Opinion
G054408
02-15-2018
DAVID GAYOSSO, Plaintiff and Appellant, v. WELLS FARGO BANK N.A., Defendant and Respondent.
Law Offices of Mark S. Martinez and Mark S. Martinez for Plaintiff and Appellant. Severson & Werson, Jan T. Chilton and Kerry W. Franich for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 30-2016-00831460) OPINION Appeal from a judgment of the Superior Court of Orange County, Mary Fingal Schulte, Judge. Affirmed. Law Offices of Mark S. Martinez and Mark S. Martinez for Plaintiff and Appellant. Severson & Werson, Jan T. Chilton and Kerry W. Franich for Defendant and Respondent.
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Plaintiff David Gayosso appeals from a judgment of dismissal entered after the court sustained defendant Wells Fargo Bank's (Wells Fargo) demurrer to his second amended complaint (SAC) without leave to amend. According to the SAC, Gayosso's home was foreclosed upon after he made payments under a forbearance agreement. Wells Fargo had offered him a loan modification, but it required a second lien holder to subordinate the second lien to the modified loan. The second lienholder refused, and Wells Fargo, in turn, denied the request for a modification. Gayosso contends Wells Fargo was obligated to offer him an unconditional loan modification. The forbearance agreement, however, states otherwise: "The lender is under no obligation to enter into any further agreement, and this [forbearance agreement] shall not constitute a waiver of the lender's right to insist upon strict performance in the future." We affirm the judgment.
FACTS
Plaintiff alleged he acquired property in Costa Mesa, California in 2007 for $695,000, financed by a first mortgage of $556,000 and a second mortgage of $139,000. The first mortgage carried an adjustable rate of 7.125 percent. Gayosso had the option of paying interest only for the first five years, which he did. Gayosso paid faithfully until, at the end of five years, his monthly payment jumped to $5,000 per month.
Gayosso applied to Wells Fargo, the servicer of the first mortgage, for a loan modification. Wells Fargo approved Gayosso for a "Special Forbearance Agreement" (the Agreement). The Agreement called for Gayosso to make three consecutive monthly payments of $2,037.69. The Agreement also provided, in relevant part, as follows:
In fact, Gayosso applied to America's Servicing Company, an entity allegedly owned by Wells Fargo. Wells Fargo's appellate brief lists America's Servicing Company as doing business as Wells Fargo. Since Wells Fargo is the only respondent on appeal, for simplicity's sake we refer only to Wells Fargo.
"2. This Agreement temporarily accepts reduced installments . . . . Upon successful completion of the Agreement, your loan will not be contractually current. Since the Installments may be less than the total amount due you may still have outstanding payments and fees. Any outstanding payments and fees will be reviewed for a loan modification, based on investor guidelines, this will satisfy the remaining past due payments on your loan and we will send you a loan modification agreement. An additional payment may be required.
"3. The lender is under no obligation to enter into any further agreement, and this Agreement shall not constitute a waiver of the lender's right to insist upon strict performance in the future."
The court granted Wells Fargo's request for judicial notice of the Agreement. Gayosso did not oppose Wells Fargo's request.
Plaintiff executed the Agreement and made the required payments. In February 2013, Wells Fargo sent a letter to Gayosso offering him a loan modification decreasing the interest rate from 7.25 percent to 2.25 percent. However, the offer was conditioned on Gayosso obtaining an agreement from the second lien holder to subordinate the second lien to the lien created by the modified loan. Gayosso contacted the second lien holder, but it refused to subordinate its position.
Although no agreement had been reached, Gayosso made payments under the terms of the loan modification proposal for nine months, at which time Wells Fargo sent Gayosso a letter denying his loan modification request. Afterwards, Wells Fargo returned a payment Gayosso attempted to make because it was less than the total amount due.
Gayosso apparently remained in the home, and in February 2015, he once again applied for a loan modification. This time his application was denied on the ground that his monthly payment would exceed 42 percent of his monthly income. Gayosso contends this was a mathematical error.
