Judge: Deirdre Hill, Case: 22TRCV00081, Date: 2022-07-26 Tentative Ruling
Case Number: 22TRCV00081 Hearing Date: July 26, 2022 Dept: M
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Superior
Court of Southwest
District Torrance
Dept. M |
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MARTIN
G. TORRES, |
Plaintiff, |
Case No.: |
22TRCV00081 |
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vs. |
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[Tentative]
RULING |
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ROBYN
WONNELL, et al., |
Defendants. |
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Hearing Date: July 26, 2022
Moving Parties: Defendants Trojan Capital
Investments, LLC and Trinity Financial Services, LLC
Responding Party: None
Demurrer
to FAC
The court considered the moving papers. No opposition was filed.
RULING
The demurrer is SUSTAINED WITHOUT LEAVE
TO AMEND as to the 2nd, 3rd, 4th, and 5th
causes of action as to defendants Trojan Capital Investments, LLC and Trinity
Financial Services, LLC.
BACKGROUND
On February 3, 2022, plaintiff
Martin G. Torres filed a complaint against Robyn Wonnell, First Magnus
Financial Corporation, Trojan Capital Investments, LLC, and Trinity Financial
Services, LLC for (1) predatory lending practices, (2) fraud, (3) unfair debt collection
practices, (4) reformation of contract, and (5) declaratory relief.
On April 25, 2022, the court
sustained with leave to amend defendants’ Trojan Capital Investments and
Trinity Financial Services’ demurrer to the 2nd, 3rd, 4th,
and 5th causes of action.
On May 18, 2022, plaintiff filed a
FAC.
LEGAL AUTHORITY
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. “A demurrer tests the pleadings alone and not
the evidence or other extrinsic matters.
Therefore, it lies only where the defects appear on the face of the
pleading or are judicially noticed.” SKF Farms v. Superior Court (1984) 153
Cal. App. 3d 902, 905. “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 v.
Mirda (2007) 147 Cal. App. 4th 740, 747.
DISCUSSION
Defendants Trojan Capital
Investments, Inc. and Trinity Financial Services, LLC demur to the 2nd,
3rd, 4th, and 5th causes of action in the FAC
on the grounds that they fail to state sufficient facts to constitute a cause
of action.
In the FAC, plaintiff alleges that
he resides at 13122 Budlong Avenue, Gardena.
FAC, ¶1. Defendant Wonnell is an
individual who was a real estate professional licensed in the State of
California and doing business in Los Angeles County. Wonnell represented Torres in the purchase of
the Gardena property and assisted plaintiff in applying for and obtaining
financing for the purchase of the Gardena property. Id., ¶2.
Defendant First Magnus Financial Corporation (“Magnus”) financed
plaintiff for the purchase of the property.
Magnus filed for bankruptcy in August 2007 in the U.S. Bankruptcy Court
for the District of Arizona and was dissolved on April 2, 2009. Wonnell was an agent of Magnus who assisted
Torres in financing for the purchase of the Gardena property. Id., ¶3.
The complaint arises from a claim by Trinity to a purported loan
obligation secured by an alleged second Deed of Trust, originally created in
favor of Magnus and subsequently purportedly transferred to Trinity. Id., ¶7.
The FAC further alleges that
plaintiff worked for Wonnell as a gardener and landscaper for more than a
decade and had come to know Wonnell personally.
In about 2005, Wonnell acted as a real estate agent to assist plaintiff
in purchasing a home in Downey, CA.
Plaintiff lived in the Downey home for about a year but worked in the
South Bay area. The commute to the South
Bay became difficult and as such plaintiff decided that he wanted to sell his
home in Downey and to buy a house in the South Bay. Id., ¶8.
Plaintiff returned to Wonnell to assist him in selling the Downey home
and to purchase a home in Gardena.
Wonnell advised plaintiff to sell the Downey house and to buy the
Gardena property. Prepayment penalties
made the sale of the Gardena property unfeasible at first, so Wonnell concocted
a plan to which plaintiff would rent out the Gardena property until the end of
the prepayment penalty period and then sell the Gardena property. Plaintiff agreed to sell the Downey home and
that the proceeds from the increase in capital would go to pay the down payment
on the purchase of the Gardena property.
Id., ¶9.
