Opinion
NOT TO BE PUBLISHED
APPEAL from the Superior Court of San Bernardino County. Super. Ct. No. SCV111016 Donald R. Alvarez, Judge.
Martin & McCormick, John D. Martin and Kathy J. McCormick for Plaintiff and Appellant.
Law Offices of Robert E. Weiss, Edward A. Treder; Keeney, Waite & Stevens and E. Ludlow Keeney for Defendants and Respondents.
OPINION
McKinster, J.
Plaintiff Radu Ghervescu sought to set aside a foreclosure sale on property he owned in Lake Arrowhead, or in the alternative, to obtain an award of damages for wrongful foreclosure or breach of contract. At the conclusion of the trial, he sought to amend his complaint to conform to proof at trial, to allege two additional causes of action.
We will affirm the judgment as to all causes of action pled in plaintiff’s complaint. However, because we conclude that the trial court abused its discretion by denying the motion to amend the complaint, we will remand for further proceedings on the two proposed causes of action.
PROCEDURAL AND FACTUAL HISTORY
Wells Fargo Home Mortgage, Inc., is the servicer of plaintiff’s mortgage loan for a residential property in Lake Arrowhead. The beneficiary under the deed of trust is General Electric Mortgage Services, Inc., which is not a party to this litigation. Loanstar Mortgagee Services, L.L.C. (Loanstar) is the successor trustee under the deed of trust. The loan was insured by the Federal Housing Administration (FHA).
Wells Fargo Home Mortgage, Inc., merged with Wells Fargo Bank during the pendency of this action. At trial, the court granted plaintiff’s motion to amend his complaint to change the defendant’s name to Wells Fargo Bank, NA. The record before us does not reflect that an amendment was filed. We therefore continue to refer to this defendant as Wells Fargo Home Mortgage, Inc., or, for convenience, Wells Fargo.
In May 2002, plaintiff fell into arrears on his loan payments. In October 2002, plaintiff and Wells Fargo entered into a forbearance agreement. According to the terms of the agreement, plaintiff was required to make a partial reinstatement payment in the amount of $1,427.15 on or before November 5, 2002. If the payment was received on or before that date, Wells Fargo would instruct its foreclosure counsel to suspend foreclosure proceedings. If plaintiff made all of the payments due under the agreement, Wells Fargo would instruct its counsel to dismiss foreclosure proceedings.
Wells Fargo instructed Loanstar via e-mail on October 3, 2002, to put the foreclosure on hold. It executed the forbearance agreement on October 18, 2002. On October 21, 2002, Wells Fargo instructed Loanstar to proceed with the notice of default but to put the foreclosure on hold. Loanstar recorded a notice of default on October 22, 2002, but it did not put the foreclosure on hold. The confusion apparently arose because plaintiff had also requested a loan modification plan, which was denied around the same time the repayment plan under the forbearance agreement was approved. When plaintiff received the notice of default in November, he called Wells Fargo to inquire about it. He was told it was an error and that he could ignore it.
On November 18, 2002, plaintiff remitted his first payment. However, the payment was due on November 5. His December payment was also late. When he called Wells Fargo in January to advise that his January payment would be late as well, Wells Fargo told him that his forbearance agreement had been terminated because of the late payments. He was told that he could apply for a new forbearance agreement. Plaintiff applied for a new forbearance agreement on January 13, 2003. During January and February, plaintiff called Wells Fargo several times to follow up. He was never told that the application had been denied. On January 21, 2003, Wells Fargo prepared a letter denying the application. Plaintiff did not receive it; he first saw it at his deposition in January 2004.
On January 23, 2003, plaintiff called Wells Fargo to inquire about the application. He was not told that the application had been denied. However, he was told that if the application was not approved, the trustee’s sale could be held no earlier than May 4, 2003, thus giving him ample time to “make arrangements,” i.e., to cure the default and reinstate the loan. Plaintiff continued to inquire about the forbearance application. He also asked Wells Fargo to calculate the total amount he would owe if the forbearance application were denied and began making arrangements to obtain the funds to reinstate if necessary.
On March 31, 2003, when plaintiff called Wells Fargo again to follow up on the pending application, he was told that the trustee’s sale had been held on March 27, 2003. Defendant and cross-complainant Michael Holley was the buyer.
