Opinion
D069829
03-14-2017
DEBORAH SYVERSON et al., Plaintiffs and Appellants, v. COUNTRYWIDE HOME LOANS, INC. et al., Defendants and Respondents.
Quintana Law and Lincoln B. Quintana for Plaintiffs and Appellants. Severson & Werson, Jan T. Chilton and Kerry W. Franich for Defendants and Respondents Countrywide Home Loans, Inc., doing business as America's Wholesale Lender, and Bank of America, N.A., on its own behalf and successor by merger to BAC Home Loans Servicing. Green & Hall, Howard D. Hall and Jered T. Ede for Defendants and Respondents Nationstar Mortgage LLC and U.S. Bank Corporate Trust Services as trustee for Harborview Mortgage Loan Trust 2005-12 Mortgage Loan Pass-Through Certificates Series 2005-12.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2015-00004193-CU-BC-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Joel M. Pressman, Judge. Affirmed in part; reversed in part, and remanded with directions. Quintana Law and Lincoln B. Quintana for Plaintiffs and Appellants. Severson & Werson, Jan T. Chilton and Kerry W. Franich for Defendants and Respondents Countrywide Home Loans, Inc., doing business as America's Wholesale Lender, and Bank of America, N.A., on its own behalf and successor by merger to BAC Home Loans Servicing. Green & Hall, Howard D. Hall and Jered T. Ede for Defendants and Respondents Nationstar Mortgage LLC and U.S. Bank Corporate Trust Services as trustee for Harborview Mortgage Loan Trust 2005-12 Mortgage Loan Pass-Through Certificates Series 2005-12.
This appeal is an example of what one court called a "well-established and predictable pattern." (Fleet v. Bank of America N.A. (2014) 229 Cal.App.4th 1403, 1405 (Fleet).) A homeowner in financial distress because of the 2008 recession applies to a lender for mortgage relief. The lender approves a loan modification to lower mortgage payments and prevent foreclosure. The homeowner tries to comply with the terms of the mortgage modification program. But either due to loan servicer negligence or something worse, the loan modification goes awry, the homeowner is passed from person to person, each of whom either professes to know nothing about the loan in question or its modification, or instead repeatedly asks for the same documents to be submitted and resubmitted. The loan servicer then instructs the borrower to stop making payments to qualify for a loan modification. (See Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1159 (Daniels).) Although the homeowner is assured no foreclosure will occur while the loan servicer processes the application, a notice of default is recorded—in this case because the loan servicer used incorrect income information in determining the borrower's eligibility for mortgage relief.
The borrower's account is then transferred to a different loan servicer, who requires the borrowers to begin the entire process anew. Here, the new loan servicer charged the borrowers $200 to perform an interior appraisal of their home to determine their eligibility for a loan modification, but filed a notice of default without ever performing the promised appraisal.
Appellants Deborah and Robert Syverson alleged such facts, and more, in their first amended complaint. They sued their lender and loan servicers, alleging 13 causes of action. The court sustained demurrers without leave to amend and later denied the Syverson's motion for reconsideration, which proposed filing a second amended complaint. The Syversons appeal from the judgment of dismissal.
We affirm in part, reverse in part, and remand with directions. In so doing, we follow recent decisions in holding a loan servicer may owe a duty of care to a borrower, and thus may be liable for negligence in loan servicing. (Daniels, supra, 246 Cal.App.4th at pp. 1180-1184.)
FACTUAL AND PROCEDURAL BACKGROUND
A. The Standard of Review
Because this appeal arises after the court sustained a demurrer without leave to amend, the factual background is based on the assumption that well pleaded facts alleged in the operative first amended complaint are true. (Fleet, supra, 229 Cal.App.4th at p. 1406, fn. 2.) We also consider matters properly subject to judicial notice. (Daniels, supra, 246 Cal.App.4th at p. 1158, fn. 3.) Additionally, in an appeal after a demurrer is sustained without leave to amend, the appellant may propose amendments to the complaint in an attempt to cure pleading defects, even for the first time on appeal. (Code Civ. Proc., § 472c, subd. (a); Rakestraw v. California Physicians' Service (2000) 81 Cal.App.4th 39, 43.) Accordingly, although one of the Syversons' principal claims of error is the court denied their motion for reconsideration, we may consider allegations in that proposed second amended complaint in evaluating their appellate contentions. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1387.)
All statutory references are to the Code of Civil Procedure unless otherwise specified.
We requested and have reviewed the parties' supplemental briefs discussing whether we may consider the allegations in the proposed second amended complaint apart from passing on the correctness of the trial court's order denying the Syversons' motion for reconsideration. Bank of America, N.A. (BANA) submitted a concise two-page supplemental brief, and the Syversons an equally concise three-page letter brief addressing the issue. To the extent the 15-page supplemental brief filed by Nationstar Mortgage LLC (Nationstar) and U.S. Bank Corporate Trust Services as trustee for Harborview Mortgage Loan Trust 2005-12 (U.S. Bank) exceeds the call of the question, we disregard it.
B. The 2005 Loan
Deborah and Robert Syverson are married and reside in a single family home in Coronado they purchased in 2001. In July 2005 they obtained a $2.6 million loan from Countrywide Home Loans (Countrywide), doing business as America's Wholesale Lender, secured by a deed of trust on the home, to pay off the original 2001 purchase loan.
For clarity, the Syversons' brief refers to each of them by their first names. We do the same.
The 2005 loan had an adjustable rate, initially set at their maximum affordable level (2 percent), with a monthly payment of $9,610.11. The interest rate was scheduled to increase, not to exceed 9.95 percent.
The Syversons duly paid this loan from 2005 to 2009, when BANA acquired Countrywide and when BAC Home Loans Servicing, LP (BACHL) became their loan servicer.
C. The 2009 Loan Modification
By 2009 the loan payments had adjusted upwards and the Syversons could not afford the payments. In April 2009 BANA reviewed the Syversons' finances and determined a monthly payment of $7,953.81 would be an acceptable loan modification.
On BANA's instructions, in July 2009 the Syversons entered into a temporary payment plan (TPP) that BANA represented was preliminary to a loan modification. BANA told the Syversons the TPP was a test to determine whether they could make the lowered monthly payments of $7,953.81 for 90 days, and, if the three payments were timely made, then BANA would modify their loan at approximately the same monthly amount.
The Syversons timely made each of the three $7,953.81 payments in August, September, and October 2009.
In December 2009 BANA presented the Syversons with a loan modification; however, the monthly payments were not $7,953.81, but instead were $10,081, not including monthly property taxes of $2,212. With property tax, the monthly payment under the modified loan was $12,293, or $4,339.19 higher than BANA represented it would be. The Syversons repeatedly tried to speak to BANA about the significant increase in monthly payment; however, BANA did not respond to their telephone calls or voice mail messages. For unexplained reasons, BANA prepared the 2009 modification for only Robert's signature.
Under duress and threat of foreclosure, Robert signed the 2009 modification, effective January 1, 2010. The required payments were 55 percent higher than the TPP and beyond the Syversons' financial capabilities at the time.
D. Attempts to Modify the 2009 Modification
After Robert executed the loan modification, the Syversons promptly communicated with BANA in an effort to conform the loan to the $7,953.81 monthly payment BANA promised. The proposed second amended complaint adds significant details to this allegation. On February 15, 2010, the loan servicer, BACHL, wrote to Robert, stating it was in the process of obtaining documents and would respond to his inquiry within 20 business days. On March 1, 2010, BACHL wrote to Robert, stating, "We would like to talk to you about your current loan situation to determine if you qualify for . . . workout options . . . ."
On April 23, 2010, the Syversons wrote to BACHL, again contesting the 2009 loan modification because the monthly payments were significantly higher than the TPP. On April 29, 2010, BANA wrote to Robert, stating, "We want to talk with you about your current loan situation . . . ." On May 4, 2010, BACHL asked the Syversons to send additional financial information. On June 1, 2010, Robert spoke with BACHL representative Ignacio, who stated the president of BACHL knew of their situation, had expedited review of their file, and the Syversons should expect further information within six days.
But BACHL did not get back to the Syversons the entire month of June. On July 1, 2010, Robert spoke with BACHL representative Vanessa, who stated the monthly payments under the 2009 loan modification should not have so drastically varied from the TPP.
A year later, BACHL transferred its loan servicing to BANA, which had succeeded BACHL by merger. BANA wrote to the Syversons, informing them of this change effective July 1, 2011, and assuring them, "[T]his servicing transfer will not impact any current discussions, applications, approved arrangements or proceedings . . . ."
On August 10, 2011, the Syversons faxed income information to BANA showing a change and improvement in their financial situation. Yet six days later, BANA sent a letter to Deborah, stating her loan modification was denied, and a separate letter to Robert, stating no workout options were available.