Plaintiff further alleges that in
2006, Wonnell offered to sell the Gardena property to plaintiff. Wonnell assisted plaintiff in applying for
and obtaining financing for the purchase of the Gardena property. At all times during the purchase and
subsequent sale of the Downey house and the purchase of the Gardena property, Wonnell
was the contact person for plaintiff.
All documents were given to Wonnell at the request of Wonnell. She made representations to plaintiff as to
the character and nature of the purchase money loan and of the purchase of the
property. Wonnell represented to
plaintiff each of the terms of the loan.
Wonnell advised plaintiff that he needed to give a check for $7,000 for
the down payment, which he provided.
Wonnell represented to plaintiff that he was applying for a single
purchase money loan and represented the amount of the payment. Only one payment amount was identified to
plaintiff. The application was a stated
income loan, which plaintiff would not have qualified for the entire purchase
of the amount and the loan terms, which defendants currently purport. All the transactions were performed through
and at the direction of Wonnell. Wonnell
organized the entirety of the purchase contracts, the financing, the due
diligence, and inspections of the Downey home and Gardena property. Id., ¶11.
Wonnell instructed that plaintiff “come in and sign some documents” for
the house and for the insurance. She did
not go over the document page by page, but rather she gave an explanation that
there was one loan and pointed to the signature pages. Plaintiff felt that he could trust Wonnell
and her representations because they had a long term professional
relationship. Plaintiff further trusted
Wonnell’s experience as a real estate professional. Id., ¶12.
Wonnell’s representations were in English despite plaintiff only
speaking broken English and was only fluent in Spanish. Plaintiff was presented with documents, which
were all in English, which he did not understand, but he trusted Wonnell that
the documents were as she represented.
Wonnell showed the amount of the payment without explaining the extent
of the terms. He understood that he was
purchasing the Garden property and the basic terms of the loan being the loan
payment and the term of the loan was for 30 years. Id., ¶13.
Wonnell advised plaintiff that he had purchased the Gardena property
with a single loan from Magnus. He only
signed loan documents on a single date and at one time on December 8, 2006 and
agreed to the terms of the loan as represented.
Id., ¶14. Wonnell advised
plaintiff not to pay on the house in Downey any longer, at which time plaintiff
believed that the transaction had completed and whatever money may have been
necessary for any further down payment was paid. The money from the sale of the Downey house
was to go towards the Garden property.
Id., ¶15.
Plaintiff further alleges that thereafter
he received a single statement each month from Magnus for the single loan. He faithfully paid the loan each month since
2006 through the present. Id., ¶16. He did not have any knowledge about the
existence of the purported note secured by second deed of trust (“Second Note”)
until about 2020. Plaintiff never
received a loan statement for the Second Note.
He had no reason to believe that there was anything further due upon the
purchase of the Gardena property because he relied upon the fact that there was
money from the sale of the Downey home in order to pay for the down payment and
the remaining sums for the purchase were with the First Note. Id., ¶17.
Neither Wonnell nor Magnus advised plaintiff that the intention of
Magnus was that the single loan was divided into two portions, identified by
two separate notes and two separate deeds of trust, as an 80/20 loan. An 80/20 loan is where a single loan for the
purchase of real estate is made pursuant to two instruments, one loan document
representing 80% of the purchase price and a separate loan document
representing 20% of the purchase price.
The loan document representing 20% of the purchase price is often
accompanied by PMI, which dramatically increases the amount of the
obligation. Id., ¶18.
The FAC further alleges that
Wonnell and Magnus perpetrated a fraud upon plaintiff in that there were two
loans as part of a scheme to extract additional interest and fees from
plaintiff. Knowing that plaintiff would not ordinarily qualify due to RESPA
requirements, or that plaintiff could even afford the loan as posited by
Wonnell and Magnus. The note secured by
the first DOT is at 6.625%, which had a particular payment each month which
plaintiff could afford and has afforded. Plaintiff was unaware that there was another
purported loan obligation, which was supported by a second DOT with a 12.625%
interest rate and PMI, which plaintiff never agreed to pay. Id., ¶19.
The loan is fraudulent and wrought with RESPA violations and TILA
violations. Id., ¶20. Neither Wonnell nor Magnus disclosed to
plaintiff that the terms of the purchase money loan was broken into two
separate loans with two separate obligations or that the purchase of the
Gardena property was being made by use of an 80/20 loan or that the interest
rate of the Second Note was nearly double the interest rate of the First Note
and that the Second Note was subject to PMI.