Plaintiff filed this action in Los Angeles County on April 2, 2003. He obtained a temporary restraining order and then a preliminary injunction restraining delivery of the trustee’s deed upon sale to Mr. Holley. The case was then transferred to the San Bernardino County Superior Court. In a bench trial, the court rendered judgment for defendants Wells Fargo and Loanstar and dismissed Holley’s cross-complaint as moot.
Plaintiff filed a timely notice of appeal.
LEGAL ANALYSIS
THE COURT ABUSED ITS DISCRETION IN DENYING PLAINTIFF’S MOTION TO AMEND HIS COMPLAINT
Plaintiff contends that the court abused its discretion when it denied his motion, made at the conclusion of the trial, to amend the complaint to conform to proof. He sought to add a cause of action for negligent misrepresentation as to the date of the foreclosure sale—which, he contends, caused him to delay in obtaining available funds to cure the delinquency, resulting in the sale of his property—and for wrongful foreclosure based on alleged violations of FHA regulations in connection with the foreclosure. The court addressed the merits of the motion in its statement of decision and denied it in the final judgment.
The denial of a motion to amend pleadings is reviewed on appeal for abuse of discretion. (Code Civ. Proc., § 576; City of Stanton v. Cox (1989) 207 Cal.App.3d 1557, 1563.) The court’s exercise of discretion to grant or deny a motion to amend pleadings during trial is normally based on whether the opposing party will suffer prejudice. A motion for leave to amend during trial will normally be denied if the amendment depends upon facts other than those upon which the pleading was originally grounded because the opposing party has not been given the opportunity to investigate the validity of the factual allegations or to call rebuttal witnesses. (City of Stanton v. Cox, supra, at p. 1563.) Amendment of a pleading during trial is generally permissible, however, if the same set of facts merely supports a different legal theory. (Ibid.)
Here, the court’s ruling was based on the application of statutes and regulations to undisputed facts. As to the negligent misrepresentation cause of action, the court stated that plaintiff could not reasonably rely on a statement by a representative of Wells Fargo concerning the estimated date for the trustee’s sale because Wells Fargo was not the trustee and thus not in control of the foreclosure process. As we discuss below, this conclusion appears to have been based on the court’s interpretation of Civil Code section 2924g. With respect to plaintiff’s contention that the foreclosure was conducted in violation of FHA loan servicing guidelines, the court concluded that the guidelines are discretionary policies and procedures governing the relationship between the FHA or the United States Department of Housing and Urban Development (HUD) and mortgage lenders, and that the guidelines do not create or imply any private cause of action by borrowers against their mortgage lenders. Because the proposed claims depended only on undisputed facts already in evidence, and neither defendant expressed any need to adduce additional evidence in order to address the new claims, denial of the motion was an abuse of discretion. Whether the court’s abuse of discretion was prejudicial, however, depends upon the correctness of the court’s application of statutes and regulations to the facts. We review a trial court’s interpretation of statutes and regulations and their application to undisputed facts de novo. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799; People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 432 [statutes]; Chambers v. Kay (2002) 29 Cal.4th 142, 148 [regulations].)
Defendants now assert that the motion was validly denied because the proposed causes of action were based on different facts than those alleged in the complaint. They made no such argument in the trial court, however. On the contrary, Wells Fargo admitted during discovery that the loan was insured by the FHA and that it was required to comply with FHA regulations in servicing the loan. It was understood from the outset of the trial that plaintiff intended to argue that Wells Fargo breached its obligations under the FHA regulations, and the parties agreed that the issue did not require the presentation of any evidence.
Negligent Misrepresentation
An action for negligent misrepresentation lies where one who supplies information for business purposes in the course of a business or profession misrepresents a past or existing material fact, without reasonable grounds for believing it to be true, and with intent to induce another’s reliance on the fact misrepresented. In order to prevail, the plaintiff must prove that he was ignorant of the truth and that he justifiably relied on the misrepresentation and suffered damages as a result. (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239, fn. 4; Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolap Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1154-1155.) A justifiable decision to refrain from an action, based on the other party’s misrepresentation of a material fact, will satisfy the element of reliance. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 174.)
Here, it was undisputed that a representative of Wells Fargo told plaintiff, on January 23, 2003, that the earliest date the property would be sold was May 4, 2003, and that plaintiff therefore had time to “make arrangements,” i.e., to cure the default. However, the court found that plaintiff’s reliance on Wells Fargo’s representation as to the sale date was unreasonable because “[t]he ultimate responsibility for the conduct of the sale process itself laid [sic] in the hands of the trustee not the beneficiary. [Thus], [i]t seems that the most accurate information pertaining to such a sale date would best be known by the trustee and not Wells Fargo.”