A week later, BANA apparently reconsidered. It wrote to Robert, stating a loan modification might be available under the federal Home Affordable Mortgage Program (HAMP). BANA asked the Syversons to again send financial documents.
At about the same time, now September 2011, the Syversons had "recovered from their financial hardship" and began paying $10,081.99 each month to BANA under the 2009 loan modification. On September 22, 2011, BANA representative Ashley M. wrote to the Syversons, stating she was their dedicated "customer relationship manager" and assured them, "[W]e're here to help."
About three weeks later on October 13, 2011, Ashley M. sent Robert a letter stating he did not qualify for a loan modification under HAMP, but "there may be other options available . . . ."
Thereafter, on eight separate occasions from October 14, 2011 through April 27, 2012, Robert spoke with a BANA representative identified by BANA as NBKJI8L. In each conversation, Robert stated he and Deborah wanted to resolve the situation involving the 2009 loan modification. Throughout this entire period, the Syversons continued paying $10,081.99 each month to BANA, with the hope and expectation the 2009 loan modification could be brought into compliance with the TPP.
On May 24, 2012, a BANA representative identified as NBKSZC7 wrote in BANA's log that the Syversons had been "identified as eligible for a re-application under the new expanded guidelines for HAMP."
A few weeks later in June 2012, Ashley M. told Robert to stop paying because to be considered for a loan modification, they must be in default. She told Robert she would send him a loan modification "package" to complete. Relying on Ashley M.'s instruction, the Syversons stopped making $10,081.99 payments. By then, they had paid approximately $80,000 under the 2009 loan modification.
However, BANA never sent the Syversons the promised loan package. Instead, on June 23, 2012, BANA informed them foreclosure would start.
On June 30, 2012, Robert wrote to BANA, stating he was "very disappoint[ed] to receive the bank's June 23 letter—and on July 8, 2012, Robert sent a fax to Ashley M. of a completed loan modification application, including detailed personal financial information.
On July 11 and again on July 20, BANA wrote to Deborah, stating it had received the request for a loan modification and promising to "respond to your request."
On August 14, 2012, the Syversons met in person with BANA mortgage servicing specialist, Mahkameh A. Mahkameh A. gave the Syversons another loan modification application to complete, which they submitted within a few days. About a week later, BANA's internal records showed the Syversons were "DOJ [Department of Justice] Eligible."
On August 23, 2012, BANA representative Rodney H. wrote to Deborah, stating he was her new customer relationship manager. Two days later, BANA wrote to Deborah, stating, "[W]e are pleased to tell you that you meet the criteria required to apply for a new modification program recently announced as a result of the U.S. Department of Justice and State Attorneys General global settlement with major mortgage servicers, including Bank of America, NA."
However, on September 19, 2012, Rodney H. informed Deborah "your home loan is not eligible" for modification. On September 27, 2012, the Syversons replied, again giving BANA details of their improved financial status, and emphasizing their ability to pay, demonstrated by their eight consecutive payments of $10,081. The Syversons added, "Our financial condition has changed significantly since 2009-2010 to the good."
On October 1, 2012, BANA wrote to the Syversons, "We received your request regarding a loan modification . . . and forwarded your request to a specialist . . . ."
On October 7, 2012, the Syversons submitted another loan modification package to Mahkameh A. In an accompanying affidavit, the Syversons declared they had paid $10,081.99 for many months without hardship, and only stopped paying when BANA told them to default as a condition to obtaining a loan modification. At Mahkameh A.'s request, the Syversons sent additional financial documents on October 17, 2012 and again on November 5, 2012.
Despite now having an established relationship with Mahkameh A., on November 4, 2012, BANA changed the Syversons' representative to Isam M. Four days later, BANA changed their representative back to Mahkameh A.
On November 14, 2012, BANA sent a letter to Deborah stating her loan was not eligible for modification because of insufficient gross income of $3,633.48 per month. This was patently wrong. BANA had the wrong amount for the Syversons' monthly income. The loan modification package the Syversons submitted to BANA on October 7, 2012 showed much higher income, as evidenced by their eight $10,081 payments.
On November 16, 2012, the Syversons wrote to Mahkameh A., calling her attention to BANA's error regarding their income. The Syversons submitted two pages of income information from their previously submitted application to "support income substantially higher than what is indicated in the letter."
Nevertheless, on December 11, 2012, Mahkameh A. notified the Syversons their loan modification was denied.
But the very next day, December 12, 2012, BANA sent a letter to Deborah, stating, "This letter is to acknowledge receipt of your recent inquiry about your home loan. We are in the process of obtaining the documentation and information necessary to address your questions. We appreciate your patience while we research your request."
On January 3, 2013, BANA representative Teo A. wrote to Deborah, stating their loan would be assigned to an "appeals specialist" who will "conduct a thorough review." Teo A. promised that within 15 days, BANA would either resolve the appeal or provide an update on its status.
The Syversons replied, stating they disputed "both the value placed upon the property and the income used for the evaluation of our loan modification request." They provided correct amounts for the property value and income, along with supporting documents.
On January 10, January 28, and February 9, 2013, Teo A. wrote to Deborah, each time stating he was working on the appeal and would provide another update in 15 days.
On February 9, 2013, BANA representative Amanda E. sent Deborah a letter, stating she was their new customer relationship manager.
However, on February 21, March 7, March 22, April 5, April 8, and April 19, 2013, Teo A. wrote to Deborah, each time stating he needed more time to process the appeal.
On May 25, 2013, Mahkameh A. wrote to the Syversons, informing them of the outcome of the appeal—their loan was ineligible for modification. However, this letter again incorrectly stated the Syverson's gross income—the same mistake BANA made six months earlier. If BANA had not made this mistake, and based on financial documents the Syversons had already submitted, they would have qualified for the loan modification.
This allegation refutes Nationstar Mortgage LLC's assertion that "Appellants make no allegations as to whether, outside of the Property valuation, they qualify for a second modification of their already-modified Loan."
On June 3, 2013, Robert spoke with another BANA representative, Ms. Espinoza, whose notes of the conversation state, "Mr. Syverson wanted my fax number to send me a letter requesting appeal decline to be re-looked at as income used was still incorrect. Advised that you can't appeal an[] appeal decision, he stated it's not an appeal again as the income was still not corrected from the first time."
The Syversons faxed financial information to Espinoza, and they met with her on June 24, 2013. Espinoza instructed the Syversons to complete a loan modification application and begin the process anew—which they did.
Among other documents, the Syversons submitted a letter explaining they could pay the principal and interest on a loan modification, stating:
"Today we met with our Bank of America counselor to discuss the potential for a loan modification. We want to take this opportunity to reiterate our desire to pay the loan in full and we are not looking for a principal reduction.
"Based upon a lower interest rate and an extended term we believe that we could pay the principal and interest on the full loan amount, including an escrow impound for property taxes and home insurance. During the eight months from October 1, 2011 to May 31, 2012 we made eight payments of $10,081 plus eight insurance payments of $125. While these payments were interest only and did
not include property taxes, they did demonstrate our desire to pay the loan and make substantial payments during this period.
"We are hopeful that our recovery from the devastating 2009-2011 hardship will be considered in your analysis and evaluation of a potential loan modification."
Nevertheless, on July 10, 2013, BANA denied the Syversons' application for a loan modification. On August 1, 2013, the Syversons' lawyer sent a letter to BANA, disputing that decision. On August 9, 2013, BANA sent a letter to Deborah, stating it had "received your request regarding a loan modification . . . and forwarded your request to a specialist" who would "respond to your request."
E. Nationstar Becomes Loan Servicer
On August 12, 2013, BANA notified Deborah her loan servicing would transfer to Nationstar effective September 1, 2013. Three days later, a BANA representative (identified as RSHIND1) wrote a note in the Syversons' file, stating their record has "illogical conditions."
On September 16, 2013, the Syverson's lawyer sent a letter to Nationstar which disputed BANA's determination and invited Nationstar to correct BANA's mistakes regarding property value and income. Counsel represented that (1) the Syversons can afford $10,082 in monthly payments, (2) investors had approved a principal reduction of $144,185 and an initial interest rate of 2 percent, and (3) the Syversons would be able to amortize the remaining principal in 30 years.
On October 10, 2013, Nationstar representative Lori U. responded, stating, "The foreclosure has been temporarily placed on hold" due to the "modification appeal process." She requested updated financial information to consider a loan modification and identified Lashanda C. as the Syversons' single point of contact. The same day, Nationstar sent another letter to Deborah, identifying her single point of contact as Teiranee J.
On February 12, 2014, Nationstar sent a letter to Deborah stating she did not qualify for a loan modification under HAMP. The same day, Nationstar also wrote to Deborah stating, "We are in receipt of your application for a loan modification and supporting documentation," and Nationstar requested additional financial documentation.
