Judge: Mary H. Strobel, Case: 22STCV38439, Date: 2023-03-07 Tentative Ruling

Hon. Mary H. Strobel The clerk for Department 82 may be reached at (213) 893-0530.

Case Number: 22STCV38439    Hearing Date: March 7, 2023    Dept: 82

             Plaintiffs George G. Washington and Reecie M. Washington (“Plaintiffs”) move for a preliminary injunction enjoining Defendant New Penn Financial LLC d/b/a Shellpoint Mortgage Servicing (“Defendant”) from foreclosing on real property located at 36 Montecillo Drive, Rolling Hills Estates, CA 90274 (the “Property”). 

Judicial Notice

Plaintiffs’ Request for Judicial Notice (“RJN”) Exhibits 1-3 – Granted. 

Background

            Plaintiffs purchased the Property in or about October 2005.  They use the Property as their primary residence.  (Washington Decl. ¶¶ 3-4.)  To facilitate the purchase, Plaintiffs obtained a loan in the amount of $1,000,000 from Countrywide Home Loans, Inc.  The loan was secured by a deed of trust against the Property.  (RJN Exh. 1.) 

            Defendant became the servicer of the loan on February 1, 2020.  (Gonzales Decl. ¶ 8.)  Plaintiffs represent that, at the beginning of 2020, they “began experiencing a financial hardship that [they] believed was going to prevent [them] from making timely payments on [the] home loan as a result of the effects of the COVID-19 pandemic.”  (Washington Decl. ¶ 5.) 

            In May 2020, Plaintiffs applied for a Covid-related forbearance.  Plaintiffs allege that Defendant’s customer service representative made various representations and promises about the forbearance plan in a phone call in early 2020.  Defendant approved a forbearance plan, which was extended through October 8, 2021.  (Gonzales Decl. ¶ 9; Washington Decl. ¶¶ 6-9.)  Plaintiffs allege that, after the forbearance ended, Defendant demanded that Plaintiffs pay all of the monthly payments they did not make during the forbearance and fees for failing to make such payments.  (Washington Decl. ¶¶ 9-12.)

            On August 25, 2022, a Notice of Default was recorded against the Property asserting an amount due on the loan of $237,893.94 (hereafter “NOD”).  (RJN Exh. 2.)  On November 29, 2022, a Notice of Trustee’s Sale was recorded against the Property and stated a sale date of December 29, 2022 (hereafter “NTS”).  (RJN Exh. 3.)

Procedural History

            On December 9, 2022, Plaintiffs filed the original complaint against Defendant.  On December 15, 2022, Plaintiffs filed their operative first amended complaint (“FAC”). 

            On December 15, 2022, the court granted Plaintiffs’ ex parte application for a temporary restraining order and OSC re: preliminary injunction.  The court set the OSC for a hearing and set a briefing schedule.  On January 3, 2023, the court approved the parties’ stipulation to continue the hearing to March 7, 2023.  The stipulation required Defendant to file and serve the opposition by February 22, 2023, and Plaintiffs to file and serve the reply by February 28, 2023.

            On February 23, 2023, Defendant untimely filed and served an oversized opposition brief without permission from the court.  On February 24, 2023, Defendant untimely filed and served an opposing declaration without permission from the court. 

            On February 28, 2023, Plaintiffs timely filed and served their reply and reply declaration.  The reply responds on the merits to the opposition.  Accordingly, the court considers the opposition.  Counsel for Defendant are admonished to follow court orders regarding any briefing schedule and to comply with the California Rules of Court with respect to allowable pages for a Memorandum of Points and Authorities.

