2017-00211956-CU-OR

Paul Fraga vs. Bank Of America

Nature of Proceeding: Order to Show Cause Re: Preliminary Injunction

Filed By: Quan, Helen

Plaintiffs’ application for preliminary injunction prohibiting the foreclosure sale of their property is DENIED because they have failed to produce competent evidence which establishes they have reasonable probability of prevailing on any of their causes of action as against Shellpoint, the defendant now seeking to foreclose.

Moving counsel failed to comply with CRC Rule 3.1110(b)(3)-(4).

Factual Background

This wrongful foreclosure case was commenced on 5/3/2017. Plaintiffs allege in their recently filed Second Amended Complaint (“2AC”) violation of Civil Code §2923.6 and §2923.7, negligence and unfair business practices against a variety of defendants claimed to be involved with the foreclosure of their home in Elk Grove. On 1/4/2018 plaintiffs sought and obtained a Temporary Restraining Order (“TRO”) and an Order to Show Cause re: preliminary injunction (“OSC”) prohibiting defendants from proceeding with the foreclosure sale of plaintiffs’ home which had been scheduled for 1/5/2018 based on a variety of allegedly wrongful conduct by separate and distinct defendants.

Defendant New Penn Financial, LLC dba Shellpoint Mortgage Servicing (“Shellpoint”) has been servicing plaintiffs’ mortgage since January 2016 and now opposes the preliminary injunction primarily on the grounds that (1) plaintiffs have failed to pay not only their mortgage but also their property taxes and insurance for well over 10 years (since October 2007), forcing the mortgage servicers including Shellpoint and prior servicers to pay the significant taxes and insurance premiums during this time; (2) plaintiffs’ accrued arrearages now exceed $500,000 on their original $600,000 loan; (3) Shellpoint has tried to work with plaintiffs and even offered them a loan modification in February 2017 but it was rejected by plaintiffs (because the proposed monthly payments were not as low as a previous servicer’s offer which plaintiffs insist was not sent to the correct address); and (4) plaintiffs do not have a probability of prevailing on the merits of any of their causes of action.

Analysis

Based on the present record, this Court finds that plaintiffs have failed to produce the evidence necessary to justify the issuance of a preliminary injunction prohibiting the foreclosure sale of the subject property. In particular, plaintiffs have not shown a probability of prevailing on their causes of action as against Shellpoint, the current servicer of the loan.

Civil Code §2923.6. This first cause of action in the 2AC purports to describe/summarize several provisions of §2923.6 including subdivisions (c)-(e) and then goes on to alleges the defendants other than Shellpoint violated these provisions in various ways before finally asserting in Paragraph 77 that Shellpoint failed to give plaintiffs a “fair review of loan modification because it incorrectly calculated Plaintiffs’ income when on or about February 6, 2017, it offered [a] HAMP Tier 2 modification… [which] grossly increased the monthly payments that Plaintiffs would have otherwise paid had they been properly reviewed for a loan modification.”

At the outset, it must be noted that the version of §2923.6 on which plaintiffs rely for this first cause of action was repealed effective 1/1/2018 via an express sunset provision in subdivision (k) and as such, it does not appear that plaintiffs could have any probability of prevailing on this cause of action as presently alleged. But even assuming there had been no repeal, plaintiffs have not alleged facts which establish that Shellpoint (as distinguished from the other named defendants) actually violated any particular provision of the former §2923.6. The sum and substance of §2923.6, as it existed from prior to January 2018, merely precluded a mortgage servicer from

proceeding with a notice of default, notice of sale or trustee’s foreclosure sale while a completed application for loan modification is on file until such time as there is a (1) a written determination that the borrower is not eligible for a first lien loan modification and any appeal period pursuant to subdivision (d) has expired; (2) the borrower does not accept an offered first lien loan modification within 14 days of the offer; or (3) the borrower accepts a written first lien loan modification but then either defaults on or otherwise breaches his/her obligations under the loan modification. To be sure, the Third District Court of Appeal recently reaffirmed the established principle that lenders and servicers had no duty to offer or approve loan modifications (Rossetta v. CitiMortgage, Inc. (2017) 5 Cal.App.5th 628, 637-638 [citing Lueras v. BAC Home Loans Servicing, LP (2013) 221Cal.App.4th 49, 68; etc.]) but under the now-repealed version of §2923.6, lenders and servicers need only provide a written determination of whether the borrower is or is not eligible for a loan modification and then give the borrower an opportunity to accept/reject the offer or appeal the denial of a modification.

