Judge: Daniel S. Murphy, Case: 23STCV01906, Date: 2023-05-08 Tentative Ruling

Case Number: 23STCV01906    Hearing Date: May 8, 2023    Dept: 32

BACKGROUND

            On January 30, 2023, Plaintiffs Sharae N. Casey, Kevin Ward, and Melanie Moore Matthews filed this action against Defendants Flagstar Mortgage Corp. (Flagstar) and Lakeview Loan Servicing, LLC (LLS), asserting violations of the Homeowner Bill of Rights (HBOR), unfair business practices, and cancellation of written instruments.

            Plaintiffs allege that they are owners a certain real property secured by a mortgage. Defendant Flagstar, the loan servicer, allegedly recorded a notice of default without providing Plaintiffs sufficient notice and opportunity to avoid foreclosure.

LEGAL STANDARD

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or by proper judicial notice. (Code Civ. Proc., § 430.30, subd. (a).) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Ibid.) The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action. (Hahn, supra, 147 Cal.App.4th at 747.) A complaint will survive demurrer if it sufficiently apprises the defendant of the issues, and specificity is not required where discovery will clarify the ambiguities. (See Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 608.) All reasonable inferences are drawn in favor of the complaint. (Kruss v. Booth (2010) 185 Cal.App.4th 699, 713.)

MEET AND CONFER

Before filing a demurrer or a motion to strike, the demurring or moving party is required to meet and confer with the party who filed the pleading demurred to or the pleading that is subject to the motion to strike for the purposes of determining whether an agreement can be reached through a filing of an amended pleading that would resolve the objections to be raised in the demurrer. (Code Civ. Proc., §§ 430.41, 435.5.) The Court notes that Defendants have complied with the meet and confer requirement. (See Ramos Decl.)

DISCUSSION

I. Safe Harbor

            Civil Code section 2924.12(c) of HBOR provides: “A mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not be liable for any violation that it has corrected and remedied prior to the recordation of the trustee’s deed upon sale, or that has been corrected and remedied by third parties working on its behalf prior to the recordation of the trustee’s deed upon sale.”

            Defendants argue that the complaint admits Plaintiffs received a meaningful opportunity to obtain loss mitigation options because they engaged in extensive discussions with Defendants about their eligibility to receive a loan modification. (Dem. 11:18-22, citing Compl. ¶¶ 17-22.) Defendants contend that as a result, they cured any potential HBOR violations.

            The referenced allegations show that Plaintiffs communicated with Flagstar about some missing information and documents. Defendants ask the Court to infer from this that the parties engaged in “extensive discussions” about loss mitigation options. However, on a demurrer, inferences are drawn in favor of the plaintiff, not defendant. The allegations do not establish as a matter of law that Defendants cured any and all HBOR violations.

II. Material Violation

            Defendants argue that any violations of HBOR were immaterial. “[A] violation is material if it affected the borrower's loan obligations, disrupted the loan-modification process, or otherwise harmed the borrower in connection with the borrower's efforts to avoid foreclosure.” (Billesbach v. Specialized Loan Servicing LLC (2021) 63 Cal.App.5th 830, 845.) “HBOR creates no liability for a technical violation that does not thwart its purposes.” (Ibid.)

            However, Plaintiffs allege that “the improper recording of a Notice of Default as it causes immediate damage to a person’s credit, causes increased emotional and mental suffering and can cause increased costs being levied based on the Notice of Default being filed which are charged to the loan balance.” (Compl. ¶ 34.) Plaintiffs also allege that Defendants “prevented PLAINTIFFS’ chances for a successful submission of the proper papers to complete a loan modification package to save the Subject Property from foreclosure, and the resultant loss of equity and a place to live for PLAINTIFFS’ and their dependents.” (Id., ¶ 46.) This satisfies the standard of material harm defined in Billesbach.