The way in which the financing was structured amounts to an unlawful
predatory lending practice. Id., ¶21. The effective interest rate or APR was not
disclosed to plaintiff, as required by law.
Id., ¶22. Not a single statement
was mailed to plaintiff from Magnus referring to the purported Second
Note. Id., ¶23. The Periodic Statement Rule requires lenders
such as Magnus to provide a statement each month and that such statements
require certain information to be disclosed each month. There were no statements sent out on the
purported Second Note. The failure of
Magnus to service the Second Note is an active representation that the Second
Note was abandoned as being a separate loan because it was not lawfully
executed and/or had been satisfied and/or was made without the property
disclosures. Id., ¶24.
Plaintiff further alleges that in
2010, Magnus and plaintiff agreed upon a HAMP modification agreement, which was
recorded on October 4, 2010. Magnus
received money and/or incentives from the U.S. Government in order to modify
the loan. One of the considerations was
not to enforce or make any claims upon the Second Note because the HAMP
required the reduction in the debt to income ratio to be lowered to 38%, at
which point the government would step in to minimize the debt to income ratio
to 31% or less. Magnus was therefore
paid to assist plaintiff to reduce the debt to income ratio to 31% therein
eliminating the Second Note. Id., ¶25.
Plaintiff further alleges that a
Corporate Assignment of Deed of Trust, executed on November 1, 2018, was
recorded on November 26, 2018, identifying that MERS, as nominee for Magnus,
assigned the Second DOT to Trinity. The
transfer was void because MERS did not have a right to assign or was not
entitled to the Second DOT. Id., ¶26. A Corporate Assignment of DOT, executed
February 5, 2019, was recorded on December 3, 2019, identifying that Trinity
assigned the Second DOT to Trojan. The
transfer was void because Trinity did not have a right to assign or was not
entitled to the Second DOT. Id., ¶27. Trojan made representations to plaintiff that
it had taken over the loan from Magnus.
In a letter dated October 29, 2019, Trojan claimed that plaintiff owed a
debt based upon the purchase of his home.
The date identified is December 7, 2006, which is the same date as the
purchase and of the First Note.
Plaintiff understood that he was dealing with the new owner of the First
Note. Id., ¶28. The representations of Trojan were made
deceptively because it failed to identify that such related to a Second Note,
not the First Note, which had not been serviced in more than 13 years and no
payment has ever been made on such. Id.,
¶29. Trojan made deceptive and false
representations as to the validity of the Second Note because it did not have a
right or title to the Second DOT. Magnus
had already been paid for the Second based upon the 2010 HAMP
modification. Id., ¶30.
Plaintiff also alleges that Trojan
offered a loan modification, but such was a pretense to cause plaintiff to
unknowingly reinstate the Second Note under the auspices that it was the First
Note. There was no explanation that the
modification was of a portion of the loan which was abandoned by Magnus. There were not adequate disclosures as to
what plaintiff was modifying because the purported modification failed to identify
that it related to the Second Note and was not in Spanish. Id., ¶33.
On October 29, 2019, Trinity recorded the transfer to the purported
Second Note from Trojan. Trinity claims
that it is owed in excess of $250,000 based upon the Second Note, which Trinity
claims has accrued interest at a rate of 12.625% since 2006 and late fees for
each month since December 2006. Trinity
should not be permitted to assume an obligation which had been abandoned
because of its unlawfulness. Id., ¶34. The Court should reform the original purchase
money loan and to do equity. Trojan and
Trinity have a creditor position which was obtained under false pretenses. Magnus concealed the asset which it had
abandoned. Magnus abandoned its position
because there was only one loan, not two.
Magnus thereafter fraudulently misrepresented the nature of the loan as
being two separate loans as to cause Trojan and thereafter Trinity to take a
position which rightfully does not exist.
Id., ¶35. A Corporate Assignment
of Deed of Trust, executed March 26, 2021, was recorded on April 21, 2021,
identifying that MERS, as nominee for Magnus, assigned the Second DOT to
Wilmington Savings Fund Society. This
transfer was void because MERS did not have a right to assign or was not entitled
to the Second DOT. Id., ¶37.
Defendants request that the court
take judicial notice of the following:
Exh. 1 – Grant deed recorded on
December 14, 2006.
