Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-02700/USCOURTS-caed-2_09-cv-02700-2/pdf.json

Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 28:1444 Petition for Removal- Foreclosure

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1

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

JOHN J. FALCOCCHIA and

RACHAEL D. FALCOCCHIA,

NO. CIV. S-09-2700 LKK/GGH

Plaintiffs,

v.

O R D E R

SAXON MORTGAGE, INC., et al.,

Defendants.

 /

This case involves plaintiffs’ mortgage. In a prior order, the

court largely granted a motion to dismiss brought by defendants

Saxon Mortgage, Inc., Saxon Mortgage Services, Inc., and Deutsche

Bank Trust Company Americas. Plaintiffs were granted leave to

amend and filed an amended complaint. Defendants have filed a

renewed motion to dismiss, primarily arguing that plaintiffs have

failed to cure the previously identified deficiencies. As

explained below, the court largely agrees, though on more than one

occasion, defendant failed to raise the court's previous

determination.

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I. Standard for a Motion to Dismiss

A Fed. R. Civ. P. 12(b)(6) motion challenges a complaint’s

compliance with the pleading requirements provided by the Federal

Rules. Under Fed. R. Civ. P. 8(a)(2), a pleading must contain a

“short and plain statement of the claim showing that the pleader

is entitled to relief.” The complaint must give defendant “fair

notice of what the claim is and the grounds upon which it rests.”

Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007) (internal

quotation and modification omitted). To meet this requirement, the

complaint must be supported by factual allegations. Ashcroft v.

Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1950 (2009). “While legal

conclusions can provide the framework of a complaint,” neither

legal conclusions nor conclusory statements are themselves

sufficient, and such statements are not entitled to a presumption

of truth. Id. at 1949-50. Iqbal and Twombly therefore prescribe

a two step process for evaluation of motions to dismiss. The court

first identifies the non-conclusory factual allegations and the

court then determines whether these allegations, taken as true and

construed in the light most favorable to the plaintiff, “plausibly

give rise to an entitlement to relief.” Id.; Erickson v. Pardus,

551 U.S. 89 (2007).

“Plausibility,” as it is used in Twombly and Iqbal, does not

refer to the likelihood that a pleader will succeed in proving the

allegations. Instead, it refers to whether the non-conclusory

factual allegations, when assumed to be true, “allow[] the court

to draw the reasonable inference that the defendant is liable for

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the misconduct alleged.” Iqbal, 129 S.Ct. at 1949. “The

plausibility standard is not akin to a ‘probability requirement,’

but it asks for more than a sheer possibility that a defendant has

acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 557). A

complaint may fail to show a right to relief either by lacking a

cognizable legal theory or by lacking sufficient facts alleged

under a cognizable legal theory. Balistreri v. Pacifica Police

Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).

Here, defendants ask the court to look beyond the complaint’s

allegations and consider various exhibits. A court may consider

judicially noticeable evidence and “documents whose contents are

alleged in a complaint and whose authenticity no party questions,

but which are not physically attached to the pleading” without

transforming a motion to dismiss into a motion for summary

judgment. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994),

overruled on other grounds by Galbraith v. County of Santa Clara,

307 F.3d 1119, 1124 (9th Cir. 2002). In this case the court takes

judicial notice of the various recorded documents under Fed. R.

Evid. 201. Where these documents contradict the complaint’s

allegations the court does not accept the allegations as true. See

Mullis v. United States Bankr. Ct., 828 F.2d 1385, 1388 (9th Cir.

1987), Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir.

1987). The various other documents, which defendants ask the court

to consider under Branch, are not necessary to the court’s

resolution of this motion. The court therefore disregards them.

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4

II. BACKGROUND

A. Procedural History

Plaintiffs filed suit in state court on June 1, 2009,

asserting solely state law claims. Plaintiffs concurrently applied

for a temporary restraining order. The state court issued a TRO

on June 22, 2009 preventing defendants from assigning or

transferring the subject real property pending this litigation.

On August 28, 2009, plaintiffs amended their state court

complaint, adding claims under the Truth in Lending Act, 15 U.S.C.

§ 1601 et seq. (“TILA”) and the Real Estate Settlement Procedures

Act, 12 U.S.C. § 2601 et seq. (“RESPA”). The amended complaint

also asserted seven state law causes of action, for breach of

contract, negligence, breach of the implied covenant of good faith

and fair dealing, violation of Cal. Bus. & Prof. Code § 17200,

violations of Cal. Civ. Code §§ 2924b and 2924f, wrongful

foreclosure, and violation of the California Rosenthal Act.

Defendants Saxon Mortgage, Inc., Saxon Mortgage Services,

Inc., and Deutsche Bank Trust Company Americas (hereinafter

“defendants”) timely removed to federal court. A fourth party, Old

Republic National Title Insurance Co., is named in the complaint,

but all parties agree that Old Republic is merely a nominal party

with no possible liability. Defendants then moved to dismiss.

In an order filed February 12, 2010, the court denied the

motion to dismiss as to plaintiffs’ RESPA claim and plaintiffs'

unfair competition claim insofar as the latter was predicated on

a violation of RESPA. Falcocchia v. Saxon Mortg., Inc., ___ F.

