Judge: Shirley K. Watkins, Case: 21VECV01341, Date: 2022-09-12 Tentative Ruling

If ALL parties submit on the tentative, then no appearance is necessary unless some other matter (i.e., Case Management Conference) is on calendar. It is not necessary to call the court to request oral argument. Oral argument is permitted on all tentative rulings.

Case Number: 21VECV01341    Hearing Date: September 12, 2022    Dept: T

            [TENTATIVE] ORDER:  Defendant Shellpoint Mortgage Servicing’s Demurrer to the First Amended Complaint is SUSTAINED WITH 20 DAYS LEAVE TO AMEND as to the first, second and fourth causes of action; SUSTAINED WITHOUT LEAVE TO AMEND as to the third cause of action; and OVERRULED as to the fifth cause of action.

Introduction

Defendant Shellpoint Mortgage Servicing (Defendant) demurs to Plaintiff Robert Allen’s (Plaintiff) First Amended Complaint (FAC.)  Defendant demurs to the first cause of action (COA) for Civil Code section 2923.6 violation, the second COA for Civil Code section 2924.10 violation, the third COA for negligence, the fourth COA for Business and Professions Code section 17200 (UCL) violation and the fifth COA for accounting. 

            Discussion 

The first COA for a Civil Code section 2923.6 violation alleges violations of two subsections: Subsection (c) which prohibits recording a Notice of Default (NOD) or Notion of Trustee Sale (NTS) or conducting a trustee sale when a complete Loan Modification Application (LMA) is pending; and Subsection (f)(2) which requires a servicer to provide specific reasons for the denial of an LMA.  The second COA for a Civil Code section 2924.10 violation alleges that Defendant’s written acknowledgement of receipt of the LMA did not include the information delineated in subsection (a)(1)-(4).  These code section violations are collectively referred to as the Homeowners Bill of Rights (HBOR) claims.

Defendant first argues that Plaintiff failed to allege that a “complete” LMA, as determined by Defendant, was submitted.  However, Plaintiff expressly alleges that a “complete” LMA was submitted to Defendant and for demurrer purposes the allegation is deemed true.  (FAC par. 40.)  Further, Plaintiff alleges that on October 29, 2021, Defendant denied the LMA for reasons other than incompleteness.  (FAC par. 42.)  Because Plaintiff alleges that Defendant denied the LMA for reasons other than incompleteness, the inference is that sometime prior to October 29, 2021, Defendant deemed the LMA “complete” and processed the LMA.  With this inference, there is sufficient fact pleading to allege that Defendant determined the LMA to be a complete package.  Defendant’s first argument disputing Plaintiff’s allegation that a “complete” LMA, as determined by Defendant, being submitted is unpersuasive.

Further, the remedy for a Civil Code section 2923.6(c) violation is injunctive relief under Civil Code section 2924.12(a), when a Trustee’s Deed Upon Sale (TDUS) has not been recorded.  The FAC contains no facts showing that a TDUS was recorded, let alone that a Trustee Sale is pending.  The only alleged date for a Trustee Sale was October 7, 2021 (FAC par. 39, Exh. C.)  The Court notes that this action being filed on October 4, 2021 submitted a ripe claim related to the October 7, 2021 Trustee Sale.  However, the FAC being filed on May 24, 2022 could have updated whether a Trustee Sale is currently pending.  The inference is that a Trustee Sale is not scheduled.  At least as to the first COA’s claim of a Civil Code section 2923.6(c) violation, there are insufficient facts pled since Plaintiff has not alleged that a Trustee Sale is currently pending.  Without a pending Trustee Sale, there is insufficient allegation of a material violation.

  The express remedy for a Civil Code section 2923.6(f)(2) violation is, again, injunctive relief to enjoin a material violation.  (Civ. Code sec. 2924.12.)  The injunction is to remain in place until the Court determines that the violation has been corrected.  Plaintiff alleges that Defendant’s denial of Plaintiff’s LMA contained the following reason:  "[H]ousing payment-to-income ratio is out of the acceptable range approved by the investor." In addition, Shellpoint stated that the debt to income ratio "is calculated by dividing total monthly housing debt by gross monthly income."  (FAC par. 42)  Plaintiff appears to allege that the reason is not specific.  However, Defendant’s denial presented exactly why the LMA was denied – the housing payment to income ratio was not in the acceptable range.  The reason is seen to be specific.  Plaintiff argues that with his appeal, he requested the guidelines used to deny Plaintiff’s LMA and Defendant denied disclosure of the guidelines used to deny the LMA.  (FAC par. 47-48.)  However, requests made or refusals to disclose guidelines during the appeal process is irrelevant to the statutory requirement to provide, within the initial denial, the specific reason for the denial.  Plaintiff’s allegation shows that Defendant provided a specific reason for the investor disallowance – housing payment to income ratio being unacceptable. Defendant’s reason for the investor disallowance in the initial denial is seen to be specific and there is insufficient pleading of a violation, let alone a material violation.

