Judge Bruce G. Iwasaki, Case Number: 21STCV21457, Date: 2023-12-04 Tentative Ruling

This is a wrongful foreclosure action in which Plaintiff Pablo Aleman Jr. (Plaintiff) sues Defendants Trinity Financial Services, LLC (Trinity) and Barret Daffin Frappier Tredder & Weiss, LLP (Barrett Daffin).[1]

According to the pleadings, in March of 2006, Plaintiff took out a second mortgage (Subject Loan) on his home for $82,000 which was secured by a Deed of Trust (Subject DOT). In 2008, Plaintiff was in arrears on both his primary mortgage and the Subject Loan. As part of a negotiated modification, Plaintiff alleges the Subject loan was cancelled. Plaintiff further alleges that he bore the tax consequences of the cancellation.

After the Subject Loan was cancelled in 2008, Plaintiff did not receive any statements regarding the Subject Loan. Nor did Plaintiff receive notice that the previous trustee had assigned its rights under the Subject DOT to Trinity. Nonetheless, on February 5, 2021, Barrett Daffin, on behalf of Trinity, recorded a Notice of Default and Election to Sell Under Deed of Trust (NOD) on Plaintiff’s property. The NOD states Plaintiff owes $157,643.19 as of February 3, 2021.

The Court previously sustained Trinity’s demurrer to the fourth cause of action for negligent misrepresentation without leave to amend. Trinity also moved for summary judgment or in the alternative for summary adjudication; the Court denied the motion for summary judgment but granted the motion for summary adjudication of the first cause of action for promissory estoppel and third cause of action for wrongful foreclosure.

Defendant then moved for judgment on the pleadings as to the fifth cause of action in the First Amended Complaint. The motion was granted without leave to amend.

Now, Defendant Trinity moves again for summary judgment or the in the alternative summary adjudication. Plaintiff opposes the motion.

The Court denies the motion for summary judgment. The motion for summary adjudication is granted as to the sixth cause of action only.

Plaintiff’s request for judicial notice of Exhibits A-B is granted. (Evid. Code § 452, subd. (d).) Plaintiff’s objections to the Trinity’s evidence are ruled as follows: Nos. 1, 4-5 are overruled, No. 2 is sustained as to “was sent to . . . Plaintiff.”, and No. 3 is sustained.

Defendant’s objections to Plaintiff’s evidence are ruled on as follows: Nos. 1-2 are sustained, and Nos. 3-5 is overruled.

A party may move for summary judgment “if it is contended that the action has no merit or that there is no defense to the action or proceeding.” (Code Civ. Proc., § 437c,¿subd. (a).) “[I]f all the evidence submitted, and all inferences reasonably deducible from the evidence and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law,” the moving party will be entitled to summary judgment. (Adler v. Manor Healthcare Corp.¿(1992) 7 Cal.App.4th 1110, 1119.)

The moving party has the initial burden of production to make¿a prima facie¿showing of the nonexistence of any triable issue of material fact, and if he does so, the burden shifts to the opposing party to make¿a prima facie¿showing of the existence of a triable issue of material fact. (Aguilar v. Atlantic Richfield Co.¿(2001) 25 Cal.4th 826, 850; accord Code Civ. Proc., § 437c,¿subd. (p)(2).) A Defendant moving for summary judgment may meet its initial burden by proving that for each cause of action alleged, plaintiff cannot establish at least one element of the cause of action. (Code Civ. Proc., § 437c(p)(2).)

Defendant Trinity moves for summary judgment on the grounds that the evidence shows that the Subject Loan was not cancelled.

The parties do not dispute the following: In 2006, Plaintiff took out the Subject Loan as a junior mortgage on his home. The Subject Loan allowed the Note to be transferred. In February 2020, Plaintiff received a letter from Barrett Daffin advising Plaintiff that Trinity was the servicer of the Subject Loan and had authorized Barrett Daffin to initiate foreclosure of the DOT. Before that, Trinity had never sent Plaintiff any monthly statements or communications regarding the Loan. On February 5, 2021, a Notice of Default and Election to Sell Under Deed of Trust was recorded on behalf of Trinity in connection with the Subject Loan.

However, the parties dispute whether the Subject Loan was forgiven (or cancelled) when Plaintiff modified his senior loan in 2008. Plaintiff’s main argument is that Defendant is seeking to foreclose on a loan that was forgiven in in 2008.

Defendant Trinity previously submitted evidence that, since purchasing the Subject Loan, it has never seen nor been in possession of any document or record that would show or suggest that the Subject Loan had previously cancelled. (Prior MSJ DSS 19; DSS 20.)