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These facts are taken from the allegations in the complaint 1

filed March 5, 2010 (the “FAC”) unless otherwise specified. The

allegations are taken as true for purposes of this motion only.

5

Supp. 2d ___, 2010 WL 582059, 2010 U.S. Dist. LEXIS 20536. The

court otherwise granted the motion.

Plaintiffs filed an amended complaint on March 5, 2010.

Although the court had previously referred to the August 28, 2009

complaint as the “first amended complaint,” plaintiffs confusingly

labeled the March 5 complaint as the “first amended complaint,”

perhaps because it was the first amendment to be filed in federal

court. The March 5 complaint omits the Rosenthal Act claim, but

re-pleads all other claims.

Defendants again move to dismiss all claims. Their motion

follows plaintiffs’ labeling. The court therefore again refers to

the operative complaint as the “first amended complaint” or “FAC”

despite the resulting potential for confusion.

B. Factual Background1

1. The Loan at Issue

On or about July 12, 2006, Greg Roh (who is not party to this

suit) approached plaintiffs soliciting refinancing of a loan

currently secured by plaintiffs’ property in Yuba City, California.

FAC ¶ 30. Roh, a mortgage broker, informed plaintiffs that a

mortgage from defendants Saxon Mortgage and Saxon Mortgage Services

would give them the “best deal” and “best interest rates” available

on the market. Id. 

Plaintiffs decided to borrow $408,000. Id., Defs.’ Request

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for Judicial Notice filed April 9, 2010 (“RFJN”) Ex. 2. This

amount included the $301,750.00 balance on plaintiffs’ existing

home loan and roughly an additional $100,000. Def.’s RFJN Ex. 1.

On the day Roh approached plaintiffs, July 12, 2006, plaintiffs

signed a deed of trust offering their Yuba City home as security

for this loan. FAC ¶ 35. This deed of trust was properly

recorded. FAC ¶ 36. The deed of trust identifies the plaintiffs

as borrowers, Saxon Mortgage as lender, and First American Title

as trustee. Defs.’ RFJN Ex. 2, see also FAC ¶ 52 (identifying

Saxon Mortgage as the lender). It appears that Saxon Mortgage

Services was the servicer of the loan.

Plaintiffs argue that the loan transaction was procedurally

defective, in that plaintiffs did not receive (1) signed loan

documents at the time of closing or within a reasonable amount of

time after signing, FAC ¶ 32, (2) disclosure of “amount financed”

and “finance charge,” FAC ¶ 54 and (3) a completed notice of right

to cancel indicating the date that the right expires, FAC ¶ 32.

Plaintiff further argue that they did not receive the loan

documents prior to closing (although it is unclear when that would

have been) or time to review these documents at closing. FAC ¶ 32.

In addition to these alleged omissions, plaintiffs allege that

Roh affirmatively misrepresented plaintiffs’ income on the loan

documents and that Roh similarly misinformed plaintiffs that they

would have an option to refinance the loan if it ever became

unaffordable. FAC ¶ 31. 

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 Although this allegation does not appear in the FAC, the 2

court includes it here because it pertains to plaintiffs’ ability

to show equitable tolling or estoppel.

 Defendants cite a notice of default recorded on April 23, 3

2007 in purported support of the Jan. 1, 2007 date. Defs.’ RFJN

Ex. 3. This notice of default asserts that plaintiffs were in

default at that time. While the court takes judicial notice of the

fact that the document was filed and of its contents, this notice

does not extend to the purported truth of representations contained

therein. 

The court notes that once Saxon Mortgage assigned its 4

interest in the deed of trust, it is not clear what authority Saxon

Mortgage would have had to conduct such negotiations. 

7

2. Events Subsequent to Refinancing

Plaintiffs assert that “within six months of executing the

promissory note, defendants . . . adjusted the interest rate . .

. to over 10.175%.” Pls.’ Opp’n at 3.2

Defendants contend that plaintiffs first defaulted on the 

loan at around that time, on January 1, 2007. Plaintiffs concede

that they defaulted, although it is unclear whether plaintiffs

agree with this date. Defendant issued three notices of default, 3

each followed by a notice of trustee’s sale. The first two were

rescinded, and are not at issue here. Plaintiffs represent that

during this time, they were in negotiations with defendants Saxon

Mortgage and Saxon Mortgage Services. 

4

During this time--on April 18, 2007--Saxon Mortgage assigned

its beneficial interest under the promissory note and deed of trust

to defendant Deutsche Bank Trust Company Americas. Defs.’ RFJN Ex.

4 (recorded notice of assignment). Pursuant to this assignment,

Saxon Mortgage Servicing remained the “attorney-in-fact” for the

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 Defendants state that this notice was recorded on May 14, 5

2009.

 The substitution of trustee bears a notarized signature 6

dated Jan. 21, 2009, but the document was apparently recorded on

the above date.

8

beneficiary, which the court understands to mean that Saxon

Mortgage Servicing continued to service the loan. Id.

