Case Name:    Rodolfo S. Cadotte Jr., et al. v. Select Portfolio Servicing, Inc., et al.

Case No.:        1-14-CV-266286

Date:               September 9, 2014

Time:              9:00 a.m.

Dept:               21

 

Currently before the Court is the demurrer of defendants Select Portfolio Servicing, Inc. (“SPS”) and The Bank of New York Mellon (“BONYM”) (collectively, “Defendants”) to the complaint of plaintiffs Rodolfo S. Cadotte Jr. and Irene P. Cadotte (collectively, “Plaintiffs”). Defendants demur to each cause of action in the complaint on the grounds of failure to allege sufficient facts to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

 

Request for Judicial Notice

 

In support of their demurrer, Defendants ask the Court to take judicial notice of a notice of default recorded February 10, 2014 in the Santa Clara County Recorder’s Office.  Courts may take judicial notice of the existence and recordation of real property records, when the authenticity of the documents is not challenged. (See Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-265.)  Here, Plaintiffs do not challenge the authenticity of the notice of default. Accordingly, the request for judicial notice as to this document is GRANTED.

 

Substantive Analysis

 

            Defendants demur to each cause of action on the ground that Plaintiffs fail to allege facts sufficient to constitute a cause of action. They contend that Plaintiffs fail to allege tender of the underlying debt, cannot allege any prejudice due to the foreclosure process, and do not allege sufficient facts supporting the elements of each cause of action.

 

Tender Requirement

 

Defendants contend that Plaintiffs cannot maintain any cause of action challenging the foreclosure of their property because they fail to allege tender of the debt owed. (See Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 117.)

 

As a general rule, a plaintiff may not challenge the propriety of a foreclosure on his or her property without offering to repay the full amount borrowed against it. (See Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 117; West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 801 [“An allegation of tender of the indebtedness is necessary when the person seeking to set aside the foreclosure sale asserts the sale is voidable due to irregularities in the sale notice or procedure.”].) The tender requirement may also apply to any cause of action that is “implicitly integrated” with an irregular trustee’s sale. (See Arnolds Mgmt. Corp. v. Eischen (1984) 158 Cal.App.3d 575, 579.) There are four generally recognized exceptions to the tender rule: (1) when the borrower seeks to rescind the debt; (2) when the borrower who seeks to set aside the sale has a counterclaim or setoff that is equal or greater than the amount due; (3) where it would be inequitable to impose such a condition on the party challenging the sale; and (4) when the trustee’s deed is void on its face. (See Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89, 112-113.)

 

Plaintiffs argue that no allegation of tender is necessary at this stage. First, they contend that the first exception to the tender rule applies as they are attacking the validity of the underlying debt. This argument lacks merit. As indicated above, the exception only applies when the plaintiff seeks to rescind the debt. (Lona, supra, 202 Cal.App.4th at pp. 112-113 [citing Stockton v. Newman (1957) 148 Cal.App.2d 558, 564].) Here, Plaintiffs do not seek to rescind the underlying debt. Instead, they challenge only a portion of the debt attributable to the payment of overcharges, fees and costs associated with the foreclosure and loan modification processes. (Compl., ¶¶ 90, 113, 121, 148.)  Therefore, this exception to the tender rule is inapplicable.

 

Next, Plaintiffs assert that the tender rule is inapplicable where the plaintiff alleges that the defendant wrongfully created the default. In this regard, Plaintiffs rely on Monday v. Saxon Mortgage Services, Inc. (E.D.Cal. June 25, 2010, CIV. 2:10-989 WBS KJM) 2010 U.S.Dist  Lexis 63173.) This reliance is misplaced. In Monday, the district court held that the tender rule and its rational do not apply where the plaintiff alleges that he or she never defaulted on the loan. Here, Plaintiffs allege that they did miss several monthly mortgage payments. (Compl., ¶ 13.) Therefore, Monday is inapplicable.

