Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_09-cv-00916/USCOURTS-caed-1_09-cv-00916-5/pdf.json

Parties Involved:
Aurora Loan Services, LLC.
Defendant
Greenpoint Mortgage Funding, Inc.
Defendant
Felipe Santos Jr.
Plaintiff
Gemma Santos
Plaintiff
U.S. Bank N.A.
Defendant

Document Text:

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UNITED STATES DISTRICT COURT

 EASTERN DISTRICT OF CALIFORNIA

FELIPE SANTOS JR., an Individual and

GEMMA SANTOS, an Individual,

Plaintiffs,

v.

U.S. BANK N.A., a Delaware

Corporation; AURORA LOAN

SERVICES, LLC, a Delaware

Corporation; GREENPOINT

MORTGAGE FUNDING, INC., a New

York Corporation; and DOES 1 through

10, inclusive, 

Defendants.

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CIV-F-09-0916 AWI DLB

ORDER RE: MOTION TO DISMISS

I. History1

Plaintiffs Felipe Santos, Jr. and Gemma Santos purchased a home at 10111 Fitzgerald

Drive, Bakersfield, CA 93311 (“Property”). They refinanced their mortgage on the property on

February 7, 2007. Defendant Greenpoint Mortgage Funding, Inc. (“Greenpoint”) was the

originating lender. Defendant U.S. Bank, N.A. (“US Bank”) was the assignee of the mortgage. 

Defendant Aurora Loan Services, LLC (“Aurora”) was the loan servicer. Plaintiffs owed

$436,206.71 on the prior mortgage, replacing it with a new mortgage for $492,000. The

The factual history is provided for background only and does not form the basis of the 1

court’s decision; the assertions contained therein are not necessarily taken as adjudged to be true. 

The legally relevant facts relied upon by the court are discussed within the analysis. 

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mortgage was a variable rate loan with an initial rate of 7.375% and a maximum rate of 12.375%

and minimum rate of 2.750%. As part of the refinance, Plaintiffs paid a number of

miscellaneous fees Plaintiffs allege are duplicative and unreasonable. Plaintiffs also allege a

number of disclosures were not provided. By April 10, 2009, Plaintiffs fell behind on their

mortgage payments. 

Plaintiffs filed suit on May 21, 2009 in federal district court. Defendants Greenpoint and

Aurora filed motions to dismiss. Plaintiffs filed a First Amended Complaint (“FAC”) on October

12, 2009. In thhe FAC, Plaintiffs made four claims against all Defendants: (1) rescission under

the Truth In Lending Act (“TILA”); (2) monetary damages under TILA; (3) statutory damages

under the Real Estate Settlement Procedures Act; and (4) monetary damages under California’s

Unfair Competition Law (“UCL”). Defendant Greenpoint and Aurora again filed motions to

dismiss. No timely opposition was received and the matters were taken under submission. The

parties entered into discussions and Plaintiffs voluntarily dismissed all claims against Defendants

Aurora and US Bank on February 22, 2010. Plaintiffs maintain their claims against Defendant

Greenpoint and filed a late opposition to Greenpoint’s motion to dismiss on February 21, 2010. 

Though Plaintiffs’ opposition was filed late, the court will consider Plaintiffs’ arguments as they

help to advance the course of litigation. 

II. Legal Standards

Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of the

plaintiff’s “failure to state a claim upon which relief can be granted.” A dismissal under Rule

12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient

facts alleged under a cognizable legal theory. Navarro v. Block, 250 F.3d 729, 732 (9th Cir.