Well after Saxon Mortgage has assigned its interest, on May

13, 2008, the third notice of default was recorded. FAC ¶ 38,

Defs.’ RFJN Ex. 10. This notice of default was issued by Old 5

Republic Default Management Services, who had not previously been

involved in the loan. FAC ¶ 38, Defs.’ RFJN Ex. 10. A year later,

on May 14, 2009, Old Republic recorded a document substituting Old

Republic for First American Title as trustee. Defs.’ RFJN Ex. 11.6

Old Republic also recorded a third notice of trustee’s sale.

Defs.’ RFJN Ex. 12. The trustee’s sale was set for June 2, 2009.

Id., FAC ¶ 41.

Plaintiffs argue that May 13, 2008 notice of default and

subsequent notice of trustee sale should have been mailed to

plaintiffs’ “legal mailing address,” but that they were not,

despite defendants’ knowledge of this address. FAC ¶¶ 39, 40, 43.

After receiving notice of the scheduled June 2, 2009 trustee’s

sale, plaintiffs sent letters to defendants stating plaintiffs’

intent to seek a temporary restraining order to enjoin the

foreclosure sale, demanding immediate cancellation of the

foreclosure sale, and demanding that defendant Old Republic Default

Management Services immediately stay all further action and comply

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Plaintiffs confusingly allege that this letter was sent 7

prior to the recording of the third notices of default and

trustee’s sale, but plaintiffs also imply that this letter was sent

in response to these notices. Compare FAC ¶ 46 with Opp’n, 3.

9

with California Civil Code section 2924. FAC ¶ 45. Defendants

did not respond.

Plaintiffs also sent a separate letter to Saxon Mortgage and

Saxon Mortgage Services which “demand[ed] to cancel the

foreclosure sale under the . . . Deed of Trust [and] to rescind the

loan for various violations under [TILA]” FAC ¶ 46. Plaintiffs

assert that this letter constituted a “qualified written request”

(“QWR”) under RESPA. Id. Although the FAC does not specify when

this letter was sent, plaintiff’s opposition states that it was

sent March 26, 2008. Opp’n, 3. Saxon Mortgage and Saxon Mortgage 7

Services did not respond. FAC ¶ 47

After the third notice of trustee sale was recorded on May 14,

2009, defendants refused to postpone this sale. On June 1, 2009,

plaintiffs filed a complaint in state court.

III. ANALYSIS

The operative complaint presents federal claims under TILA

and RESPA. The court denies the motion to dismiss as to the

TILA damages claim for failure to respond to a notice of

rescission. Because a federal claim remains, the court

continues to exercise supplemental jurisdiction over the six

state law claims pursuant to 28 U.S.C. § 1367.

A. TILA

Plaintiffs bring claims for civil damages and for

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 The court must confess that it is difficult to rationalize 8

the court's rulings since, judging by the parties' previous

conduct, it is not at all clear that they bothered to read the

court's previous order.

10

rescission under TILA. As the court previously explained, these

two remedies are governed by distinct statutory frameworks.8

1. Rescission

TILA provides a right to rescind a loan. 15 U.S.C. §

1635(a)-(b). A borrower may rescind merely because of “buyer’s

remorse.” Hefferman v. Bitton, 882 F.2d 379, 383 (9th Cir.

1989). Thus, rescission need not be predicated on any mistake,

misunderstanding, or misconduct. 

Ordinarily a borrower must rescind within three days of the

initial transaction. Where the borrower does not receive notice

of the right to cancel, however, the period for rescission

extends to three years. 15 U.S.C. § 1635(f), Hefferman, 882

F.2d at 383. For purposes of this motion, defendants concede

that this notice was not provided, such that the three year

period applies here. Def.’s Reply at 5. The parties agree that

this period expired on July 12, 2009. 

The court previously held that this period was a

jurisdictional statute of repose to which neither tolling nor

estoppel could apply. Order filed Feb. 12, 2010 at 11-13

(citing Miguel v. Country Funding Corp, 309 F.3d 1161, 1164 (9th

Cir. 2002) and Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412

(1998)). Plaintiffs sought to rescind their loan prior to July

12, 2009, but they did not bring a judicial action seeking

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rescission until after that time. This court held that the

rescission claim was therefore untimely, although the court

noted that plaintiffs could perhaps assert a civil damages claim

for failure to respond to the initial rescission notice. Id. at

13.

Despite the prior ruling, plaintiffs have re-pled their

TILA rescission claim, but plaintiffs have not alleged any

additional facts that would cause the claim to fare better this

time around. Even more curiously, although defendants

previously succeeded by arguing that this claim was untimely,

defendants make no such assertion in their present motion.

Seeing no reason to revisit the prior decision, the court

hold that the TILA rescission claim is untimely. Because

plaintiffs have previously been warned about this defect and

failed to remedy it, dismissal of this claim is with prejudice.

2. Civil Damages

Claims for damages under TILA are governed by a separate

framework. Plaintiffs assert four theories of TILA liability. 

Defendants argue that these theories are untimely and meritless.

As to timeliness, as explained in the prior order, TILA provides

a one year statute of limitations for civil damages claims,

although this period may be subject to equitable tolling or

estoppel. 15 U.S.C. § 1640(e), King v. California, 784 F.2d

910, 914 (9th Cir. 1986). When a defendant files a Fed. R. Civ.

