Judge: John J. Kralik, Case: 22BBCV00434, Date: 2022-10-14 Tentative Ruling

Case Number: 22BBCV00434    Hearing Date: October 14, 2022    Dept: NCB

 

Superior Court of California

County of Los Angeles

North Central District

Department B

 

 

JOEL LAZARO, et al.,

                        Plaintiffs,

            v.

 

SPECIALIZED LOAN SERVICING, LLC, et al.,

                        Defendants.

 

  Case No.:  22BBCV00434

 

  Hearing Date:  October 14, 2022

 

[TENTATIVE] order RE:

Demurrer

 

BACKGROUND

A.    Allegations

            Plaintiffs Joel and Rosemarie Lazaro (“Plaintiffs”) allege that they purchased the property located at 11304 Tiara Street, North Hollywood, CA 91601 in 2005.  They allege that due to COVID-19 hardship, they were unable to maintain the payments on their loan and thus applied for and were granted forbearance.  They allege that when the forbearance period ended, they were still unable to pay their loan and consequently decided to sell their property.  They allege they sent their loan servicer Defendant Specialized Loan Servicing, LLC (“SLS”) a listing agreement for the property along with authorization for SLS to contact the listing agent for the sale of the property and SLS acknowledged receipt and promised to forward the listing agreement.  Plaintiffs allege that while they were waiting for a response, they were served with a Notice of Default on March 15, 2022, which was recorded by Defendant Quality Loan Service Corporation (“QLS”) for the benefit of Defendant The Bank of New York Mellon (“BONYM”). 

            The complaint, filed June 13, 2022, alleges causes of action for: (1) violation of Civil Code, § 3273 et al.; (2) breach of the covenant of good faith and fair dealing; (3) interference with prospective economic advantage; and (4) unfair business practices.

B.     Demurrer on Calendar  

On July 27, 2022, SLS filed a demurrer to each cause of action alleged in the complaint.

On August 29, 2022, Plaintiffs filed an opposition brief.

REQUest FOR JUDICIAL NOTICE

            SLS requests judicial notice of: (A) the deed of trust recorded on August 12, 2005; (B) the assignment of the deed of trust recorded on January 23, 2012; (C) the substitution of trustee recorded on March 9, 2022; and (D) the notice of default recorded on March 17, 2022.  The request is granted.  (See Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-267, disapproved on other grounds.) 

DISCUSSION

            SLS demurs to the 1st, 2nd, 3rd, and 4th causes of action on the ground that they fail to allege sufficient facts to constitute a cause of action against SLS. 

  1. 1st cause of action for Violation of Civil Code, § 3273, et seq.

In their first cause of action, Plaintiffs allege that Defendants violated section 3273.10.  (Compl., ¶20.)  Section 3273.10 states:

(a) If a mortgage servicer denies a forbearance request made during the effective time period, the mortgage servicer shall provide written notice to the borrower that sets forth the specific reason or reasons that forbearance was not provided, if both of the following conditions are met:

(1) The borrower was current on payment as of February 1, 2020.

(2) The borrower is experiencing a financial hardship that prevents the borrower from making timely payments on the mortgage obligation due, directly or indirectly, to the COVID-19 emergency.

(b) If the written notice in subdivision (a) cites any defect in the borrower's request, including an incomplete application or missing information, that is curable, the mortgage servicer shall do all of the following:

(1) Specifically identify any curable defect in the written notice.

(2) Provide 21 days from the mailing date of the written notice for the borrower to cure any identified defect.

(3) Accept receipt of the borrower's revised request for forbearance before the aforementioned 21-day period lapses.

(4) Respond to the borrower's revised request within five business days of receipt of the revised request.

(c) If a mortgage servicer denies a forbearance request, the declaration required by subdivision (b) of Section 2923.5 shall include the written notice together with a statement as to whether forbearance was or was not subsequently provided.

(d) A mortgage servicer, mortgagee, or beneficiary of the deed of trust, or an authorized agent thereof, who, with respect to a borrower of a federally backed mortgage, complies with the relevant provisions regarding forbearance in Section 4022 of the federal Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) (Public Law 116-136), including any amendments or revisions to those provisions, shall be deemed to be in compliance with this section. A mortgage servicer of a nonfederally backed mortgage that provides forbearance that is consistent with the requirements of the CARES Act for federally backed mortgages shall be deemed to be in compliance with this section.