2001). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed

factual allegations, a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’

requires more than labels and conclusions, and a formulaic recitation of the elements of a cause

of action will not do. Factual allegations must be enough to raise a right to relief above the

speculative level, on the assumption that all the allegations in the complaint are true (even if

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doubtful in fact)....a well-pleaded complaint may proceed even if it strikes a savvy judge that

actual proof of those facts is improbable” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56

(2007), citations omitted. “[O]nly a complaint that states a plausible claim for relief survives a

motion to dismiss. Determining whether a complaint states a plausible claim for relief will, as the

Court of Appeals observed, be a context-specific task that requires the reviewing court to draw

on its judicial experience and common sense. But where the well-pleaded facts do not permit the

court to infer more than the mere possibility of misconduct, the complaint has alleged -- but it

has not shown that the pleader is entitled to relief.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950

(2009), citations omitted. The court is not required “to accept as true allegations that are merely

conclusory, unwarranted deductions of fact, or unreasonable inferences.” Sprewell v. Golden

State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). The court must also assume that “general

allegations embrace those specific facts that are necessary to support the claim.” Lujan v. Nat’l

Wildlife Fed’n, 497 U.S. 871, 889 (1990), citing Conley v. Gibson, 355 U.S. 41, 47 (1957),

overruled on other grounds at 127 S. Ct. 1955, 1969. Thus, the determinative question is

whether there is any set of “facts that could be proved consistent with the allegations of the

complaint” that would entitle plaintiff to some relief. Swierkiewicz v. Sorema N.A., 534 U.S.

506, 514 (2002). At the other bound, courts will not assume that plaintiffs “can prove facts

which [they have] not alleged, or that the defendants have violated...laws in ways that have not

been alleged.” Associated General Contractors of California, Inc. v. California State Council of

Carpenters, 459 U.S. 519, 526 (1983). 

In deciding whether to dismiss a claim under Rule 12(b)(6), the Court is generally limited

to reviewing only the complaint. “There are, however, two exceptions....First, a court may

consider material which is properly submitted as part of the complaint on a motion to dismiss...If

the documents are not physically attached to the complaint, they may be considered if the

documents’ authenticity is not contested and the plaintiff’s complaint necessarily relies on them.

Second, under Fed. R. Evid. 201, a court may take judicial notice of matters of public record.”

Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001), citations omitted. The Ninth

Circuit later gave a separate definition of “the ‘incorporation by reference’ doctrine, which

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permits us to take into account documents whose contents are alleged in a complaint and whose

authenticity no party questions, but which are not physically attached to the plaintiff’s pleading.”

Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005), citations omitted. “[A] court may not

look beyond the complaint to a plaintiff’s moving papers, such as a memorandum in opposition

to a defendant’s motion to dismiss. Facts raised for the first time in opposition papers should be

considered by the court in determining whether to grant leave to amend or to dismiss the

complaint with or without prejudice.” Broam v. Bogan, 320 F.3d 1023, 1026 n.2 (9th Cir. 2003),

citations omitted.

If a Rule 12(b)(6) motion to dismiss is granted, claims may be dismissed with or without

prejudice, and with or without leave to amend. “[A] district court should grant leave to amend

even if no request to amend the pleading was made, unless it determines that the pleading could

not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th

Cir. 2000) (en banc), quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995). In other

words, leave to amend need not be granted when amendment would be futile. Gompper v. VISX,

Inc., 298 F.3d 893, 898 (9th Cir. 2002).

III. Discussion

A. Truth In Lending Act

In the first two counts, Plaintiffs seeks rescission and monetary damages under TILA and

Regulation Z (regulation issued by the Federal Reserve to implement TILA) based on allegations

that they did not receive required disclosures. TILA “requires creditors to provide borrowers

with clear and accurate disclosures of terms dealing with things like finance charges, annual

percentage rates of interest, and the borrower’s rights. Failure to satisfy the Act subjects a lender

to criminal penalties for noncompliance, as well as to statutory and actual damages traceable to a

lender’s failure to make the requisite disclosures, see §1640....the Act also authorizes a borrower

whose loan is secured with his ‘principal dwelling,’ and who has been denied the requisite

disclosures, to rescind the loan transaction entirely.” Beach v. Ocwen Fed. Bank, 523 U.S. 410,

412 (1998), citations omitted. 