Although the court cited no authority, it appears to have relied on Civil Code section 2924g: In their opposition to the motion to amend, defendants cited that section as authority that Loanstar, not Wells Fargo, was in control of the foreclosure sale process. The court’s conclusion is, however, incorrect. Civil Code section 2924g, subdivision (c)(1) provides that a foreclosure sale may be postponed upon instruction by the beneficiary to the trustee, and that a trustee must postpone the sale based upon an agreement between the beneficiary and the trust or. (Civ. Code, § 2924g, subd. (c)(1), (c)(1)(C).) The beneficiary may also cancel the sale if it permits the borrower to cure the default, even beyond the statutory period during which the borrower may cure as of right. (Bank of America, N.A. v. La Jolla Group II (2005) 129 Cal.App.4th 706, 711-712.) Thus, although the trustee arranges for and conducts the sale, the statute does not delegate to the trustee exclusive control of whether the sale takes place or when it takes place. Here, the uncontradicted evidence shows that Wells Fargo, not Loanstar, controlled the foreclosure proceedings: Wells Fargo instructed Loanstar to initiate foreclosure proceedings and instructed it to suspend foreclosure proceedings based on the forbearance agreement. Thus, the court’s conclusion that plaintiff could not reasonably rely on information provided by Wells Fargo as to the sale date because Wells Fargo was not in control of the date of the sale is supported neither as a matter of law, as the court appeared to believe, nor by the undisputed facts of this case.
Civil Code section 2924g, subdivision (c)(1) provides:
Plaintiff testified that he relied on Wells Fargo’s representation as to the sale date to his detriment. He testified that if he had known that the property would be sold on March 27, he would have acted promptly to obtain the necessary funds to cure the delinquency. He testified that he had a portion of the necessary amount and that he could have borrowed the rest from his friend George Moghadam. George Moghadam testified that he had the funds available and that he would have lent plaintiff the money if plaintiff had asked him. This evidence, if believed by the trial court, would support a judgment in favor of plaintiff on this claim. Therefore, the court’s erroneous conclusion that plaintiff’s reliance was unreasonable because Wells Fargo was not the entity in control of the date of the trustee’s sale is prejudicial. We will reverse the order denying the motion and remand with directions to grant the motion as to the negligent misrepresentation claim and to determine whether the evidence establishes that plaintiff justifiably relied on Wells Fargo’s misrepresentation of the sale date.
Defendants contend that plaintiff’s claim is necessarily defeated because notice of the sale was posted on the property and was mailed to him. They concede, however, that plaintiff did not receive actual notice. Defendants provide no authority that constructive notice will, as a matter of law, defeat a claim that the plaintiff justifiably relied on a negligent misrepresentation, and we have discovered no cases directly on point. Whether a plaintiff’s own negligence, rather than that of the defendant, is the proximate cause of the plaintiff’s injury is a question of fact. (See 6 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, § 1300, p. 694.) This issue may be addressed upon remand as well.
In contrast, it is clear that constructive notice will not, as a matter of law, defeat a claim of intentional misrepresentation. (Alliance Mortgage Co. v. Rothwell, supra, 10 Cal.4th at pp. 1239-1240.)
FHA Regulations
A bank which issues or services mortgage loans insured by the FHA is required to follow loss mitigation regulations mandated by the HUD Secretary before initiating foreclosure. (Wells Fargo Home Mortgage, Inc. v. Neal (2007) 398 Md. 705, 719-720 [922 A.2d 538, 546-547]; 12 U.S.C. § 1709 et seq.; 24 C.F.R. § 203.500 et seq.) The regulations are published in the Federal Register and have the force of law. (Bankers Life Co. v. Denton (1983) 120 Ill.App.3d 576, 580-581 [458 N.E.2d 203, 206].) It is undisputed that plaintiff’s loan was insured by the FHA and that Wells Fargo was obligated to apply the mandatory loss mitigation procedures. The trial court held, however, that the regulations do not provide the borrower with a cause of action for damages or injunctive relief for foreclosure in violation of those regulations.
Because the court held that plaintiff could not assert the regulatory violations as a matter of law, the nature of Wells Fargo’s alleged violations has no bearing on the purely legal question before us. Whether Wells Fargo did violate any of the regulations and whether those violations warrant setting the sale aside are issues which may be resolved in the trial court on remand.