Coupled with (1) the 2AC’s judicial admission that Shellpoint indeed offered plaintiffs in February 2017 a loan modification (2) the evidence that plaintiffs promptly rejected this offer by virtue of their letter demanding more favorable modification terms (See Rathke Decl., Ex. M) and (3) Shellpoint promptly reviewed its modification offer and determined it was accurate (See Rathke Decl., Ex. N), it appears unlikely that Shellpoint (as distinguished from the other named defendants) committed a material violation of any substantive provision of §2923.6 as this statute existed prior to 1/1/2018 which might otherwise mandate only a temporary postponement of the trustee’s sale and consequently, plaintiffs have no likelihood of prevailing on their claim under §2923.6.

Civil Code §2923.7. In this cause of action, plaintiffs generally assert that all defendants failed to provide a “single point of contact” (“SPOC”) for them in connection with their attempt to find an alternative to foreclosure but with respect to Shellpoint in particular, the 2AC alleges in Paragraph 86 that Shellpoint “applied the wrong financials to give Plaintiffs a HAMP Tier 2 Modification” instead of Tier 1 and in Paragraphs 107-108 (again) that Shellpoint “did not give Plaintiffs a fair review of loan modification because it incorrectly calculated Plaintiffs’ income when on or about February 6, 2017, it offered [a] HAMP Tier 2 modification…[which] grossly increased the monthly payments that Plaintiffs would have otherwise paid had they been properly reviewed for a loan modification” and then refused to make any changes to the February 2017 offer even after plaintiffs pointed out the alleged “inaccuracies.” As will now be shown, plaintiffs have no reasonable probability of prevailing on this cause of action as against Shellpoint.

First, while the 2AC generally alleges Shellpoint never established a SPOC for plaintiffs, the evidence now before the Court reveals that Shellpoint acknowledged plaintiffs’ request for loss mitigation options by letter dated 1/5/2017 to their counsel at the time and by letter dated 1/6/2017 notified plaintiffs through their counsel that a SPOC had been assigned. (See Rathke Decl., Ex. J, K.)

Second, the 2AC admits that plaintiffs actually did receive a loan modification offer from Shellpoint early the next month and thus, since the primary objective of the SPOC statute is to assist borrowers through the alternatives to foreclosure which in this instance was loan modification, the Court cannot conclude Shellpoint committed a material violation of §2923.7. This conclusion is reinforced by the fact that plaintiffs’

themselves promptly rejected this modification and instead demanded a more favorable modification and that Shellpoint did in any event promptly review its modification offer, finding that it was accurate and communicating this to plaintiffs in writing on 3/7/2017. (See Rathke Decl., Ex. M, N.)

Third, although plaintiffs’ own declarations in support of the TRO aver that they subsequently requested “other foreclosure alternatives to which we were entitled,” neither declaration provides any specific facts or details about what exactly was requested or when. Regardless, the Rathke Declaration in opposition concedes in Paragraph 22 that in March 2017 plaintiffs requested yet another loan modification review but this request was promptly (and properly) denied in writing on 4/3/2017 since plaintiffs had rejected the previous offer. According to the same paragraph of the Rathke Declaration, Shellpoint’s 4/3/2017 letter indicated plaintiffs could nevertheless be considered for other options including a short sale and deed in lieu of foreclosure but plaintiffs never submitted an application to be considered for such relief. This representation appears consistent with plaintiffs’ filing this action shortly thereafter on 5/3/2017.

Based on the foregoing facts and evidence, the Court finds that plaintiffs do not have a likelihood of prevailing on against Shellpoint on the ground the latter failed to provide a SPOC in violation of Civil Code §2923.7.

Negligence. This cause of action generally alleges that all named defendants owed a duty of care to plaintiffs but then breached their duty by failing to do or reasonably do a number of things and also by “initiating and continuing foreclosure in violation of public policy and statutory restrictions.” (2AC, ¶¶112-114.) The sole allegation directed specifically against Shellpoint is again that the latter used “incorrect income” in connection with the February 2017 HAMP Tier 2 modification offer and subsequently “refus[ed] to correct their [sic] mistake to fix the approval tier.” (2AC, ¶¶113(6), 114.) For several separate and distinct reasons, this Court holds that plaintiffs have failed to establish a probability of prevailing on their negligence cause of action as against Shellpoint.