On February 18, 2014, Nationstar representative Richard G. informed the Syversons their loan modification was denied based on the net present value (NPV) calculation. He invited them to provide a recent estimate of the property value and a reasonable basis for that estimate if the Syversons disputed the NPV calculation.
The NPV test is an accounting calculation to determine whether it is more profitable for the lender to modify the loan or instead to foreclose. (See West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 787-788 (West).) In the Syversons' case, the lower the property value, the more profitable it would be for the lender to modify their loan rather than to foreclose.
On March 10, 2014, the Syversons' attorney sent Nationstar detailed documentation of the Syversons' income, stating:
"We have now received a new NPV, which we believe does not reflect the value of our property. The amount is 13% higher than the previous NPV, which appears to ignore the fact that 3 houses on our specific block have been on the market for over a year with no offers near their asking price and no prospects of an offer. One particular property . . . , which is larger in both lot and house size is asking $3.3 million and has not received a single offer above $3.0 million.
"At the new NPV of $3,199,000 the monthly payment using the Investors guide of 2% would be $11,826 per month. We demonstrated that we could successfully make the $10,081 previous payment and the increase in the NPV, coupled with our increases in compensation indicate we can make this payment now. . . .
"We are prepared to begin making monthly payments immediately, including the upcoming 4/10/14 property tax installment of $12,692.31."
This allegation refutes Nationstar's assertion in its brief that "[a]ppellants offer no allegations to show how they might afford what would inevitably be a more expensive modification when they allege they couldn't even afford the interest only payments of 2009 . . . ."
On March 26, 2014, Clear Recon Corp. (Clear Recon) sent a letter to the Syversons stating Nationstar had referred their mortgage for foreclosure.
On May 9, 2014, Nationstar notified the Syversons that Mary D. was their new single point of contact. On June 11, 2014, the Syversons resubmitted their loan modification application to Mary D., together with additional detailed financial information.
On June 27, 2014, Nationstar sent Deborah a letter containing NPV data and denying the request for a loan modification. That letter also notified the Syversons of their right to contest the property value used in Nationstar's NPV calculation by paying $200 as a deposit for a new appraisal, stating:
"If you believe that the [p]roperty [v]alue [i]nput used in the NPV evaluation differs from the fair market value of your home, you must provide us with a recent estimate of the property value and a reasonable basis for that estimate . . . . We will then perform a test NPV using your estimated value. If the test provides a positive outcome, you have the right to request that we obtain an appraisal to
confirm the value of your home and use that appraised value to conduct a new NPV evaluation.
"The estimated cost of an appraisal in your community is $350.00. If you wish to exercise this option we must, within 30 calendar days of the date of this notice, receive a written request that includes your estimate of property value and a reasonable basis for that estimate . . . and a check for $200 as a deposit against the full cost of the appraisal. . . . If the test NPV is positive, we will order an appraisal and your account will be charged for the difference between your deposit and the actual cost of the appraisal . . . ."
On July 22, 2014, the Syversons wrote to Nationstar, enclosing a $200 check for the appraisal. The letter stated, "In accordance with your June 27, 2014 denial letter we are exercising our option and requesting an appraisal" and "per the letter of instruction we have included our $200.00 check and the following basis in support of a corrected valuation." Based on an analysis of comparable properties, the Syversons stated, "It is our opinion . . . that any NPV greater than Bank of America's $2,832,250 may still be high. However, that NPV is far more accurate than the NPV presented in your denial letter of $3,259,500."
On August 24, 2014, Nationstar performed an "exterior-only" appraisal of the Syversons' home, which stated the fair market value was $3.8 million. Nationstar returned the Syverson's $200 check, stating it was "insufficient to bring your account current." This was an error; Nationstar had requested the $200 check to conduct an appraisal, not to bring the account current.
On September 4, 2014, the Syversons' lawyer wrote to Nationstar, stating the drive-by exterior appraisal was inaccurate and unreliable. He stated the Syversons were "fully prepared" to allow a qualified appraiser to inspect their house." Counsel stated the home's value, if calculated correctly, and using the appraiser's own estimates for adjustments, was $2,953,500. He added, "The subject premises, which are dated . . . will not sell quickly and will not sell at the price suggested by the [a]ppraiser." The letter concluded, "Please contact my office . . . to arrange for an accurate appraisal as agreed by Nationstar and the Borrower, which should include inspection of the interior by a qualified local appraiser."
On September 30, 2014, Nationstar responded, conceding it had made an "error" and confirming it had received the Syversons' $200 "to conduct an [i]nterior [a]ppraisal." Nationstar acknowledged that if the value of the Syversons' home was $2,953,500—as the Syversons believed it was—a passing score was achieved on the NPV calculation. Nationstar stated an appraiser would contact the Syversons' lawyer within four weeks to schedule the interior appraisal.
But Nationstar never conducted an interior appraisal. In fact, the very next day, October 1, 2014, Nationstar had another exterior-only appraisal conducted. This one was even higher, and self-contradictory. The cover sheet on that appraisal report valued the property at $4.5 million. But the signature page stated the value was $4.9 million—an inconsistency of $400,000 within the same appraisal, and a $1 million discrepancy from the exterior-only appraisal of the same property conducted just a few months earlier.
About two weeks later, Nationstar promised "further escalation of the matter and to have an interior appraisal performed." On December 30, 2014—three months after Nationstar promised to conduct an interior appraisal—Nationstar acknowledged the Syversons' loan modification appeal was still pending and promised to schedule an interior appraisal.
However, Nationstar never scheduled an interior appraisal. Instead, it recorded a notice of default on December 17, 2014.
In their appellate briefs, the Syversons inform us their home has not yet been sold at a trustee's sale.
F. The First Amended Complaint
In February 2015 the Syversons filed the instant action, and in August 2015 a first amended complaint against American's Wholesale Lender; BANA, BACHL, Nationstar, and U.S. Bank Corporate Trust Services as Trustee for Harborview Mortgage Loan Trust 2005-12 (U.S. Bank).
After the Syversons filed their original complaint, the court granted a motion for judgment on the pleadings in favor of the defendants, but with leave to amend. The parties have not provided the original complaint, the motion for judgment on the pleadings, nor the ruling on same in their joint appendix.
The first amended complaint alleges that BACHL was the servicing entity for the 2005 adjustable rate loan the Syversons obtained from America's Wholesale Lender, also known as Countrywide, which was acquired by BANA through merger at some time in 2008. The first amended complaint also alleges that BANA became successor by merger to BACHL in June 2011. The first amended complaint alleges U.S. Bank is the current beneficiary under the deed of trust.
As against Nationstar, the first amended complaint centers around Nationstar's promise to conduct an interior appraisal of the Syversons' home, and its subsequent failure to do so. Against BANA, the gist of the charging allegations is that BANA breached (1) a promise to provide a loan modification with payments of $7,953.81 and (2) a promise to modify the 2009 loan with affordable payments.
The first amended complaint alleges theories of liability sounding in: (1) breach of contract, (2) promissory estoppel, (3) negligent misrepresentation, (4) fraud, (5) violation of the Homeowners Bill of Rights, (6) breach of the implied covenant of good faith and fair dealing, (7) intentional infliction of emotional distress, (8) negligent infliction of emotional distress, (9) rescission, (10) unfair business practices, (11) interference with contract, (12) equitable estoppel, and (13) declaratory relief.
In the first amended complaint, the Syversons allege damages consisting of approximately $24,000 they paid leading up to the 2009 loan modification, approximately $80,000 in payments made under the 2009 loan modification, maintenance and operating expenses paid on the home, costs and expenses incurred to fight foreclosure, damage to credit, lost opportunity to sell or rent the Property or to walk away before incurring additional maintenance and operating expenses, and medical bills related to severe emotional and physical distress. Robert alleges the stress caused by the defendants' misconduct caused him to suffer atrial fibrillation requiring a pacemaker.
G. Demurrers
Defendants Countrywide, doing business as America's Wholesale Lender, and BANA, on its own and as successor by merger to BACHL, demurred to the first amended complaint. They asserted the contract and promissory estoppel causes of action were barred by the statute of frauds and statute of limitations and, in any event, failed as a matter of law because the Syversons had not (and could not) allege all the material terms of a loan agreement. They also asserted the misrepresentation and fraud claims failed for lack of required specificity and were also time barred.
Nationstar and U.S. Bank Corporate Trust Services as Trustee for Harborview Mortgage Loan Trust 2005-12 Mortgage Loan Pass-Through Certificates Series 2005-12 (U.S. Bank Pass-Through) filed a separate demurrer. They asserted: (1) All of the Syverson's claims failed as a matter of law because the Syversons did not allege tender of the secured debt; (2) Robert lacked standing; (3) the allegations of dual-tracking did not establish a material violation of the Homeowner Bill of Rights; (4) the Syversons' contract claims failed because they did not allege a valid contract between themselves and Nationstar; (5) the fraud claims were not plead with the requisite specificity; and (7) declaratory relief is not a cause of action and, in any event, the Syversons failed to plead detrimental reliance on any promise or representation.
