Filed 4/29/20 Joudieh v. Bayview Loan Servicing, LLC CA1/5

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

ZENAT JOUDIEH, ET AL.,

Plaintiffs and Appellants,

v.

BAYVIEW LOAN SERVICING, LLC ET AL.,

Defendants and Respondents.

A156289

(San Mateo County

Super. Ct. No. 17CIV03269)

Zenat Joudieh and Fredy Joudieh appeal from a judgment entered after the trial court granted the summary judgment motion of respondent Bayview Loan Servicing, LLC (Bayview). The trial court determined there was no actual and present controversy to support appellants’ claim for declaratory relief and appellants had no claim under the Rosenthal Fair Debt Collection Practices Act (Civ. Code, § 1788.17). Appellants contend the court erred in its interpretation of certain contractual language. We will affirm.

I. FACTS AND PROCEDURAL HISTORY

In August 2005, Zenat Joudieh (Borrower) obtained a loan in the amount of $1,929,000.00 (Loan), executing an adjustable rate note with a maturity date of September 1, 2035 (Note). Repayment of the Note was secured by a deed of trust recorded against real property in San Carlos (Property).

A. Terms of the Note

Borrower was to make monthly payments to Lender as set forth in the Note until all principal, interest, and other described charges were paid in full. Unlike a fully-amortized loan, in which the monthly payments pay off the unpaid principal and interest by the maturity date in substantially equal payments, the Loan provided for at least some monthly payments in a lesser amount that would not cover all of the interest due under a fully amortized loan. This shortfall in interest payment would be added to the unpaid principal balance, resulting in negative amortization.

Thus, paragraph 3(E) of the Note stated: “For each month that my monthly payment is less than the interest portion, the Note Holder will subtract the amount of my monthly payment from the amount of the interest portion and will add the difference to my unpaid Principal.” This language was also included in the Adjustable Rate Rider of the deed of trust.

There was a limit, however, to the growth of the unpaid principal balance under paragraph 3(E). In all capital letters, the Note advised that the principal balance could exceed the amount originally borrowed, but it would not exceed the “maximum limit stated in this [Note].” Paragraph 1 of the Note advised: “The Principal amount may increase as provided under the terms of this Note but will never exceed 115 percent of the Principal amount I originally borrowed. This is called the ‘Maximum Limit.’ ” In addition, paragraph 3(F) stated: “My unpaid Principal can never exceed the Maximum Limit equal to ONE HUNDRED FIFTEEN percent (115%) of the Principal amount I originally borrowed.” Because the principal amount originally borrowed was $1,929,000.00, the Maximum Limit for the unpaid principal balance was $2,218,350.00.

Reaching the Maximum Limit on the unpaid principal balance would trigger a change in the Loan. As section 3(F) explained, at that point the monthly payments would convert from negatively amortizing payments, which do not fully cover interest, into fully amortizing payments that “would be sufficient to repay my then unpaid Principal in full.” In other words, the Loan would become fully amortizing.

Another way the Loan would convert to a fully amortized loan was the passage of time. Specifically, the Note provided for a Payment Change Date on October 1, 2006 and each 12 months thereafter. On each Payment Change Date, the required monthly payment would change to the amount sufficient to repay the unpaid principal in full on the maturity date at the then-prevailing interest rate (Full Payment), but not greater than 7.5 percent more than the prior monthly payment. On the fifth Payment Change Date—October 1, 2010—the monthly payment would be increased to the Full Payment. Accordingly, by October 1, 2010 at the latest, the Loan was to become fully amortizing, with each monthly payment covering all of the interest due for that month, and thus without negative amortization.

Although the Note provided a Maximum Limit on the amount of unpaid principal, it did not specify a cap on the amount of interest that would accrue once the Maximum Limit was reached and the Loan transformed into a fully amortizing loan, or once the Loan transformed into a fully amortizing loan due to the passage of time. Nor did it cap the amount of monetary relief in the event of the Borrower’s default, including late charges or accrued interest.

B. Default and Litigation

In August 2014, Select Portfolio Servicing, Inc. (SPS) recorded a notice of default against the Property. In December 2014, appellants received a copy of a Notice of Trustee’s Sale, which stated that the estimated total amount of unpaid balance and other charges was $3,200.614.77.

In January 2015, appellants sued SPS in San Mateo County Superior Court case number CIV531976 (First Action), seeking declaratory relief. Appellants claimed that the Note and deed of trust did not allow for the principal balance to be increased over $2,218,350, while SPS allegedly contended that it was authorized to increase the principal balance to over $2,800,000.