(Civ. Code, § 3273.10 [emphasis added].) Section 3273.11(a) states that “[a] mortgage servicer shall comply with applicable federal guidance regarding borrower options following a COVID-19 related forbearance.”  “It is the intent of the Legislature that a mortgage servicer offer a borrower a postforbearance loss mitigation option that is consistent with the mortgage servicer's contractual or other authority.”  (Civ. Code, § 3273.12.) 

            In the 1st cause of action, Plaintiffs allege they were current on their payments as of February 1, 2020, but COVID-19 negatively impacted their income in March 2020, such that they were no longer to maintain payments by May 2021.  (Compl., ¶¶21-22.)  They allege they applied for and were granted forbearance with Defendant in March 2021.  (Id., ¶22.)  They allege the initial forbearance period was for 15-months beginning March 1, 2020 until June 1, 2021, and it was extended to September 1, 2021.  (Id., ¶23.)  Plaintiffs allege that in October 2021, by the forbearance period’s end date, they decided to sell the property and sent a notice of intent to sell and authorization for SLS to contact the listing agent on October 25, 2021.  (Id., ¶¶24-25.)  Plaintiffs allege that SLS acknowledged receipt of the listing agreement and promised to forward it to the proper department for review, but SLS did not respond to Plaintiffs about the department review and instead filed negative reports against Plaintiffs.  (Id., ¶¶26-27.) They allege that the negative reports affected their ability to sell the property and obtain foreclosure alternatives.  (Id., ¶¶27-28.)  Plaintiffs allege that on March 15, 2022, they were served with a notice of default recorded by QLS and for the benefit of BONYM.  (Id., ¶29.) 

            SLS demurs to the 1st cause of action, arguing that Plaintiffs acknowledge in their complaint that they had a forbearance until September 1, 2021 and that they did not request an additional forbearance after it expired.  Taking the allegations as true, following September 1, 2021, Plaintiffs were in default of their loan obligations.  Civil Code, § 3273.10 states that if a mortgage servicer denies a forbearance request, then it must provide written notice to the borrower setting for the reasons.  As alleged by Plaintiffs, SLS did not deny any forbearance request and, thus, SLS was not obligated to provide a reason for any “denial” since no denial of a forbearance request was ever issued.

Next, as pointed out by SLS, Plaintiffs’ complaint does not cite any legal authority that SLS was obligated to respond to Plaintiffs’ submission of their listing agreement on October 25, 2021, which was after the forbearance period already expired.  This is not a requirement or a request for forbearance pursuant to section 3273.10 and they do not state what federal guidelines SLS breached in treating their loan after the forbearance period ended.

In opposition, Plaintiffs cite to section 3273.11 that: “A mortgage servicer shall comply with applicable federal guidance regarding borrower options following a COVID-19 related forbearance.”  (Civ. Code, § 3273.11(a).)  Plaintiffs have not cited further authority regarding what federal guidelines apply, such as when a borrower sending a listing agreement following the expiration of a forbearance period to the mortgage servicer.

As currently alleged, the 1st cause of action is not sufficiently pled.  Thus, the demurrer to the 1st cause of action is sustained with leave to amend.

  1. 2nd cause of action for Breach of the Implied Covenant of Good Faith and Fair Dealing

“The standard elements of a claim for breach of contract are: “(1) the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) damage to plaintiff therefrom. [Citation.]”  (Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1178.)  As to the breach of the implied covenant, every contract imposes on each party a duty of good faith and fair dealing in each performance and in its enforcement.  (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1393.)

In the 2nd cause of action, Plaintiffs allege that SLS was obligated not to hinder or prevent Plaintiffs’ ability to go through with a foreclosure alternative as specified in the legally required notice SLS sent Plaintiffs dated May 9, 2022—namely, an opportunity to conduct a market sale of the property without a Notice of Default.  (Compl., ¶36.)  They also allege that QLS was obligated not to hinder their ability to go through with the sale.  (Id., ¶39.)  Plaintiffs allege that the recording of the NOD deprived Plaintiffs from conducting a market sale without a cloud over the property’s title, such that they were unable to receive the benefits of the legally required foreclosure opportunities offered to them.  (Id., ¶¶37, 40.)  Plaintiffs allege they were harmed because they were unable to sell the property to prospective buyers.  (Id., ¶¶38, 41.)   

SLS argues that Plaintiffs have not alleged what conduct SLS engaged in that prevented Plaintiffs from making payments under the Note and Deed of Trust, which are the relevant contracts between the parties.  SLS argues that it was within its rights to cause an NOD to be recorded based on Plaintiffs’ delinquent mortgage payments.  SLS argues that even if Plaintiffs submitted a listing agreement to SLS, Plaintiffs have not alleged that they forwarded a purchase agreement showing that they were in the process of selling their property.  Rather, the complaint alleges that Plaintiffs sent a purchase agreement to QLS only on March 24, 2022.  (Compl., ¶39.) 