Gayosso's home was scheduled to be auctioned on January 22, 2016 at 1:30 p.m. That morning, Gayosso filed the present lawsuit. At the time of the auction, a representative of Gayosso was physically present and attempted to discourage the auction by announcing the existence of the lawsuit and a lis pendens. Nonetheless, the house was sold.
Plaintiff's SAC, the operative pleading, asserted causes of action for breach of the Agreement, breach of the covenant of good faith and fair dealing, promissory estoppel, fraud, negligence, wrongful foreclosure, quiet title, and various statutory claims. Although the SAC named numerous defendants, only the allegations against Wells Fargo are at issue in this appeal.
Wells Fargo demurred, and the court, having previously sustained a demurrer to the first amended complaint with leave to amend, sustained the demurrer to the SAC without leave to amend. The court reasoned that Wells Fargo fulfilled its only contractual duty, which was to review Gayosso's request for a loan modification. Gayosso timely appealed from the subsequent dismissal.
DISCUSSION
As Gayosso recognizes, there is one dispositive issue for most of his causes of action: whether the Agreement required Wells Fargo to offer Gayosso an unconditional loan modification upon performance of the payments called for in the Agreement. The one claim that stands independently is Gayosso's negligence claim, which is based on the alleged mathematical error in denying the second loan modification application. We begin with the contractual interpretation issue.
We review an order sustaining a demurrer de novo. (Lee v. Hanley (2015) 61 Cal.4th 1225, 1230.) Likewise, in the absence of conflicting extrinsic evidence, we interpret a contract de novo. (Warburton/Buttner v. Superior Court (2002) 103 Cal.App.4th 1170, 1180.)
At the outset, we recognize that the awkward wording of the Agreement creates ambiguity. In particular: "Any outstanding payments and fees will be reviewed for a loan modification, based on investor guidelines, this will satisfy the remaining past due payments on your loan and we will send you a loan modification agreement." This could be read a few different ways. The most literal interpretation is that the review itself satisfies the outstanding past due payments. While we regard that as too absurd to accept, it illustrates the awkwardness of the wording. (See Civ. Code, § 1638 ["The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity"].)
This leaves two possible interpretations.
The first is that, upon reviewing Gayosso's loan for a loan modification, Wells Fargo was obligated to offer one (Gayosso's interpretation). The other is that Wells Fargo was not obligated to offer one, but was only required to review Gayosso's loan for a modification (Wells Fargo's interpretation). In the broader context of the Agreement, the latter interpretation is correct. (See American Alternative Ins. Corp. v. Superior Court (2006) 135 Cal.App.4th 1239, 1245 ["We consider the contract as a whole and interpret the language in context, rather than interpret a provision in isolation"]; Civ. Code, § 1641.)
There is, fortunately, one portion of the agreement that is crystal clear: "The lender is under no obligation to enter into any further agreement . . . ." Our task is to harmonize, to the extent possible, all provisions in the agreement. (Friedman Prof. Management Co., Inc. v. Norcal Mut. Ins. Co. (2004) 120 Cal.App.4th 17, 33 ["Courts must interpret . . . contracts, to try to give effect to every clause and harmonize the various parts with each other"].) To that end, our starting point will be here, as it is the clearest statement in the Agreement.
That clear statement means what it says: no further agreement. A loan modification would be a further agreement. The sentence above goes on to say, "and this Agreement shall not constitute a waiver of the lender's right to insist upon strict performance in the future." Strict performance of what? In context, we interpret this to refer to the existing loan agreement. This interpretation is supported by paragraph two of the Agreement, which states, "This Agreement temporarily accepts reduced installments . . . . Upon successful completion of the Agreement, your loan will not be contractually current. Since the Installments may be less than the total amount due you may still have outstanding payments and fees." Taking these provisions together, the evident intent is to reinforce the idea that the Agreement is a temporary reprieve only, and that, after the temporary reprieve, the original loan will still be fully enforceable.
