Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
Alameda County Super. Ct. No. 02-043199
OPINION
Marchiano, P.J.
This appeal involves a class action suit against Washington Mutual Bank, F.A., and Washington Mutual Home Loans, Inc. (collectively, defendant) challenging its practices in cancelling private mortgage insurance (PMI). In Cheol Shin (plaintiff) contends that defendant overcharged PMI premiums by unlawfully delaying cancellation of PMI insurance after the conditions for cancellation were satisfied, and unlawfully charged a “PMI review fee” exceeding the cost of the appraisal that established PMI was no longer needed. Plaintiff’s motion for class certification was denied as to the delayed cancellation claims; the motion was granted as to the appraisal fee claims, but they were thereafter summarily adjudicated in defendant’s favor. The appeal contests the class certification ruling on the delayed cancellation claims, and the summary adjudication of the appraisal fee claims. The record does not support an abuse of discretion in refusing to certify the delayed cancellation class, and the court correctly concluded that the appraisal fee claim is untenable as a matter of law. We therefore affirm the orders.
I. DISCUSSION
A. Appealability
This appeal followed entry of a summary adjudication order. An appeal does not generally lie from such an order (Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2006) ¶ 2:241, p. 2-114 (rev. # 1, 2006)), but this order is appealable because it has the “death knell” effect of dismissing the entire action as to all class members other than plaintiff (id. at ¶¶ 2:39, 2:39.2, 2:39.3, pp. 2-24 to 2-25)—a point defendant does not dispute.
B. Delayed Cancellation Claims
(1) Background
PMI protects the lender from a default on the mortgage loan, and is typically required when a home buyer cannot make a down payment of 20 percent or more. Plaintiff was required to obtain PMI as a condition to receipt of a mortgage loan from defendant’s predecessor. PMI is paid in arrears, normally around the 10th of the month, for the prior month’s premiums. Plaintiff signed a certificate acknowledging that amounts paid for PMI were nonrefundable, and that “a credit or refund is not available regardless of the reason for prepayment or cancellation . . . .” Defendant takes the position that “[p]remiums are not prorated based on days in the month and the premium is owed for the entire month in which PMI is cancelled.”
The deed of trust securing repayment of plaintiff’s loan, and those of all members of the putative delayed cancellation class, provided: “ ‘Borrower shall pay the premiums required to maintain mortgage insurance in effect, or to provide a loss reserve, until the requirement for mortgage insurance ends in accordance with any written agreement between Borrower and Lender or applicable law.’ ” Plaintiff contends that “applicable law” under the deed of trust includes Civil Code section 2954.7, which provides in relevant part:
“Except when a statute, regulation, rule, or written guideline promulgated by an institutional third party applicable to notes or evidence of indebtedness secured by a deed of trust or mortgage purchased in whole or in part by an institutional third party specifically prohibits cancellation during the term of the indebtedness, if a borrower so requests and the conditions established by paragraphs (1) to (5), inclusive, of subdivision (a) are met, a borrower may terminate future payments for private mortgage insurance, or mortgage guaranty insurance as defined in subdivision (a) of Section 12640.02 of the Insurance Code, issued as a condition to the extension of credit in the form of a loan evidenced by a note or other evidence of indebtedness that is secured by a deed of trust or mortgage on the subject real property.
“(a) The following conditions shall be satisfied in order for a borrower to be entitled to terminate payments for private mortgage insurance or mortgage guaranty insurance:
“(1) The request to terminate future payments for private mortgage insurance or mortgage guaranty insurance shall be in writing.
“(2) The origination date of the note or evidence of indebtedness shall be at least two years prior to the date of the request.
“(3) The note or evidence of indebtedness shall be for personal, family, household, or purchase money purposes, secured by a deed of trust or mortgage on owner-occupied, one- to four-unit, residential real property.
“(4) The unpaid principal balance owed on the secured obligation that is the subject of the private mortgage insurance or mortgage guaranty insurance shall not be more than 75 percent, unless the borrower and lender or servicer of the loan agree in writing upon a higher loan-to-value ratio, of either of the following:
“(A) The sale price of the property at the origination date of the note or evidence of indebtedness, provided that the current fair market value of the property is equal to or greater than the original appraised value used at the origination date.