Responding to the first amended complaint, U.S. Bank Pass-Through indicated it was "erroneously sued as [U.S. Bank]." Plaintiffs, on the other hand, contend U.S. Bank and U.S. Bank Pass-Through are separate and distinct entities. We need not, and do not, address or resolve that issue in this case.
Opposing the demurrers, the Syversons argued the first amended complaint was legally sufficient, but even if it was not the court should grant leave to amend to allege a cause of action for (1) reformation of the 2009 loan modification to reflect the parties' intent to provide monthly payments of $7,953; and (2) negligence in loan servicing, relying on Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941 (Alvarez).
H. Ruling on Demurrers
After conducting a hearing, the court sustained the demurrers without leave to amend. The court determined the contract claims failed (1) under the statute of frauds; (2) were time barred; and (3) in any event, no breach was alleged because the Syversons admit they received a loan modification in 2009.
We do not know what was said at the hearing because the Syversons elected to proceed on appeal without designating a reporter's transcript or substitute.
The court determined the promissory estoppel cause of action failed because the Syversons did not allege a clear and unambiguous promise to modify the loan under specific payment terms.
The court sustained the demurrers to the misrepresentation and fraud causes of action for lack of specificity.
Citing Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089 (Nymark), the court sustained demurrers to the negligent infliction of emotional distress cause of action on the grounds a lender acting within the scope of its conventional money-lending role owes no duty of care to borrowers. The court's order does not mention Alvarez, supra, 228 Cal.App.4th at page 945—cited by the Syversons in their demurrer opposition—which holds to the contrary.
The court also sustained the demurrer to the emotional distress causes of action, stating, "Any emotional distress Plaintiffs suffered is the result of their inability to afford the Loan, even at a modified rate, not Defendants' conduct."
The court also sustained the demurrer to the unfair business practices claims, determining the Syversons failed to allege any unlawful, unfair, or fraudulent business practice and failed to allege any damages lost "as a direct result of any conduct by Defendants." The court found all of the Syversons' claims against Nationstar were defective because they failed to allege tender of the amount owing under the loan. The court determined that the claims against Nationstar also failed because "plaintiffs make no showing that, had Nationstar conducted the alleged interior inspection, Plaintiffs necessarily would have been granted a modification." The court did not address the Syversons' request for leave to amend.
I. Motion for Reconsideration
The Syversons timely filed a motion for reconsideration under section 1008, subdivision (a), with an attached proposed second amended complaint. Citing Rains v. Superior Court (1984) 150 Cal.App.3d 933 (Rains), they asserted a motion for reconsideration with a proposed amended pleading may be filed after the court sustains a demurrer without leave to amend.
However, the very next day, November 17, 2015, the court entered a judgment of dismissal in favor of the defendants. Later, the Syversons filed a motion to vacate the judgment to allow the court to hear their pending motion for reconsideration.
On January 21, 2016, the court denied the motion to vacate the judgment. The same day, the court denied the motion for reconsideration on the grounds "[n]o new facts or law have been cited to warrant reconsideration as required under [section] 1008." This appeal from the judgment followed.
An order denying a section 1008, subdivision (a) motion for reconsideration is not separately appealable, but is reviewable on an appeal from the underlying appealable order for which reconsideration was sought. (§ 1008, subd. (g).)
DISCUSSION
I. THE BREACH OF CONTRACT CAUSES OF ACTION
A. The Court Erred in Sustaining the Demurrer to the Breach of Contract Cause of Action Against Nationstar
The first amended complaint alleges Nationstar breached a written contract to perform an interior appraisal of the Syversons' home. The Syversons allege they paid Nationstar $200 for such appraisal, and Nationstar's breach resulted in an overvaluation of their home, leading to a denial of an affordable loan modification.
The trial court sustained Nationstar's demurrer to this cause of action on the grounds (1) the Syversons did not allege tender of the amount owing on the existing home loan; (2) Robert is not a party to the loan and therefore lacks standing; (3) the Syversons concede their loan modification was denied on the merits; and (4) the Syversons "make no showing that, had Nationstar conducted the alleged interior inspection, Plaintiffs necessarily would have been granted a modification." Nationstar makes several of these same arguments on appeal.
The court erred in sustaining the demurrer to the breach of contract cause of action against Nationstar. It was not necessary for the Syversons to allege tender of the amount due on the loan. The cases cited by Nationstar for the tender rule apply when borrowers seek to set aside a trustee's sale on the ground that the sale is voidable because of irregularities in the sale notice or procedure. (See, e.g., Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89, 112.) However, here the Syversons are suing Nationstar for breaching a contract to modify the loan. Accordingly, the tender rule does not apply.
The purpose of seeking a loan modification is to avoid a foreclosure despite the borrower's inability to comply with the terms of the original loan. "It would be contradictory to require the borrower to tender the amount due on the original loan in such circumstances. Moreover, the purpose of the tender rule is to dismiss suits at an early stage, where, despite any irregularities in the lender's foreclosure activities, the borrower will ultimately have to pay the amount due on the loan, but cannot do so. Such suits are essentially futile. This is not such a case, as a loan modification is an alternative to foreclosure that does not require the borrower to pay pursuant to the terms of the original loan. Accordingly, the tender rule does not apply . . . ." (Majd v. Bank of America, N.A. (2015) 243 Cal.App.4th 1293, 1306.)
The court also erred in sustaining the demurrer on standing grounds. Robert does not lack standing to sue Nationstar for breach of contract. At BANA's request, the court took judicial notice of the February 2001 grant deed of the property to Robert and Deborah Syverson, "Husband and Wife as Joint Tenants." The court also took judicial notice of the July 2005 deed of trust, also naming Robert and Deborah as the "Borrower." The judicially noticeable documents show Robert is a co-owner of the subject property and a codebtor on both the 2005 loan and 2009 loan. Moreover, Robert signed the 2009 loan modification.
Nationstar contends the Syversons have conceded Robert is not a borrower by alleging he is "not a signatory on the Note." However, documents BANA requested the court take judicial notice of state Robert is a borrower and signatory to the 2005 deed of trust and related "Adjustable Rate Rider." He also signed the 2009 loan modification. To the extent the first amended complaint's allegations are contradicted by documents properly subject to judicial notice, the judicially noticeable facts control. (See Big Valley Band of Pomo Indians v. Superior Court (2005) 133 Cal.App.4th 1185, 1191.) On remand, the court should allow the Syversons to amend their complaint to correct discrepancies between their allegations and the judicially noticeable documents.
The court also erred in stating the Syversons concede Nationstar denied their loan modification "on its merits." They made no such concession. To the contrary, the first amended complaint alleges Nationstar denied the loan modification based on internally inconsistent and flawed appraisals.
The court also erred in sustaining the demurrer on the grounds the Syversons "ma[d]e no showing that, had Nationstar conducted the alleged interior inspection, Plaintiffs necessarily would have been granted a modification." The first amended complaint alleges exactly what the court thought lacking, stating, "The breach of Nationstar's obligations to perform an interior appraisal harmed Deborah because as a result she was denied a loan modification . . . ."
In a related argument, Nationstar contends the Syversons failed to allege whether, apart from the erroneous property valuation, they qualify for a loan modification. However, the September 30, 2014 letter from Nationstar to the Syversons' lawyer states that assuming a property value of $2,953,500, "a pass was obtained"—indicating that under Nationstar's own loan modification criteria, loan modification was preferred. Moreover, the proposed second amended complaint contains additional detailed allegations that Nationstar would have offered an affordable loan modification but for the erroneous NPV calculation. For example, paragraph 134 of that proposed complaint alleges that on February 14, 2014, Nationstar told the Syversons' attorney that when a passing NPV is obtained, "[I]t is in the best interests of lenders, servicers, investors and borrowers to modify mortgages and reduce[] the risk of foreclosure." In paragraph 135, the Syversons allege that by using a correct NPV, Nationstar would have offered an affordable modification with monthly payments of $13,937.
B. The Court Correctly Sustained the Demurrer to the Breach of Contract Cause of Action Against BANA
The first amended complaint alleges two breach of contract "counts" against BANA. First, it alleges BANA breached a promise to permanently modify the loan if the Syversons timely made the three TPP payments of $7,953.81. Second, it alleges BANA promised to modify their loan if they stopped making $10,081 monthly payments.