 

Finally, Plaintiffs argue that there is no obligation to tender the past due amount in an action to prevent, rather than set aside a sale. This argument is persuasive. While the tender requirement may apply to causes of action to set aside a foreclosure sale, it does not apply to actions seeking to enjoin a foreclosure sale. (See Intengan v. BAC Home Loans Servicing, L.P. (2013) 214 Cal.App.4th 1047, 1053-1054; Pfeifer v. Countrywide Home Loans, Inc. (2012) 211 Cal.App.4th 1250, 1280-1281.) Here, Plaintiffs do not allege that any foreclosure sale has as yet taken place and seek to prevent the defendants from moving forward with any foreclosure sale. (Compl., ¶ 97.) Thus, as no foreclosure sale has taken place, the failure to allege tender of the underlying debt does not prevent Plaintiffs from bringing the present action.

 

Prejudice        

                       

Defendants contend that Plaintiffs may not allege any claims based on wrongful foreclosure because they fail to demonstrate how they were prejudiced by the alleged defects in the foreclosure process. (Mem. Ps & As, p. 3:22-24.) In support of this argument, Plaintiffs cite to Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 272, for the proposition that ‘a plaintiff in a suit for wrongful foreclosure has generally been required to demonstrate the alleged imperfection in the foreclosure process was prejudicial to its interests.” This argument is without merit.

 

In Fontenot, supra, the plaintiff challenged the transfer of a promissory note from one creditor to another. The Court of Appeal reasoned that as the transfer of the promissory note did not change the plaintiff’s obligations under the note, she was not harmed in any way. Unlike the plaintiff in Fontenot, supra, Plaintiffs do not allege merely a procedural defect. Instead, they allege that BANA broke its agreement to provide them with a permanent loan modification and SPS did not honor the trial payment plan entered into between BANA and Plaintiffs. In Bushell v. JPMorgan Chase Bank, N.A. (2013) 220 Cal.App.4th 915, 928, the Court of Appeal determined that a party could be damaged as a result of the breach of a loan modification agreement. It reasoned that allegations concerning the amount of time the party spent negotiating and providing documents, the discontinuation of efforts to pursue alternative means of avoiding foreclosure, the harm to a party’s credit and the loss of one’s home were sufficient to allege damages. (Id.) Here, Plaintiffs allege similar damages including the discontinuation of efforts to pursue alternative means of avoiding foreclosure (Compl.,    ¶ 110) and harm to their credit (Compl., ¶¶ 90, 113, 121, 129, 148).  Accordingly, as Plaintiffs do allege prejudice due to the breach of the loan modification agreement, the demurrer on this basis is without merit.

 

First Cause of Action for Breach of Contract

 

First, Defendants argue that Plaintiffs fail to attach a copy of the agreement to the complaint or set out the terms of the contract verbatim. If an action is based on the alleged breach of a written contract, the contract “may be pleaded either by its terms – set out verbatim in the complaint or a copy of the contract attached to the complaint and incorporated therein by reference – or by its legal effect. [Citation]. In order to plead a contract by its legal effect, [the] plaintiff must ‘allege the substance of its relevant terms….” (Mckell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.) Here, Plaintiffs set out the relevant terms of the alleged contract, namely that they agreed to make three trial payments of $2,201 in return for a permanent loan modification. (Compl., ¶ 82.) Accordingly, Plaintiffs adequately allege the legal effect of the contract.

 

Second, Defendants contend that Plaintiffs cannot state a claim for breach of contract because their representations to BANA about their finances did not remain true and accurate. In particular, they refer to Plaintiffs’ allegations that plaintiff Irene P. Cadotte became employed on or about April 2014. (Compl., ¶ 75.) Defendants’ argument is not persuasive.

 

Under the HAMP modification process, if the borrower complies with all terms of a trial payment plan and if the borrower’s representations on which the modification is based remain true and correct, the lender must offer the borrower a permanent loan modification. (See Bushell v. JPMorgan Chase Bank, N.A. (2013) 220 Cal.App.4th 915, 925.) The loan modification becomes effective on the first day of the month following the trial payment period. (Id.) Presumably, the determination of the truthfulness and correctness of these representations are made at the end of the trial payment plan period prior to the offer of a permanent loan modification. Here, there are no allegations indicating that Plaintiffs misrepresented their financial condition at the end of the trial payment plan in 2010. Accordingly, Defendants’ argument is without merit.