“(B) The current fair market value of the property as determined by an appraisal, the cost of which shall be paid for by the borrower. The appraisal shall be ordered and the appraiser shall be selected by the lender or servicer of the loan.
“(5) The borrower’s monthly installments of principal, interest, and escrow obligations on the encumbrance or encumbrances secured by the real property shall be current at the time the request is made and those installments shall not have been more than 30 days past due over the 24-month period immediately preceding the request, provided further, that no notice of default has been recorded against the security real property pursuant to Section 2924, as a result of a nonmonetary default by the borrower (trustor) during the 24-month period immediately preceding the request.
“[¶] . . . [¶]
“(c) If the note secured by the deed of trust or mortgage will be or has been sold in whole or in part to an institutional third party, adherence to the institutional third party’s standards for termination of future payments for private mortgage insurance or mortgage guaranty insurance shall be deemed in compliance with the requirements of this section.
“(d) For the purposes of this section, “institutional third party” means the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Government National Mortgage Association, and other substantially similar institutions, whether public or private, provided the institutions establish and adhere to rules applicable to the right of cancellation of private mortgage insurance or mortgage guaranty insurance, which are the same or substantially the same as those utilized by the above-named institutions.”
Defendant sold plaintiff’s loan to the Federal National Mortgage Association (FNMA), but continued to service the loan. Under FNMA guidelines, a borrower cannot be charged for PMI premiums more that 30 days after the criteria for cancellation have been satisfied. (FNMA Single Family Servicing Guide (Guidelines), (2003) part II, ch. 1, § 102.05 [as of May 22, 2007]; see also 12 U.S.C. § 4902(e)(1).)
Plaintiff contacted defendant about cancelling his PMI and paid the $300 PMI review fee defendant charged. On July 31, 2000, defendant received the appraisal it ordered on plaintiff’s home, which showed that the unpaid principal balance of the mortgage loan was less than 75 percent of the property’s fair market value. Defendant sent plaintiff a letter dated August 22, 2000, stating that PMI had been deleted from the loan, but continued to collect premium payments. After plaintiff complained, defendant refunded his payment for October 2000, but refused to issue further refunds. Defendant’s letter to plaintiff explaining that refusal stated: “The turnaround time for Mortgage Insurance deletion is approximately 90 days.” Thus, plaintiff paid PMI premiums through September 2000.
Plaintiff’s fourth amended complaint asserted causes of action for: breach of the implied covenant of good faith and fair dealing; breach of contract; violation of Civil Code section 2954.6; violation of Civil Code section 2954.7; unlawful, unfair, and fraudulent business practices (Bus. & Prof. Code, § 17200 et seq.); unjust enrichment; and declaratory relief. The action was filed on March 7, 2002, and covers the period beginning on March 7, 1998.
Civil Code section 2954.6 requires that borrowers be notified of their right to cancel PMI, specifies the timing and form of the notice, and stipulates that the borrower not be charged for the notice.
Plaintiff submits that, under Civil Code section 2954.7, defendant must stop collecting PMI premiums on its loans after the date it receives an appraisal showing a loan to value ratio of 75 percent or less (qualifying appraisal). With respect to the loans defendant sold to FNMA, plaintiff argues that defendant cannot lawfully collect PMI premiums after 30 days from the date it receives a qualifying appraisal. Plaintiff sought to certify a class of delayed cancellation claimants, which was defined to include: “All California residents whose request to cancel PMI was approved by Defendant and who paid PMI premiums to Defendant either: (1) after the date Defendant received an appraisal in connection with a request to cancel PMI, or (2) with respect to loans owned by the Federal National Mortgage Association, thirty days after the date Defendant received an appraisal in connection with the request to cancel PMI, and who did not receive a full refund for unearned premiums from Defendant.”