III. First Cause of Action – Failure to Notify

            Civil Code section 2923.5 requires the lender/servicer to contact the borrower 30 days prior to recording a notice of default to assess and explore the borrower’s options for avoiding foreclosure, or at least exercise due diligence in attempting to so contact the borrower.

            Defendants argue that the complaint fails to specify whether there was any contact prior to the notice of default being recorded and in fact admits that Plaintiffs communicated with Defendants extensively.

            As discussed above, the Court cannot draw an inference in Defendants’ favor that the parties communicated extensively about foreclosure avoidance options. The complaint alleges that Plaintiffs “received no mail or messages” when the notice of default was issued. (Compl. ¶ 26.) The complaint further alleges that Defendants “failed to satisfy the requirements of Civ.Code §2923.5(a)(2) before recording a Notice of Default, and violated this statute.” (Id., ¶ 27.) Therefore, the complaint sufficiently establishes that Defendants failed to provide notice prior to recording the notice of default. The demurrer is OVERRULED as to the first cause of action.

IV. Second Cause of Action – Lack of Authority to Foreclose

            Plaintiffs have dismissed this cause of action.

V. Third Cause of Action – Notice of Default While Loan Modification is Pending

            Pursuant to Civil Code section 2923.6(c), “If a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower’s mortgage servicer, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale, or conduct a trustee’s sale, while the complete first lien loan modification application is pending.”

            Defendants argue that the cause of action fails because rescission of foreclosure is not a requirement under HBOR. (See Compl. ¶ 40 [alleging Defendants violated statute “by failing to rescind all foreclosure efforts”].) However, the cause of action is valid if the facts in the complaint, when read as a whole, establish a violation of the statute. The entire claim is not defeated by one extraneous allegation about rescission.

            Defendants argue that the facts are insufficient because the complaint admits on its face that Plaintiffs failed to submit a “complete” loan modification application. (See Compl. ¶¶ 17-22.) Defendants once again ask the Court to infer in their favor that just because Defendants contacted Plaintiffs about purportedly missing documents, that Plaintiffs necessarily failed to submit a complete application. The Court must draw inferences in Plaintiff’s favor. Plaintiffs allege that they submitted a complete loan modification application on November 14, 2022. (Compl. ¶ 14.) Although Defendants told Plaintiffs that certain information was missing, Plaintiffs allege that they submitted the requested documents. (Id., ¶¶ 19, 21.) It can be reasonably inferred that Plaintiffs submitted the documents necessary for a complete loan modification application.  

            Defendants argue that no foreclosure documents were recorded while the application was pending anyway, so no violation occurred. The notice of default was recorded on September 22, 2022 (Compl. ¶ 26), while the application was not completed until November 14, 2022 (id., ¶ 14). However, the third cause of action seeks an injunction to prevent foreclosure. (Id., ¶ 41.) “If a trustee’s deed upon sale has not been recorded, a borrower may bring an action for injunctive relief to enjoin a material violation of Section 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or 2924.17.” (Civ. Code, § 2924.12(a)(1).) Plaintiffs are entitled to bring an action to enjoin Defendants from recording a notice of sale or conducting the sale while the loan modification application is pending. Therefore, the demurrer is OVERRULED as to the third cause of action.

VI. Fourth Cause of Action – Failure to Assign Single Point of Contact

            “When a borrower requests a foreclosure prevention alternative, the mortgage servicer shall promptly establish a single point of contact and provide to the borrower one or more direct means of communication with the single point of contact.” (Civ. Code, § 2923.7(a).)

Here, the complaint alleges that Plaintiffs submitted a complete loan modification application on November 14, 2022 and requested the appointment of a single point of contact (SPOC). (Compl. ¶ 43.) The complaint alleges that “FM DEFENDANT failed to assign a ‘SPOC’ within a reasonable time after receipt of the loan modification application.” (Id., ¶ 44.)