In April 2016, SPS filed a motion for summary judgment; the court denied the motion on the ground that the evidence indicated a controversy as to whether the total amount claimed to be due was in violation of the Note and deed of trust, which limit increases to the principal balance. The court did not indicate what “evidence” created a triable issue of material fact or why the issue was not resolved as a matter of law based on the legal interpretation of the contract.

SPS thereafter transferred its servicing rights to respondent Bayview, which began servicing the Loan around December 2016. Appellants voluntarily dismissed the First Action (against SPS) with prejudice on October 11, 2017.

At the time Bayview began servicing the Loan, the total principal balance was identified as $2,081,060.90, which was less than the Maximum Limit of $2,218,350.00. In December 2016, Bayview sent its first mortgage statement to Borrower, indicating that the outstanding principal balance was still $2,081,060.90.

In July 2017, a Notice of Trustee’s Sale was recorded against the Property. The notice stated, among other things: “Estimated amount of unpaid balance and other charges: $3,107,063.93.” (Italics added.)

Appellants filed a complaint against Bayview—the operative complaint in this appeal—in July 2018. In addition to a cause of action for declaratory relief, appellants asserted a claim for violation of the Rosenthal Fair Debt Collection Practices Act (Civ. Code, § 1788.17). As to their declaratory relief claim, appellants contended an actual controversy existed between the parties because appellants claimed the Note and deed of trust do not allow the principal balance to be increased over $2,218,350, while Bayview allegedly contended it could increase the principal balance to over $3,100,000.

In September 2018, Bayview filed a motion for summary judgment or, in the alternative, summary adjudication of issues. Bayview agreed with appellants that the principal balance could not increase beyond $2,218,350, and argued that the principal balance had remained less than that—at just $2,081,060.90—throughout the period Bayview was servicing the Loan. Accordingly, Bayview asserted, there was no actual controversy between the parties as alleged, and Bayview had not breached the Loan contract or Civil Code section 1788.17. In support of its position, Bayview provided records indicating that as of August 21, 2018, Borrower owed $2,081,060.90 in unpaid principal, interest in the amount of $760,593.99, “escrow/impound overdraft” in the amount of $394,434.04, and other charges of $7,308.71, totaling $3,243,397.64. Appellants had not made a payment on the Loan in over a decade.

Appellants filed an opposition to the motion, contending essentially that the interest claimed by Bayview should have been added to the unpaid principal balance under the terms of the Note, and the unpaid principal was capped at $2,218,350, so appellants did not have to pay anything more than $2,218,350.

On December 7, 2018, the court issued a minute order granting the motion for summary judgment, noting that the parties had not appeared to contest the court’s tentative ruling, which became the court’s order. The court found that appellants’ opposition to the motion for summary judgment was not timely filed and disregarded it. As to the first cause of action for declaratory relief, the court found there was no actual controversy because the only evidence before the court indicated that Bayview agreed the unpaid principal balance was capped at $2,218,350, and Bayview was not charging for more than that amount of principal. The court remarked: “The fact that [Appellants] currently owe, according to Bayview, over $3.1 million does not create a triable issue” because, as explained by Bayview, the Loan documents do not cap the amount of interest and other charges claimed. Furthermore, because the second cause of action hinged on the contention that Bayview was seeking to collect more than what was due, the court found that the second cause of action failed as well.

On December 12, 2018, the court issued a judgment of dismissal. This appeal followed.

II. DISCUSSION

In reviewing the grant of summary judgment, we conduct an independent review to determine whether there is a triable issue of material fact and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 860.) Here, appellants did not present any evidence to demonstrate a triable issue of material fact. Instead, they challenge the summary judgment based on arguments concerning the legal significance of language in the Loan documents. We address appellants’ causes of action in turn.

A. Claim for Declaratory Relief

A cause of action for declaratory relief requires the plaintiff to establish a present and actual controversy between the parties. (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 80; Code Civ. Proc., § 1060.)

In their operative complaint, appellants alleged that an actual controversy existed as to whether the Note and deed of trust “allow [Bayview] to increase [Borrower’s] principal balance under the loan to over $2,218,350.00”—that is, beyond the maximum limit of 115 percent of the original principal balance. Bayview does not disagree with this proposition, however, so the alleged controversy between the parties does not exist. Accordingly, the court correctly ruled that appellants’ declaratory relief claim failed as a matter of law.

