Judge Thomas D. Long, Case BC538182 2022-10-18 Tentative Ruling

On August 30, 2022, a jury returned a verdict in this action between Plaintiff Maricela Vargas and Defendant Ocwen Loan Servicing LLC. The jury made specific factual findings, including that Plaintiff did not suffer damages but Defendant’s misconduct was intentional, reckless, or willful. The jury also awarded $40,000.00 in statutory damages.

The Court ordered the parties to brief the issue of the form of Proposed Judgment to be entered based on the jury verdict and stayed the entry of judgment. On September 21, 2022, Plaintiff and Defendant each filed a motion regarding form of judgment.

The Homeowner’s Bill of Rights (“HBOR”) prohibits mortgage servicers from recording a notice of default, recording a notice of sale, or conducting a trustee’s sale when a borrower’s complete first lien loan modification application is pending, unless certain events occur. (Civ. Code, § 2923.6, subd. (c).) This process is known as “dual tracking,” which is “a practice that, described broadly, occurs when a lender or servicer pursues foreclosure while simultaneously going through the motions of reviewing a borrower’s application for foreclosure mitigation, without a good faith intent to entertain the application.” (Morris v. JPMorgan Chase Bank, N.A. (2022) 78 Cal.App.5th 279, 296 (Morris); see Billesbach v. Specialized Loan Servicing LLC (2021) 63 Cal.App.5th 830, 844-845 (Billesbach).) A court may award statutory damages for a material violation of the HBOR when it finds that the conduct was intentional, reckless, or willful. (Civ. Code, § 2924.12, subd. (b).)

“Neither the HBOR nor California caselaw expressly defines the term ‘material’ for purposes of section 2924.12. However, federal district courts applying California law have held that a violation is material if it affected the borrower’s loan obligations, disrupted the loan-modification process, or otherwise harmed the borrower in connection with the borrower’s efforts to avoid foreclosure.” (Billesbach, supra, 63 Cal.App.5th at p. 845.) “In other words, the HBOR creates no liability for a technical violation that does not thwart its purposes. California caselaw involving the materiality requirement is consistent with this rule.” (Ibid.) Violations that do not affect loan obligations, disrupt the loan-modification process, or otherwise harm a borrower are not material. (Id. at p. 846.)

The jury was not asked to determine whether Defendant committed a “material violation” of the HBOR. Instead, the jury made a series of factual findings, and the parties briefed the issue of the statutory penalty for a “material violation.”

Plaintiff relies primarily on Morris to argue that Defendant’s conduct undermined the purpose of the HBOR and thus was a material violation. (See Plaintiff’s Opposition at pp. 2-3; Plaintiff’s Reply at pp. 4-5.) In Morris, the plaintiff alleged that she submitted a completed loan modification application more than five days before the scheduled trustee’s sale, she never received a written denial of her application, a trustee’s sale was conducted in the absence of a written determination that she was not eligible for a first lien loan modification, and she was not given at least 30 days from the date of the written denial to appeal the denial and to provide evidence that the mortgage servicer’s determination was in error. (Morris, supra, 78 Cal.App.5th at p. 310; see id. at p. 288.) The trial court sustained demurrers to the first amended complaint without leave to amend because the amended complaint failed to allege a “material violation” of Civil Code sections 2923.6 and 2923.7. (Id. at p. 291.) On appeal, the defendants argued that the allegation of their failure to issue a written denial stating reasons was only a “technical,” not “material,” violation. (Id. at pp. 311-312.) The Court of Appeal rejected this argument, concluding that what the defendants allegedly did effectively diminished the plaintiff’s right to appeal the denial. (Id. at p. 312.) When considering whether the plaintiff alleged a “material violation,” the Court of Appeal stated, “Ultimately, at this stage of the analysis, we ask whether the alleged violation undermined the overall purpose of the HBOR.” (Id. at pp. 304-305.) The court noted that the legislature has already stated the purpose of the HBOR: “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.” (Id. at p. 305, citing Civ. Code, § 2923.4.)