Legal Standard for Preliminary Injunction

The purpose of a preliminary injunction is to preserve the status quo pending a decision on the merits.  (Major v. Miraverde Homeowners Ass’n. (1992) 7 Cal. App. 4th 618, 623.)  In deciding whether or not to grant a preliminary injunction, the court looks to two factors, including “(1) the likelihood that the plaintiff will prevail on the merits, and (2) the relative balance of harms that is likely to result from the granting or denial of interim injunctive relief.”  (White v. Davis (2003) 30 Cal.4th 528, 553-54.) The factors are interrelated, with a greater showing on one permitting a lesser showing on the other.  (Dodge, Warren & Peters Ins. Services, Inc. v. Riley (2003) 105 Cal.App.4th 1414, 1420.)  However, the party seeking an injunction must demonstrate at least a reasonable probability of success on the merits.  (IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 73-74.)  The party seeking the injunction bears the burden of demonstrating both a likelihood of success on the merits and the occurrence of irreparable harm.  (Savage v. Trammell Crow Co. (1990) 223 Cal.App.3d 1562, 1571.) Irreparable harm may exist if the plaintiff can show an inadequate remedy at law.  (CCP § 526(a).)  “A preliminary injunction is not a determination on the merits.”  (Yee v. American National Ins. Co. (2015) 235 Cal.App.3d 363, 458.)

Analysis

Plaintiffs’ Likelihood of Prevailing

            Promissory Fraud, and Intentional and Negligent Misrepresentation

Plaintiffs allege claims for promissory fraud, intentional misrepresentation, and negligent misrepresentation.  The gravamen of these claims is that Defendant’s agent made false misrepresentations on a phone call regarding the forbearance plan and Plaintiffs reasonably and detrimentally relied on such misrepresentations.  (See FAC ¶¶ 29-53.)

““The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or 'scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.)  “‘Promissory fraud’ is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud.”  (Ibid.)  The elements of intentional and negligent misrepresentations are similar.  (See Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Servs. Grp., Inc. (2009) 171 Cal. App. 4th 35, 50.) 

“Justifiable reliance is an essential element of a claim for fraudulent misrepresentation, and the reasonableness of the reliance is ordinarily a question of fact. [Citations.] However, whether a party's reliance was justified may be decided as a matter of law if reasonable minds can come to only one conclusion based on the facts.”  (Guido v. Koopman (1991) 1 Cal. App. 4th 837, 843.) 

            Here, Plaintiffs submit evidence to support all elements of promissory fraud, and intentional and negligent misrepresentation.  Specifically, Plaintiffs submit evidence that they contacted Defendant by telephone at the beginning of 2020 to discuss whether they could obtain a loan modification or Covid-19 forbearance.  (Washington Decl. ¶ 6.)  Plaintiff George Washington declares that:

On that phone call, SHELLPOINT, through a female customer service agent responsible for communicating with loans serviced by SHELLPOINT, made several representations and promises to my wife and I. The representations and promises included that the loan was eligible for forbearance and that SHELLPOINT would place the loan in forbearance. She also said that the payments my wife and I missed during forbearance would be added to the loan balance at the end of the forbearance, that my wife and I could resume making individual monthly payments at the end of the forbearance, and that my wife and I would suffer no negative consequences of entering forbearance, including that we would not have fees added or be reported delinquent to any credit rating agencies for missing payments during the forbearance.

(Washington Decl. ¶ 7.)

Washington further declares that Plaintiffs relied on such representations to enter the forbearance plan; that when the forbearance ended, Defendant demanded that Plaintiffs pay the full balance of the missed payments and fees added to the balance for failure to make payments during the forbearance; that Plaintiffs were ignorant of the falsity of the representations; and that they have suffered damages including severe emotional distress, unwarranted fees, non-judicial foreclosure of their home, damage to their reputation, and attorney’s fees.  (Id. ¶¶ 9-12, 19-24.)  It may be reasonably inferred from Plaintiffs’ evidence that the agent made the statements with knowledge of falsity and with intent to induce reliance. 

            Defendant contends that “[t]he terms of the forbearance were not discussed with Plaintiffs on the telephone prior to the forbearance being granted.”  (Gonzales Decl. ¶ 9.)  Defendant’s representative, Paula Gonzales, does not show personal knowledge or foundation for that statement.  While she states that her review of business records discloses the “communications between Shellpoint and borrowers,” she does not submit any supporting business records.  (Id. ¶ 2.)   