 

Finally, Defendants assert that SPS is not a party to the contract because the contract was entered into between Plaintiffs and BANA four years before SPS began servicing the loan. In opposition, Plaintiffs contend that under Civil Code section 2924.18, subdivision (e), SPS must honor a previously approved first lien loan modification and therefore, it may bring a breach of contract action against SPS. Under a plain reading of the statute, section 2924.18 does not provide that a subsequent mortgage servicer will become liable for the conduct of a previous servicer. Instead, if a subsequent mortgage servicer fails to “honor the previously approved first lien loan modification,” it may be liable for a material violation of section 2924.18. (See Civ. Code, § 2924.19.) Thus, section 2924.18 does not make SPS a party to the contract between Plaintiffs and BANA. Accordingly, Plaintiffs do not allege facts demonstrating the existence of a contract between themselves and Defendants.

 

Based on the foregoing, Plaintiffs fail to allege facts sufficient to state a cause of action for breach of contract against Defendants. Accordingly, the demurrer to the first cause of action for breach of contract is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

 

Second Cause of Action for Promissory Estoppel

Defendants contend that Plaintiffs do not allege that SPS made a clear and unambiguous promise concerning their receipt of a permanent modification. In opposition, Plaintiffs argue that BANA promised to provide them a loan modification and the promise is imputed to SPS under Civil Code section 2924.18, subdivision (e). Plaintiffs’ argument is not persuasive. As discussed above, a violation of 2924.18, subdivision (e) does not render a subsequent servicer liable for the conduct of a previous servicer. Thus, any promises made by BANA are not imputed to SPS. As Plaintiffs fail to state any promises made by SPS concerning a permanent modification, Plaintiffs do not allege sufficient facts to constitute a cause of action for promissory estoppel against SPS. Accordingly, the demurrer to the second cause of action for promissory estoppel is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

 

Third and Fourth Causes of Action for Fraud and Negligent Misrepresentation

 

Defendants contend that Plaintiffs do not allege, with the requisite specificity, any misrepresentations in support of their fraud and negligent misrepresentation claims. In opposition, Plaintiffs argue that they alleged the names and dates of every communication with SPS’s representatives. Thus, they assert that they have specifically pleaded causes of action for fraud and negligent misrepresentation.

 

In the section entitled “Statement of Facts” in their complaint, Plaintiffs allege the names of SPS’s representatives, the approximate dates, and the content of all of their communications with SPS. However, in this portion of the complaint, Plaintiffs do not allege that any SPS representative stated that they would receive a permanent loan modification if they complied with all of SPS’s instructions and directions. Therefore, these allegations, while specifically pled, are insufficient to state a cause of action for fraud or negligent misrepresentation concerning a permanent modification.

 

In contrast, in the section entitled “Third Cause of Action – Fraud”, Plaintiffs allege that SPS misrepresented to them that they would receive a permanent loan modification if they complied with all instructions and directives from SPS. (Compl.,      ¶ 106.) In this section, Plaintiffs do not allege how, when, where, and by what means this representation was made. (See West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793. [plaintiff must allege facts showing how, when, where, to whom, and by what means the representations were made].) Thus, these allegations are not pleaded with the requisite specificity to state a cause of action for fraud.

 

Finally, in the section entitled “Fourth Cause of Action – Negligent Misrepresentation”, Plaintiffs conclusorily allege that SPS made certain false representations concerning the modification of their loan. (Compl., ¶ 116.) Plaintiffs, however, do not allege how, when, where and by what means these representations were made. (See West, supra, 214 Cal.App.4th at p. 793.Therefore, the allegations are not pleaded with the specificity necessary to state a cause of action for negligent misrepresentation.