Exh. 2 – Deed of Trust recorded on
December 14, 2006 as instrument no. 06 2777704 (referencing Note in the amount
of $375,200) [First Deed of Trust].
Exh. 3 – Deed of Trust recorded on
December 14, 2006 as instrument no. 06 2777705 (referencing Note in the amount
of $93,800) [Second Deed of Trust].
Exh. 4 – Home Affordable
Modification Agreement recorded on October 4, 2010.
Exh. 5 – Corporate Assignment of [First]
Deed of Trust recorded on April 21, 2021 (to Wilmington).
Exh. 6 – Corporate Assignment of [Second]
Deed of Trust recorded on November 26, 2018 (transferring beneficial interest to
Trinity Financial Services).
Exh. 7 – Notice of Objection of
Claim filed by plaintiff in Ch. 13 Bankruptcy Petition [as to Trinity’s claim]
on June 21, 2021
Exh. 8 – Corporate Assignment of [Second]
Deed of Trust recorded on December 3, 2019 (transferring beneficial interest to
Trojan).
Exh. 9 – Substitution of Trustee
recorded on February 8, 2020 [as to the Second Deed of Trust].
Exh. 10 – Notice of Default and
Election to Sell Under Deed of Trust recorded on March 10, 2020.
Exh. 11 – Corporate Assignment of [Second]
Deed of Trust recorded on August 3, 2020 (transferring beneficial interest to
Trinity).
Exh. 12 – Notice of Trustee’s Sale
recorded on January 4, 2021.
Exh. 13 – Substitution of Trustee
recorded on February 8, 2022 [as to the Second Deed of Trust].
Exh. 14 – Notice of Default
recorded on February 8, 2022.
2nd cause of action for deceit
The elements of a fraud claim are
(1) misrepresentation; (2) knowledge of falsity; (3) intent to deceive; and (4)
reliance and resulting damage. Vega
v. Jones, Day, Reavis & Pogue (2004) 121 Cal. App. 4th 282, 290. “[T]he elements of a cause of action for
fraud based on concealment are: ‘ “(1)
the defendant must have concealed or suppressed a material fact, (2) the
defendant must have been under a duty to disclose the fact to the plaintiff,
(3) the defendant must have intentionally concealed or suppressed the fact with
the intent to defraud the plaintiff, (4) the plaintiff must have been unaware
of the fact and would not have acted as he did if he had known of the concealed
or suppressed fact, and (5) as a result of the concealment or suppression of
the fact, the plaintiff must have sustained damage.’” Kaldenbach v. Mutual of Omaha Life Ins.
Co. (2009) 178 Cal. App. 4th 830, 850 (citations omitted). Generally speaking, there are four
circumstances in which nondisclosure or concealment may constitute actionable
fraud: (1) when the defendant is in a
fiduciary relationship with the plaintiff; (2) when the defendant had exclusive
knowledge of material facts not known to the plaintiff; (3) when the defendant
actively conceals a material fact from the plaintiff; and (4) when the
defendant makes partial representations but also suppresses some material
facts. OCM Principal Opportunities
Fund v. CIBC World Markets Corp. (2007)157 Cal. App. 4th 835, 859.
“To withstand demurrer, the facts
constituting every element of fraud must be alleged with particularity, and the
claim cannot be salvaged by references to the general policy favoring the
liberal construction of pleadings.” Goldrich
v. Natural Y Surgical Specialties, Inc. (1994) 25 Cal. App. 4th 772,
782. The particularity requirement
necessitates pleadings facts that “show how, when, where, to whom, and by what
means the representations were tendered.”
Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.
As to Trinity, plaintiff alleges
that it began collection efforts by sending a letter dated September 25, 2015
and then calling on September 28, 2015, demanding payment of $92,000. There had not been an assignment to Trinity at
the time Trinity sent the letter or called.
FAC, ¶56. Any assignment to
Trinity was void because Magnus had already been paid and/or modified the loan
to remove all liability pursuant to the HAMP.
The statement that Trinity had a right to collect or that Trinity had
been assigned rights to the purported second loan violated Civil Code §1709 by
willfully deceiving plaintiff. Trinity
attempted to collect upon an extinguished instrument, which had not been
recorded as such. Id., ¶57.