This brings us back to the awkward sentence at the heart of the present dispute: "Any outstanding payments and fees will be reviewed for a loan modification, based on investor guidelines, this will satisfy the remaining past due payments on your loan and we will send you a loan modification agreement." In context, we interpret this provision as a promise to review Gayosso's loan for a modification, and a description of what will happen if a modification is approved. In other words, the Agreement starts by emphasizing that the Agreement does not discharge the original loan, but then describes what would discharge it: a loan modification, which, if approved, will be sent to Gayosso. In interpreting the Agreement this way, we recognize that we are adding the language "if approved." But we are persuaded the surrounding context requires that interpretation.
Moreover, even if the Agreement did require Wells Fargo to offer Gayosso a loan modification, Wells Fargo did so, albeit on the condition that the second lien be subordinated to the modified loan. Gayosso contends this was, nevertheless, a breach because the Agreement permits only the one stated condition to a loan modification: "An additional payment may be required." Beyond that, Gayosso contends the loan modification had to be unconditional. But it is a rather large logical leap from the Agreement specifying one possible condition, to the implication that it is the only condition that may be imposed, particularly when the Agreement expressly references investor guidelines, which presumably contain more than just payment requirements. We see no reason to make that leap.
As a general matter, cases finding that a forbearance agreement requires a loan modification have only required a "good faith" permanent loan modification. In West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, for example, the borrower entered into a trial period plan (TPP), which, pursuant to federal regulations, required the bank to offer a permanent loan modification if the borrower made the trial payments. (Id. at pp. 796-797.) There, the bank did not offer a modification, and the court concluded this was a breach, stating, "the defendant bank was required to offer 'some sort of good-faith modification to [the plaintiff] consistent with HAMP guidelines.'" (Id. at p. 797; see Bushell v. JPMorgan Chase Bank, N.A. (2013) 220 Cal.App.4th 915, 925-926 ["if a borrower complies with all terms of the TPP—including making all required payments and providing all required documentation—and if the borrower's representations on which modification is based remain true and correct, the lender must offer the borrower a good faith permanent loan modification, because the borrower has qualified under HAMP and has complied with the TPP"].) Inherent in the concept of a good-faith loan modification is that banks have some discretion in putting reasonable conditions on the offer.
There is no allegation here that the Agreement was issued pursuant to the Home Affordable Mortgage Program (HAMP) such that a loan modification must be offered.
Assuming the Agreement here contains a similar requirement, Wells Fargo met it. It offered a loan modification. And the condition that Wells Fargo maintain its first lien position was a reasonable, good faith requirement. The original loan gave Wells Fargo's lien priority, and it is reasonable that Wells Fargo would insist that any new loan maintain similar priority. Gayosso had already defaulted on a loan once; it is only natural Wells Fargo would insist on maintaining its security in the event Gayosso defaulted a second time. Gayosso makes no attempt to argue otherwise. Accordingly, the allegations in the SAC do not amount to a breach of the Agreement.
The only remaining issue is Gayosso's negligence cause of action based on an alleged mathematical error. In particular, Gayosso alleged his second loan-modification request was denied because his monthly payment would be greater than 42 percent of his monthly income. He contends this was error because his monthly payment—$2,356.62—amounts to only 31 percent of his monthly income, which was $7,602. As Wells Fargo points out, however, Gayosso's calculation fails to take into account his payment on the second mortgage, which was $1,096.32 per month. Taken together, his monthly housing payment would have been $3,452.94, which is approximately 45 percent of his monthly income. Accordingly, there was no mathematical error in concluding his housing payment would be greater than 42 percent of his monthly income, and thus no negligence.
DISPOSITION
The judgment is affirmed. Wells Fargo shall recover its costs incurred on appeal.
IKOLA, J. WE CONCUR: O'LEARY, P. J. THOMPSON, J.