Case Name: Valencia v. PennyMac Holdings, LLC, et al.
Case No.: 17-CV-308458

Defendants PennyMac Holdings, LLC (“PennyMac”) and PennyMac Loan Services, LLC (collectively, “Defendants”) demur to the second amended complaint (“SAC”) filed by plaintiff Lilia Valencia (“Plaintiff”).

This is an action for negligence arising out of the foreclosure of a property located at 1025 Kitchener Circle in San Jose (the “Property”). On June 12, 2007, Plaintiff obtained a re-finance mortgage loan from Washington Mutual Bank which was secured by an adjustable rate note (the “Note”) and deed of trust (“DOT”) on the Property. (FAC, ¶ 9; Defendants’ Request for Judicial Notice (“RJN”), Exhibits A and B.)

On September 25, 2008, the beneficial interest in the Note and DOT was transferred from Federal Deposit Insurance Corporation (“FDIC”) as receiver for Washington Mutual Bank to JP Morgan Chase Bank, N.A. (RJN, Exhibit C.) On April 18, 2014, the beneficial interest was again transferred, this time to defendant PennyMac Holdings, LLC (“PennyMac”). (Id., Exhibit D.)

On March 31, 2016, , PennyMac provided Plaintiff with a written Notice of Default, which indicated that the loan had been in continual default since December 1, 2008, and that Plaintiff was in arrears in the amount of $431,724.33. (RJN, Exhibit L.) A Notice of Trustee’s Sale was executed on January 20, 2017, stating that the Property would be sold at a non-judicial foreclosure sale on February 16, 2017. (Id., Exhibit M.)

Subsequent to the Notice of Sale, Plaintiff filed the instant action on April 12, 2017, asserting claims for (1) negligence, (2) negligent misrepresentation and (3) unfair business practices (violation of Business & Professions Code § 17200 et seq.). According to the allegations of her complaint, in October 2016, PennyMac sent Plaintiff correspondence which indicated that she was potentially eligible for certain home retention options and provided instructions on how to apply for loss mitigation. (SAC, ¶ 12.)

In early 2017, Plaintiff began applying for a loss mitigation option with PennyMac by submitting a completed Borrower Application Package on January 13, 2017. (SAC, ¶ 13.) On January 23, 2017, Plaintiff’s daughter, Lilia Chavez (“Chavez”), an authorized individual on her account, followed up with PennyMac to ascertain the status of the application. (Id., ¶ 14.) Confusingly, Chavez was sent to the Short Sale Department, where an employee confirmed that the application had been received and also stated that the short sale application it had received was closed. (Id., ¶ 15.) The employee advised Chavez that Plaintiff’s short sale application would not be reviewed because of the proximity of the foreclosure sale, which was then scheduled for February 16, 2017. (Id.) Chavez responded that Plaintiff was applying for a modification and not a short sale and was subsequently transferred to another department. (Id., ¶¶ 15, 16.)
The second employee seemed surprised to hear about the modification application when advised on its submission by Chavez, and responded that PennyMac likely would not review the application because Plaintiff had not first participated in a phone interview prior to submitting it. (SAC, ¶ 16.) However, the October 2016 correspondence contained no reference to a pre-application interview and indicated that Plaintiff would be contacted by a representative after she submitted an initial application package. (Id.) That same day, Defendants recorded a Notice of Trustee’s Sale setting a foreclosure sale date of February 16, 2017 for the Property. (Id., ¶ 19.)

On February 11 or 12, 2017, Chavez again contacted PennyMac to inquire about how Plaintiff could apply for a loss mitigation option. (SAC, ¶ 20.) During the call, a representative conducted an interview regarding Plaintiff’s financial circumstances, but advised Chavez that Plaintiff could not apply for a loss mitigation option, including a short sale, because PennyMac had just closed out a short sale application that Plaintiff supposedly initiated. (Id.) The representative also indicated that to apply for this option, Plaintiff would have to provide PennyMac proof of an offer for the total amount due on the loan before the scheduled foreclosure sale. (Id., ¶ 21.) Chavez responded that while Plaintiff had submitted a loan modification application in January 2016, which had never been responded to, Plaintiff had not applied for a short sale. (Id., ¶ 22.) Chavez accused PennyMac of dual tracking and failing to process Plaintiff’s application with due care. (Id.) This lawsuit followed.

On May 26, 2017, Defendants filed the instant demurrer to each of the three causes of action asserted in the Complaint (negligence, negligent misrepresentation and unfair business practices) on the grounds of uncertainty and failure to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subds. (e) and (f).) On July 27, 2017, the Court overruled the demurrer on the ground of uncertainty but sustained with 10 days’ leave to amend the demurrer on the ground of failure to state facts sufficient to constitute a cause of action to all three claims pleaded in the Complaint.