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1. Rescission

Greenpoint asserts that Plaintiffs can not rescind the mortgage because they have not

alleged the ability and willingness to return the $492,000 principal. Plaintiffs assert that they

“may keep any money or property, and has no obligation to tender, until the Defendants have

cancelled the mortgage lien, or security interest in the property, and return any money or property

given to the Defendants or to anyone else in connection with this transaction....Plaintiffs cannot

tender an exact and definite amount since Defendant unfairly failed to provide them ‘with an

itemization of the loan disbursements, the loan charges, the current principal balance, and all

payments received...so that we may determine the exact amount needed for tender’ despite

Plaintiff’s unequivocal and clear demand. Because of the detrimental act of Defendant []

AURORA, Plaintiffs are deemed to have substantially complied with the offer to tender.” Doc.

20, FAC, at 10:5-8 and 10:28-11:4. Courts have discretion in determining the sequence of events

concerning rescission; “a borrower could get out from under a secured loan simply by claiming

TILA violations, whether or not the lender had actually committed any. Rather, under the statute

and the regulation, the security interest ‘becomes void’ only when the consumer ‘rescinds’ the

transaction. In a contested case, this happens when the right to rescind is determined in the

borrower’s favor.” Yamamoto v. Bank of N.Y., 329 F.3d 1167, 1172 (9th Cir. 2003), emphasis in

original. Plaintiffs argue that “Yamamoto did not hold that a Plaintiff must plead the ability to

tender in order to state a claim for rescission. Rather, it merely established that the court has

discretion to require the Plaintiff to produce evidence of the ability to tender prior to issuing a

final ruling on the rescission claim.” Doc. 36, Opposition, at 5:8-11. Rescission is an empty

remedy without Plaintiffs’ ability to pay back the principal of the loan (less interest, finance

charges, etc.). Requiring Plaintiffs to allege that they can tender at this point in the litigation is

consistent with Yamamoto. See Gonzalez v. First Franklin Loan Services, 2010 WL 144862, *5

(E.D. Cal. 2010); Avina v. BNC Mortg., 2009 WL 5215751, *2 (N.D. Cal. 2009); Farmer v.

Countrywide Financial Corp., 2009 WL 1530973, *5 (C.D. Cal. 2009); Pagtalunan v. Reunion

Mortgage Inc., 2009 WL 961995, *3 (N.D. Cal. 2009); Garza v. American Home Mortg., 2009

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WL 188604, *5 (E.D. Cal. 2009). 

Greenpoint also argues that the Property is not Plaintiff’s primary dwelling. Under TILA,

rescission is only available as a remedy in property transactions when the property is “used as the

principal dwelling of the person to whom credit is extended.” 15 U.S.C. §1635(a). “The term

‘dwelling’ means a residential structure or mobile home which contains one to four family

housing units, or individual units of condominiums or cooperatives.” 15 U.S.C. §1602(v). 

“[T]he Board of Governors of the Federal Reserve System has issued Regulation Z to implement

the TILA, see 12 C.F.R. § 226.1 (1991), et seq., and id. §226.23(a) reiterates the ‘principal

dwelling’ requirement of section 1635(a). An official staff interpretation of this provision by the

Board’s Division of Consumer and Community Affairs, see 12 C.F.R. Pt. 226, App. C (1991),

states: ‘A consumer can only have one principal dwelling at a time. A vacation or other second

home would not be a principal dwelling.’ See 12 C.F.R. Pt. 226, Supp. I, at 392 (1991).” Scott v.

Long Island Sav. Bank, 937 F.2d 738, 741 (2nd Cir. 1991). 

Greenpoint points out two pieces of evidence on this matter that may be considered at the

motion to dismiss stage. Attached to Plaintiff’s First Amended Complaint is the loan

application. On it, Plaintiffs state that they own two houses in addition to the Property. 