Although there does not appear to be any California case law on the subject, the weight of current authority in other jurisdictions holds that although the regulations do not provide for a private cause of action for damages, violations by lenders of the regulations pertaining to loss mitigation can be raised as an equitable defense in a foreclosure action. (See Wells Fargo Home Mortgage, Inc. v. Neal, supra, 922 A.2d at pp. 547-550; Federal Land Bank of St. Paul v. Overboe (N.D. 1987) 404 N.W.2d 445, 449; Fleet Real Estate Funding Corp. v. Smith (1987) 366 Pa.Super. 116, 123-124 [530 A.2d 919, 922-923]; Federal Nat. Mortg. Ass’n. v. Moore (N.D.Ill. 1985) 609 F.Supp. 194, 196;Bankers Life Co. v. Denton, supra, 458 N.E.2d at pp. 204-206; Associated East Mortgage Co. v. Young (1978) 163 N.J.Super. 315, 329-330 [394 A.2d 899, 906-907]; Brown v. Lynn (N.D.Ill. 1975) 392 F.Supp. 559, 562-563.) Plaintiff points out that because nonjudicial foreclosures are far more common than judicial foreclosures under California’s statutory scheme, in most instances a borrower whose loan is foreclosed in violation of the regulations has no opportunity to assert the violation as a defense; rather, the borrower can assert the violation only as the basis for an injunction or in an action for declaratory relief to preclude the sale or to set the sale aside. He contends that because such actions are essentially defensive in nature, a property owner should be permitted to assert regulatory violations by the lender to prevent or to void the sale.
Older case law, holding that the HUD regulations may not be used even defensively, are based in part on the premise that the regulations did not have the force of law because they had not been published in the Code of Federal Regulations. (See, e.g., Roberts v. Cameron-Brown Co. (5th Cir. 1977) 556 F.2d 356, 360.) Later cases recognize that the regulations have since been published at 24 Code of Federal Regulations part 203.500 et seq., and therefore do have the force of law. (See, e.g., Bankers Life Co. v. Denton, supra, 458 N.E.2d at p. 206.)
In Wells Fargo Home Mortgage, Inc. v. Neal, supra, 922 A.2d 538, the Maryland appellate court addressed this issue under a statutory scheme which appears to be similar to California’s. Under Maryland’s statutes, the majority of foreclosures are nonjudicial. However, property owners may seek an injunction or declaratory relief to prevent a foreclosure sale. (Id. at pp. 549-550.) The Maryland court held that because foreclosure is an equitable remedy, failure to engage in the loss mitigation procedures mandated by the federal regulations may preclude a foreclosure sale until the lender has complied with those regulations. (Id. at pp. 550-553.)
Similarly, in California, a trustee’s sale may be enjoined or set aside under some circumstances. (See, generally, Bernhardt, Cal. Mortgage and Deed of Trust Practice (Cont.Ed.Bar 3d ed. 2007) §§ 7.22-7.34, 7.63-7.66.) We see no reason that a property owner facing a nonjudicial foreclosure should not be able to assert a lender’s failure to apply the mandatory loss mitigation procedures defensively, either to preclude or to set aside a foreclosure sale. Where no sale has taken place, a court may preclude the sale until the lender complies with the FHA’s loss mitigation procedures. Or, if the sale has taken place, the court may set the sale aside if the lender’s conduct is sufficiently egregious as to render the sale inequitable, unless the buyer is a bona fide purchaser who is entitled to the presumption that the sale was conducted regularly and properly. (See Bank of America Etc. Assn. v. Reidy (1940) 15 Cal.2d 243, 248 [courts have the power to vacate a foreclosure sale “where there has been fraud in the procurement of the foreclosure decree or where the sale has been improperly, unfairly or unlawfully conducted, or is tainted by fraud, or where there has been such a mistake that to allow it to stand would be inequitable to purchaser and parties”].) Because the trial court concluded that the FHA guidelines did not afford plaintiff any remedy, it did not determine whether Wells Fargo failed to comply with the FHA guidelines or consider the equities as between Wells Fargo and plaintiff. We will remand with directions that the court do so.
Civil Code section 2924 provides that if the trustee’s deed recites that all statutory notice requirements and procedures required by law for the conduct of the foreclosure have been satisfied, a rebuttable presumption arises that the sale has been conducted regularly and properly. The presumption is conclusive as to a bona fide purchaser. (Civ. Code, § 2924; Moeller v. Lien (1994) 25 Cal.App.4th 822, 831.)
