes and insurance and that BANA would foreclose if such sums
were not paid. They alleged that they were thus required to increase their monthly
mortgage payments “by nearly $1,000 toward paying $10,583 in alleged delinquent
property taxes.” (FAC ¶ 41.) This is sufficient.

Finally, the Court rejects the argument that Plaintiffs failed to adequately allege
damages. Indeed, they alleged that they had to increase their monthly mortgage
payments by nearly $1,000 and that the increase resulted in them not being able to
keep up with their mortgage payments and as a result their home is in foreclosure.
(FAC ¶ 41.) The fact that Plaintiffs also alleged that BANA offered to “break up the
$10,583 for sixty months” does not render Plaintiffs’ damages allegations insufficient.

The demurrer to the Fourth Cause of action is overruled.

Fifth Cause of Action (Negligent Misrepresentation)

The demurrer is overruled. The demurrer on the basis that the cause of action is
barred by the statute of limitations and that the cause of action is not sufficiently
specific is identical to the demurrer directed to the fourth cause of action and is
overruled for the same reasons.

The demurrer on the basis that BANA owed no duty to Plaintiffs is overruled, despite
Plaintiffs’ failure to address this argument. BANA cites 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.) However,
this rule does not prevent Plaintiffs from alleging a negligent misrepresentation cause
of action based on representations made in the context of a loan modification situation.
Indeed, it is true that “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.) 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. Clearly, a
lender has a duty not to make material misrepresentations of fact, for example,
regarding the statute of a loan modification application or the status of a foreclosure. (
Lueras, supra, at pp. 68-69 [granting leave to amend a negligence cause of action
against a financial institution as it “is foreseeable that a borrower might be harmed by
an inaccurate or untimely communication about a foreclosure sale or about the status
of a loan modification, and the connection between the misrepresentation and the
injury suffered could be very close”].) Here, the allegations that BANA’s representative
misrepresented that Plaintiffs owed back taxes and insurance and that they would be
subject to foreclosure if they did not pay such amounts fits within that scenario. The
demurrer on the basis that Plaintiffs failed to allege facts showing BANA owed a duty
is overruled.

BANA’s demurrer is overruled. No later than April 4, 2014, BANA shall file and serve
its answer to the FAC.

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