BANA contends the court properly sustained its demurrer to this cause of action because the alleged oral agreements are unenforceable under the statute of frauds. BANA also asserts the alleged promises are too indefinite to constitute contracts because neither contains all the material loan terms, such as the loan's new amount, or terms for repayment, interest rate, or amortization schedule. BANA asserts the court "cannot fashion these missing terms out of thin air."
We agree with BANA on this latter point—the alleged loan modification agreements lack sufficiently definite terms to be enforceable, and therefore the trial court properly sustained BANA's demurrer to this cause of action.
Accordingly, it is unnecessary to consider whether the alleged oral promise is unenforceable under the statute of frauds. We note, however, that in Daniels, supra, 246 Cal.App.4th at page 1176, the court found the "full performance" exception to the statute of frauds to be applicable on very similar facts.
The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. "'"Where a contract is so uncertain and indefinite that the intention of the parties in material particulars cannot be ascertained, the contract is void and unenforceable."'" (Daniels, supra, 246 Cal.App.4th at p. 1174.)
"Typically, a contract involving a loan must include the identity of the lender and borrower, the amount of the loan, and the terms for repayment in order to be sufficiently definite." (Daniels, supra, 246 Cal.App.4th at p. 1174.) "Preliminary negotiations or agreements for future negotiations—so-called agreements to agree—are not enforceable contracts." (Ibid.)
Daniels, supra, 246 Cal.App.4th 1150 is instructive. There, the borrowers alleged Bank of America made an oral agreement to grant a loan modification if they made timely temporary payments of $1,000 per month and submitted all required documentation. (Id. at pp. 1173-1174.) On appeal after the trial court sustained the bank's demurrer without leave to amend, the court held the alleged promise was too indefinite to be enforceable because plaintiffs failed to allege essential terms, such as the interest rate, finance charges, and length of repayment. (Ibid.)
Similarly here, the promises the Syversons allege BANA made are too indefinite to constitute a contract. The first amended complaint does not allege the new loan's principal balance, interest rate, term, or amortization schedule.
Asserting the complaint is sufficient, the Syversons rely on cases such as Chavez v. Indymac Mortgage Services (2013) 219 Cal.App.4th 1052 (Chavez), involving a TPP offered under HAMP, which have held banks are contractually required to offer permanent loan modifications to borrowers who have complied with a TPP. Significantly, however, in these cases, allegations of compliance with the TPP have been held to support claims for breach of contract because the HAMP guidelines themselves supply the essential terms for such a loan modification. (See Daniels, supra, 246 Cal.App.4th at p. 1174; Fleet, supra, 229 Cal.App.4th at p. 1410.) There is nothing magical about trial period plans. What is contractually significant is whether the TPP is part of an offered modification under HAMP. (Compare Daniels, supra, 246 Cal.App.4th at p. 1174 [trial period plans not under HAMP, no contract] with West, supra, 214 Cal.App.4th at p. 796 [trial loan modification under HAMP constitutes an enforceable contract]; Chavez, supra, 219 Cal.App.4th at p. 1056 [loan "'will automatically become modified'" upon compliance with trial period plan under HAMP].)
Here, the Syversons do not allege they entered into a TPP under HAMP. Thus, there is no basis for interpreting any of BANA's alleged promises in light of HAMP guidelines. Accordingly, the trial court properly sustained BANA's demurrer to the breach of contract cause of action without leave to amend. It is therefore unnecessary for us to resolve whether the breach of contract cause of action against BANA is time barred or precluded under any other theory.
On appeal the Syversons do not assert leave to amend should be granted to allow them to allege specific terms of the alleged BANA loan modification. Nevertheless, we have reviewed the allegations of the proposed second amended complaint, and it too fails to allege with the requisite specificity the term of the alleged loan modification, interest rate, amortization schedule, or other material provisions.
Although we do not consider the trial court's reasoning, but only its ruling on the demurrer, the court's assertion that the Syversons "do not allege any breach occurred, as they admit they received a modification after the TPP" reflects a significant misunderstanding. The Syversons alleged the 2009 modification breached the TPP by requiring a monthly payment approximately $4,000 higher than the TPP.
II. THE PROMISSORY ESTOPPEL CAUSES OF ACTION
A. The Court Erred in Sustaining the Demurrer to the Promissory Estoppel Cause of Action Against Nationstar
Promissory estoppel "'employs equitable principles to satisfy the requirement that consideration must be given in exchange for the promise sought to be enforced.'" (Kajima/Ray Wilson v. Los Angeles County Metropolitan Transportation Authority (2000) 23 Cal.4th 305, 310.) "'"The elements of a promissory estoppel claim are '(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.'"'" (Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4th 982, 1007.)
The Syversons' promissory estoppel cause of action against Nationstar is based on the same promise as their breach of contract claim—Nationstar's alleged promise to conduct an interior appraisal and modify their loan according to the results and formula for loan modification as stated in Nationstar's writings. The Syversons allege (1) Nationstar's promise to conduct an accurate appraisal including an interior inspection; (2) reasonable and foreseeable reliance ("Deborah depends on the appraisal to obtain a loan modification"); and (3) injury resulting from breach ($200 appraisal fee, maintenance and operating expenses paid on the Property; costs and expenses incurred to fight foreclosure and the impending loss of their home through a trustee's sale; damage to credit; lost opportunity to sell or rent the Property or to walk away before incurring additional maintenance and operating expenses; severe emotional distress, mental pain and anguish, and medical bills related to severe emotional and physical distress).
Nationstar contends the promissory estoppel cause of action is defective because the Syversons fail to allege a "substantial change in position." Nationstar argues the $200 fee is not substantial enough and the other damages alleged, such as maintenance and operating expenses, would have been incurred in any event, regardless of the promise. In sum, Nationstar argues the first amended complaint fails to allege "any change in circumstances, let alone a substantial one."
We disagree with Nationstar's assertions. The Syversons have adequately alleged detrimental reliance to sustain a promissory estoppel cause of action by alleging forgone opportunities to avoid foreclosure ("to sell or rent the [Property] or to walk away"). (Daniels, supra, 246 Cal.App.4th at p. 1179 [plaintiffs adequately alleged detrimental reliance in promissory estoppel cause of action by alleging forgone opportunities of avoiding foreclosure].)
Nationstar also contends the promissory estoppel cause of action is defective because elsewhere in their complaint the Syversons allege they bargained and paid for Nationstar's alleged promise to conduct the interior appraisal. Citing Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 249 (Youngman), Nationstar asserts promissory estoppel does not apply where the promisee's performance was bargained for.
However, modern rules of pleading generally permit a plaintiff to set forth alternative theories in varied and inconsistent counts. (Mendoza v. Continental Sales Co. (2006) 140 Cal.App.4th 1395, 1402 ["the modern practice allows that party to plead in the alternative and make inconsistent allegations"].) Thus, if a plaintiff is uncertain as to whether the parties had entered into an enforceable agreement, the plaintiff may plead inconsistent claims predicated on both the existence and absence of such an agreement. (Rader Co. v. Stone (1986) 178 Cal.App.3d 10, 29 [plaintiff "is not precluded by law from alleging in one cause of action the breach of a contract and an inconsistent theory of recovery in another cause of action"].) Although a cause of action for promissory estoppel is inconsistent with a cause of action for breach of contract based on the same facts, a party may plead these causes of action in the alternative. (Fleet, supra, 229 Cal.App.4th at p. 1413 [allowing borrower to allege promissory estoppel and breach of contract in case involving alleged promises for loan modification].) Accordingly, although the Syversons may not recover against Nationstar under both a contract and promissory estoppel theory based on the same facts, at the pleading stage they may plead each in the alternative, as we liberally construe the first amended complaint to do here. (Ibid.)
B. The Court Correctly Sustained the Demurrer to the Promissory Estoppel Cause of A ction Agains t BANA
In their cause of action for promissory estoppel, the Syversons allege BANA twice promised them a loan modification: (1) BANA promised a loan modification with monthly payments of $7,953.81 if the Syversons timely made three such payments, and (2) BANA promised a loan modification if the Syversons stopped making loan payments on the 2009 modification.
BANA contends the court properly sustained its demurrer to this cause of action because the Syversons failed to allege any specific agreement on essential terms such as the interest rate and amortization schedule. We agree. The first amended complaint fails to allege essential loan terms, such as prepayment conditions, terms for interest calculations, and rights and remedies of the parties in case of default. (See White v. J.P. Morgan Chase, Inc. (E.D.Cal. 2016) 167 F.Supp.3d 1108, 1113 [granting motion to dismiss promissory estoppel claim].) "The absence of those essential loan modification terms renders the alleged promises insufficiently clear and unambiguous to support a promissory estoppel." (Daniels, supra, 246 Cal.App.4th at p. 1179.)