Defendants argue that this is a legal conclusion without factual support. However, this is an ultimate fact that sufficiently places Defendants on notice of the claim. Any ambiguity regarding when Defendants appointed a SPOC may be resolved in discovery. (See Ludgate, supra, 82 Cal.App.4th at p. 608.) Therefore, the demurrer is OVERRULED as to the fourth cause of action.

VII. Fifth Cause of Action – Failure to Provide Foreclosure Alternatives

“[W]ithin five business days after recording a notice of default pursuant to Section 2924, a mortgage servicer that offers one or more foreclosure prevention alternatives shall send a written communication to the borrower that includes” information on foreclosure prevention. (Civ. Code, § 2924.9(a).)

The complaint alleges that the notice of default was recorded on September 22, 2022, but Defendants failed to notify Plaintiffs about foreclosure alternatives within 5 business days. (Compl. ¶¶ 49-50.) “PLAINTIFFS did not receive any phone calls or phone messages, and did not receive any pieces of mail that referred to discussions about alternatives to foreclosure before it was commenced.” (Id., ¶ 51.)

Defendants argue that the complaint admits the parties engaged in “extensive talks.” Again, the Court cannot draw inferences in favor of Defendants. The complaint does not reveal on its face that Defendants sent a written communication containing all of the information required by Section 2924.9(a).

Defendants also argue that because there are no facts suggesting any foreclosure activity taking place since the notice of default, this cause of action is moot. However, as discussed above, Plaintiffs are entitled to plead injunctive relief to prevent a violation. (Civ. Code, § 2924.12(a)(1).) Furthermore, Plaintiffs have pled material harm resulting from Defendants’ actions. (See Compl. ¶¶ 34, 46.) Therefore, the demurrer is OVERRULED as to the fifth cause of action.

VIII. Sixth Cause of Action – Failure to Confirm Receipt of Loan Application

            “When a borrower submits a complete first lien modification application or any document in connection with a first lien modification application, the mortgage servicer shall provide written acknowledgment of the receipt of the documentation within five business days of receipt.” (Civ. Code, § 2924.10(a).)

            Plaintiffs allege that they submitted a loan modification application on November 14, 2022, but Defendants did not provide written notice of receipt within 5 business days. (Compl. ¶¶ 54, 55.) Defendants again raise the factual issue regarding whether Plaintiffs submitted a “complete” application and argue the violation was immaterial. Plaintiffs allege that the failure to confirm receipt “jeopardizes PLAINTIFFS’ right to submit a timely loan modification package while a pending foreclosure is in process, which could result in the loss of equity in the Subject Property, and the loss of a place to live for PLAINTIFFS and their dependents.” (Id., ¶ 56.) Therefore, the demurrer is OVERRULED as to the sixth cause of action.

IX. Seventh Cause of Action – Unfair Competition

Business and Professions Code section 17200 prohibits unlawful, unfair, or fraudulent business acts or practices. Each of the three prongs is an independent basis for relief. (Smith v. State Farm Mutual Automobile Insurance Co. (2001) 93 Cal.App.4th 700, 718.) Unlawful conduct is defined as any practice forbidden by law. (Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377, 383.) UCL actions alleging unlawful conduct “borrow” from other statutes or common law causes of action outside Section 17200. (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1383.)

As discussed above, Plaintiffs have adequately alleged multiple statutory violations. These violations form the necessary predicate for a UCL claim. Plaintiffs have adequately alleged actual injury. (See Compl. ¶¶ 34, 46, 56.) Therefore, the demurrer is OVERRULED as to the seventh cause of action.

X. Eighth Cause of Action – Cancellation of Written Instrument

            “A written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be delivered up or canceled.” (Civ. Code, § 3412.)

            Plaintiffs seek to void the notice of default for the reasons discussed above. (Compl. ¶¶ 72-73.) Since the other causes of action survive, they adequately demonstrate the potential harm posed by the notice of default. Therefore, the demurrer is OVERRULED as to the eighth cause of action.

CONCLUSION

            Defendants’ demurrer is OVERRULED.