P. 12(b)(6) motion to dismiss a claim as untimely but the

applicable statute of limitations is one subject to tolling or

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estoppel, the court must deny the motion where “the complaint,

liberally construed in light of our ‘notice pleading’ system,

adequately alleges facts showing the potential applicability of

the equitable tolling doctrine.” Cervantes v. City of San

Diego, 5 F.3d 1273, 1277 (9th Cir. 1993). 

With this background, the court discusses the four theories

individually.

a. TILA Damages Claim for Failure to Respond to

Rescission Notice

Plaintiffs allege that they sent a timely notice of

rescission and that defendants improperly failed to respond to

this notice. FAC ¶ 111; see also 15 U.S.C. §§ 1635(g), 1640(a).

Although a judicial claim for rescission must be filed within

three years of the initial transaction, a damages claim for

failure to respond to a rescission notice can be filed within

one year of the alleged failure, regardless of whether this

falls outside of the three year period for rescission itself. 

Order at 13. It appears that at least one request to rescind

was sent in May of 2009, three months before plaintiffs first

alleged a TILA violation and less than a year before the present

complaint was filed. Accordingly, this claim is not time

barred. 

Defendants raise two other challenges to this theory of

liability. First, they argue that the exhibits before the court

demonstrate that plaintiffs received all required disclosures

except the notice of the right to rescind. Reply at 5. 

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 The court does not decide whether these other disclosures 9

were in fact made.

13

Defendants contend that failure to inform plaintiffs of the

right to rescind merely extended the “statute of limitations” in

which plaintiffs could seek rescission on the basis of some

other misconduct. Defendants mischaracterize TILA. As

explained above, section 1635(a) is a “buyer’s remorse”

provision, such that rescission need not be predicated on a TILA

violation.9

Defendants’ second argument is that this claim fails

because plaintiffs have failed to allege an ability to tender

the loan proceeds. Under TILA’s default rescission procedure, a

borrower must tender the loan proceeds, minus certain amounts,

after the lender has cancelled any security interest and

returned any money and property (such as earnest money) to the

borrower. 15 U.S.C. § 1635(b). TILA grants courts authority to

modify this procedure, and the Ninth Circuit has held that

courts generally should require tender as a prerequisite to

rescission. Yamamoto v. Bank of N.Y., 329 F.3d 1167, 1172 (9th

Cir. 2003). Defendant has identified no authority, however,

suggesting that the initial notice of rescission was required to

allege an ability to tender the loan proceeds or that a borrower

was free to ignore an otherwise proper rescission notice lacking

such an allegation. Indeed, this court has held that a

complaint in a judicial action for rescission need not contain

any such allegation, because the decision under Yamamoto of when

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The parties have not addressed whether a lender is obliged 10

to respond a notice of rescission even if the borrower does not

have a right to rescind. Because the court holds that plaintiffs

have alleged facts supporting a right to rescind, the court does

not reach this issue.

14

to require tender is better made at the time of summary

judgment. Baldain v. Am. Home Mortg. Servicing, Inc., No. CIV.

S-09-0931, 2010 U.S. Dist. LEXIS 5671, *32 (E.D. Cal. Jan. 5,

2010). Accordingly, the fact that plaintiffs have not alleged

an ability to tender the loan proceeds does not bar plaintiffs

from bringing a damages claim for failure to respond to the

notice of rescission.10

b. TILA Damages Claims Arising from The Initial

Transaction

Plaintiffs’ TILA damages claim also asserts three theories

of liability arising from the initial transaction. Only the

first theory was raised in plaintiffs’ prior complaint. 

Plaintiffs allege that defendants failed to make disclosures or

provide documents at the loan’s origination. The limitations

period for a claim based on these omissions would normally have

expired on July 12, 2007. Plaintiffs first filed a TILA damages

claim on August 28, 2009. In the prior order, the court held

that because plaintiffs were necessarily able to determine which

documents they did and did not receive, plaintiffs had not shown

a possibility of equitable tolling or estoppel. Order at 9. 

The claim was therefore untimely. Id. In the operative

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 Plaintiffs allege that defendants violated TILA by “failing 11

to provide the required disclosures . . . failing to make required

disclosures clearly and conspicuously in writing; failing to timely

deliver . . . certain notices required by statute; placing terms

prohibited by statute into the transaction; . . . failing to

disclose all finance charge details and the annual percentage rate

based upon properly calculated and disclosed finance charges and

amounts financed.” FAC ¶ 109.

15

complaint plaintiffs re-plead this claim, but provide no added 11

allegations or theory as to why plaintiffs were unaware of these

failures at the time of the initial transaction or as to

plaintiffs’ inability to bring suit at that time. For the

reasons explained in the prior order, the claim is untimely

insofar as it is based on these allegations.