Greenpoint believes that Plaintiff describe the Property as a rental because it is labeled “R”

which the form instructions identifies as a “rental being held for income.” Upon close

examination, the other two houses are marked as “R” but the Property is marked as “H.” See

Doc. 28, Ex. 1, at 4. The form instructions are silent regarding “H” but it could easily represent

“home.” Greenpoint also directs attention to Plaintiffs’ assertions in another court case file in

Fresno, Santos v. Countrywide Home Loans, Civ. Case No. 09-0912 concerning one of the other

houses Plaintiffs own. In the complaint in that case, Plaintiffs state that 12814 Montbatten Place,

Bakersfield, CA 93312 is their principal dwelling. See Civ. Case No. 09-0912, Doc. 1, at 2:26-

27. The court can not draw a firm conclusion as to Plaintiffs’ actual principal dwelling in the

relevant time period. Judicial estoppel does not apply as Plaintiffs’ representation in Case No.

09-0912 was not relied upon in any way. Under Ninth Circuit precedent, judicial estoppel only

applies “where the court relied on, or ‘accepted,’ the party’s previous inconsistent position.”

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Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 783 (9th Cir. 2001). 

Plaintiffs do not directly respond to Greenpoint’s argument, instead stating that their

“right to rescind under TILA covers up to four family housing units. A dwelling is any

‘residential structure or mobile home which contains one to four family housing units, or

individual units of condominiums or cooperatives.’ Ator v. City Bank & Trust Co., 749 F.2d 498

(8th Cir. 1984).” This does not resolve the problem with Plaintiffs’ past representations. An

individual can only have one principal dwelling at a time; the dwelling may be one building that

physically encompasses up four family housing units. It is plain on its face (from the zip codes if

nothing else) that the Property (10111 Fitzgerald Drive, Bakersfield, CA 93311) and 12814

Montbatten Place, Bakersfield, CA 93312 are not one dwelling. Thus, Plaintiffs have made

misrepresentations in either this case or Case No. 09-0912. 

Plaintiffs’ claim seeking rescission under TILA is dismissed. Given the uncertainty

surrounding Plaintiffs’ ability to tender and the status of the Property, leave to amend is

appropriate. Plaintiffs and Plaintiffs’ counsel are warned to consider their representation in any

new complaint carefully. Making false representations concerning the principal dwelling from

this point forward may result in sanctions. 

2. Monetary Damages

Greenpoint argues that a claim for monetary damages are barred by the one year statute of

limitations. “Any action under this section may be brought in any United States district court, or

in any other court of competent jurisdiction, within one year from the date of the occurrence of

the violation.” 15 U.S.C. §1640(e). The one-year limitations period “runs from the date of

consummation of the transaction but...the doctrine of equitable tolling may, in the appropriate

circumstances, suspend the limitations period until the borrower discovers or had reasonable

opportunity to discover the fraud or non-disclosures that form the basis of the TILA action.”

King v. California, 784 F.2d 910, 915 (9th Cir. 1986). For purposes of TILA, “consummation” is

defined as “the time that a consumer becomes contractually obligated on a credit transaction.” 12

C.F.R. § 226.2(a)(13); Grimes v. New Century Mortg. Corp., 340 F.3d 1007, 1009 (9th Cir.

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2003). The refinance on the Property was signed on February 7, 2007. Plaintiffs did not file suit

until May 21, 2009. Plaintiffs argue that equitable tolling should apply as “All these [TILA]

violations came only to the attention of the Plaintiffs after they came to consult with their

counsel.” Doc. 20, FAC, at 13:1-2. Plaintiffs’ position appears to be that the limitations period

should be equitably tolled until a legal expert looked at their documents. The court finds this

explanation is not an excusable delay sufficient to invoke this court’s application of equitable

tolling. “Entertaining such justification would open the floodgates, allow endless TILA suits to

be filed under the guise that one’s lawyer ‘recently discovered the nondisclosure.’” Bezverkhov

v. Cal-Western Reconveyance Corp., 2009 U.S. Dist. LEXIS 115469, *9-10 (E.D. Cal. Dec. 10,

2009). The court declines to institute a rule in which obtaining an attorney becomes the

touchstone upon which tolling of the statute of limitations may be granted. Plaintiffs’ claim for

monetary damages under TILA is dismissed due to the statute of limitations. As Plaintiffs have

demonstrated that they can not plead equitable tolling, leave to amend would be futile. 