Plaintiff argues that the jury found a violation of Civil Code section 2923.6, subdivision (c), and “[t]he violation was material as it resulted in a foreclosure.” (Plaintiff’s Motion at p. 6.) The jury did find that Defendant conducted a foreclosure sale while Plaintiff’s substantially complete loan modification application was pending. (Special Verdict, § 1, Question 2.) However, the jury also found that Defendant’s act of proceeding with a foreclosure sale did not adversely affect Plaintiff’s ability to obtain a foreclosure prevention alternative from Defendant. (Special Verdict, § 1, Question 9.) Accordingly, the jury did not find that the violation “resulted in a foreclosure”; rather, the jury found that there was no causation.

Unlike the plaintiff in Morris, who only needed to plead a violation that undermined the overall purpose of the HBOR, the Plaintiff here is faced with a jury’s ultimate factual findings. The jury found that when Plaintiff applied on or about November 21, 2013, she was not potentially eligible for any federal, state, or proprietary foreclosure prevention alternative offered by or through her mortgage servicer. (Special Verdict, § 1, Question 1.) Plaintiff defaulted on or otherwise breached her obligations under her prior, 2010 and/or 2012, modifications. (Special Verdict, § 1, Question 3.) Plaintiff did not document a material change in her financial circumstances in her November 2013 loan modification application when compared to her September 2013 application, and Defendant did not elect to conduct a loan modification review in November 2013. (Special Verdict, § 1, Questions 4, 6.) The jury found that Defendant’s act of proceeding with a foreclosure sale on December 3, 2013 did not adversely affect Plaintiff’s ability to obtain a foreclosure prevention alternative from Defendant. (Special Verdict, § 1, Question 9.) The jury ultimately found that Plaintiff did not suffer any damages as a result of Defendant’s actions. (Special Verdict, § 2, Question 1.)

Accordingly, based on the jury’s findings, Defendant’s conduct did not affect Plaintiff’s loan obligations, disrupt the loan-modification process, or otherwise harm her. (See Billesbach, supra, 63 Cal.App.5th at p. 846.) The conduct also did not undermine the purposes of the HBOR because Plaintiff was not eligible for any foreclosure prevention alternative and no loss mitigation options were available. (See Civ. Code, § 2923.4 [“The purpose of the act . . . 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, . . . such as loan modifications or other alternatives to foreclosure.”].) Defendant could not consider and provide Plaintiff with a meaningful opportunity to obtain alternatives to foreclosure that were not available to her, and the jury found that Defendant’s actions did not adversely affect Plaintiff’s ability to obtain a foreclosure prevention alternative or otherwise cause damages.

In sum, the Court finds that Defendant’s actions did not constitute a “material violation” for which statutory damages are available.

Defendant argues that the jury found that Plaintiff was not a “borrower.” (Defendant’s Motion at p. 10.) A borrower is “any natural person who is a mortgagor or trustor and who is potentially eligible for any federal, state, or proprietary foreclosure prevention alternative program offered by, or through, his or her mortgage servicer.” (Civ. Code, § 2920.5, subd. (c)(1).) The jury found that Plaintiff was not potentially eligible for any federal, state, or proprietary foreclosure prevention alternative offered by or through Defendant. (Special Verdict, § 1, Question 1.) However, the Court granted Plaintiff’s oral motion for directed verdict on the issue whether Plaintiff qualified as a “borrower.” Defendant argues that was erroneously based on its response to Plaintiff’s Request for Admission No. 1. (Defendant’s Motion at p. 10.) This briefing is not an appropriate way to request that the Court reconsider that ruling. And in any event, Plaintiff’s status as a “borrower” under the statute would not change the final judgment because even if Plaintiff is a borrower, there must still be a material violation for Plaintiff to recover any statutory penalties. Thus, in light of the Court’s determination of that issue, this issue is moot.

Defendant also argues that the Court should not find that its violation was intentional, reckless, or willful. (Defendant’s Motion at pp. 8-9.) This would directly contradict the jury’s verdict on that exact factual question. (Special Verdict, § 2, Question 3.) And like the other issue raised by Defendant, this issue is also moot in light of the Court’s determination of there being no material violation.

Defendant is ordered to submit a new proposed judgment within five days. The proposed judgment should omit the findings contained on page 2 of Defendant’s September 21, 2022 proposed judgment. Instead, the Court’s only finding is that Defendant did not commit a material violation for which statutory damages are available under Civil Code section 2924.12, subdivision (b).

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

Hon. Thomas D. Long

Judge of the Superior Court