Judge: Douglas W. Stern, Case: 21STCV38565, Date: 2022-10-06 Tentative Ruling

Case Number: 21STCV38565    Hearing Date: October 6, 2022    Dept: 52

Tentative Ruling:

Defendants New Residential Mortgage LLC and Deutsche Bank National Trust Company’s Demurrer to Second Amended Complaint        

Defendants New Residential Mortgage LLC and Deutsche Bank National Trust Company demur to the entire second amended complaint of plaintiffs Kenya Portillo, as administrator of the Estate of Hector Portillo, and Kenya Portillo. 

Incorrect Notice of Default and Notice of Trustee’s Sale

            Defendants demur to the first cause of action for violation of Civil Code § 2923.5, pre-default notice requirements; second cause of action for violation of Civil Code § 2923.6(c), dual tracking; and fourth cause of action for violation of Civil Code § 2924.9, post-default notice requirements on the same grounds: the second amended complaint alleges defendants recorded a notice of default and notice of trustee’s sale that has nothing to do with plaintiffs.  Plaintiffs fail to allege sufficient facts for these causes of action for that reason.

            The second amended complaint alleges plaintiffs own 6109 and 6111 Northside Drive, Los Angeles, CA 90022.  (¶ 1.)  Both exhibit B, the notice of default, and C, the notice of trustee’s sale, are recorded instruments about 9511 Grapefruit Avenue, Hesperia CA 92345 and borrower, Elsa G. Soloman.  They do not match the property plaintiffs allege they own. 

When the court granted plaintiffs’ motion for leave to file the second amended complaint, it struck exhibits B and C.  Defendants correctly note, however, that the second amended complaint’s allegations refer exclusively to that notice of default and notice of trustee’s sale.  It alleges, “[A] Notice of Default and Election Sell Under a Deed of Trust was recorded in the Los Angeles County, California Recorder’s Office on March 21, 2017 as document no. 2017-0118551 (See Exhibit “B”, Notice of Default and Election to Sell Under a Deed of Trust).”  (¶ 13.)  It further alleges, “[O]n August 3, 2021, a Notice of Trustee’s Sale was recorded in the Los Angeles County, California Recorder’s Office as instrument no. 2021-0401710 against the property (See Exhibit “C”, Notice of Trustee’s Sale).  The sale date was set for October 07, 2021, and there is no pending sale date.”  (¶ 14.)  The attached exhibits B and C match those dates and document numbers.

Third Cause of Action for Violation of Civil Code § 2923.7

Defendants demur to the third cause of action on the grounds that plaintiffs do not allege a material violation.  Section 2923.7, subdivision (a) provides, “When a borrower requests a foreclosure prevention alternative, the mortgage service shall promptly establish a single point of contract.”  A cause of action for violating this section requires “a material violation.”  (Civ. Code, § 2924.12(a)(1), (b).)

To determine whether a violation is material, the court considers “whether the alleged violation undermined the overall purpose of the” homeowner’s bill of rights (HBOR).  (Morris v. JPMorgan Chase Bank, N.A. (2022) 78 Cal.App.5th 279, 304–305 (Morris).)  “In doing so, we need not recharacterize the purpose of the HBOR because the Legislature has stated it plainly: ‘The purpose of the act that added this section is to ensure that, as part of the nonjudicial foreclosure process, borrowers are considered for, and have a meaningful opportunity to obtain, available loss mitigation options, if any, offered by or through the borrower's mortgage servicer, such as loan modifications or other alternatives to foreclosure.’ (§ 2923.4.)”  (Id. at p. 305.)

“A material violation is one that affected the borrower’s loan obligations, disrupted the borrower’s loan-modification process, or otherwise harmed the borrower.”  (Billesbach v. Specialized Loan Servicing LLC (2021) 63 Cal.App.5th 830, 837.)  “Absent any meaningful harm to” the borrower, the defendants’ “uncured violations [a]re not material.”  (Id. at p. 846.)  Examples of immaterial violations include “failure to initiate contact” when the “borrower had opportunity to discuss financial situation and foreclosure alternatives” (id. at p. 845) and dual-tracking when later remedied by properly evaluating and acting on a pending loan-modification application (id. at pp. 846-847).    