Second, plaintiffs now allege that defendants “provid[ed]

inaccurate information . . . relating to the terms of the loan

[and] . . . misrepresent[ed] . . . finance charge details and

the annual percentage rate.” FAC ¶ 109. This court has

previously held that allegations of inaccurate information may

demonstrate a possibility of tolling for the period of time in

which the borrower could not have discovered the inaccuracy

despite the exercise of reasonable diligence, and thereby defeat

a motion to dismiss. See Champlaie v. BAC Home Loans Servicing,

LP, No. S-09-1316, 2009 U.S. Dist. LEXIS 102285, *52-*53, 2009

WL 3429622, *17 (E.D. Cal. Oct. 22, 2009). Here, however, any

inaccuracies excuse at most six months of delay, which is

insufficient to render the claim timely. Plaintiffs assert that

the annual percentage rate unexpectedly increased within six

months of the initial transaction. Plaintiffs were on notice of

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the alleged misrepresentations at that time. Plaintiffs have

not demonstrated a “possibility” that the claim based on such

misrepresentation filed two and a half years later was timely. 

Third, plaintiffs allege that defendants extended credit to

plaintiffs without regard to plaintiffs’ ability to pay,

pursuant to a broader pattern or practice. FAC ¶ 110, see also

15 U.S.C. § 1639(h). It is at least possible that plaintiffs

could not discover the basis for this claim until plaintiffs

learned the terms of the loan they received and thus the size of

plaintiffs’ obligation. As noted in the previous paragraph,

however, at the very least, plaintiffs were obliged to

diligently investigate these terms once their interest rate

spiked around early 2007. Although plaintiffs might not have

known all the information necessary to ultimately prove their

claim at that time, plaintiffs’ own assertions demonstrate that

they had “the information necessary to bring suit.” Lien Huynh

v. Chase Manhattan Bank, 465 F.3d 992, 1004 (9th Cir. 2006). As

such, plaintiffs have not shown a possibility of equitable

tolling for a TILA claim based on lending without regard to

ability to repay. Id.

Accordingly, plaintiffs’ TILA claim is dismissed except

insofar as it seeks civil damages for defendants’ failure to

respond to a notice of rescission. This is plaintiffs’ second

attempt to plead this claim, yet plaintiffs have failed to cure

the previously identified defects. To the extent that this

claim is dismissed, dismissal is with prejudice.

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B. Real Estate Settlement Procedures Act

Plaintiffs claim that Saxon Mortgage and Saxon Mortgage

Services violated RESPA by failing to respond to a qualified

written request as required by 12 U.S.C. § 2605(e)(2). FAC ¶

118. Plaintiffs further allege that defendants have a pattern

and practice of such violations. FAC ¶ 119. Defendants

previously argued that this claim was untimely because it was

brought more than three years beyond the initial transaction. 

The court held that the statute of limitations runs from the

time defendants failed to respond to the QWR and that the claim

was therefore brought within the limitations period. Order at

14-15.

Defendants now argue that the RESPA claim should be

dismissed because plaintiffs have not alleged facts sufficient

to support the conclusion that plaintiffs sent a QWR to

defendants. RESPA defines a QWR as:

a written correspondence, other than notice

on a payment coupon or other payment medium

supplied by the servicer, that (i) includes,

or otherwise enables the servicer to

identify, the name and account of the

borrower; and (ii) includes a statement of

the reasons for the belief of the borrower,

to the extent applicable, that the account

is in error or provides sufficient detail to

the servicer regarding other information

sought by the borrower.

12 U.S.C. § 2605(e)(1)(B). Plaintiffs allege that they sent a

“QWR” to defendants that “demand[ed] to cancel the

foreclosure sale under the . . . Deed of Trust [and] to rescind

the loan for various violations under [TILA].” FAC ¶ 46. 

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to dismissal of this claim and did not request leave to amend.

Absent such a request, the court dismissed this claim with

prejudice. Plaintiff was not warned of this possibility

beforehand. Insofar as plaintiff has sought to replead this claim,

the conclusion that plaintiff had abandoned it was premature.

Defendants have not argued that the previous dismissal with

prejudice prohibits plaintiffs from repleading this claim.

Plaintiff affirmatively opposes dismissal in the instant motion.

18

Plaintiffs make no other allegations regarding the content of

this purported QWR, nor have plaintiffs provided a copy of the

letter. Plaintiffs have not alleged that they ever sent a

request for information. Nor do any of the alleged TILA

violations amount to a statement that “the account [was] in

error.” Accordingly, this claim is dismissed. Because this

defect was not previously addressed by the court, dismissal is

without prejudice.

C. Contract Claims

Plaintiffs’ first cause of action is labeled as an action

for breach of contract or for rescission of contract. The 12

court discusses these two theories separately. Plaintiffs also

bring a claim for breach of the implied covenant of good faith

and fair dealing.

1. Breach of Contract

Plaintiffs allege that the Saxon defendants, acting through

the mortgage broker Roh, contracted to “assist Plaintiffs in

obtaining a mortgage loan and to provide Plaintiffs with a loan

commitment under various said affordable terms which were to be

set out in a promissory note.” FAC ¶ 65. “Plaintiffs agreed to

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Defendants actually argue that the court previously 13

dismissed this claim on this ground. The court dismissed the claim

because “Plaintiffs concede that the oral contract claim

must be dismissed,” without discussing the merits of the issue.

Order at 22. 