Wells Fargo contends that the sale may not be set aside under any circumstances because there is no evidence that plaintiff tendered payment of all undisputed sums due and owing before the sale was completed. It contends that a pre-foreclosure tender is required in all cases. However, the tender requirement is a matter of equity, and tender may be excused under circumstances where it would be inequitable to require it. (See generally 4 Miller & Starr, Cal. Real Estate (3d ed. 2000) Deeds of Trust and Mortgages, § 10:212, pp. 685-686, and cases cited therein.) Here, the basis of plaintiff’s contention is that he was awaiting Wells Fargo’s action on his application for a forbearance agreement, and that he had been assured that he would have until a certain date to cure the delinquency if Wells Fargo declined a new agreement. The foreclosure sale took place before the “earliest” sale date as represented to plaintiff by Wells Fargo. Whether tender of the amount needed to cure the delinquency was required under these circumstances is an issue which can be addressed in the trial court.
PLAINTIFF HAS FAILED TO ESTABLISH THAT THE JUDGMENT IN FAVOR OF DEFENDANTS ON CLAIMS FOR BREACH OF CONTRACT AND BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING IS NOT SUPPORTED BY SUBSTANTIAL EVIDENCE
Plaintiff contends that the trial court erred in several of its findings with respect to his claims for breach of contract and of the covenant of good faith and fair dealing.
We are unable to discern the legal basis for plaintiff’s contentions. His caption, “Substantial Evidence Re: The Cause of Action for Breach of Contract” appears to indicate that he contends that there is not substantial evidence to support the trial court’s findings. His arguments, on the other hand, appear to contend that the evidence compels the conclusion that Wells Fargo breached the forbearance agreement. He neither states the standard of review applicable to his claim nor cites any legal authority which would permit us to reverse the judgment on the breach of contract claim. The same is true as to his argument concerning the claim for breach of covenant of good faith and fair dealing.
On appeal, the judgment is presumed to be correct. (State Farm Fire & Casualty Co. v. Pietak (2001) 90 Cal.App.4th 600, 610.) The appellant therefore has the burden to demonstrate, by legal analysis and citation to authority, that the trial court committed prejudicial error. (McComber v. Wells (1999) 72 Cal.App.4th 512, 522-523.) Arguments such as plaintiff’s, which are not tethered to any standard of review and which fail to state the legal basis for a claim of prejudicial error, do not meet this burden. An appellate court is not required to examine undeveloped claims (Paterno v. State of California (1999) 74 Cal.App.4th 68, 106), and we decline to do so.
DISPOSITION
The court’s order denying plaintiff’s motion to amend his complaint is reversed. The trial court is directed to enter an order granting the motion and amending the complaint to state causes of action for negligent misrepresentation and wrongful foreclosure based on violation of FHA regulations. The trial court is to determine whether plaintiff has met his burden of proof on each of these causes of action, based on the evidence admitted at trial, and render judgment accordingly. The judgment is otherwise affirmed.
Plaintiff is to recover costs on appeal.
We concur: Ramirez, P.J., Gaut, J.
“(c)(1) There may be a postponement or postponements of the sale proceedings, including a postponement upon instruction by the beneficiary to the trustee that the sale proceedings be postponed, at any time prior to the completion of the sale for any period of time not to exceed a total of 365 days from the date set forth in the notice of sale. The trustee shall postpone the sale in accordance with any of the following:
(A) Upon the order of any court of competent jurisdiction.
(B) If stayed by operation of law.
(C) By mutual agreement, whether oral or in writing, of any trustor and any beneficiary or any mortgagor and any mortgagee.
(D) At the discretion of the trustee.” (Italics added.)
A nonjudicial foreclosure sale is not completed until the deed has been transferred to the buyer, however. When the deed has not been transferred, the sale may be successfully challenged, regardless of whether the buyer is a bona fide purchaser, if there has been a procedural irregularity in the sale. (6 Angels, Inc. v. Stuart-Wright Mortgage, Inc. (2001) 85 Cal.App.4th 1279, 1285.) Here, the preliminary injunction precluded delivery of the trustee’s deed to Mr. Holley. The injunction remains in effect pending this appeal. Because the sale is not yet complete, the conclusive presumption does not apply.