As to Trojan, plaintiff alleges
that Trojan also made collection efforts, including calls and letters, without
any assignment to Trojan. Any statements
affirming a debt made to Trojan are void because the obligation underlying the
Second Note had been extinguished pursuant to the HAMP in 2010. The attempted collection efforts by Trojan
violated Civil Code §1709 by willfully deceiving plaintiff. Id., ¶58.
Trinity and Trojan, knowing that plaintiff had not paid upon the Second
Note at all, for a period of about 13 years, assumed the position of
Magnus. The Second Note was
unenforceable and subject to a compromise agreement, whereby the 2010 HAMP
modification eliminated the rights to collect upon the Second Note. Id., ¶59.
The FAC also alleges that Trojan
represented that significant money was owed upon the purchase money loan,
failing to differentiate the fact that it was referring to the Second Loan and
identified the loan only by the date.
Trojan made a written threat that if plaintiff did not pay in full or
enter into a modification agreement that it would foreclose and take the
Gardena property when it was otherwise precluded from doing such. Trojan did not advise that it was a different
company than Magnus and caused plaintiff to react by making payments to
Trojan. Plaintiff believed that he was
paying upon the First Note, which he understood to be a single loan for the
purchase money loan. Id., ¶60. Plaintiff justifiably relied upon the
representations of Trojan and Trinity.
Id., ¶¶61-62. Plaintiff has been
harmed by the misrepresentations in that the property is currently being
foreclosed upon and the claims for money owed are in excess of what plaintiff
agreed to. Trinity claims an interest,
late fees and other charges, which are significantly more money than what
plaintiff owes. Plaintiff does not owe
any money on the Second Note. Id., ¶63.
Defendants argue that the
allegations are insufficient that defendants made any intentional
misrepresentations. Referencing a letter
from Trojan in October 2019 [see FAC, ¶60], plaintiff alleges that Trojan
intentionally misrepresented that it was collecting on the First Loan because
the letter purportedly only referenced the same date as both Deeds of Trust and
that plaintiff believed he was making payment on the First Loan. Defendants contend that the allegations are
“simply not true” because based upon plaintiff’s declaration in the bankruptcy
petition, the October 2019 letter identified the Second Loan by both the loan
number and the date of the Second DOT; plaintiff first believed the October
2019 letter was a scam; plaintiff received a debt validation letter in November
2019 wherein plaintiff claims he learned that he had the Second Loan; after
learning that Trojan was collecting on the Second Loan, plaintiff entered into
a forbearance agreement; and plaintiff decided to stop making payments on the
forbearance agreement.
Defendants further contend that as
to plaintiff’s allegation that defendants’ attempts to collect on the Second
Loan were in itself misrepresentations because the Second Loan was somehow paid
off by the Modification Agreement via the HAMP, HAMP only applies to first-lien
mortgages and deeds of trust. Further,
the express language of the Modification Agreement only references the First
Loan.
Also, defendants assert, as to
plaintiff’s allegation that they engaged in deceit because they commenced their
attempt to collect on the Second Loan prior to the recording of the respective
assignments, under California nonjudicial foreclosure laws, an assignment of
deed of trust is not a necessary document in completing a nonjudicial
foreclosure proceeding under a DOT. See
Civil Code §2934. Defendants argue that
the recording of an assignment pursuant to section 2934 is only for the purpose
of providing constructive notice.
Further, defendants argue, as to
the allegation that the assignments are void because MERS did not have a right
to assign or was not entitled to the Second DOT, it has been settled in
California that MERS has the authority to assign a DOT.
The court finds that the
allegations are insufficient as to any misrepresentation by Trojan or Trinity.
The demurrer is SUSTAINED WITHOUT
LEAVE TO AMEND.
3rd cause of action for
unfair debt collection practices
Civil Code §1788.1 provides that
the purpose of the Rosenthal Fair Debt Collection Practices Act (“RFDCPA”) is
to “prohibit debt collectors from engaging in unfair or deceptive acts or
practices in the collection of consumer debts and to require debtors to act
fairly in entering into and honoring such debts, as specified in this title.” Civil Code §1788.1.