Further, in the First Amended Complaint, Plaintiff asserts he received a 1099-C from his lender in the amount of the Subject Loan. (FAC ¶ 15.) However, the only Form 1099-C produced shows a cancelled debt in connection the Senior Loan – not the Subject Loan. (Prior MSJ DSS 8-11; DSS 8-11.) Plaintiff was unable to produce a 1099-C in relation to the Subject Loan but stated that he recalls receiving 1099-C and 1098 from its lender for Subject Loan in 2008 similar to the document regarding the Senior Loan, and also for $81,000. (Prior DSS 18, 16.)

On the prior motion for summary judgment, the Court previously found –based on this evidence – that Defendant Trinity had failed to shift its initial burden of showing the loan was not cancelled in 2008.

In support of its renewed motion for summary judgment, Trinity notes that the only documents produced with regard to the Subject Loan was a Form 1098 that was issued by Regions Mortgage. (DSS 14.) Trinity further submits recently obtained documentation from Regions Bank, which it argues undercuts Plaintiff’s claim the Subject Loan was cancelled. The Records produced show that there was a request for release of the Subject DOT on behalf of Plaintiff on April 3, 2020. (DSS 35.) However, the documents – involving internal communications and communications from Regions Bank with Plaintiff – suggest that the Subject Loan was only “charged off.” (DSS 36-42.)

As the responsive separate statement shows, a review of the entirety of the email communication certainly shows confusion regarding when and how Regions became a servicer of this loan; however, the chain begins with Amy Morrison receiving “lien release” request from Plaintiff and determination the Subject Loan was “charged off.”

Specifically, an employee of Regions Bank, Amy Morris, sent a message to Plaintiffs’ representative stating:

“I have checked with acquisitions again and they are signing that Regions was just the servicer for this loan and that the loan would not have been assigned to us. Citigroup instructed us to remove the loan from our system as a charge off.” (DSS 38.)

Another internal email referencing the Subject Loan also referred to it as being “charged off.” (DSS 40.) On May 28, 2020, Amy Morris of Regions Bank sent Plaintiff and his representative the following email:

“As per our conversation regarding this release, after speaking with the acquisition department manager, I was incorrect with the information that I as previously stated. Regions only serviced your loan for Citigroup. Since, Regions was only the servicer, we cannot prepare a release since your loan was never assigned to Regions. According to the documentation that you sent, the servicing was transferred Litton Loan Servicing in 2008. Litton Loan Servicing would be the one to be able to prepare the release. I do apologize for the incorrect information that I gave you earlier this week. But I did confirm that there was never an assignment to Regions as we were only the servicer.” (DSS 42.)

Further, notwithstanding Plaintiff’s allegation that he bore the tax consequences of the loan cancellation (FAC ¶ 15), Plaintiff admitted in his deposition under oath that he never reported the purported cancellation on his income tax returns for 2008. (DSS 31.)

Defendant Trinity argues that the evidence shows that Plaintiff’s Subject Loan was merely “charged off” not cancelled.[2]

This evidence is not significantly different from the evidence that was before the Court on the prior motion for summary judgment. Even assuming that this evidence is sufficient to shift the burden, Plaintiff has raised a triable issue of material fact in support.

Plaintiff’s evidence in opposition are that he received a Form 1098 from the servicer of the Subject Loan, Regions Mortgage, in 2008, which indicated that the loan was forgiven effective October 21, 2008, and that he received a 2018 Form 1099-C for the Subject Loan cancelling the entirety of the debt, but he has been unable to obtain a copy of the form. (Aleman Decl., ¶¶ 8-9.)

First with respect to the Form 1098 evidence, the Court previously determined that the form reflects a balance due on the loan at the end of 2008 of zero. Although Trinity argued that a Form 1098 is not probative based on a Bankruptcy Court decision, Aniel v. HSBC Bank (N.D. Cal. 2021) 633 B.R. 368, Plaintiff countered that the entries in the 1098 in this case reflect no transfers of the loan, unlike the 1098 in Aniel. Nothing has changed with respect to this evidence.

While Trinity argues that Form 1098 is not proof of cancellation, Plaintiff’s obligation in opposing a motion for summary judgment is to raise an inference of triable issue of material fact. Thus, Form 1098 does not need to be “proof” of cancellation so long as it raised the inference that there was a cancelation of the Subject Loan. Trinity’s case authority does not negate this evidence and it provides no new evidence on this issue. (Mot., 13:20-14:2.) While a “Form 1099-C is significantly more probative that a loan has been discharged than a Form 1098.” (Aniel, supra, 633 B.R. at 379), this case authority indicates that a Form 1098 has some probative value.