Confusingly, plaintiffs’ opposition does not argue that 14

defendants have mischaracterized this claim. Plaintiffs instead

argue that defendants did owe fiduciary duty. Opp’n 17. The court

does not reach this contention. If plaintiffs wish to state a

19

pay mortgage Broker Greg Roh a commission for his services and

pay [the Saxon defendants] substantial loan origination fees and

commissions for their services.” Id.

 Defendants allegedly breached this contract by “making

false representations . . . regarding material facts relating to

mortgage payments, the availability of refinancing, and

Plaintiffs’ qualification for the loan, by their failure to

exercise reasonable efforts and due diligence as promised; and,

by failing to secure a loan with the promised payment and

interest rate.” FAC ¶ 66.

Defendants raise two arguments for dismissal of this claim. 

First, they argue that this claim alleges an oral contract

concerning property, whereas such contracts must be in writing.13

Insofar as plaintiffs merely allege a contract regarding future

negotiations, defendants have not met their burden of

demonstrating that this contract falls within the statute of

frauds. Second, they argue that this claim is actually a claim

for breach of fiduciary duty and that such a claim cannot lie

against a lender. Defendants’ characterization of the claim is

not supported by the allegations in the complaint.14

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claim for breach of fiduciary duty, plaintiffs should seek leave

to amend to do so. Defendants’ present opposition, however,

identifies many of the difficulties facing such a claim.

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Having rejected defendants’ arguments, the court

acknowledges that plaintiffs may be unable to show that any

agreement prior to the loan itself existed, that the Saxon

defendants were party to this agreement, that the Saxon

defendants had any obligations under this agreement (as opposed

to their obligations under the actual loan), or that the Saxon

defendants breached any such obligations. Because defendants

did not raise these issues the court does not address them. 

Accordingly, the motion to dismiss the breach of contract

claim is denied.

2. Breach of the Implied Covenant of Good Faith and Fair

Dealing

It is unclear whether plaintiffs’ claim for breach of the

implied covenant of good faith and fair dealing is predicated on

the alleged initial contract discussed above or instead on the

promissory note and loan itself. Plaintiffs treat this claim as

a catch-all for all alleged wrongdoing by defendants, arguing

that defendants breached this duty by, in plaintiffs’ words:

a. Failing to pay at least as much regard to

Plaintiffs’ interests as to Defendants’

interests

b. Failing to disclose to Plaintiffs the true

nature of the loan that is the subject of

this action;

c. Failing to give Plaintiffs the requisite

notice and disclosures.

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d. Directing Plaintiffs into a toxic loan.

e. Depriving Plaintiffs of the promised payment

and interest rate on the loan;

f. Initiating foreclosure proceedings on the

subject property although they did not have

the right to do so;

g. Failing to give proper legal notice before

commencing disclosure;

h. and, authorizing the reporting to various

credit bureaus wrongfully known that such

wrongful reporting would cause derogatory

information to ruin the Plaintiffs’ credit;

[i]. “[falsely representing that plaintiffs could

get the ‘best deal” and “the best interest

rates.”]

[j]. “failing to comply with all applicable

laws.”

FAC ¶¶ 78-79.

Insofar as plaintiffs claim a tortious breach of the

implied covenant, the claim fails because plaintiffs have not

alleged the requisite special relationship, such as that between

an insurer and the insured. Kim v. Sumitomo Bank, 17 Cal. App.

4th 974, 979 (1993) (citing Careau & Co. v. Security Pacific

Business Credit, Inc., 222 Cal. App. 3d 1371, 1399, n.25

(1990)). Absent such a relationship, the implied covenant did

not oblige defendants to “pay at least as much regard to

Plaintiffs’ interests as to Defendants’ interests.” Because a

special relationship is only necessary for enforcement of such

an obligation or for recovery of damages, the absence of a

special relationship is irrelevant to the remaining allegations

insofar as they seek contract damages.

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Defendants alternatively argue that this claim fails

because the covenant is predicated on the existence of an oral

agreement prior to the loan itself. As explained above, the

court does not dismiss the allegation of such an agreement. 

Moreover, it appears that the loan itself is a contract that

carries with it an implied covenant.

Again, having rejected the only arguments raised by

defendants, the court denies the motion to dismiss this claim

without discussing whether the claim is otherwise proper.

3. Contractual Rescission

Plaintiffs alternatively allege that “no contract existed

between Plaintiffs and [the Saxon defendants] because of mutual

mistake relating to the basic or material contractual terms.” 

FAC ¶ 69. Plaintiffs apparently seek to void the loan itself,

rather than any preliminary contract.

Defendants’ sole argument for dismissal of this claim is

that rescission under state law requires tender of the benefits

the rescinding party has received under the contract, but that

plaintiffs have not alleged an ability to make tender. Under

California law a credible tender offer is a prerequisite to a

rescission claim. Yulaeva v. Greenpoint Mortg. Funding, Inc.,

2009 U.S. Dist. LEXIS 79094, *23 (E.D. Cal. Sept. 3, 2009)

(Karlton, J.). In the TILA context, the undersigned has

explained that the tender may in some circumstances that result

may be made possible by refinancing of the loan, which may in

turn only be possible once rescission has occurred. Baldain v.