Plaintiffs do not allege a material violation of Civil Code § 2923.7. Plaintiffs allege they requested a loan modification on September 29, 2021.  (SAC, ¶ 15.)  They do not allege facts showing any effect on their loan obligations, disruption to the modification process, or other harm after that date.  They do not allege a foreclosure has taken place or is scheduled.

Morris held that failing to appoint a single point of contact constituted a material violation.  “By forcing Morris to deal with multiple people, none of whom could inform her of the status of her application; by giving her inconsistent and inaccurate information; and by stringing her along until her home was sold without notice, she alleges that Chase and then Rushmore deprived her of a meaningful opportunity to be considered for a loan modification.”  (Morris, supra, 78 Cal.App.5th at p. 306.)  In contrast, plaintiffs do not allege they were forced to deal with multiple people who could not inform them of the application’s status or provide accurate information.  They do not allege their home was sold without notice.

Moreover, plaintiffs make only the conclusory allegation that New Residential “failed to assign a ‘SPOC’ within a reasonable time after receipt of the loan modification application.”  (SAC, ¶ 40.)  They allege the non-profit assisting them spoke to “Allan, Id P38” on October 1, 2021 (¶ 17), then an unspecified “agent” of New Residential on October 5 (¶ 19). 

Assuming the latter agent was not Allan, a “ ‘single point of contact’ means an individual or team of personnel each of whom has the ability and authority to perform the responsibilities” required.  (Civ. Code, § 2923.6(e).)  The only alleged failure to perform a required responsibility is that Allan “could not provide an answer” on October 1 as to why the loan modification was suspended.  (SAC, ¶ 17.)  That could not be a material violation because on October 5, 2021—two business days later—New Residential confirmed the application was under review.  (SAC, ¶ 19.)

Fifth Cause of Action for Violation of Civil Code § 2924.10

            Plaintiffs do not allege a material violation of Civil Code § 2924.10.  That section requires a mortgage servicer to “provide written acknowledgment of the receipt of the documentation” regarding a modification application “within five business days of receipt.”  (Civ. Code, § 2924.10.)  A cause of action for violating this section requires “a material violation.”  (Civ. Code, § 2924.12(a)(1), (b).)

            Plaintiffs allege they submitted their modification application on September 29, 2021.  (SAC, ¶ 15.)  They allege “that on October 6, 2021 no 5-day acknowledgement was received, so if documents were incomplete, they would have said so.”  (¶ 18.)  But plaintiffs do not allege the documents were incomplete.  They do not allege any facts showing something happened to impact their loan obligations after September 29, 2021.  They do not allege facts showing any such impact resulted from defendants’ failure to provide timely written notice of receiving the documents.  Moreover, plaintiffs allege the non-profit assisting them contacted New Residential, by phone on October 5, and its representative “advised that the loan modification application file is in review.”  (¶ 19.)  Within five business days of submitting it, plaintiffs knew their application was under review.

Plaintiffs describe Pura v. Citimortgage, Inc. (C.D. Cal., Jan. 2, 2015, No. CV 14-08417 RGK JEMX) 2015 WL 81980 as “finding a viable claim where servicer never acknowledged any of borrower’s application materials in writing.”  (Opp., p. 7.)  That case did not discuss whether any violation was material.  The sole basis for denying the motion to dismiss was that “the balance of Defendant’s challenge rests on Defendant’s assertion that it did not commit the acts of which Plaintiff’s [sic] complains in her complaint”—which is not a valid basis for challenging the sufficiency of a pleading.  (Id. at p. *2.) 

Sixth Cause of Action for Unfair Business Practices

            Plaintiffs fail to allege sufficient facts for this cause of action.  “Unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice.”  (Bus. & Prof. Code, § 17200.)  The law “covers a wide range of conduct” and “embraces anything that can properly be called a business practice and that at the same time is forbidden by law.”  (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1143, internal quotes and citations omitted.)  The statute “ ‘borrows’ violations from other laws by making them independently actionable as unfair competitive practices.”  (Ibid.) 