As with all negligence claims, the threshold question is whether the defendant owed a duty of care to the plaintiff and it is well established that this question is one of law which the Court alone answers after considering the various factors identified by the California Supreme Court in Biakanja v. Irving (1958) 49 Cal.2d 64. (See also, Rossetta, at 637-638; Witkin, Summary of Cal. Law (9th ed. 1988), Torts §732.) As the Third District recently explained, the “general rule” is that lenders (and servicers) do not owe borrowers a duty of care unless their involvement in a transaction goes beyond their “conventional role as a mere lender of money” but added that “California Courts of Appeal have not settled on a uniform application of the Biakanja factors in cases that involve a loan modification,” although it is clear that “lenders [and servicers] have no duty to offer or approve a loan modification.” (Rossetta, at 637 [citing Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089; Lueras, at 68; Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 879, 903; Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941, 948].) In light of this split of authority, the Third District considered for itself the question of whether a lender owes a duty in connection with a loan modification and concluded that until the California Supreme Court provides guidance, Alvarez [holding there is duty of care when lender agrees to consider loan modification application] is better reasoned than the contrary decisions even though a loan modification is still within the scope of “traditional

lending.” (Rossetta, at 640.) However, it is critical to note that the Third District’s finding of a duty in Rossetta was driven primarily by the fact that the lender there refused to consider the borrower’s loan modification application unless and until she went into default, conduct which “potentially exceeds the role of a conventional lender” and “informs our application of the Biakanja factors.” (Rossetta, at 640-641.) Thus, based on the borrower’s pleading which alleged that the lender ‘dragged’ the borrower through a seemingly endless application process, required her to submit the same documents over and over again, losing and mishandling documents, misstating the status of various applications and ultimately denying them for “bogus reasons,” the Third District held that the borrower’s negligence cause of action was sufficient to withstand the lender’s demurrer. (Rossetta, at 643.)

However, the facts of the present case and the allegations against Shellpoint in particular are markedly different from Rossetta and thus, do not compel a threshold finding that Shellpoint owed a duty of care to plaintiffs in connection with their loan modification application. In brief, unlike Rossetta, plaintiffs in the case at bar were never told by Shellpoint that their application for a loan modification would not be considered unless and until plaintiffs went into default and in fact, plaintiffs had been in default long before Shellpoint became the servicer in January 2016. Therefore, it does not appear that Shellpoint engaged in any conduct which “potentially exceeds the role of a conventional lender.” (Rossetta, at 640-641.) Additionally, unlike Rossetta, there is no allegation or evidence that Shellpoint at any time ‘dragged’ plaintiffs through a seemingly endless application process, required them to submit the same documents over and over again, misstating the status of plaintiffs’ modification application or even denied the application for “bogus reasons.” (Rossetta, at 643.) The evidence now before the Court plainly reveals that Shellpoint by letter dated 1/5/2017 to plaintiffs’ counsel acknowledged their request for loss mitigation options and by letter dated 1/6/2017 notified plaintiffs that a SPOC had been assigned. (See Rathke Decl., Ex. J, K.) Just a month later, plaintiffs’ counsel were sent a letter dated 2/6/2017 offering a loan modification from Shellpoint but apparently believing they were entitled to a better offer (even though Rossetta confirms that lenders and servicers have no duty to offer or approve a loan modification), plaintiffs promptly rejected Shellpoint’s offer. (See Rathke Decl., Ex. L, M.) Still, in response to plaintiffs’ 2/24/2017 letter, Shellpoint reviewed its modification offer and determined it was accurate, advising them in writing on 3/7/2017. (See Rathke Decl., Ex. M, N.) Finally, inasmuch as plaintiffs insist they made subsequent demands to explore “other foreclosure alternatives to which we were entitled,” the Rathke Declaration in opposition establishes in Paragraph 22 that Shellpoint advised plaintiffs they could be considered for options including a short sale and deed in lieu of foreclosure but plaintiffs never pursued such relief, instead opting to file this action shortly thereafter on 5/3/2017.