Further, with respect to Plaintiff’s claim that he received a Form 1099-C, Trinity again relies heavily on the holding in F.D.I.C. v. Cashion (4th Cir. 2013) 720 F.3d 169 wherein the court found that the existence of this form was insufficient to create a triable issue of material fact in dispute regarding whether a loan had been cancelled. (Id. at 177.)

The Court recognizes Plaintiff’s claim he received a 1099-C is even weaker evidence than submitting the document itself; however, as the Court previously found on the prior motion for summary judgment, “[a]lthough Trinity argues this is not enough, Trinity’s argument is based on a Fourth Circuit ruling that is not binding on this court. Other courts have found that a 1099-C creates a dispute of fact.” (4/2/24 Minute Order, p. 3.)

Again, nothing has materially changed with respect to the evidence and legal authorities pertaining to the Form 1099-C argument.

Under this cause of action, Plaintiff claims that Trinity violated TILA regulation 12 C.F.R. § 1026.41 (Section 1026.41) by either (1) failing to provide monthly statements or (2) charging inappropriate interest and fees if the Subject Loan had been charged off.

12 C.F.R Section 1026.41 provides that certain loans may qualify for exemptions from the requirement of issuing monthly statements. Two of the exemptions are the small servicer exemption and the charge off exemption.

The small servicer exemption existed when Section 1026.41 first became effective in January 2014. Section 1026.41(e)(4)(i) states that a “creditor, assignee, or servicer is exempt from the requirements of this section for mortgage loans serviced by a small servicer.” (12 C.F.R. § 1026.41(e)(4)(i).) The definition of a small servicer includes a servicer that “[s]ervices, together with any affiliates, 5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or assignee.” (12 C.F.R. § 1026.41(e)(4)(ii)(A).)

In moving for summary adjudication of this cause of action, Trinity contends it could not violate the Truth in Lending Act because it falls within the small servicer exception. Specifically, Trinity submits evidence that during all relevant times it serviced 5,000 or fewer mortgage loans. As such, Trinity was exempt from issuing monthly statements while still permitted to charge interest and fees on the Subject Loan.

The Court previously rejected Trinity’s motion for summary adjudication of this issue on the grounds that Trinity only provided the essential evidence for the first time in reply.

In its moving papers, Trinity now submits evidence that during the time in which Trinity has been the holder of the Note and the beneficiary of the Subject Loan, Trinity, along with its affiliates, serviced less than 5,000 mortgage loans. (DSS 25.) Moreover, Trinity only services loan that either Trinity or Trinity’s affiliates are the creditor or assignee of. (DSS 25.) Trinity does not service loans for compensation on behalf of any third party that is not affiliated with Trinity. (DSS 25.) Based on the foregoing evidence, Trinity argues it was exempt from issuing monthly statements while still permitted to charge interest and fees on the Subject Loan.

In opposition, Plaintiff argues that Trinity has not offered admissible evidence “on, whether Trojan serviced loans on behalf of other creditors, or whether Trojan received any compensation or fees for servicing a non-affiliate loan.” (Opp., 14:16-18.) Plaintiff specifically argues that Trinity’s declarant, Don A. Madden III, the president of Trinity Financial Services, LLC, offers no evidence that he is competent to testify about Trojan’s dealings.

As noted above, the Court did not sustain any evidentiary objections on this specific evidence. Thus, this evidence is properly before this Court on this motion and carries Trinity’s burden on this issue.

Thus, the motion for summary adjudication of the sixth cause of action under the Truth in Lending Act is granted.

Seventh Cause of Action for Fair Dept Collection Practices Act (FDCPA) and the Rosenthal Fair Debt Collection Practice Act (RFDCPA):

The FAC alleges that Trinity violated these statutes by misrepresenting the amount of debt because it included “interest and fees that it is federally prohibited from collecting on the Plaintiff’s loan in its reinstatement calculation,” (2) made “other false statements to Plaintiff regarding the amount of the Plaintiff’s debt,” and (3) falsely represented the debt was still collectable. (FAC ¶¶ 104-106.)

As the motion for summary adjudication argues, this claim fails because it is premised on the failed violation of TILA and because the Subject Loan had not been cancelled.

As discussed above, there remains a triable issue of material fact with respect to whether the Subject Loan was cancelled or not. Thus, the motion for summary adjudication of this cause of action cannot be granted on this ground. The motion for summary adjudication of this cause of action is denied.

Separately, Trinity argues it cannot be liable for a violation of the FDCPA because Trinity is not “debt collector” as a matter of law.