In support of the class certification motion, plaintiff submitted documentation concerning his own loan and evidence that, from March 1998 to June 2001, defendant had some standards, known as “turn-times,” but no written policies or procedures, that specified time limits for the actions taken after receipt of a qualifying appraisal. Those actions included: calculating the loan to value ratio (five business day turn-time), submitting the calculation worksheet to a manager for approval, notifying the escrow department to cancel the PMI, deleting the PMI from the computer system (seven business days), adjusting the mortgage payment to reflect the deletion (five business days), and preparing a letter notifying the borrower of the new payment amount. Beginning around June 2001, defendant required its employees to notify the escrow department to cancel the PMI within 30 days of the date the appraisal was requested. From that time, the computer system generated daily reports listing loans that had missed the 30-day mark; those loans became priority (“escalated”) matters.
Defendant’s employee Carol Emery testified in a deposition that other borrowers had experiences similar to plaintiff’s, where it took some time to get the PMI cancelled. She would get phone calls from people who said that they had been trying for awhile to get the PMI deleted, and when she checked the history of the loan she would find that the process had stopped after the deletion was approved.
In opposition to the motion, defendant lodged evidence indicating that the delay in cancelling plaintiff’s PMI resulted in part from mistakes made by a new customer service representative. Defendant acknowledged that there were occasional delays in processing PMI deletions, but cited evidence of procedures employed during the class period to compensate for the delays. Managers who handled delayed, “escalated” deletions would direct that the insurer be notified that the PMI should have been cancelled earlier. When cancellation requests reached a certain stage of processing within the first 10 days of the month, they would be back dated to the last day of the preceding month to save a monthly premium payment.
Defendant also presented data on PMI cancellations in the year 2000 for 12 randomly selected loans. The relevant results, with plaintiff’s experience added, were as follows:
LoanNumber
AppraisalReceived
PMIDeleted
PMIPaid Through
9769
7/27
8/23
August
6807
9/28
10/05
September
9321
8/31
9/27
September
9186
6/01
7/21
June
3849
5/24
6/21
May
8141
7/03
7/24
July
5243
10/18
10/26
October
7679
7/19
8/25
August
1022
9/13
10/17
September
2963
12/05
12/18
December
1060
11/01
11/06
October
1555
2/23
3/22
February
Plaintiff
7/31
10/25
September
Only two of the borrowers in this sampling, loans 9769 and 7679, were charged premiums beyond 30 days after the appraisal was received, and none was charged an extra month’s premium like plaintiff. Defendant argued that plaintiff’s delay was uniquely due to a series of missteps that other borrowers did not experience.
In its order denying certification of the delayed cancellation class, the court found that the class was sufficiently numerous to justify certification, and that the class was ascertainable because membership could be determined “by referring to objective facts.” However, the court determined that individual issues predominated over common issues in the case, and that plaintiff’s experience in cancelling PMI was not typical of those of defendant’s other customers.
In response to plaintiff’s special interrogatory No. 2, which asked how many times since March 7, 1998, PMI had been cancelled at the request of borrowers on FNMA-owned loans, defendant answered “38,283 total” and “9242.” Special interrogatory No. 4 asked the same question with respect to loans defendant owned; defendant said 22,962. In amended responses to interrogatory Nos. 2 and 4, defendant answered 5,511 and 1,484, respectively.
The order separately discussed reasons for denying class certification of the Business and Professions Code section 17200 cause of action for delayed cancellation. The Business and Professions Code section 17200 claims were discussed at a case management conference after the hearing on summary adjudication of the appraisal fee claim, discussed below. The court described the conference for the record, and stated that “we have discussed the fact that there is pending before the California Supreme Court the issue of the retroactivity of Proposition 64. That that determination will have some bearing on the continued efficacy of . . . the 17200 claims that are still part of this lawsuit. [¶] Even if the Supreme Court decides that Prop 64 is retroactive, it may be that the plaintiff will seek to further certify a class pursuant to the new requirements following Proposition 64.” The briefs do not discuss Business and Professions Code section 17200 claims, if any, remaining after resolution of the issues presented in this appeal, and we express no opinion on that subject.
(2) Analysis
“Code of Civil Procedure section 382 authorizes class actions ‘when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court . . . .’ The party seeking certification has the burden to establish the existence of both an ascertainable class and a well-defined community of interest among class members. [Citations.] The ‘community of interest’ requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class. [Citation.]