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Of course, for the reasons stated in Yamamoto v. Bank of 15

N.Y., 329 F. 3d 1167 (9th Cir. 2003) the court will not rescind the

contract on the mere hope that plaintiffs will be able to make

tender, through refinancing or otherwise. 

23

Am. Home Mortg. Servicing, Inc., 2010 U.S. Dist. LEXIS 5671,

*28-*32 (E.D. Cal. Jan. 5, 2010). It appears that such

refinancing may be part of an offer to tender under California

law. Insofar as plaintiffs have stated their intent to tender,

defendants will need to wait until summary judgment to challenge

whether plaintiffs have any evidence to demonstrate the

credibility of this offer. It does not appear that plaintiffs

must demonstrate immediate ability to tender, whether through

refinancing or otherwise, at the pleading stage.15

D. Negligence

Plaintiffs’ prior complaint alleged that defendants were

negligent in “(1) directing plaintiffs into a loan they were not

qualified for, . . . and (2) taking payments to which they were

not entitled, charging fees they were not entitled to charge and

making or otherwise authorizing reporting to various credit

bureaus wrongfully.” Order at 16 (modifications omitted). The

court dismissed this claim in part on the ground that defendants

did not owe an applicable duty to plaintiffs and in part because

plaintiffs had not alleged a breach of any applicable duty. Id.

at 16-17.

Plaintiffs’ current complaint abandons these theories of

negligence, and is instead predicated solely on the failure to

make the disclosures required by TILA. FAC ¶¶ 72-73. This

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court has previously held that as a matter of state law, failure

to make these disclosures may support a claim for negligence. 

Champlaie, 2009 U.S. Dist. LEXIS 102285, *75.

Defendants argue that this claim should be dismissed as

untimely. Without citation to authority, defendants assert that

“Because Plaintiffs base this claim on requirements under

federal substantive law, namely TILA, it follows that the

Statute of Limitations from TILA controls.” Mem. at 16.

The issue is not as straightforward as defendants assume.

The Ninth Circuit has held that states’ ability to effectively

extend federal statutes of limitations is a question of

preemption. Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001 (9th

Cir. 2008). TILA itself does not preempt plaintiffs’ negligence

claim, because TILA contains a broad savings clause. 15 U.S.C.

§ 1610(b), Silvas, 514 F.3d at 1007. TILA’s savings clause

nonetheless does not limit the preemptive effect of other

federal law. Silvas, 514 F.3d at 1007. To the contrary, Silvas

held that a regulation issued by the Office of Thrift

Supervision pursuant to the Home Owners’ Loan Act ("HOLA"), 12

C.F.R. § 560.2, may preempt state law claims predicated on TILA

violations. Id. at 1004; see also Casey v. FDIC, 583 F.3d 586,

593 (8th Cir. 2009), State Farm Bank, FSB v. Reardon, 539 F.3d

336, 344 (6th Cir. 2008), Flagg v. Yonkers Sav. & Loan Ass’n,

FA, 396 F.3d 178, 182-84 (1st Cir. 2005).

The OTS regulation at issue in Silvas “occupies the entire

field of lending regulation for federal savings associations.” 

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The court does not decide whether, if defendants had shown 16

that they were federal savings associations, the negligence claim

would be preempted.

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12 C.F.R. § 560.2 (emphasis added). Such associations are those

chartered under HOLA § 5(o), 12 U.S.C. § 1464(o). See 12 C.F.R.

§§ 541.2, 541.11. A defendant must demonstrate that it is such

an entity before the defendant may benefit from the preemption

defense recognized by Silvas. Yang v. Home Loan Funding, Inc.,

No. CV F 07-1454, 2010 U.S. Dist. LEXIS 21837, *20-*24 (E.D.

Cal. Feb. 18, 2010) (Ishii, J.) (denying a motion to dismiss in

part because, in essence, defendant had not shown that it was a

federal savings association), Ibarra v. Loan City, No.

09-CV-02228, 2010 U.S. Dist. LEXIS 6583, *13 (S.D. Cal. Jan. 27,

2010) (beginning the preemption analysis by noting that

defendant had shown that it was a federally regulated savings

association).

Here, defendants have not offered any argument or evidence

as to the threshold question of whether they are federal savings

associations. Nor have defendants raised any other arguments

for dismissal of this claim. Because defendants bear all

applicable burdens on their motion to dismiss, the motion is

denied as to plaintiffs’ negligence claim.16

E. Violations of California Civil Code §§ 2924b and 2924f

Plaintiffs’ fifth cause of action argues that all

defendants violated California Civil Code sections 2924b and

2924f by failing to send the notices of default, trustee’s sale,

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and substitution of trustee to the plaintiffs’ “legal mailing

address.” FAC ¶¶ 87-90. The court dismissed this claim because

plaintiffs had not alleged that they failed to receive these

documents or that such receipt was delayed; thus, it appeared

that any violation was harmless. Order at 18.

Plaintiffs now allege that they “failed to receive the

notices in a timely manner and such failure . . . caused an

undue delay . . . whereby Plaintiffs lost an opportunity to have

initially taken preventive action to avoid the foreclosure

sale.” FAC ¶ 90. Defendants argue that this allegation is

inadequate in that it fails to specify what action plaintiffs

would have taken. Defendants make no other argument for

dismissal of this claim. 