Appellants now contend (as they did in their belated opposition to the summary judgment motion) that there is a different controversy: Bayview claimed $760,593.99 in a “separate column of interest,” while the Loan documents, in appellants’ view, required unpaid interest to be added to the unpaid principal balance, which is capped at $2,218,350. In other words, appellants insist that, once the limit on the unpaid principal balance is reached, Borrower is not responsible for any interest for the rest of the life of the Loan even if Borrower makes no payments at all. Appellants’ argument is utterly devoid of merit.

1. Appellants’ Argument is Irrelevant to This Appeal

Summary judgment was premised on the court’s ruling that the controversy alleged in the complaint—whether the principal balance could exceed the Maximum Limit—did not exist. Appellants did not allege in their declaratory relief claim the controversy they now raise—whether all unpaid interest must be added to the unpaid principal balance, and whether such interest is thereby subject to the Maximum Limit. Nor did the complaint allege whether the unpaid interest was due to negative amortization payments or missed payments. Because this controversy was not framed in the complaint, and the facts underlying appellants’ arguments were neither alleged nor set forth with admissible evidence in timely opposition to the summary judgment motion, appellants’ argument is irrelevant to this appeal and provides no basis for reversal. (See FPI Development, Inc. v. Nakashima (1991) 231 Cal.App.3d 367, 381–382 [pleadings limit the scope of the issues on summary judgment]; Tsemetzin v. Coast Federal Savings & Loan Assn. (1997) 57 Cal.App.4th 1334, 1342 [party seeking summary judgment need only address the issues actually pled]; Code Civ. Proc., § 437c.)

Nonetheless, we consider appellants’ argument on the merits.

2. Appellants’ Interpretation of the Note is Untenable

To determine the meaning of the Note’s terms, we ascertain the parties’ intent from the writing alone, if possible. (Civ. Code, § 1639.) We construe the contract as a whole (Civ. Code, § 1641), and the contractual language governs if it is clear and explicit and does not involve absurdity (Civ. Code § 1638).

Here, the language of the Note is unambiguous. Under paragraph 3(E), if a minimum payment made under the Note is less than “the amount of the interest portion of the monthly payment that would be sufficient to repay the unpaid Principal [Borrower] owe[s] at the monthly payment date in full on the Maturity Date in substantially equal payments,” the difference between the borrower’s monthly payment and that “interest portion” is added to the unpaid principal balance. This paragraph is obviously directed exclusively to instances in which the Borrower has made a monthly payment pursuant to the Note, but the payment does not cover the interest that would have to be paid if the Loan were fully amortized. (See ¶ H(ii).) In only those instances—a payment, made before the Loan has become fully amortized due to the reaching of the limit (paragraph 3(F)) or the passage of time (paragraphs 3(C), 3(G)) —is a shortfall of interest added to the principal balance.

Under paragraph 3(F), the principal balance is not to exceed 115 percent of the original principal balance; if the limit is reached, the Loan converts to a fully amortizing loan. This effectively caps the amount that can be added to the principal balance pursuant to paragraph 3(E). Because paragraph 3(E) pertains exclusively to monthly payments that fail to cover the interest that would be due under a fully-amortizing loan (that is, while payments are being made during the negative amortization period), the limit in paragraph 3(F) does not pertain to the interest portion of payments made after the Loan converts to a fully-amortized loan, or to the interest portion of monthly payments that were due but not made.

To hold otherwise would result in absurdity. In appellants’ view, after they reaped the benefit of monthly payments lower than what they would have had under a fully-amortized loan, to the point that the principal balance reached its contractual limit, any interest accruing thereafter could not be added to the principal balance, so appellants would never be liable for the interest accruing on over $2 million for the remaining decades of the loan. No reasonable person would interpret the Note in this manner.

Furthermore, for years courts have resoundingly rejected appellants’ arguments as to essentially identical loan provisions—a fact of which appellants’ counsel is well aware since he represented the losing party in each case. (E.g., Suhalia Farhat v. Wells Fargo Bank, N.A. (N.D. Cal. July 19, 2019, No. 18-cv-02273-HSG) 2019 U.S. Dist. Lexis 121018 at *6–7 [§§ 3(E) and 3(F) of the note are unambiguous; 3(E) describes a process for negative amortization, section 3(F) places the burden on the borrower to maintain monthly payments that keep the principal below that number, and “nothing in these provisions precludes Wells Fargo from imposing further interest charges (separate from the principal balance) if the borrower defaults”]; Ramos v. Wells Fargo Bank, N.A. (N.D. Cal. June 19, 2018, No.