B. Real Estate Settlement Procedures Act

RESPA was enacted in order to bring about: (1) more effective advance disclosure to

home buyers and sellers of settlement costs; (2) the elimination of kickbacks or referral fees that

tend to increase unnecessarily the costs of certain settlement services; (3) a reduction in the

amounts home buyers are required to place in escrow accounts established to insure the payment

of real estate taxes and insurance; and (4) significant reform and modernization of local recordkeeping of land title information. 12 U.S.C. § 2601(b). In their third count, Plaintiffs allege

Greenpoint violated RESPA under two theories: charging illegal fees and failing to respond to a

qualified written request (“QWR”). 

1. Illegal Fees

“During the closing of the Transaction, Plaintiffs herein were charged with fees which

were unearned, duplicative, unreasonable and unconnected to any actual services performed.

Plaintiffs were made to pay endorsement fee of $25.00; recording trust deed of $80.00; doc prep

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fees to Ticor of $150.00; overnight delivery fee of 18.70; origination fee of $4,920.00; document

preparation fee to Greenpoint of $390.00; tax service fee to Greenpoint of $79.00; process/admin

fee to Vision Mortgage & Realty of $1,365.00; notary fee of $150.00.” Doc. 20, FAC, at 13:12-

18. “(a) Business referrals. No person shall give and no person shall accept any fee, kickback, or

thing of value pursuant to any agreement or understanding, oral or otherwise, that business

incident to or a part of a real estate settlement service involving a federally related mortgage loan

shall be referred to any person. (b) Splitting charges. No person shall give and no person shall

accept any portion, split, or percentage of any charge made or received for the rendering of a real

estate settlement service in connection with a transaction involving a federally related mortgage

loan other than for services actually performed.” 12 U.S.C. §2607. 

Greenpoint argues that the claim under Section 2607 is barred by the statute of

limitations. “Any action pursuant to the provisions of section 6, 8, or 9 [12 U.S.C. §2605, §2607,

or §2608] may be brought in the United States district court or in any other court of competent

jurisdiction, for the district in which the property involved is located, or where the violation is

alleged to have occurred, within 3 years in the case of a violation of section 6 [12 U.S.C. §2605]

and 1 year in the case of a violation of section 8 or 9 [12 U.S.C. §2607 or §2608] from the date

of the occurrence of the violation.” 12 U.S.C. §2614. Again, Plaintiffs refinanced on February 7,

2007 but did not file suit until May 21, 2009, well more than one year later. In the opposition,

Plaintiffs do not address this issue. 

Plaintiffs’ RESPA claim under 12 U.S.C. §2607 is dismissed. As with the TILA

monetary damages cause of action, leave to amend is futile since no equitable tolling argument

can be made. 

2. Qualified Written Request

Plaintiffs allege that by letter dated December 9, 2008, “Plaintiffs also enclosed and sent

to the Defendant AURORA, the RESPA Qualified Written Request (QWR)....Defendant Aurora

failed to respond to the letter.” Doc. 20, FAC, at 8:22-25. Under RESPA, “a qualified written

request shall be a written correspondence, other than notice on a payment coupon or other

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payment medium supplied by the servicer, that includes, or otherwise enables the servicer to

identify, the name and account of the borrower; and (ii) 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). 

“If any servicer of a federally related mortgage loan receives a qualified written request from the

borrower (or an agent of the borrower) for information relating to the servicing of such loan, the

servicer shall provide a written response acknowledging receipt of the correspondence within 20

days.” 12 U.S.C. §2605(e)(1)(a). “Whoever fails to comply with any provision of this section

shall be liable to the borrower for each such failure.” 12 U.S.C. §2605(f). 