            This cause of action relies on the others.  Without them, plaintiffs fail to allege any unlawful, unfair, or fraudulent business act or practice. 

            Plaintiffs also fail to allege sufficient facts for standing.  A plaintiff must be “a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.”  (Bus. & Prof. Code, § 17204.)  “[T]o bring a UCL action, a private plaintiff must be able to show economic injury caused by unfair competition.”  (Zhang v. Superior Court (2013) 57 Cal.4th 364, 372.)

Plaintiffs rely on the conclusory allegation that defendants “[i]mplemented a severely flawed mitigation review process” which “is purposefully lengthy so that loss mitigation and loan modification will not be timely provided.”  (SAC, ¶¶ 62.a-b.)  They allege defendants “purposefully caused a lengthy delay in order to cause plaintiffs and borrowers like plaintiffs to incur continuing interest charges that would otherwise be mitigated, late fees, and ultimately foreclosure costs that would erode a borrower’s equity or severely diminish any possibility for future equity.”  (¶ 62.b.)

Plaintiffs’ factual allegations contradict these conclusory allegations.  They initiated the mitigation review process by submitting a complete loan modification application on September 29, 2021.  (SAC, ¶ 15.)  On October 5, New Residential informed plaintiffs “that the loan modification application is in review.”  (¶ 19.)  They do not allege that they were thereafter charged late fees, interest, or foreclosure costs, or that anything later happened that would diminish any possible for future equity.  They therefore fail to allege they have suffered injury in fact by losing money or property as a result of any unfair business practice.   

Seventh Cause of Action for Cancellation of Instruments

            Plaintiffs fail to allege sufficient facts for this cause of action.  Civil Code § 3412 provides, “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.”

            Plaintiffs seek to cancel the notice of default and notice of trustee’s sale (SAC, ¶ 71, Exs. B-C) regarding a different property and different borrower.  Those instruments could not cause any injury to them if left outstanding.  In addition, plaintiffs allege the instruments are void or voidable because of the violations of the homeowner’s bill of rights alleged in the first five causes of action.  Assuming any of those violations would make the instruments void or voidable, plaintiffs fail to sufficiently allege any violation as discussed above.

Leave to Amend

            After a successful demurrer, where “there is a reasonable possibility that the defects can be cured by amendment, leave to amend must be granted.”  (Stevens v. Superior Court (1999) 75 Cal.App.4th 594, 601.)  The plaintiff bears the burden of “demonstrat[ing] how the complaint can be amended.”  (Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, 711.)  “Leave to amend should be denied where the facts are not in dispute and the nature of the claim is clear, but no liability exists under substantive law.”  (Lawrence v. Bank of America (1985) 163 Cal.App.3d 431, 436.)

            Plaintiffs have a reasonable possibility of amending the complaint to cure the defects in the first, second, fourth, sixth, and seventh causes of action.  Defendants successfully demurred to these causes of action on the grounds that plaintiffs’ allegations and exhibits are about the wrong notice of default and notice of trustee’s sale.  Though plaintiffs have repeatedly failed to do so, it should be simple to allege and attach the correct instruments.  The court will give them one last opportunity to do so.

            Plaintiffs fail to show a reasonable possibility of amending the complaint to cure the defects in the third and fifth causes of action.  Defendants successfully demurred to them on the grounds that plaintiffs did not allege a material violation.  They have had two chances to amend the complaint to cure that defect.  They have not done so.  The opposition does not offer any additional facts that could be alleged to show some material violation after plaintiffs submitted their loan modification application. 

Disposition

            Defendants New Residential Mortgage LLC’s and Deutsche Bank National Trust Company’s demurrer to the first, second, fourth, sixth, and seventh causes of action alleged in the second amended complaint is sustained with 20 days’ leave to amend.

            Defendants’ demurrer to the third and fifth causes of action is sustained without leave to amend.