It does not appear that such allegations are required in

the complaint itself. Plaintiffs respond, in their opposition

memorandum, that such actions “would have included an attempted

loan refinance at a lower interest rate, a short sale, or a loan

modification with the existing Defendant lenders.” Opp’n at 22. 

It appears unlikely that defendants would have agreed to

refinance or modify the loan had only plaintiffs made such

request a few days earlier. At the very least, however, it is a

reasonable inference that a short sale or refinancing through

another lender was an available “preventative action” that would

have been facilitated by earlier receipt of notice. Such a

reasonable inference suffices at this stage of the proceedings.

////

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F. Wrongful Foreclosure

Plaintiffs allege that the threatened foreclosure is

wrongful because (1) defendant Old Republic National Title

Insurance Co., who recorded the notices of default and trustee’s

sale, was not authorized to act on defendants’ behalf, FAC ¶ 98;

(2) the notices were not properly sent to plaintiffs, FAC ¶ 98

and FAC ¶¶ 87-90; (3) plaintiffs’ notice of rescission deprived

defendants of the right to foreclose, FAC ¶¶ 99-100; (4)

defendants failed to respond to the qualified written request

under RESPA, FAC ¶¶ 99-100; and (5) “Defendants have failed to

suspend the foreclosure action to allow for consideration of

other options,” FAC ¶ 102.

Defendants make two arguments for dismissal. First, they

argue that because the RESPA claim fails, failure to respond to

the QWR cannot support a claim for wrongful foreclosure. The

court agrees. Moreover, as the prior order explained, because

RESPA does not provide for injunctive relief, RESPA cannot serve

as the basis for a wrongful foreclosure claim. Order at 20.

Second, defendants argue that plaintiffs’ allegation regarding

consideration of alternative foreclosure options is contradicted

by plaintiff John Falcochia’s own declaration submitted to state

court prior to removal. He declares “since May, 2008[] I have

been working with the Loss Mitigation Department at Saxon

Mortgage Incorp. and have attempted to obtain a loan

modification with Saxon and defer outstanding interest payments

owed so as to avoid the loss of the subject property.” June 1,

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Although the court denies defendants’ motion as to the 17

contract and good faith claims, contract claims cannot constitute

“unlawful” conduct for purposes of an unfair competition claim. 

See Boland, Inc. v. Rolf C. Hagen (USA) Corp., ___ F.Supp.2d. ___,

____, 2010 WL 493422, *12, 2010 U.S. Dist. LEXIS 9567, *41 (E.D.

Cal. Feb. 3, 2010) (citing Puentes v. Wells Fargo Home Mortgage,

Inc., 160 Cal. App. 4th 638, 645 (2008) and Smith v. Wells Fargo

Bank, N.A., 135 Cal.App.4th 1463, 1484 (2005)). The remaining

surviving claims provide the predicate unlawful activity.

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2009 Decl. of John J. Falcocchia ISO Ex Parte Application for

TRO, ¶ 4. In opposing this motion, plaintiffs do not dispute

that such negotiations occurred and accounted for the year delay

between the third notice of default and the third notice of

trustee’s sale. Thus, this theory fails.

Although the court dismisses these two bases for the

wrongful foreclosure claim, defendants have not addressed the

other three alleged bases. Accordingly, this claim survives in

part.

G. Violations of California Business and Professions Code Sec.

17200

California’s Unfair Competition Law, Cal. Bus. & Prof. Code

§ 17200, (“UCL”) proscribes “unlawful, unfair or fraudulent”

business acts and practices. “Unlawful” conduct is that

prohibited by other law. Here, the court denies the motion to

dismiss as to various other claims which provide the requisite

predicate unlawful conduct. Because the claim survives in this 17

regard and in light of the inadequacy of the parties’ briefing,

the court does not decide whether plaintiffs have also

sufficiently alleged claims for unfair or fraudulent conduct.

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IV. Conclusion

For the reasons stated above, defendants’ motion to dismiss

(Dkt. No. 26) is GRANTED IN PART. The court ORDERS as follows:

1. Plaintiffs’ TILA claim is DISMISSED WITH PREJUDICE

except insofar as this claim seeks damages for the

failure to respond to notice of rescission.

2. Plaintiffs’ RESPA claim is DISMISSED WITHOUT

PREJUDICE.

3. Plaintiffs’ wrongful foreclosure claim is DISMISSED

WITH PREJUDICE solely insofar as it is predicated on

violation of RESPA or the allegation that defendants

failed to suspend foreclosure activities to allow

negotiation of a loan modification.

4. Defendants’ motion to dismiss is otherwise DENIED.

Plaintiffs are granted 21 days to file an amended complaint

seeking to cure the above identified defects with plaintiffs’

RESPA claim. Should plaintiffs seek to amend their complaint

for any other purposes, plaintiffs must move for leave to amend

under Fed. R. Civ. P. 15 and 16. See Scheduling Order filed

Jan. 11, 2010.

Both parties are warned that evidence that a party failed

to read this order will result in sanctions.

IT IS SO ORDERED.

DATED: May 27, 2010.

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