 

Accordingly, the demurrer to the third and fourth causes of action for fraud and negligent misrepresentation, respectively, is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

 

Fifth Cause of Action for Negligence

 

Defendants demur to the fifth cause of action for negligence on the ground that they do not owe them a duty of care. In opposition, Plaintiffs rely upon Lueras v. BAC Home Loans Servicing, L.P. (2013) 221 Cal.App.4th 49, 68, for the proposition that a lender owes a duty to a borrower to not make material misrepresentations about the status of an application for a loan modification. While this proposition is correct, the duty not to make a material misrepresentation forms the basis of a cause of action for negligent misrepresentation, not negligence. (Id. at p. 69 [reversing judgment sustaining demurrer to cause of action for negligence and remanding with directions to allow plaintiff to plead cause of action for negligent misrepresentation].) As Plaintiffs do not otherwise allege that Defendants owe them a duty of care, Plaintiffs fail to allege facts sufficient to constitute a cause of action for negligence.

 

Accordingly, the demurrer to the fifth cause of action for negligence is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

 

 

 

 

Sixth Cause of Action for Intentional Infliction of Emotional Distress

 

            Defendants contend that SPS’s representations concerning the loan modification do not qualify as extreme and outrageous conduct. In opposition, Plaintiffs contend that BANA’s instruction that they default on their mortgage and SPS’s denial of their modification request is adequate to support a cause of action for intentional infliction of emotional distress. Plaintiffs’ argument is not persuasive.

 

First, Plaintiffs do not explain the manner in which SPS is chargeable for the conduct of BANA in inducing them to default. Second, the rejection of loan modification applications and the initiation of foreclosure proceedings do not constitute extreme or outrageous conduct as a matter of law. (See Morrison v. Wachovia Mortg. Corp. (C.D.Cal. Jan. 9, 2012, CV 11-7948 CAS (FMOx)) 2012 U.S.Dist. Lexis 38847 [rejection of loan modification assistance not considered extreme and outrageous]; Quinteros v. Aurora Loan Servs. (E.D.Cal. 2010) 740 F.Supp.2d 1163, 1172 [stating that “[t]he act of foreclosing on a home (absent other circumstances) is not the kind of extreme conduct that supports an intentional infliction of emotional distress claim.”].) Thus, Plaintiffs fail to allege facts sufficient to constitute a cause of action for intentional infliction of emotional distress. Accordingly, the demurrer to the sixth cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

 

Seventh Cause of Action for Wrongful Foreclosure

 

Defendants contend that the notice of default recorded on February 10, 2014 complies with Civil Code section 2924, subdivision (a)(1)(C). In opposition, Plaintiffs argue that SPS could not have known the actual nature of the breach because Plaintiffs did not breach the terms of the deed of trust. Plaintiffs’ argument is not persuasive.

 

Section 2924, subdivision (a)(1)(C) merely requires that the notice of default include a statement describing each breached obligation that is known to the beneficiary. (See Izsak v. Wells Fargo Bank (N.D.Cal. Jan. 23, 2014, C 13-05362 SI) 2014 U.S.Dist. Lexis 8883[statute satisfied if notice of default states plaintiff in default of obligations under deed of trust in specified amount].) Here, the notice of default states that Plaintiffs are in default of their obligations under the deed of trust in the amount of $112,209.30. (See Defendants’ request for judicial notice.) Therefore, the notice contains the required statement. Accordingly, the demurrer to the seventh cause of action for wrongful foreclosure is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

 

Eighth Cause of Action for Violation of Business and Professions Code Section 17200

 

Defendants argue that Plaintiffs have not alleged any unlawful, unfair, or fraudulent conduct. They reason that their UCL claim is premised on their other causes of action and Plaintiffs fail to allege sufficient facts to state each cause of these causes of action. In opposition, Plaintiffs acknowledge that their UCL claim is based upon their other causes of action.

 

As discussed above, Plaintiffs fail to allege sufficient facts to constitute a cause of action for each of their first seven causes of action. Therefore, these causes of action cannot form a basis for the assertion of a UCL claim. Accordingly, the demurrer to the eighth cause of action for violation of Business and Professions Code section 17200 is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.