First, Plaintiffs do not allege that a QWR was ever sent to Greenpoint. Second, RESPA

does not require loan originators to respond to QWRs. Plaintiffs state “Defendant

GREENPOINT Mortgage was the originating lender and may be considered a functional creditor

or alternatively, is a Servicer strictly for administrative purposes subject to the Real Estate

Settlement Procedures Act.” Doc. 20, FAC, at 3:23-25. “The term ‘servicer’ means the person

responsible for servicing of a loan (including the person who makes or holds a loan if such

person also services the loan).” 12 U.S.C. §2605(i)(2). “The term ‘servicing’ means receiving

any scheduled periodic payments from a borrower pursuant to the terms of any loan, including

amounts for escrow accounts described in section 10 [12 U.S.C. §2609], and making the

payments of principal and interest and such other payments with respect to the amounts received

from the borrower as may be required pursuant to the terms of the loan.” 12 U.S.C. §2605(i)(3). 

Plaintiffs state that “Defendant AURORA LOAN is or was the designated Servicer for the

purported beneficiary.” Doc. 20, FAC, at 3:12-13. Plaintiffs artful pleading that Greenpoint is a

loan servicer subject to RESPA “strictly for administrative purposes” is insufficient. In their

opposition, Plaintiffs do not address any of Greenpoint’s arguments regarding the QWR

response claim. 

Plaintiffs’ RESPA claim under 12 U.S.C. §2605 is dismissed. Leave to amend is granted

to give Plaintiffs the opportunity to allege that a QWR was sent to Greenpoint and that

Greenpoint was actually a servicer. 

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C. Unfair Competition Law

Plaintiffs’ fourth count alleges violations of the UCL under a number of disparate

theories. Unfair competition is defined to be “any unlawful, unfair or fraudulent business act or

practice and unfair, deceptive, untrue or misleading advertising and any act.” Cal. Bus. & Prof.

Code §17200. “[A]n action based on Business and Professions Code §17200 to redress an

unlawful business practice ‘borrows’ violations of other laws and treats these violations, when

committed pursuant to business activity, as unlawful practices independently actionable under

section 17200 et seq. and subject to the distinct remedies provided thereunder.” Farmers Ins.

Exch. v. Superior Court, 2 Cal. 4th 377, 383 (Cal. 1992). Failure to state a claim for the

underlying law would negate this theory of UCL violation. “A court may not allow plaintiff to

plead around an absolute bar to relief simply by recasting the cause of action as one for unfair

competition.” Chabner v. United of Omaha Life Ins. Co., 225 F.3d 1042, 1048 (9th Cir.2000);

see also Vega v. JP Morgan Chase Bank, N.A., 2009 U.S. Dist. LEXIS 83763, *29 (E.D. Cal.

Aug. 25, 2009). Based on the discussion below, Plaintiffs’ UCL claim is dismissed with leave to

amend. 

1. Fiduciary Duty

Plaintiffs allege Greenpoint “violated their fiduciary duty for doing loan where it could

reasonably lead to default by the Plaintiffs.” Doc. 20, FAC, at 14:13-14. Greenpoint argues that

no fiduciary duty exists as it is only the lender in this case. In order to sustain a claim for breach

of fiduciary duty, “a plaintiff must demonstrate the existence of a fiduciary relationship, breach

of that duty and damages.” Serrano v. Sec. Nat’l Mortg. Co., 2009 U.S. Dist. LEXIS 71725, *12-

13 (S.D. Cal. Aug. 14, 2009). “[A]bsent special circumstances...a loan transaction is at arm’s

length and there is no fiduciary relationship between the borrower and the lender.” Oaks

Management Corp. v. Superior Court, 145 Cal. App. 4th 453, 466 (Cal. Ct. App. 2006). “The

relationship between a lending institution and its borrower-client is not fiduciary in nature. A

commercial lender is entitled to pursue its own economic interests in a loan transaction. This

right is inconsistent with the obligations of a fiduciary which require that the fiduciary knowingly

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agree to subordinate its interests to act on behalf of and for the benefit of another. Nymark v.