The Demurrer to the first COA is SUSTAINED on the grounds that the FAC contains no facts showing that a TDUS was recorded, let alone that a Trustee Sale is pending and there is a failure to allege a pending Trustee Sale.

As to the second COA for Civil Code section 2924.10 violation, Plaintiff alleges that Defendant confirmed receipt of the LMA.  (FAC par. 40.)  However, Plaintiff makes a conflicting claim that the acknowledgement of receipt was not received.  (FAC par. 71.)  With these contradictory allegations, part of Plaintiff’s claim is uncertain.  Setting aside the pleading contradiction, Plaintiff then alleges that Defendant’s acknowledgement of receipt of the LMA lacked disclosures related to the timeline of the review process and associated deadlines.  (FAC par. 72.)  However, the claim is not seen to be a “material” violation because Plaintiff alleges that an appeal was submitted, processed and denied.  (FAC par. 45-47.)  Despite Defendant’s alleged failure in providing the timeline of the review process and associated deadlines, Plaintiff alleges that he made his way through the process and complied with deadlines.  The alleged violation fails to plead sufficient facts to show materiality since Plaintiff allegedly navigated the process of a loan modification.

The demurrer to the second COA is SUSTAINED. 

            It is noted that the negligence COA and the UCL COA are dependent upon the sufficient pleading of the first two COAs.  The remaining COAs borrow factual allegations from the first two COAs as to how Defendant processed Plaintiff’s LMA.  (FAC pars. 78, 79 and 86.)  Without sufficient allegations of violations, there are insufficient facts to support a breach of a duty of care or UCL violation.  On this defect, there is grounds to sustain the demurrer.

            As for the negligence COA, Defendant asserts that the servicers do not owe a duty of care to borrowers when the institution’s involvement in the loan does not exceed the scope of its conventional role as a mere lender of money.  (Lueras v BAC Home Loans Services, LP (2013) 221 Cal.App.4th 49, 67 (Lueras); Nymark v Heart Federal Savings and Loan Association  (1991) 231 Cal.App.3d 1089, 1096 (Nymark.))  As stated above, the claims alleged against Defendant are not alleged to exceed the scope of its role as a money lender – servicing a loan and/or processing an LMA is a renegotiation of loan terms which is within the conventional scope of a money lender.  Plaintiff’s allegations, even with consideration of the factors in Biakanja v. Irving  (1958) 49 Cal.2d 647, 650 (Biakanja), are insufficient to plead a duty because there are insufficient facts to show Defendant’s misconduct (i.e., violation of the HBOR) and Plaintiff’s harm (i.e., the sale of the property.)  In any event, the view of this Court is in line with Nymark and Lueras. Processing an LMA does not create a common law duty of care.  “The Biakanja factors do not support imposition of a common law duty to offer or approve a loan modification. If the modification was necessary due to the borrower's inability to repay the loan, the borrower's harm, suffered from denial of a loan modification, would not be closely connected to the lender's conduct. If the lender did not place the borrower in a position creating a need for a loan modification, then no moral blame would be attached to the lender's conduct.”  (Lueras v BAC Home Loans Services, LP (2013) 221 Cal.App.4th 49, 67.)

            The demurrer to the negligence COA is SUSTAINED WITHOUT LEAVE TO AMEND.

            Again, as reviewed above, the UCL claim requires fact pleading to show unfair, unlawful or deceptive business practices.  Without sufficient allegations as to the HBOR claims, the UCL claim is defective.  Specifically as to the standing issue, only a plaintiff who has “suffered injury in fact and has lost money or property as a result of the unfair competition” has standing to sue under UCL.  (Bus. & Prof. Code sec. 17204.)  Without any allegation that the Trustee Sale was conducted or that a TDUS was recorded, there is insufficient facts to show actual injury/loss of property.  Despite Plaintiff’s conclusory argument that standing/actual injury is sufficiently pled, the Court finds the FAC lacking. 

            The demurrer to the UCL COA is SUSTAINED with leave to amend.[1]

On the fifth COA for accounting, Defendant disputes that they owe Plaintiff any money.  However, disputing the truth of the allegations is not proper grounds for a demurrer.  Plaintiff alleges that his payments on the loan were not properly credited and the amount identified on the NOD is incorrect.  (FAC par. 105.)  With this allegation, there is sufficient fact pleading to support an accounting COA. 

Defendant argues that an accounting claim requires a fiduciary relationship between the parties.  “However, a fiduciary relationship between the parties is not required to state a cause of action for accounting. All that is required is that some relationship exists that requires an accounting. (Kritzer v. Lancaster (1950) 96 Cal.App.2d 1, 7, 214 P.2d 407.)”  (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179.)  Defendant’s legal authority contradicts Defendant’s contention.  Defendant’s argument is not supported by legal authority and the arguments are unpersuasive. 

The Demurrer to the accounting COA is OVERRULED.[2] 

            Because this is the Court’s first review of the pleadings and there being a liberal policy on amendments, the Court grants Plaintiff 20 days leave to amend on the first, second and fourth COAs.

            IT IS SO ORDERED, CLERK TO GIVE NOTICE.