            Defendant contends that Plaintiffs “misunderstood” what was meant when the agent said that “the payments Plaintiffs missed would be added to the loan balance at the end of the forbearance period.”  Defendant contends that “Plaintiffs were clearly advised that the payments not made during the forbearance period would make their loan in default if they did not bring the loan current at the end of the forbearance period.”  (Oppo. 5.)  Defendant authenticates a written notice to Plaintiffs, dated May 8, 2020, which stated that Plaintiffs were approved for the forbearance plan.  The notice also stated, in pertinent part: “Your payment continues to come due on a monthly basis and these payments will be due at the end of your temporary forbearance period…. The terms of your mortgage remain unchanged. As a result of not making any payments during the term of the Forbearance Plan, you will become delinquent on your mortgage and your credit score may be impacted after the forbearance is completed; if we are not able to resolve your delinquency.”  (Gonzales Decl. ¶ 20, Exh. A.)  In reply, Plaintiffs have not disputed that they received this written notice.  To the extent Plaintiffs claim that the agent falsely stated or implied that the missed loan payments would not be immediately due at the end of the forbearance period, the written notice potentially conflicts with such claim and suggests Plaintiffs may have misunderstood the agent.  Also, since the written notice was given at the start of the forbearance period, it suggests Plaintiffs did not reasonably rely on any alleged statement of the agent that Plaintiffs would not be required to pay the missed payments immediately upon the end of the forbearance. 

However, the notice also specified that Plaintiffs would “not be penalized with a late payment charge or with negative credit reporting” during the forbearance period.  Plaintiffs submit evidence that, in conflict with the representations made, Defendant charged them fees “added to the balance for failure to make payments during the forbearance period.”  (Washington Decl. ¶ 9.)  Plaintiffs also submit evidence that they entered the forbearance plan based on such representations.  (Id. ¶ 8.)  Defendants do not respond to that evidence in opposition. 

Finally, Defendants contend that Plaintiffs did not rely on the alleged misrepresentations in entering into the forbearance because they were already experiencing financial hardship as a result of the Covid-19 pandemic or other causes.  (Oppo. 5.)  Defendants rely, in part, on statements in Gonzales’ declaration that Plaintiffs had previously defaulted and obtained loan modifications, and that Plaintiffs became delinquent on the modified payments in October 2019.  (Gonzales Decl. ¶¶ 3-7.)  Whether or not Plaintiffs previously received a loan modification is largely irrelevant to the fraud claim.  Gonzales does not provide any documentary support for the claim Plaintiffs were already delinquent in October 2019, and Plaintiffs deny being delinquent at that time.  (See Reply Washington Decl. ¶¶ 1-3, Exh. 1.) While Plaintiffs admit that they suffered a financial hardship at the start of the Covid-19 pandemic that could prevent them from making timely loan payments, they do not admit that they were in default before the start of forbearance.  (Washington Decl. ¶ 6.)  There is some evidence that Plaintiffs entered the forbearance plan in reliance on Defendant’s representations. 

Based on the foregoing, Plaintiffs have submitted some evidence that Defendant’s agent intentionally or negligently made false representations about the terms of the forbearance plan; that Plaintiffs reasonably relied on Defendants’ representations when they decided to enter into the forbearance plan; and that they were damaged, including because of fees added to the loan balance and because foreclosure was commenced.  Plaintiffs have some reasonable probability of success on their fraud claims.  The court would not characterize Plaintiffs’ probability of success on the fraud claims as strong, but it is sufficient to reach the balance of harms. 

Civil Code Section 2923.5

Plaintiffs allege that Defendant failed to comply with pre-foreclosure requirements in the Homeowner Bill of Rights, specifically Civil Code section 2923.5.  (Ex Parte 5-6; FAC ¶¶ 60-64.)

Civil Code section 2924.12 creates a private right of action for a borrower to seek injunctive relief to enjoin a “material violation” of sections 2923.55 and other statutes.  (Civ. Code § 2924.12(a).) 

Section 2923.55 provides that a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent may not record a notice of default until the mortgage servicer has either contacted “the borrower” in person or by telephone to discuss foreclosure avoidance options, or has attempted with due diligence to contact the borrower. The statute requires the contact to occur more than 30 days before the notice of default is recorded.  (§ 2923.5; Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1494.)

“A notice of default recorded pursuant to Section 2924 shall include a declaration that the mortgage servicer has contacted the borrower, [or] has tried with due diligence to contact the borrower as required by this section….”  (§ 2923.55(c).)  The declaration need not be under penalty of perjury, and it may track the language of the statute.  (See Mabry v. Superior Court (2010) 185 Cal.App.4th 208, 223-35.)  “A borrower may state a cause of action under section [2923.5] by alleging the lender did not actually contact the borrower or otherwise make the required efforts to contact the borrower despite a contrary declaration in the recorded notice of default.”  (Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1494.)  The remedy for a violation of section 2923.5 is to postpone the sale until there has been compliance.  (See Mabry v. Superior Court (2010) 185 Cal.App.4th 208, 223.) 