But even assuming Shellpoint did owe plaintiffs a duty of care in connection with their loan modification application in early 2017, plaintiffs have not shown a probability of prevailing on this cause of action since they have failed to provide competent evidence tending to show Shellpoint’s conduct at the time was in any way negligent under the circumstances. The only evidence offered by plaintiffs which potentially bears on the question of negligence is found in Paragraphs 27-28 of their essentially identical declarations, averring the following:

27. SHELLPOINT did not give [us] a fair review of loan modification because it incorrectly calculated our income when on or about February 6, 2017, it offered HAMP Tier 2 modification with monthly payments of $4,057.57. This incorrect

calculation grossly increased the monthly payments that Luis and l would have otherwise paid had we been properly reviewed for a loan modification. Attached hereto as Exhibit “E” is the true and correct copy of Shellpoint’s Trial Period Plan dated February 6, 2017.

28. Even though [we] appealed the decision and pointed out the inaccuracies, SHELLPOINT did not make any changes and refused to correct their inaccuracies. [We] also asked for other foreclosure alternatives to which we were entitled, but SHELLPOINT ignored our pleas for help and continued with the foreclosure proceedings.

However, this statement is completely devoid of any specific facts which could support a finding of negligence against Shellpoint. For example, while plaintiffs maintain that Shellpoint “incorrectly calculated [their] income” and that this error led to “grossly increased…monthly payments,” they fail to explain what the alleged error was and fail to explain how this alleged error resulted in an “unfair” modification which they were not automatically entitled to under current California law. To the extent plaintiffs may have pointed out the error via letter to Shellpoint, they have not provided the Court with a copy of that letter and according to the opposition, plaintiffs’ communication was via letter dated 2/24/2017 but this letter does not purport to identify any alleged error, instead just demanding an offer equal to the one which had been extended by a prior servicer several years earlier. (See Rathke Decl., Ex. M.) Regardless, Shellpoint did review its offer and concluded that it was accurate and that the proposed monthly payment could not be reduced further as plaintiffs requested (see Rathke Decl., Ex. N) and to be sure, the mere fact plaintiffs did not get the modification offer they desired is patently insufficient to prove negligence on the part of Shellpoint. Since plaintiffs have also failed to provide competent evidence which tends to show Shellpoint was negligent in this further review of February 2017 loan modification offer and did subsequently offer to plaintiffs additional foreclosure alternatives which they opted not to pursue before filing suit, the Court concludes plaintiffs have failed to establish a reasonable likelihood of prevailing against Shellpoint on their third cause of action.

Unfair Business Practices. Plaintiffs are not likely to prevail on this cause of action as against Shellpoint either since it does nothing more than characterize Shellpoint’s (as distinguished from the other named defendants’) alleged violations of Civil Code §2923.6 and §2923.7 and alleged negligence in incorrectly preparing the loan modification offer in February 2017 as unfair, unlawful and/or fraudulent business practices in violation of Business and Professions Code §17200 et seq. and since plaintiffs have for the reasons explained above failed to demonstrate a probability of prevailing on any of the preceding causes of action on which this final cause of action is expressly premised.

Moreover, plaintiffs are not entitled to recover any compensatory damages pursuant to their claim under Business and Professions Code §17200, which expressly limits relief to the restitution of money paid on account of the unfair, unlawful and/or fraudulent business practices and an injunction prohibiting the continuation of the unfair, unlawful and/or fraudulent business practices. However, there is no allegation in the 2AC and no evidence in the record which establishes that plaintiffs paid any money whatsoever to Shellpoint, much less as a result of any unfair, unlawful and/or fraudulent business practice by Shellpoint (as distinguished from the other named defendants) and thus, there is no legal or factual basis on which plaintiffs could obtain restitution from Shellpoint. Similarly, because plaintiffs have failed to demonstrate that Shellpoint (as

distinguished from the other named defendants) engaged in any unfair, unlawful and/or fraudulent business practices, plaintiffs would have no basis on which to obtain an injunction against Shellpoint prohibiting it from continuing the unfair, unlawful and/or fraudulent business practices.

Conclusion

In light of the foregoing, the Court finds that plaintiffs have failed to carry their burden of demonstrating a reasonable likelihood of prevailing on any of the four causes of action asserted against Shellpoint and consequently, plaintiffs’ request for a preliminary injunction prohibiting the foreclosure sale of their Elk Grove property must be denied.

The TRO issued on 1/4/2018 is dissolved and the OSC issued on the same date is discharged.