The FAC alleges that a mortgage
creditor or servicer must send periodic billing statements to the borrower per
the Periodic Statement Rule, per 12 CFR 1026.41. The monthly statement must include certain
information which includes inter alia the amounts which the borrower has paid,
the amounts owed, the due date, the finance charges, and late charges imposed. FAC, ¶66. No statement has ever been sent to plaintiff
related to the Second Note. Id., ¶67. The periodic statements sent on the First
Note misstated the information as to the amounts due. Id., ¶68.
Trinity and Trojan were and are now debt collectors who, in the ordinary
course of business, regularly, on behalf of defendants or others, engage in
consumer debt collection. The debt
alleged is not enforceable due to settlements which Magnus made with the
government and with plaintiff pursuant to the 2010 HAMP modification. Id., ¶69.
Trinity and Trojan each sent letters, made phone calls, and recorded
documents against title to the Gardena property claiming money owed and
assignments of an extinguished obligation.
The way which Trinity and Trojan referred to the alleged obligation
would cause an ordinary person, and caused plaintiff, to believe that there had
been an assignment and that there had been an actual debt owed. Id., ¶70.
Trojan confusingly identified to plaintiff the Second Note as through it
is the First Note and purchase money loan in an attempt to cause plaintiff to
affirm the debt was an unfair debt collection practice. Further, Trojan did not send either a notice
or a modification agreement in the Spanish language knowing that plaintiff did
not functionally understand English, which is also an unfair debt collection
practice. Id., ¶71. Trojan purported to have assigned the Second
Note to Trinity for the purpose of collection.
The assignment, however, was not properly effectuated and is without
force and effect. Moreover, the
underlying debt is not enforceable pursuant to a compromise with the
government. Id., ¶72. Plaintiff has suffered injuries in that
Trinity claims more than $250,000 owed upon the Second Note. Id., ¶74.
Defendants argue that plaintiff’s
allegations that the Second Loan was extinguished and that the Second Loan and
Second DOT were not properly assigned are insufficient for the same reasons as
under the 2nd cause of action.
As to the allegation of the requirement to send periodic statements
under 12 CFR 1026.41, defendants argue that RFDCPA does not incorporate
compliance with that section. As to the
allegation that Trojan did not send either a notice or a modification agreement
in Spanish, defendants argue that plaintiff does not identify any provision of
RFDCPA that Trojan violated.
The court finds that the
allegations are insufficient of a violation of the RFDCPA as argued by
defendants that RFDCPA does not incorporate 12 CFR 1026.41 (periodic statements).
The demurrer is SUSTAINED WITHOUT
LEAVE TO AMEND.
4th cause of action for
reformation of contract
A reformation action lies when a
written instrument does not accurately reflect the oral understanding that gave
rise to it. Civil Code §3399; Getty
v. Getty (1986) 187 Cal. App. 3d 1159, 1178. That is, the sole purpose of
the reformation doctrine is to correct a written instrument in order to
effectuate a common intention of the parties which was incorrectly reduced to
writing. Getty, supra, 187 Cal. App. 3d at 1178. Thus, when, through fraud or a mutual mistake
of the parties, or a mistake of one party, which the other at the time knew or
suspected, a written contract does not truly express the intention of the
parties, it may be revised by the court on the application of a party
aggrieved, so as to express that intention, so far as it can be done without
prejudice to rights acquired by third persons, in good faith and for value. Civil
Code §3399; Getty, supra, 187 Cal. App. 3d at 1178. However, the court cannot, under a theory of
reformation, create a new agreement for the parties which conforms to
circumstances other than those that they had mistakenly assumed were true; if
the written instrument accurately reflects the agreement of the parties, albeit
an agreement based upon a mistaken assumption of fact, an action for
reformation does not lie. Getty,
supra, 187 Cal. App. 3d at 1178.
The FAC alleges that Magnus agreed
to finance the whole amount of the Gardena property and should be required to
do so. The loan agreement should be
reformed to identify that it was a single loan, not two, and that payments are
made over the course of 30 years for all of the amount due. FAC, ¶79.
Pursuant to the 2010 HAMP modification, Magnus reduced the obligation
which plaintiff had, which eliminated the Second Note and reduced the First
Note to a 30% debt to equity ratio. Id.,
¶80. Plaintiff seeks to reform the loan
under Civil Code §3399 against Magnus, Trojan, and Trinity so as to correct the
written instrument in order to effectuate a common intention of plaintiff and
Magnus, especially in connection with the 2010 HAMP modification. The intention of the parties was that there
would be only a single loan for the purchase of the Gardena property, evidenced
by the fact that Magnus made the loan and Magnus only collected upon the loan
as through there was one note and one deed of trust—i.e., the First Note. Id., ¶81.