            The NOD includes a Declaration of Compliance pursuant to section 2923.55 stating that the mortgage servicer contacted Plaintiffs to assess their financial situation and explore options to avoid foreclosure and that 30 days have passed since the initial contact was made.  The declaration is dated August 5, 2022, and is signed by Alfonso Ramirez, Loss Mitigation Specialist.  (RJN Exh. 2.)

            In his declaration, Plaintiff Washington declares that the Declaration of Compliance is false because “SHELLPOINT did not contact my wife or I in person or by telephone in order to assess our financial situation and explore options to avoid foreclosure.”  (Washington Decl. ¶ 15.)  He also declares that Defendant “did not advise my wife and I that we had the right to request a subsequent meeting or provide us with the toll-free telephone number made available by the United States Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency,” as required by section 2923.55(b)(2).  (Id. ¶ 15.) 

In his moving declaration, Plaintiff Washington also admitted that Plaintiffs discussed their financial situation with Defendant in various phone calls after the forbearance ended.  (Id. ¶¶ 9-12.)  Section 2923.55 would be satisfied whether Plaintiffs or Defendant initiated any phone calls in which Plaintiffs’ financial situation and options to explore foreclosure were discussed.  However, it is unclear from the moving declaration whether those phone calls included sufficient discussion of Plaintiffs’ options to avoid foreclosure to satisfy section 2923.55.  (Id. ¶¶ 9-12.) 

Contrary to Plaintiffs’ assertion (see Reply 6:10-14), Defendant has provided some evidence about “when and how” it complied with section 2923.55 in addition to the Declaration of Compliance.  Specifically, Defendant’s representative, Gonzales, declares that Defendant “discussed” loss mitigation options with Plaintiffs starting on about September 14, 2021.  She also declares that Defendant had telephone calls with Plaintiffs to discuss their financial situation and explore options to avoid foreclosure on multiple dates, including September 14, 2021.  (Gonzales Decl. ¶¶ 10-12, 16-18.)  Gonzales declares that “it is Shellpoint's pattern and practice to provide borrowers in California in every telephone call an offer for a follow up meeting.”  (Id. ¶ 16.) She also declares that “it is Shellpoint's pattern and practice to provide borrowers in every telephone call with the toll free telephone number made available by the United States Department of Housing and Urban Development (‘HUD’) to find a HUD-certified housing counseling agency” and that Defendant provided Plaintiffs with this information on multiple dates.  (Id. ¶ 17.) 

However, Gonzales does not show personal knowledge regarding the alleged phone calls, but instead relies on her review of business records.  (Id. ¶ 2.)  She does not submit any copies of business records documenting the alleged phone calls or what was discussed. 

Based on the foregoing, Plaintiffs have some, reasonable probability of prevailing on their claim that Defendant did not comply with section 2923.55.  The court would not characterize Plaintiffs’ probability of success on this claim as strong.  However, Plaintiff’s probability of success is sufficient for the court to reach the balance of harms.

            Unfair Business Practices

“The UCL does not proscribe specific acts, but broadly prohibits ‘any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising....’  ‘The scope of the UCL is quite broad. Because the statute is framed in the disjunctive, a business practice need only meet one of the three criteria to be considered unfair competition.’ ‘Therefore, an act or practice is ‘unfair competition’ under the UCL if it is forbidden by law or, even if not specifically prohibited by law, is deemed an unfair act or practice.’”  (Hale v. Sharp Healthcare (2010) 183 Cal.App.4th 1373, 1381.) 

“Standing to sue under the statute, as defined by Business and Professions Code section 17204, is confined ‘to any person who has suffered injury in fact and has lost money or property” as a result of unfair competition.’”  (Bower v. AT&T Mobility, LLC (2011) 196 Cal.App.4th 1545, 1554.)

As Defendant acknowledges, Plaintiffs’ UCL claim, including with respect to the injury-in-fact requirement, is dependent on Plaintiffs’ other causes of action.  (Oppo. 17.)  For the reasons discussed above, Plaintiffs also have some reasonable probability of success on the UCL claim.