Aceves v. U.S. Bank N.A. (2011) 192 Cal.App.4th 218, cited by the Syversons for a contrary result is distinguishable. There, the court held a borrower might reasonably rely on a promise to "negotiate in an attempt to reach a mutually agreeable loan modification." (Id. at p. 227.) However, the Syversons have not alleged any promise to negotiate; they allege a promise of a loan modification without alleging any essential terms other than a monthly payment amount. "No borrower could reasonably rely on such a promise . . . ." (Daniels, supra, 246 Cal.App.4th at p. 1179.)
III. THE NEGLIGENT MISREPRESENTATION AND FRAUD CAUSES OF ACTION
A. The Misrepresentation and Fraud Allegations
The first amended complaint contains an array of fraud and misrepresentation allegations. Paragraphs 83 through 89 contain nonspecific allegations that "Defendants made various misrepresentations" regarding the initial 2005 loan origination. The gist of these allegations is the Syversons were misled about the terms of the 2005 loan and their ability to refinance it.
In a subsequent separate section of the "Fraud" cause of action, the first amended complaint then alleges three separate "Counts." "Count 1" is against Nationstar, alleging Nationstar "fraudulently promised to perform an accurate appraisal with an interior inspection and to consider the true property value in a loan modification."
Count 2 is against BANA and alleges BANA negligently and/or intentionally misrepresented it "would provide an affordable loan modification" if the Syversons (1) made three timely payments of $7,953.81 and (2) stopped making payments for at least 90 days.
Count 3 is against U.S. Bank, alleging U.S. Bank "hired" BANA and Nationstar to service the 2005 loan according to U.S. Bank's requirements. We consider each of these in order.
B. Pleading Misrepresentation and Fraud, General Rules
"The elements of a cause of action for intentional misrepresentation are (1) a misrepresentation, (2) with knowledge of its falsity, (3) with the intent to induce another's reliance on the misrepresentation, (4) actual and justifiable reliance, and (5) resulting damage. [Citation]. The elements of a claim for negligent misrepresentation are nearly identical. Only the second element is different, requiring the absence of reasonable grounds for believing the misrepresentation to be true instead of knowledge of its falsity." (Daniels, supra, 246 Cal.App.4th at p. 1166.)
"Causes of action for intentional and negligent misrepresentation sound in fraud and, therefore, each element must be pleaded with specificity." (Daniels, supra, 246 Cal.App.4th at p. 1166.) "'The specificity requirement means a plaintiff must allege facts showing how, when, where, to whom, and by what means the representations were made, and, in the case of a corporate defendant, the plaintiff must allege the names of the persons who made the representations, their authority to speak on behalf of the corporation, to whom they spoke, what they said or wrote, and when the representation was made.'" (Id. at pp. 1166-1167.)
The specificity requirement is intended to apprise the defendant of the specific grounds for the charge and enable the court to determine whether there is any basis for the cause of action. (Daniels, supra, 246 Cal.App.4th at p. 1167.) Accordingly, "'the requirement of specificity is relaxed where the allegations indicate that "the defendant must necessarily possess full information concerning the facts of the controversy" [citations] or "when the facts lie more in the knowledge of the"' defendant." (Ibid.)
C. The Court Correctly Sustained the Demurrers to the Nonspecific Fraud Allegations Relating to the 2005 Loan Origination
The court correctly sustained the demurrer to the fraud alleged with respect to the 2005 loan origination, as alleged in paragraph 83 of the first amended complaint. These allegations completely lack the requisite specificity. For example, the allegation in paragraph 83 that "Defendants made various misrepresentations" concerning "the payment amount" and "the availability of modifications" gives defendants no practical way to dispute the Syversons' allegations, and gives insufficient notice to constitute a prima facie charge of fraud. The Syversons completely fail to allege how, when, where, to whom and by what means the representations were made. (See Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)
"Ordinarily, a general demurrer may not be sustained . . . as to a portion of a cause of action." (Daniels, supra, 246 Cal.App.4th at p. 1167.) "[D]efendants may attack any portion of a cause of action that is 'substantively defective on the face of the complaint . . . by filing a motion to strike.'" (Ibid.) Nevertheless, in the interest of judicial economy, we address the general fraud allegations, as well as each of the fraud "counts" the Syversons have alleged, as if each had been alleged as an independent cause of action.
D. The Court Erred in Sustaining the Demurrer to "Count 1": The Negligent Misrepresentation and Fraud Causes of Action Against Nationstar
In count 1, the Syversons' first amended complaint alleges Nationstar negligently and/or intentionally misrepresented that it would perform an accurate appraisal including an interior inspect if Deborah paid for such appraisal. The first amended complaint states Nationstar made this misrepresentation in a letter to the Syversons dated June 27, 2014. Consistent with such allegations, exhibit B to the first amended complaint is a letter from Nationstar to the Syversons' lawyer dated September 30, 2014, stating, "[I]t was confirmed a check in the amount of $200.00 was previously received in order to conduct an [i]nterior [a]ppraisal" and "a request for an [i]nterior [a]ppraisal to be conducted was submitted."
The court sustained Nationstar's demurrer to these causes of action, stating, "The claims alleged are conclusory and lack the specificity required for fraud." On appeal, Nationstar seeks to uphold this ruling, asserting the Syversons "fail to allege specific facts regarding who said (or wrote) what to whom, when, the content of what was said (or written), and whether that person had authority to speak (or write) on behalf of Nationstar."
We disagree with Nationstar's assertions. The Syversons allege what was said—Nationstar will perform an accurate appraisal with an interior inspection and to consider the true property value in a loan modification, to whom—Deborah Syverson, and when—June 27, 2014.
Although the first amended complaint does not allege the name of the Nationstar employee who made the misrepresentation, or his or her authority to speak for Nationstar, the allegation that a Nationstar employee made the misrepresentation in a Nationstar letter dated June 27, 2014, is sufficient because the identity of the Nationstar employee who wrote to the Syversons on that date, and his or her authority, should be within Nationstar's knowledge. (Daniels, supra, 246 Cal.App.4th at p. 1167 ["'requirement of specificity is relaxed when the allegations indicate that "the defendant must necessarily possess full information concerning the facts of the controversy"'"]; West, supra, 214 Cal.App.4th at p. 794 ["[t]he identification of [the bank] employees who spoke with [the plaintiff] on those dates is or should be within [the bank's] knowledge"].)
Citing Nymark, supra, 231 Cal.App.3d 1089, Nationstar also contends the demurrer to the negligent misrepresentation cause of action was properly sustained because it does not owe the Syversons a duty of reasonable care. In Nymark, the court held that "as a general rule, a financial institution owes no duty of care to a borrower when the institution's involvement in the loan transaction does not exceed the scope if its conventional role as a mere lender of money." (Id. at pp. 1095-1096.)
In Biakanja v. Irving (1958) 49 Cal.2d 647, 650 (Biakanja), the court held the determination of whether a duty of reasonable care is owed is a matter of policy and involves the balancing of various factors, among which are "the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant's conduct and the injury suffered, the moral blame attached to the defendant's conduct, and the policy of preventing future harm." (Ibid.)
In Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49 (Lueras ), the court held that because a loan modification is the renegotiation of loan terms, the Biakanja factors do not support imposing a common law duty on a lender "to offer, consider, or approve" a loan modification. (Id. at p. 67, 68.) However, a majority of the Lueras court further held that "[t]he law imposes a duty not to make negligent misrepresentations of fact." (Id. at p. 68.) The Lueras court stated, "[A] lender does owe a duty to a borrower to not make material misrepresentations about the status of an application for a loan modification or about the date, time, or status of a foreclosure sale." (Ibid., italics added.) The court explained that harm to the borrower was foreseeable if the lender made "an inaccurate or untimely communication about a foreclosure sale or about the status of a loan modification application, and the connection between the misrepresentation and the injury suffered could be very close." (Id. at p. 69.) A majority of the Lueras court thus reversed the judgment as to the cause of action for negligent misrepresentation with directions to allow the plaintiff the opportunity to amend the complaint to plead a cause of action for negligent misrepresentation. (Ibid.)
Moreover, in Alvarez, supra, 228 Cal.App.4th at pages 944 and 948, the court held the Biakanja factors weighed in favor of imposing a duty to exercise reasonable care on a lender in reviewing a loan for a potential modification. The Alvarez court explained: "The transaction was intended to affect the plaintiffs and it was entirely foreseeable that failing to timely and carefully process the loan modification applications could result in significant harm to the applicants." (Id. at p. 948.) With respect to whether defendants' conduct was blameworthy—the fifth Biakanja factor—the Alvarez court stated it is highly relevant that the homeowners' ability to protect their own interests in the loan modification process is "'practically nil' and the bank holds 'all the cards.'" (Id. at pp. 949-950.) Alvarez holds that "[t]he borrower's lack of bargaining power, coupled with conflicts of interest that exist in the modern loan servicing industry, provide a moral imperative that those with the controlling hand be required to exercise reasonable care in their dealings with borrowers seeking a loan modification." (Ibid.)