On July 10, 2017, Plaintiff filed the FAC, asserting the same three causes of action as asserted in her original pleading. On August 25, 2017, Defendants filed the instant demurrer to each of the claims asserted in the FAC on the grounds of uncertainty and failure to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subds. (e) and (f).) On July 27, 2017, the Court overruled the demurrer based on uncertainty and sustained the demurrer on the ground of failure to state facts sufficient to constitute a cause of action. Leave to amend was granted with respect to the first and second claims but denied with respect to the third.

Plaintiff filed the SAC on October 31, 2017. On December 11, 2017, Defendants filed the instant demurrer to each of the two claims asserted in the SAC on the grounds of uncertainty and failure to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.310, subds. (e) and (f).) Plaintiff opposes the motion.

Defendants’ request for judicial notice is GRANTED. (Evid. Code, § 452, subds. (d) and (h); see also Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-265 [“[A] court may take judicial notice of the fact of a document’s recordation, the date the document was recoded and executed, the parties to the transaction reflected in a recorded document, and the document’s legally operative language, assuming there is no genuine dispute regarding the document’s authenticity. From this, the court may deduce and rely upon the legal effect of the recorded document, when that effect is clear from its face”]; Alfaro v. Community Improvement Sys. & Plumbing Assn., Inc. (2009) 171 Cal.App.4th 1356, 1367, fn. 8; Poseidon Development, Inc. v. Woodland Lane Estates, LLC (2007) 152 Cal.App.4th 1106.)

Defendants’ demurrer to the first and second causes of action on the ground of uncertainty is OVERRULED. Demurrers for uncertainty are disfavored and will be sustained only where the allegations of the pleading are so unintelligible that the defendant cannot reasonably respond them, i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her. (Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) “A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Id.) Here, the allegations of the SAC fall well short of unintelligible as the nature of Plaintiff’s claims against Defendants is clear. (See also Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139 [under state’s liberal pleading rules, where the complaint contains substantive factual allegations sufficiently apprising the defendant of the issues it is being asked to meet, a demurrer for uncertainty should be overruled].) Moreover, Defendants make no argument in support of this particular ground despite the fact that where a demurrer is made on the ground of uncertainty, the moving party must specify exactly how or why the pleading is uncertain, and where such uncertainty appears (by reference to page and line numbers in the complaint). (See Coons v. Thompson (1946) 75 Cal.App.2d 687, 690.) Accordingly, there is no reason to sustain the demurrer on this basis.

Turning to the substantive merits of Plaintiff’s remaining two claims, Defendants first contend, as they did previously in their demurrer to this claim in the FAC, that Plaintiff’s claim for negligence fails because she has failed to plead facts demonstrating that “but for” PennyMac’s negligent review of her loan modification application, said application would have resulted in a loan modification. That is, Plaintiff still fails to plead facts which establish the necessary causation and damages elements of this cause of action. In the preceding demurrer to this claim in the FAC, the Court agreed with this assertion, as it had in the demurrer to the original Complaint. In an effort to amend this deficiency in the Complaint, Plaintiff alleged in the FAC that she “now knows that had Defendant reviewed [her] loss mitigation when it was submitted by [her], [she] would have been offered a loan modification.” (FAC, ¶ 24.) The Court found this allegation to be insufficient to plead the requisite element of causation because it was a speculative conclusion that was not supported by any facts which demonstrated how Plaintiff knew with any certainty that she would have been offered a loan modification but for Defendants’ alleged negligence.

In the SAC, the only new allegation which pertains to this cause of action is that “Plaintiff has since been offered a modification since initiating this lawsuit and alleges that had she not initiated this lawsuit and enjoyed the wrongful foreclosure, she would have lost her home to foreclosure.” (SAC, ¶ 25.) This allegation fails to correct the aforementioned deficiency for several reasons. First, Plaintiff still has not pleaded how she knows that she would have been offered a loan modification but for PennyMac’s negligence. Second, and more critically, Plaintiff’s negligence claim now rests on her conclusion that because she “has [] been offered a modification since initiating this lawsuit,” PennyMac must have negligently reviewed her January 13th application. The inference that Plaintiff makes, but does not actually plead, is that the January 13th application entitled her to a modification offer and that she received the alleged post-Complaint modification offer because PennyMac realized it made an error and took subsequent remedial action to correct it. However, none of these facts permitting such an inference are actually pleaded in the SAC. Consequently, the damages Plaintiff alleges that she suffered do not stem from PennyMac’s negligent conduct, but rather her own default, and Plaintiff still has not stated a claim for negligence. Given the fact that Plaintiff has had multiple opportunities to correct the deficiencies in her first cause of action and has failed to do so, Defendants’ demurrer to the first cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

As for the second cause of action for negligent misrepresentation, this claim is predicated on alleged misrepresentations that were made in the written correspondence Plaintiff received from Defendants in October 2016, which purportedly indicated that her loan was potentially eligible for certain home retention options. (SAC, ¶¶ 49-55.) Defendants contend that this claim is still deficiently pleaded because Plaintiff has failed to plead facts establishing the requisite elements. In order to state a cause of action for negligent misrepresentation, a plaintiff must plead: (1) a misrepresentation of a past or existing material fact, (2) made without reasonable ground for believing it to be true, (3) made with intent to induce another’s reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damages. (Ragland v. U.S. Bank National Assn. (2012) 209 Cal.App.4th 182, 196.) “A plaintiff must allege and prove that he actually relied upon the misrepresentations, and that in the absence of fraud, would not have entered into the contract or other transaction.” (Mega Life and Health Ins. Co. v. Superior Court (2009) 172 Cal.App.4th 1522, 1530.)