“ . . . A trial court ruling on a certification motion determines ‘whether . . . the issues which may be jointly tried, when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants.’ [Citations.] . . .
“We review the trial court’s ruling for abuse of discretion. ‘Because trial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action, they are afforded great discretion in granting or denying certification . . . . [Accordingly,] a trial court ruling supported by substantial evidence generally will not be disturbed “unless (1) improper criteria were used [citation]; or (2) erroneous legal assumptions were made [citation]” [citation]. . . . “Any valid pertinent reason stated will be sufficient to uphold the order.” ’ [Citations.]” (Sav-on Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326-327 (Sav-on).)
Plaintiff contends that the court “improperly considered and prejudged the legal merit” (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 448 (Linder)) of the delayed cancellation claims in ruling on the motion for class certification. This argument is based on the trial court’s statements at the hearing on the motion that “if the [defendant’s 12-loan] survey is indeed random and is accurate, it doesn’t appear that anybody was required to pay PMI beyond the 30-day period. So that I think did implicate the issues of commonality and whether or not this is a common problem.” In plaintiff’s view, these comments show that the court adopted defendant’s argument that it had 30 days to cancel PMI upon receipt of a qualifying appraisal.
The court’s order, however, did not refuse class certification based on a finding that as a matter of law the claim lacked merit. (See Linder, supra, 23 Cal.4th at p. 443 [such a result is generally impermissible].) The court took the merits into account, as it was entitled to do, only in ruling on “class action requirements, such as whether substantially similar questions are common to the class and predominate over individual questions or whether the claims or defenses of the representative plaintiffs are typical of class claims or defenses.” (Ibid.)
With respect to whether common or individual issues were predominant, the order stated: “The Court finds that if the parties were to review the files for each consumer to determine liability and damages on a customer by customer basis, then the individualized fact issues would overwhelm the common issues. The Court has considered that there is no per se bar to class certification just because individual class members may ultimately need to itemize their damages. Sav-On, [supra,] 34 Cal.4th at [pp.] 334-335. That individual damage determinations are not a bar to class certification does not mean, however, that the Court should not consider them as a factor in the class certification analysis. The Court finds that the need for individual liability and damage determinations outweighs the common issues.”
The court implicitly concluded, in finding that a separate assessment of each loan would be required, that defendant was entitled to a reasonable time to cancel PMI, and that individual circumstances would need to be considered in determining whether the timing as to any particular loan was reasonable. We note in this regard that Civil Code section 2954.7 does not specify a time within which PMI must be cancelled, and that “[i]f no time is specified for the performance of an act required to be performed, a reasonable time is allowed.” (Civ. Code, § 1657.) Nor do we interpret FNMA’s 30-day guideline to provide for strict liability irrespective of individual circumstances. Civil Code section 2954.7 sets forth five conditions that must be satisfied before private mortgage insurance may be terminated by a lender. Each of the five conditions may require follow-up that could not realistically and reasonably be accomplished within a strict 30-day period of time. It may be necessary, for example, to investigate the merits of an appraisal that is ultimately determined to be qualifying, and such considerations can be taken appropriately into account in deciding whether there was a sufficient community of interest to justify class treatment.
We note also that plaintiff’s theory is untenable to the extent it would require refunds of premiums already paid, because the insurance contracts provide that premiums are nonrefundable and defendant has no control over proration of refunds by the insurer.
With respect to whether plaintiff’s claim was typical of the putative class, the court wrote: “The sample of 12 loans [submitted by defendant] suggest[s] that [plaintiff] is not a typical customer of [defendant] who made a PMI cancellation request. The Court lacks confidence that it can extrapolate [plaintiff’s] experience to the members of the class.” The delay in cancelling plaintiff’s PMI was in fact far longer than any revealed in defendant’s sampling. The court thus “applied appropriate criteria and based its conclusions on substantial evidence” in determining that plaintiff’s claim was atypical. (Caro v. Proctor & Gamble Co. (1993) 18 Cal.App.4th 644, 663.) The situation here is similar to that in Bauman v. Islay Investments (1975) 45 Cal.App.3d 797 (Bauman), a purported class action to recover security deposits retained by a landlord, where the plaintiff “failed to prove that her claim was typical of others in the class or that the issues in her case were similar to those in other cases.” (Bauman, supra, at p. 802.) “Other than her own claim, [the plaintiff] made no showing of the existence of any actual controversy with defendants . . . .” (Id. at p. 801.)