            Plaintiffs’ Other Claims

            In the moving brief, Plaintiffs do not specifically discuss their seventh and eighth causes of action for violation the Rosenthal Fair Debt Collection Practices Act or negligence per se.  (FAC ¶¶ 65-85.)  For that reason, and also because Plaintiffs have other causes of action upon which injunctive relief may be based, the court does not reach Defendant’s arguments that Plaintiffs lack a probability of success on the seventh and eighth causes of action.  (Oppo. 9-16.) 

In reply, Plaintiffs do not respond to Defendant’s reasoned argument that Civil Code section 3273.11 did not require Defendant to grant Plaintiffs’ request for a repayment plan under the circumstances of this case.  (Oppo. 6-7; Sehulster Tunnels/Pre-Con v. Traylor Brothers, Inc. (2003) 111 Cal.App.4th 1328, 1345, fn. 16 [failure to address point is “equivalent to a concession”].)  Also, as argued by Defendant, it is questionable whether Plaintiffs can prove a claim for intentional interference with contract since Defendant was acting as the lender’s agent.  (Oppo. 4.)  Nonetheless, the court need not decide Plaintiffs’ probability of success on either of these claims because Plaintiffs have other causes of action upon which injunctive relief may be based.

            Based on the foregoing, Plaintiffs show some reasonable probability of success on their fraud claims, their claim for violation of Civil Code section 2923.55, and the their UCL claim.  The court reaches the balance of harms.

Balance of Harms

For the second factor, the court must consider “the interim harm that the plaintiff would be likely to sustain if the injunction were denied as compared to the harm the defendant would be likely to suffer if the preliminary injunction were issued.”  (Smith v. Adventist Health System/West (2010) 182 Cal.App.4th 729, 749.)  “Irreparable harm” generally means that the defendant’s act constitutes an actual or threatened injury to the personal or property rights of the plaintiff that cannot be compensated by a damages award.  (See Brownfield v. Daniel Freeman Marina Hospital (1989) 208 Cal.App.3d 405, 410.) 

Real property is generally considered “unique” so that injury cannot be compensated in damages.  (See Civ. Code § 3387.)  An injury to a plaintiff’s rights to real property often will be irreparable.  (See Donahue Schriber Realty Group, Inc. v. Nu Creation Outreach (2014) 232 Cal.App.4th 1171, 1184-85; Christopher v. Jones (1964) 231 Cal.App.2d 408, 416; Civ. Code § 3387.) 

Plaintiffs own the Property and use it as their primary residence.  (Washington Decl. ¶ 2.)  The foreclosure of Plaintiffs’ home would cause irreparable harm to Plaintiffs, as they would lose real property that is deemed unique.   

In opposition, Defendant has made no argument about the balance of harms.   Defendant would suffer no irreparable harm from the proposed preliminary injunction, as Defendant could recommence foreclosure should it prevail at trial.

The balance of harms weighs heavily for granting the requested injunction.  Having considered Plaintiffs’ probability of success and the balance of harms, the court will grant the preliminary injunction. 

Undertaking

A preliminary injunction ordinarily cannot take effect unless and until the plaintiff provides an undertaking for damages which the enjoined defendant may sustain by reason of the injunction if the court finally decides that the plaintiff was not entitled to the injunction.  (See Code Civ. Pro. § 529(a); City of South San Francisco v. Cypress Lawn Cemetery Ass’n. (1992) 11 Cal. App. 4th 916, 920; see Abba Rubber Co. v. Seaquist (1991) 235 Cal.App.3d 1, 15-16 [“the prevailing defendant may recover that portion of his attorney's fees attributable to defending against those causes of action on which the issuance of the preliminary injunction had been based”].)  

Neither party addresses the undertaking requirement in their legal briefs.  Counsel should do so at the hearing.  Presumably, Defendant will incur legal fees litigating the causes of action upon which the injunction is based.  Defendant could also incur costs associated with the loan should the foreclosure be enjoined.  Subject to argument, the court sets the undertaking at $10,000. 

Conclusion

            The application for a preliminary injunction is GRANTED.  Subject to argument, Plaintiffs to post an undertaking of $10,000.