Heart Fed. Savings & Loan Assn., 231 Cal.App. 3d 1089, 1093 n.1 (Cal. Ct. App. 1991),

citations omitted. 

2. California Civil Code Provisions

Plaintiffs allege that Defendants have violated a number of provision of California law,

citing Cal. Civ. Code §1916.7, §1918.5, §1920, and §1921. Doc. 20, FAC, at 14:15-15:8. 

Overall, it appears that Plaintiffs have misinterpreted the California Civil Code provisions. 

Regarding Cal. Civ. Code §1916.7, Plaintiffs state “By restricting the downward

adjustment of the mortgage rate in the Note to not less than 2.750% regardless of the downward

movement of the index, lender Defendant GREENPOINT and assignee Defendant U.S. Bank

violated California Civil Code CIV Section 1916.7(10)(c)II....Further the adjustable rate

mortgage disclosure notice was not provided to the Plaintiff during the processing of this loan in

violation of California Civil Code CIV Section 1916.7 10(c).” Doc. 20 FAC, at 14:25-28 and

15:3-5. A plain reading of Cal. Civ. Code §1916.7 shows it to require a disclosure statement be

provided to borrowers if the loan meets certain very specific characteristics. Cal. Civ. Code

§1916.7(b) and (c). The wording of Cal. Civ. Code §1916.7 does not appear to set out

substantive regulations governing the terms of the loan; the court can find no case in which Cal.

Civ. Code §1916.7 has been relied on to regulate what interest rates can be charged by the

borrower. “[S]ection 1916.7 applies only to mortgage loans made pursuant to it. Cal. Civ. Code

§ 1916.7(b). Plaintiff has not alleged facts showing that section 1916.7 applied to her loan.”

Brittain v. IndyMac Bank, FSB, 2009 U.S. Dist. LEXIS 84863, *8 (N.D. Cal. Sept. 16, 2009);

see also Gonzalez v. Alliance Bancorp, 2010 U.S. Dist. LEXIS 47943, *17 (N.D. Cal. Apr. 19,

2010). Similarly in this case, Plaintiffs have not alleged facts that suggest Cal. Civ. Code §

1916.7 applies. In fact, the allegation that the interest rates charged are not in accord with the

terms set out in Cal. Civ. Code § 1916.7 suggest that the refinance of the Property is a loan that is

not covered. 

Greenpoint also points out that the disclosures required by Cal. Civ. Code § 1916.7

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appear to be preempted in many circumstances by the federal Alternative Mortgage Transactions

Parity Act of 1982 (“AMTPA”) which provides in part “An alternative mortgage transaction may

be made by a housing creditor in accordance with this section, notwithstanding any State

constitution, law, or regulation.” 12 U.S.C. §3803. “[T]he term ‘alternative mortgage

transaction’ means a loan or credit sale secured by an interest in residential real property...in

which the interest rate or finance charge may be adjusted or renegotiated.” 12 U.S.C.

§3802(1)(A). The Ninth Circuit has stated that AMTPA does not provide for complete

preemption, but only of those state law terms that conflict with AMTPA’s terms. See Ansley v.

Ameriquest Mortg. Co., 340 F.3d 858, 864 (9th Cir. 2003); Quicken Loans, Inc. v. Wood, 449

F.3d 944, 950 (9th Cir. Cal. 2006). “The language of the statute provides that conflicting state

laws governing ‘alternative mortgage transactions’ are preempted where those transactions

comply with relevant OTS regulations. See 12 C.F.R. 560.35, 560.210, 226.19(b), 226.20(c).

Alternative, conflicting, or more rigorous disclosure requirements would interfere with housing

creditors’ ability to enter into alternative mortgage transactions. [The plaintiff] has not articulated

a theory whereby defendants would be liable for violating Section 1916.7 of the California Civil

Code in spite of the AMPTA. Nor has [the plaintiff] responded to defendants’ assertion that the

California Civil Code is preempted. Consequently, this claim cannot survive defendants’

motion.” Hafiz v. Greenpoint Mortage Funding, Inc., 652 F. Supp. 2d 1039, 1047-48 (N.D. Cal.