It was not until Magnus was suspended, bankrupt, and presumably
liquidated as an entity that the purported second deed of trust was even
brought to anyone’s attention. Neither
Magnus nor plaintiff had the intention that there be two separate deeds of
trust and as such the Second Deed of Trust was incorrectly reduced to
writing. Rather, the intention was that
a single instrument reflect the entire purchase price of the property. There was an understanding between the
parties on all essential terms in that the debt would be paid to Magnus
pursuant to a single promissory Note and Deed of Trust. Id., ¶82.
Defendants argue that this cause of
action is still procedurally defective because plaintiff has failed to join all
necessary parties, which in this case is Wilmington, the beneficiary and owner
of the First Loan.
Defendants further argue that
plaintiff has not sufficiently alleged that it was the mutual intention of both
himself and Magnus for there to be a single loan because Magnus drafted two
promissory notes and two deeds of trust, which plaintiff signed, and then
recorded each of the deeds of trust.
The court finds that the
allegations are insufficient as to mutual intention to show that although
plaintiff signed two deeds of trust that were recorded, and Magnus purportedly
provided $93,800 as to the Second Loan, there was no Second Loan and that
Magnus never intended to collect the amount under the Second Loan. Plaintiff alleges that Magnus declared
bankruptcy in 2007 and dissolved in 2009 and that the loan was an 80/20 loan
although he was unaware of it at the time he purportedly signed two deeds of
trust. Plaintiff also has not joined
Wilmington, beneficiary of the First Loan as a necessary party.
The demurrer is SUSTAINED WITHOUT
LEAVE TO AMEND.
5th cause of action for
declaratory relief
The FAC alleges that a dispute has
arisen and an actual controversy exists between plaintiff and defendants. Plaintiff contends that only one loan exists
in the form of the First Note whereas defendants contest such and claim that a
Second Note exists and is due and currently payable. Further, plaintiff contends that the 2010
HAMP modification eliminated the Second Note entirely and reduced the
obligation under the First Note. FAC, ¶85. Plaintiff was entitled to a copy of his
Promissory Note and Deed of Trust in Spanish pursuant to Civil Code §1632. Plaintiff was not provided a copy of the
Promissory Note and Deed of Trust in Spanish—the only Promissory Note and Deed
of Trust was made in English. The
failure to comply with section 1632 allows the aggrieved party to rescind the
contract and provides a mechanism for restitution. Id., ¶86.
Plaintiff has made each payment faithfully on the First Note, he has
abided by the terms of his agreement, and plaintiff has provided everything of
value which was required of him on a timely basis. Trinity claims a position that is contrary in
that the original purchase money loan was divided into two portions, but such
is contrary to the actions of Magnus and plaintiff. Id., ¶88.
Defendants reiterate their argument
that plaintiff’s claim that the 2010 HAMP modification eliminated the Second
Note entirely and reduced the obligation under the First Note fails for the
reasons stated above. As to plaintiff’s
allegation that the Second Loan should be rescinded under Civil Code §1632,
defendants contend that this section generally does not apply to residential
loan transactions. Civil Code §1632(b)
states that “[a]ny person engaged in a trade or business who negotiates
primarily in Spanish . . . , orally or
in writing, in the course of entering into any of the following, shall deliver
to the other party to the contract or agreement and prior to the execution
thereof, a translation of the contract or agreement in the language in which
the contract or agreement was negotiated . . . (2) A loan or extension of
credit secured other than by real property . . . . (4) Notwithstanding
paragraph (2),” real property loans negotiated by a broker in a language other
than English. Defendants further argue
that plaintiff has not alleged that he negotiated with a broker in
Spanish. Rather, plaintiff alleges that
Wonnell negotiated the terms of the loan to plaintiff in English.
Defendants further argue that
plaintiff has not alleged his ability for restitution as to the amount
plaintiff purportedly received in connection with the Second Loan.
The court finds that the allegations
are insufficient as plaintiff has not alleged a violation of Civil Code §1632.
The demurrer is SUSTAINED WITHOUT
LEAVE TO AMEND.
Moving defendants are ordered to
give notice of the ruling.