Recently, in Daniels, supra, 246 Cal.App.4th 1150, the court noted a split of authority exists on the duty issue in the context of loan modifications and that some courts have concluded lenders owe no duty of care to borrowers in connection with loan modifications. (Id. at p. 1181.) However, after examining each of the Biakanja factors in the context of a loan modification application and loan servicing, the Daniels court agreed with Alvarez, supra, 228 Cal.App.4th at page 950, and concluded the bank in that case (Bank of America) owed a duty of care with respect to the loan modification process. (Daniels, at p. 1183.)
We agree with the analysis and holding in Alvarez, supra, 228 Cal.App.4th 941 and Daniels, supra, 246 Cal.App.4th at page 1183. Particularly in light of the Legislature's enactment of the Homeowner Bill of Rights (HBOR) (Civ. Code, §§ 2920.5, 2923.4-2923.7, 2924, 2924.9-2924.12, 2924.15, 2924.17-2924.20), once a lender or loan servicer undertakes to consider a loan modification request, it owes the borrower a duty to use reasonable care in handling that request. (Alvarez, supra, 228 Cal.App.4th at pp. 945-952.) The Alvarez court considered existing California law, and the requirements and policies behind HBOR, and it held that once a lender agrees to consider a loan modification, "the Biakanja factors clearly weigh in favor of a duty." (Alvarez, supra, 228 Cal.App.4th at p. 948.) Indeed, Alvarez shares relevant features with the Syversons' case. There too, the plaintiffs alleged the loan servicer had negligently mishandled their modification request by relying on incorrect information—specifically, as the Syversons allege here, by miscalculating their income. (Id. at p. 945.) Likewise in Daniels, as here, the plaintiffs were told they needed to be at least three months delinquent in their payments to qualify for a loan modification. (Daniels, supra, 246 Cal.App.4th at p. 1159.)
A "mounting number of federal cases have [also] followed Alvarez . . . to hold that in light of the HBOR, lenders have a duty to exercise reasonable care in handling loan modifications. (Johnson v. PNC Mortgage (N.D.Cal. 2015) 80 F.Supp.3d 980, 985.) A district court considering this issue noted, "Federal district courts applying California law after Alvarez overwhelmingly hold that the California Supreme Court would recognize a duty of care during the loan modification review process." (MacDonald v. Wells Fargo Bank N.A. (N.D.Cal. April 24, 2015, Case No. 14-cv-04970-HSG) 2015 U.S.Dist. Lexis 54142 at *14.)
As the facts the Syversons allege amply demonstrate, a borrowers' ability to protect his or her own interests in the loan modification process "'is practically nil.'" (Alvarez, supra, 228 Cal.App.4th at p. 949.) "'[B]orrowers are captive, with no choice of servicer, little information, and virtually no bargaining power. Servicing rights are bought and sold without input and approval by the borrower. Borrowers cannot pick their servicers or fire them for poor performance. The power to hire and fire is an important constraint on opportunism and shoddy work in most business relationships. But in the absence of this constraint, servicers may actually have positive incentives to misinform and under-inform borrowers. Providing limited and low-quality information not only allows servicers to save money on customer service, but increases the chances they will be able to collect late fees and other penalties from confused borrowers.' [¶] The borrower's lack of bargaining power, coupled with conflicts of interest that exist in the modern loan servicing industry, provide a moral imperative that those with the controlling hand be required to exercise reasonable care in their dealings with borrowers seeking a loan modification." (Ibid.)
In the proposed second amended complaint, the Syversons allege years of neglect by their loan servicers and lenders, including failing to accurately assess the value of their home, resulting in an erroneous NPV calculation; failing to properly calculate their income and substantially understating their income; failing to timely respond to loan modification requests; demanding piecemeal and duplicative paperwork and financial records; changing single point of contacts early and often; sending inconsistent and contradictory instructions.
We decline defendants' request that we follow that part of the holding in Lueras, supra, 221 Cal.App.4th at page 67—that residential loan modification is traditional lending and does not create a duty of care. The contrary rule in Alvarez is more persuasive because the Alvarez court identified an important distinction not addressed by Lueras—the relationship between the lender and borrower when the borrower first obtains a loan is significantly different from the relationship existing when a borrower seeks to modify an existing loan. In a loan modification setting, "[t]he parties are no longer in an arm's length transaction and thus should not be treated as such." (Meixner v. Wells Fargo Bank, N.A. (E.D.Cal. 2015) 101 F.Supp.3d 938, 954 (Meixner).) Unlike the originating lender-borrower relationship, where borrowers can shop around, choose a lender, and negotiate mortgage loan terms—loan servicing is a lopsided relationship where a homeowner has no choice but to rely on a servicer to competently handle their modification application. As the Syversons allege here, they did not choose BACHL, BANA or Nationstar as their loan servicer, nor can they change to a different servicer to process their loan modification applications accurately and with care. Defendants' arguments that loan servicers do not owe even a basic duty of care to borrowers seeking a loan modification stretches the cases they rely on beyond policy justifications for the law they cite.
Nationstar's brief asserts the holding in Alvarez, supra, 228 Cal.App.4th 941 "does not represent prevailing or settled law in California." However, Nationstar fails to consider (or even cite) Daniels, supra, 246 Cal.App.4th 1150, an April 2016 decision.
Moreover, Lueras is also not persuasive because it ultimately relied on two cases for its no-duty rule: Aspiras v. Wells Fargo Bank, N.A. (2013) 219 Cal.App.4th 948 and Nymark, supra, 231 Cal.App.3d 1089. (See Lueras, supra, 221 Cal.App.4th at pp. 63, 67.) Although Nymark is still good law, it was decided in 1991, long before the Legislature passed the HBOR, which expresses a strong public policy of avoiding foreclosure when possible and protecting homeowners from improper loan servicer conduct. Moreover, the Nymark court's analysis of the Biakanja factors concern loan origination, not loan servicing. And Aspiras, which held the lender owed no duty of due care in handling a loan modification, is no longer good law. It was depublished by the California Supreme Court, as noted in Alvarez, supra, 228 Cal.App.4th at p. 946.
E. The Court Erred in Sustaining the Demurrer to Count 2: The Negligent Misrepresentation and Fraud Causes of Action Against BANA
BANA contends the court properly sustained its demurrer to the negligent and intentional misrepresentation causes of action because the Syversons did not allege who made the misrepresentations, when or where it was made, and the person's authority to speak on behalf of BANA.
However, the first amended complaint alleges who made the misrepresentation. Paragraph 95(a) alleges "agent K. Conroy" told Robert he would be eligible for a loan modification by making three TPP payments. The Syversons also allege when this representation was made: July 3, 2009. Although the first amended complaint does not allege K. Conroy's authority to speak for BANA, that information is presumably available to BANA based on the date given and identity of the employee. (Daniels, supra, 246 Cal.App.4th at p. 1167; West, supra, 214 Cal.App.4th at p. 794.)
Alternatively, BANA argues the court correctly sustained its demurrer because the Syversons alleged they were told that if they made the three payments, they would be "eligible for a loan modification"—not that they would in fact be given one. However, in ruling on a demurrer, the court is required to construe the pleading in a reasonable manner and in context. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 111.) A common meaning of "eligible" is to be qualified to participate, or to be "entitled." (Merriam-Webster's Collegiate Dict. (11th ed. 2006) p. 404.) In the same paragraph where the Syversons allege K. Conroy and Ashley M. told Robert he would be "eligible" for a loan modification, the Syversons also allege BANA represented it "would provide an affordable loan modification." Accordingly, the first amended complaint adequately alleges actionable misrepresentation.
BANA also contends the misrepresentation and fraud claims are barred by the three-year statute of limitations for fraud (§ 338, subdivision (d)) and the two-year limitations period for negligent misrepresentation (§ 339; Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1155.) BANA states the Syversons' claims regarding the misrepresentation involving the TPP's accrued in December 2009 when they received a loan modification containing monthly payment terms different from those they were allegedly promised. BANA asserts the cause of action based on the alleged June 2012 misrepresentation to stop making loan payments accrued no later than September 2012, when BANA notified the Syversons they were not eligible for a loan modification, as alleged in the Syversons' proposed second amended complaint.
We reject BANA's statute of limitations arguments for two independent reasons. First and foremost, BANA did not make these statute of limitations arguments in its demurrer. The only statute of limitations argument BANA made in its demurrer was directed to the nonspecific fraud allegations relating to the 2005 loan origination. BANA argued those allegations were barred by the three-year fraud statute of limitations.