Here, the actionable material misrepresentations specifically set forth by Plaintiff in the SAC are Defendants’ purported statements in the October 2016 correspondence that it “could not consider Plaintiff’s loan for a foreclosure prevention alternative until it received a completed application from [her]” and that once it received her application package, she would be contacted regarding options and next steps. (SAC, ¶ 50.) In actuality, Plaintiff alleges, she was required to first participate in a pre-application telephone interview before Defendants reviewed her application, but was not informed of this until after she had submitted it. Had she been aware of the proper process she needed to undertake in order to apply for a loss mitigation application, she insists, she would have ensured that said steps were taken prior to submitting her application package as requested by the October 2016 correspondence. (SAC, ¶ 54.)

In previously sustaining Defendants’ demurrer to this claim in the FAC, the Court rejected most of the arguments submitted by Defendants in support of their motion, but nevertheless ultimately held that no claim for negligent misrepresentation had been stated because Plaintiff failed to plead PennyMac’s intent to induce her reliance on the alleged misrepresentations, which they made without reasonable grounds for believing them to be true, and that she justifiably relied on their misrepresentations to her detriment. Defendants maintain that this claim is still deficiently pleaded because Plaintiff still has not alleged that the omission of the pre-application requirement from the October 2016 correspondence was in error when it was sent, and still fails to plead facts showing that Defendants intended to defraud or induce Plaintiff’s reliance on the allegedly incorrect application criteria. Further, Defendants assert, Plaintiff has not set forth facts demonstrating that she justifiably relied on the October 2016 correspondence, having known that a foreclosure sale was imminent as early as March 2016 upon receipt of the NOD, and all of the damages pleaded by her are the result of her own failures to make payments on her loan. Each of the foregoing arguments will be addressed in turn.

With regard to Defendants’ first argument, the Court is not persuaded that Plaintiff needs to specifically plead that the omission of the pre-application requirement from the October 2016 correspondence was in error when it was sent; it is clear from allegations of the negligent misrepresentation claim, when read in toto, that this is what Plaintiff is alleging. Next, Defendants’ contention that Plaintiff has failed to plead facts which establish an intention on their part to induce her reliance on their misrepresentations is unavailing because Plaintiff has expressly alleged that “Defendant[s] intended to induce Plaintiff’s reliance on [their] representations regarding how to apply for a loss mitigation option” (SAC, ¶ 57), and she need not plead specific facts establishing intent because intent itself is a fact, and therefore the averment that a representation was made with the intent to deceive the plaintiff (or any other general allegation with similar purport) is sufficient. (5 Witkin, California Procedure (5th ed. 2008) § 728.)

As for the element of justifiable reliance, the Court finds that while not using the actual term “justifiable” in the pleadings, Plaintiff has sufficiently pleaded this element by alleging that she was “at the whim of Defendant’s representatives, who possess the unique knowledge and information regarding what Defendant specifically requires in order to review a borrower for loss mitigation and the process for doing so.” (SAC, ¶ 55.) Based solely on the pleadings, it does not appear unreasonable to the Court for Plaintiff to have assumed that she could safely rely on instructions regarding the process to pursue loss mitigation options provided directly to her by the servicer of her loan.

However, with regard to the final argument asserted by Defendants, the Court finds persuasive their contention that Plaintiff has not sufficiently alleged damages as a result of their conduct. Plaintiff faced imminent foreclosure of her home due to her own default, with a NOD having been recorded well before the October 2016 correspondence which purportedly contained material misrepresentations and/or omissions by Defendants regarding the loss mitigation process. Plaintiff’s reliance on Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1182-1183 in support of her assertion that damages have adequately been pleaded is misplaced, as that case is factually distinguishable from the one at bar. In Daniels, the homeowner plaintiffs found themselves in arrears on their loan and ultimately in default as a result of foregoing making payments at the behest of their servicer. The servicer had falsely represented to them that if they became three months delinquent on their loan, they would be granted a loan modification. As a result of relying on the foregoing representations, the plaintiffs not only found themselves in default due to the arrearage, and thus facing foreclosure, but they had lost the opportunity to pursue other opportunities to cure their default and acquired additional penalties and fees. Here, in contrast, Plaintiff was already in default when Defendants purportedly made misrepresentations and/or omissions in the correspondence sent to her, and she does not allege that she forewent other remedies to prevent foreclosure or that she would have received a modification had she not relied on Defendants’ alleged misrepresentations. Because she has not alleged damages as a result of PennyMac’s purportedly wrongful conduct, Defendants’ demurrer to the second cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.