The 12 random loans demonstrated that each customer’s PMI was deleted within 30 days of the date that the appraisal was received, except for two that were only a few days beyond 30 days. Plaintiff’s situation was markedly different due to internal mishandling unique to his case. There was no abuse of discretion in denying class certification of the delayed cancellation claims when plaintiff’s processing was not typical of others.
C. Appraisal Fee Claims
(1) Background
During the class period, defendant charged borrowers desiring to cancel their PMI a $300 “PMI review fee,” regardless of the cost of the appraisal required to establish the loan to value ratio. Plaintiff alleges that defendant could not lawfully charge any fee exceeding the cost of the appraisal, which in most instances was only $275. The court granted plaintiff’s motion to certify a class of appraisal fee claimants, but then granted defendant’s motion for summary adjudication of the claims, concluding that the PMI review fee could be lawfully charged.
Defendant stopped charging the PMI review fee in July 2002, when it changed its policies and began requiring borrowers to order and pay for a qualifying appraisal.
(2) Analysis
Plaintiff challenges the legality of the PMI review fee under Civil Code section 2954.7. The statute sets forth conditions that must be met to obtain the right to cancel PMI, which include a loan to value ratio of 75 percent or less as shown by an appraisal of the property’s current fair market value. (Civ. Code, § 2954.7, subd. (a)(4)(B).) The statute provides that the appraisal “shall be paid for by the borrower.” (Ibid.) Plaintiff submits that no condition for cancellation of PMI can be imposed beyond those specified in the statute, and that because the statute makes the borrower liable only for the cost of the appraisal, the PMI review fee could not exceed that cost.
Under Civil Code section 2954.7, subdivision (c), adherence to the PMI cancellation standards of institutional third parties like FNMA is “deemed in compliance with the requirements of this section”; thus, the issue is whether FNMA standards permit the fee in question. Guidelines (2004) part I, chapter 2, section 203.04 provides that “the lender bears the cost of servicing mortgages sold to us, except as expressly provided otherwise in our Guides.” Guidelines (2000) part II, chapter I, exhibit 4 states that “[t]he servicer may charge the borrower for the cost of the appraisal” required in connection with cancellation of PMI”; plaintiff contends that the Guidelines do not provide for any other fee.
Although Civil Code section 2954.7, subdivision (c) applies by its terms only to loans that have been or will be sold to the institutional third party, plaintiff does not contend that the propriety of the PMI review fee turns on whether defendant retained ownership of the loan.
However, the trial court found that defendant’s PMI review fee was authorized under the Guidelines as a fee for a special service. Guidelines (2004) part I, chapter 2, section 203.04 provides that fees may be charged “for services that are above and beyond the ordinary and customary activities performed by the servicer covered by its servicing fee and related income . . . . [¶] . . . [¶] [T]he servicing fee that we pay a servicer and the other revenue sources consistent with the Guides are intended to compensate the servicer for a variety of standard activities associated with the servicing of mortgage loans. . . . [¶] . . . [¶] The servicing fee generally is not intended to encompass certain additional work (special services) that the servicer performs at the borrower’s request or on the borrower’s behalf. Special services include work related to . . . replacement of insurance policies . . . and consummating the . . . modification of a loan.” This list of examples is not exclusive but is representative of the type of services that are special due to the nature of what is involved.
We agree with the trial court’s reading of the Guidelines. The PMI review fee was charged for work performed at the borrower’s request to consummate what in effect involves the modification of a loan by reducing the payments owed. (See Guidelines (2003) part II, ch. 1, § 102.05 [when PMI is cancelled based on the current appraised value of the property, the servicer “must reduce the borrower’s mortgage payment . . . by the amount that was being collected to pay the mortgage insurance premium”].)
II. CONCLUSION
The class certification and summary adjudication orders are affirmed.
We concur: Stein, J., Margulies, J.