In Hepler v. Washington Mut. Bank, F.A. (C.D. Cal., Apr. 17, 2009, No. CV 07-4804CASEX) 2009 WL 1045470, the court recognized that the statute under the RFDCPA was broader than the FDCPA and concluded that, under the FDCPA, “[t]he law is well-settled ... that creditors, mortgagors, and mortgage servicing companies are not debt collectors and are statutorily exempt from liability under the FDCPA .” (Id. at *4 [ quoting Scott v. Wells Fargo Home Mortg. (2003) 326 F.Supp.2d 709, 718].)

In opposition, Plaintiff cites Perry v. Stewart Title Co. (5th Cir. 1985) 756 F.2d 1197, 1208 for the proposition that “[w]hether Defendant is a debt collector under the Federal FDCPA depends on whether the loan was in default at the time it was assigned to a debt collector and, if it were, the servicer would be a debt collector under the Federal FDCPA.” (Opp., 15:15-17.)

In Perry, the Court explained the term “ ‘debt collector’ ” applies to a mortgage loan servicer if the servicer began servicing the mortgage loan after the loan was in default. (Perry v. Stewart Title Co. (5th Cir. 1985) 756 F.2d 1197, 1208; see also Randall v. Ditech Financial, LLC (2018) 23 Cal.App.5th 804, 810.) Plaintiff argues that here it is undisputed that Plaintiff was in default when Trinity took over servicing the Subject Loan.

The reply does not address this legal authority. (Reply 10:15-20.) Therefore, the motion for summary adjudication of this cause of action is also denied on this ground, as well.

The eighth cause of action for slander of title is predicated on the Subject Loan being cancelled and violations of TILA. (FAC ¶ 110.) Thus, for the reasons discussed above, Trinity has not negated Plaintiff’s allegations that the Subject Loan was cancelled, and summary adjudication of this cause of action is denied.

Additionally, Trinity also argues that recording of notice of default is privileged under the, litigation privilege set forth in Civil Code section 47. (Civ. Code, § 2924, subd. (d).) Defendant Trintiy acknowledges that this privilege is qualified and there is an exception for a suit based on malicious prosecution. (Mot., 19:27-20:1 [citing Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 336; Rubin v. Green (1993) 4 Cal.4th 1187, 1193-1194.) Trinity argues, however, that the FAC and Plaintiff’s discovery responses, here, do not allege malice by Trinitty.

As a preliminary matter, the separate statement does not address the issue of malice. Thus, summary adjudication cannot be granted as to this issue. (City of Pasadena v. Superior Court (2014) 228 Cal.App.4th 1228, 1238, fn. 4 [applying the Golden Rule of Summary Adjudication that “if it is not set forth in the separate statement, it does not exist.”].)

Further, the FAC does specifically allege “Defendants acted with malice in recording the statements because they acted without reasonable grounds for the belief the figures and statements were accurate.” (FAC ¶ 112.)

In moving for summary adjudication, Trinity argues this cause of action is based upon the same defective arguments raised in the other causes of action. Therefore, for the all the reasons stated above, Plaintiff has failed to establish that Trinity violated Section 17200 or engaged in any unlawful business practices.

For the reasons stated above, there is a triable issue of material fact as to whether the Subject Laon was cancelled. This issue is sufficient to state a claim under Section 17200.

The Motion for Summary Judgment is denied. The motion for summary adjudication of the sixth cause of action for violations of TILA is granted, and otherwise denied.

[1] Barrett Daffin, as substitute trustee under the Deed of Trust that is the subject of this action, subsequently agreed to be bound by any non-monetary order or judgment issued by the court regarding the Subject Deed of Trust. (See 6/30/21 Declaration of Non-Monetary Status, ¶ 6.)

[2] “A ‘charge off’ is an accounting term that is means to ‘treat (an account receivable) as a loss or expense because payment is unlikely; to treat as a bad debt.’” (Lehman v. Denmark Bancsahres, Inc. (E.D. Wisc. Nov. 6, 2017) 2017 WL 5151687, *2 [quoting Black’s Law Dictionary (10th ed. 2014)].) “By reporting a debt charged off, a creditor merely declares that the debt is unlikely to be collected.” (Talaie v. Wells Fargo Bank (C.D. Cal. Jun. 27, 2013) 2013 WL 3316157, *5.) However, “a debt that is ‘charged off’ remains collectable.” (Id.)

[3] Trinity argues that the one-year statute of limitations under 12 C.F.R. § 1026.41 means Plaintiff can only assert claims relating to Section 1026.41 that occurred on June 8, 2020 and thereafter –based on the filing of the Complaint on June 8, 2021. This argument for limiting damages is inappropriate in a motion for summary judgment or summary adjudication.