2009).

Plaintiffs claim “The Defendants must notify Plaintiffs of any changes in the interest rate

and monthly payment of loan. Considering that the amortized rate changes, so the Plaintiffs

should be notified. Defendants failed to do so and violated Civil Code Section 1918.5-

1921.1920.” Doc. 20, FAC, at 15:1-3. Cal. Civ. Code §1918.5 does not set out regulations but

only provides definitions for certain terms. Cal. Civ. Code §1921 discusses disclosures before

any loan is signed. These two sections do not appear to directly apply to Plaintiffs’ factual

allegations. In contrast, Cal. Civ. Code §1920 requires ongoing disclosures when the interest rate

changes: “Before the due date of the first monthly installment following each change in the

interest rate, notice shall be mailed to the borrower of the following: (A) The base index. (B) The

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most recently published index at the date of the change in the rate. (C) The interest rate in effect

as a result of the change. (D) Any change in the monthly installment. (E) The amount of the

unpaid principal balance. (F) If the interest scheduled to be paid on the due date exceeds the

amount of the installment, a statement to that effect and the amount of the excess, and the

address and telephone number of the office of the lender to which inquiries may be made.” Cal.

Civ. Code §1920(b)(2). The court can not determine what is meant by “amortized rate changes”

and how it necessitates disclosure by Greenpoint. Further, “the majority of adjustable rate

mortgage loans in California originate under [AMTPA] which preempts state laws. Plaintiffs fail

to allege facts showing that their loan originated under state laws rather than under AMTPA.”

Pagtalunan v. Reunion Mortg., Inc., 2009 U.S. Dist. LEXIS 34811, *12 (N.D. Cal. Apr. 8, 2009),

citations omitted.

3. TILA and Fair Debt Collection Practices Act

Plaintiffs allege that Defendants’ violations of TILA and the Fair Debt Collection

Practices Act (“FDCPA”) constitute violations of the UCL. Plaintiffs formally stated TILA

claims in counts one and two. Plaintiffs formally stated an FDCPA claim in the original

complaint, but not in the FAC. See Doc. 1, Complaint, at 9:11-21. As discussed above, the TILA

claims have been dismissed. Greenpoint argues that Plaintiffs can not state an FDCPA claim as

Greenpoint is not subject to FDCPA coverage. The FDCPA provides for civil suit against “any

debt collector who fails to comply with any provision of this title.” 15 U.S.C. §1692k. The term

“debt collector” has been defined as

any person who uses any instrumentality of interstate commerce or the mails in any

business the principal purpose of which is the collection of any debts, or who regularly

collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be

owed or due another....

The term does not include...(F) any person collecting or attempting to collect any debt

owed or due or asserted to be owed or due another to the extent such activity (i) is

incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement; (ii)

concerns a debt which was originated by such person; (iii) concerns a debt which was not

in default at the time it was obtained by such person; or (iv) concerns a debt obtained by

such person as a secured party in a commercial credit transaction involving the creditor.

15 U.S.C. §1692a(6), emphasis added. Thus, as originating lender of the refinance of the

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Property, Greenpoint appears to fall under 15 U.S.C. §1692(a)(6)(F)(ii). 

IV. Order

Defendant Greenpoint’s motion to dismiss is GRANTED. Plaintiffs’ First Amended

Complaint is DISMISSED; Plaintiffs are granted leave to amend the first, third, and fourth

causes of action, consistent with the analysis of this order. Any amended complaint must be filed

within twenty-one (21) days of the filing of this order. 

IT IS SO ORDERED.

Dated: May 28, 2010 /s/ Anthony W. Ishii 

0m8i78 CHIEF UNITED STATES DISTRICT JUDGE

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