Moreover, even if BANA had properly raised this issue in its demurrer, the misrepresentation and fraud allegations against BANA are not time-barred on the face of the complaint. Paragraph 24 alleges BANA was processing the Syversons' loan modification until August 2013 when BANA finally denied the appeal. Accordingly, the February 2015 filing of the Syversons' complaint is timely even under the shorter two-year period BANA contends applies.
Additional facts the Syversons include in their proposed second amended complaint further support this conclusion. For example, in November 2012, BANA denied the Syversons' loan modification application based on BANA's error concerning their gross monthly income. However, after the Syversons promptly notified BANA of its error, BANA instituted an appeal of its decision beginning in January 2013. BANA promised the Syversons it was "diligently working to complete the review." Indicating the situation remained unsettled, BANA promised to update the Syversons every 15 days.
BANA did not complete its work on the Syversons' appeal until May 25, 2013, when it denied the appeal, based on the same mistake BANA made the first time regarding the amount of their income. Still promising the Syversons it would correct its own mistakes, BANA instructed them in June 2013 to resubmit their financial information again. BANA did not give its final answer denying the Syversons mortgage relief until August 16, 2013.
"A cause of action accrues 'when [it] is complete with all of its elements.'" (Pooshs v. Philip Morris USA, Inc. (2011) 51 Cal.4th 788, 797.) Here, as alleged and as deemed true on demurrer, the last element with respect to the Syversons' causes of action against BANA occurred on August 16, 2013. (See Meixner, supra, 101 F.Supp.3d at p. 951, fn. 6 [cause of action for fraud and negligent misrepresentation does not accrue during period where lender kept borrower "in a state of uncertainty" regarding loan modification].)
Because we determine the Syversons' misrepresentation and fraud causes of action against BANA are not time barred, it is unnecessary to address the parties' competing arguments regarding equitable estoppel to assert the statute of limitations.
F. The Syversons Have Forfeited Any Error in the Order Sustaining U.S. Bank Pass-Through's Demurrer to the Fraud Cause of Action
In "Count 3" of their fraud cause of action, the Syversons allege U.S. Bank is liable for fraud because US Bank "hired" BACHL, BANA, and Nationstar to service the 2005 loan. However, in their opening brief, the Syversons make no argument, and cite no authority, to support imposing liability on U.S. Bank as and for being the alleged hirer. The Syversons have therefore forfeited the issue. (Jones v. Superior Court (1994) 26 Cal.App.4th 92, 99 ["Issues do not have a life of their own: if they are not raised or supported by argument or citation to authority, we consider the issues waived."].)
IV. SYVERSONS' FORFEITED CAUSES OF ACTION
The court also sustained demurrers to the Syversons' causes of action for: (1) Violation of the Homeowner Bill of Rights (fifth cause of action)!2JA238)!, (2) breach of the covenant of good faith and fair dealing (sixth cause of action), (3) intentional infliction of emotional distress (seventh cause of action), (4) negligent infliction of emotional distress (eighth cause of action), (5) rescission (ninth cause of action), (6) unfair business practices (10th cause of action), (7) interference with contract (11th cause of action), (8) equitable estoppel (12th cause of action), and (9) declaratory relief (13th cause of action).
The defendants contend, and we agree, the Syversons' opening brief fails to contain any argument heading or argument that the court erred in sustaining the demurrers to these causes of action. (See Cal. Rules of Court, rule 8.204(a)(1)(B).)
"To the extent the contentions raised in the opening brief do not address all causes of action but relate to only some of them, issues as to the other causes of action are deemed abandoned." (Wiz Technology, Inc. v. Coopers & Lybrand (2003) 106 Cal.App.4th 1, 9, fn. 1; Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1177.) Accordingly, the Syversons are deemed to have abandoned any challenge to the portion of the judgment sustaining the demurrers to these cause of action.
V. THE COURT ABUSED ITS DISCRETION IN NOT RULING ON THE SYVERSONS
REQUEST FOR LEAVE TO AMEND
Opposing BANA's demurrer, the Syversons asked for leave to amend to add a cause of action for (1) negligence, and (2) reformation of the 2009 loan modification agreement. They also requested leave to amend to add a negligence cause of action in opposing Nationstar and U.S. Bank Pass-Through's demurrer.
"It is an abuse of discretion to deny leave to amend if there is a reasonable possibility that the pleading can be cured by amendment." (Roman v. County of Los Angeles (2000) 85 Cal.App.4th 316, 322.) Here, the court failed to exercise its discretion in considering the Syversons' request for leave to amend. The court's order sustaining the demurrer is silent regarding the Syversons' request to amend. The failure to exercise discretion in a proceeding where such discretion is granted is itself an abuse of discretion. (See Horsford v. Board of Trustees of California State University (2005) 132 Cal.App.4th 359, 396.)
The remedy for the trial court's failure to exercise its discretion is to allow the Syversons to file a motion for leave to file a second amended complaint on remand. This is further discussed post, in the context of the Syversons' request that we direct the trial court to allow them to file their proposed second amended complaint.
VI. THE COURT SHOULD HAVE CONSIDERED THE SYVERSONS' MOTION FOR
RECONSIDERATION BEFORE ENTERING JUDGMENT
After the court entered an order sustaining the demurrers without leave to amend, but before judgment was entered, the Syversons timely filed a motion for reconsideration with a proposed second amended complaint. However, the court entered judgment the next day, thus depriving itself of jurisdiction to rule on the motion for reconsideration. (APRI Ins. Co. v. Superior Court (1999) 76 Cal.App.4th 176, 182 ["[o]nce the trial court has entered judgment, it is without power to grant reconsideration," and that a reconsideration motion "may have been pending when judgment was entered does not restore this power to the trial court"].) Nevertheless, by separate order, the court subsequently denied the Syversons' motion to vacate the judgment for purposes of ruling on the motion for reconsideration, and denied reconsideration as well, on the grounds "[n]o new facts or law have been cited to warrant reconsideration . . . ."
The court abused its discretion in entering judgment before considering the motion for reconsideration. Under existing law, after a demurrer is sustained without leave to amend, a plaintiff may file a motion for reconsideration with a proposed amended complaint. (Rains, supra, 150 Cal.App.3d at pp. 943-944.)
Moreover, in bringing such a motion under section 1008, subdivision (a), as the Syversons did here, it is not necessary that the different facts alleged in the proposed amended complaint be new or newly discovered, only that they be different from those upon which the demurrer was sustained. (Rains, supra, 150 Cal.App.3d at p. 944 ["it is sufficient that the plaintiffs alleged different facts in their proposed third amended complaint"].)
For this reason, New York Times Co. v. Superior Court (2005) 135 Cal.App.4th 206, cited by BANA, is distinguishable as involving a motion for reconsideration after a ruling on summary judgment, which is an evidentiary motion.
Thus, the court erred in denying the motion for reconsideration on the grounds "[n]o new facts" were alleged. The Syversons were not required to allege newly discovered facts, only different facts.
On appeal, the Syversons ask us to direct the trial court to grant the motion for reconsideration and direct the trial court to accept the proposed second amended complaint for filing. We decline to order the court to accept the second amended complaint for filing, but we do direct the court to allow the Syversons to file a motion seeking that relief.
The proposed second amended complaint adds several new and different causes of action, including an action for reformation and for negligence. The proposed second amended complaint also alleges for the first time a "void" assignment of the deed of trust and a "void" substitution of trustee. The proposed second amended complaint seeks new and different remedies, including injunctive relief, and also purports to join two new parties as defendants, adding Clear Recon Corp. and U.S. Bank Pass-Through.
It has been nearly two years since the Syversons filed the first amended complaint. Whether they should be granted leave to file all or part of the proposed second amended complaint may involve issues involving other parties and issues not presently before us, as well as issues regarding any undue prejudice to the defendants by any of the proposed amendments. None of this is properly before this court now, and we express no opinion on how these issues, if they exist, should be resolved. In sum, whether the Syversons should be allowed to file their proposed second amended complaint, either in whole or in part, must be decided in the first instance by the trial court, after giving the parties an opportunity to brief the issues, and in the exercise of its sound discretion, in a manner consistent with the law of the case effect of this decision.
VII. DISPOSITION
The judgment is reversed as to the plaintiffs' first cause of action as against Nationstar, second cause of action against Nationstar, third cause of action in its entirety, and the fourth cause of action as to count 1 and count 2 only. The judgment is affirmed in all other respects. The matter is remanded to the trial court for further proceedings consistent with this opinion. Plaintiffs Deborah and Robert Syverson shall recover costs on appeal.
The trial court is directed to allow plaintiffs to file a motion for leave to file a second amended complaint within 30 days after the remittitur issues. We express no opinion on how the trial court should decide such motion, except to the extent dictated by the law of the case effect of this decision.
NARES, J. WE CONCUR: HUFFMAN, Acting P. J. O'ROURKE, J.