Here, Plaintiffs have not alleged a breach of the implied covenant of good faith and fair dealing against SLS.  Plaintiffs have not alleged what contractual term they are relying upon as the basis for their breach of the implied covenant of good faith and fair dealing claim.  Plaintiffs argue that SLS hindered their attempt to sell the property as a foreclosure alternative, but Plaintiffs have not cited where this was a term of the parties’ agreement in the first place and how SLS hindered or prevented Plaintiffs from performing under the contract (which in this case would be their obligation to make mortgage payments).  “If there exists a contractual relationship between the parties … the implied covenant is limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated in the contract.”  (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1032.) 

Plaintiffs should add further facts to support their 2nd cause of action.  Thus, the demurrer to the 2nd cause of action is sustained with leave to amend.

  1. 3rd cause of action for Interference with Prospective Economic Advantage

The elements of the tort of intentional interference with prospective economic advantage are: “(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.”  (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1153.)

In the 3rd cause of action, Plaintiffs allege that Defendants engaged in intentional conduct aimed at disrupting an economic relationship between Plaintiffs and potential buyers of the property.  (Compl., ¶¶43, 45.)  Plaintiffs allege that Defendants knew about the prospective buyers because Plaintiffs sent them notices and authorizations to contact their real estate agent regarding the sale of the property on October 25, 2021, but Defendants nevertheless recorded the NOD.  (Id., ¶¶46-48.)  Plaintiffs allege that as a direct consequence of Defendants’ interference, Plaintiffs were unable to sell their home as a foreclosure alternative and now stand to lose their property.  (Id., ¶¶49-50.) 

Exhibit A of the complaint includes an Authorization Letter to SLS stating that Plaintiffs are giving SLS permission to contact their real estate agent regarding the progress of listing and selling the property.  (Compl., Ex. A.)  The attached document includes a Disclosure Regarding Real Estate Agency Relationship between Plaintiffs and their real estate company, a Commercial and Residential Income Listing Agreement between Plaintiffs and their real estate company, a Fair Housing & Discrimination Advisory, and California Consumer Privacy Act Advisory.  (Id.) 

Based on the timeline provided by Plaintiffs in their complaint, SLS did not have knowledge of an economic relationship between Plaintiffs and third-party buyers.  Plaintiffs alleged in the complaint that they forwarded the listing agreement to SLS on October 25, 2021, they were served with the NOD on March 15, 2022, and then Plaintiffs sent a copy of the purchase agreement to QLS on March 24, 2022.  (Id., ¶¶25, 30.)  The October 2021 listing agreement does not show an economic relationship between Plaintiffs and a third party that would provide a probability of future economic benefit to Plaintiffs.  A listing agreement between Plaintiffs and a real estate broker is not the equivalent of showing an agreement for future benefit between Plaintiffs and third-party purchasers of the property.  Further, a copy of the purchase agreement was only sent to QLS (not SLS) after the NOD was recorded.  As this element has not been met, Plaintiffs have not alleged facts showing that SLS acted intentionally to disrupt the relationship.

As such, the demurrer to the 3rd cause of action is sustained with leave to amend.  Plaintiffs should consider whether this cause of action is properly alleged against SLS prior to amendment.

  1. 4th cause of action for Violation of Business & Profession Code, §17200

According to the complaint, the 4th cause of action is based on the prior causes of action and Defendants’ alleged violation of Civil Code, §§ 2943 and 2924c, et seq.  (Compl., ¶¶54-56.) 

Civil Code, § 2943 includes definitions and requirements for beneficiaries to issue payoff demand statements.  Section 2924c is regarding cures of default and notice of default.  Plaintiffs do not address these sections in their opposition papers and do not discuss how these sections apply or were violated. 

For the reasons discussed above regarding the demurrer to the 1st to 3rd causes of action, the demurrer to the 4th cause of action is sustained with leave to amend.

CONCLUSION AND ORDER

Defendant Specialized Loan Servicing, LLC’s demurrer to the complaint is sustained with 20 days leave to amend.

Department B is dark on November 14, 2022.  Therefore, on the Court’s own motion, the Case Management Conference set on November 14, 2022, is advanced to this date and continued to December 12, 2022, at 8:30 a.m.

Defendant shall provide notice of this order.