18-cv-00762-VKD) 2018 U.S. Dist. Lexis 103491 at pp. *13–14 [if the principal balance exceeds the cap in § 3(F), the borrower’s monthly payments are increased so the currently-unpaid principal balance will be paid in full on the maturity date of the loan, but the cap does not limit the amount the lender can recover on the note]; Velasquez v. Wells Fargo, N.A. (N.D. Cal. Aug. 1, 2017, No. 17-cv-03868-KAW) 2017 U.S. Dist. Lexis 120915 at pp. *4–8 [cap on principal balance does not limit the total amount owed, and appellant’s argument has been soundly rejected by other courts]; Diamos v. Fay Servicing, LLC (N.D. Cal. Dec. 14, 2016, No. 16-cv-05164-DMR) 2016 U.S. Dist. Lexis 173036 at pp. *7–11 [cap on principal balance does not limit the lender’s recovery of the total amount owed including interest; paragraph 3(E) does not mean that any unpaid interest is added to the principal balance, but provides for capitalization of interest into the unpaid principal balance only when the minimum monthly payment does not cover the interest portion, such that the cap prevents excessive negative amortization].)

And as the court stated in Enayatollah Nadaf-Rahrov v. Shellpoint Mortg. Servicing (N.D. Cal. Nov. 23, 2016, No. 16-cv-02112-RS) 2016 U.S. Dist. LEXIS 162796, at *4–5: “[P]laintiffs present a theory that [the servicer’s] present calculation of a total payoff amount of approximately $2.3 million violates a ‘cap’ in the loan documents that supposedly provided the principal amount of the loan would never exceed $1,725,000–115% of the original amount loaned. This argument is frivolous. The original loan—in the amount of $1.5 million—allowed for ‘negative amortization.’ Plaintiffs were permitted to make monthly payments in an amount that was less than the accruing interest. If they did so, the accrued interest would be added to the principal balance of the loan— up to a total of $1,725,000. Paying the lesser amount was not a breach of the loan agreement. Once the principal loan balance reached that threshold, however, plaintiffs were required to make monthly payments in an amount at least equal to the accruing interest, and the principal balance would not continue to grow. [¶] This does not mean, however, that if plaintiffs failed to make those ongoing interest payments—thereby breaching the loan agreement— they somehow would be relieved from the additional indebtedness, just because the principal loan amount was ‘capped’ at 115%. Rather, at that point, missed interest payments became part of the total amount owed (i.e. principal, interest, and any other charges allowed under the loan agreements, such as reimbursement for advances on taxes and insurance).” (Italics added.)

Thus, the plain language of the Note, common sense, and case law demonstrate that appellants have no declaratory relief claim. There is no present and actual controversy as to whether Bayview can maintain its “separate column of interest” of $760,593.99 notwithstanding the Maximum Limit on the unpaid principal balance, because the payoff records show that the unpaid principal balance ($2,081,060.90) has not reached the maximum limit ($2,218,350.00), and there is no evidence that any of the interest Bayview is claiming should have been added to the principal balance to cause that limit to be reached. And even if there were a present and actual controversy, as a matter of law appellants would lose anyway, since there is no evidence that Bayview’s claim for interest violates the terms of the Note.

B. Violation of Civil Code Section 1788.17

Appellants’ second cause of action is for violation of Civil Code section 1788.17, which requires “every debt collector collecting or attempting to collect a consumer debt” to “comply with the provisions of Sections 1692b to 1692j, inclusive, of . . . Title 15 of the United States Code.” Appellants contend that Bayview violated this statute by making a misleading statement in connection with the servicing of the Loan and collection of the debt, in that Bayview “has made a demand for payment on an amount which exceeds the principal cap limitation included in the Note.”

Appellants did not provide any evidence that Bayview made a false or misleading statement. The amount due includes the principal balance, interest, and the costs as set forth under the Note. As explained ante, the total amount due under the Note is not capped by the Maximum Limit on the principal balance, and there is no evidence that Bayview’s claim for interest violates the terms of the Note. Appellants have no cause of action as a matter of law.

The court did not err in granting summary judgment.

III. DISPOSITION

The judgment is affirmed.

NEEDHAM, J.

We concur.

JONES, P.J.

BURNS, J.

Joudieh v. Bayview Loan Servicing / A156289