Filed 1/23/14 Sarno v. Wells Fargo Bank CA2/3 NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

JOHN C. SARNO,
Plaintiff and Appellant,

v.
WELLS FARGO BANK N.A.,
Defendant and Respondent. B246952
(Los Angeles County Super. Ct. No. BC485889)

APPEAL from judgment of the Superior Court of Los Angeles County, Malcolm Mackey, Judge. Affirmed.

Law Offices of Barry K. Rothman and Fredric R. Brandfon for Plaintiff and Appellant.

Severson & Werson, Jan T. Chilton, J on D. Ives and Kerry W. Franich for Defendant and Respondent.

__________ ___________2 INTRODUCTION Plaintiff John C. Sarno (Plaintiff) appeals from the judgment entered in favor of Defendant Wells Fargo Bank, N. A. (Wells Fargo) after the trial court sustained Wells Fargo’s demurrer without leav e to amend. We affirm. In November 2010, Wells Fargo provided Plaintiff a Good Faith Estimate (GFE) for a home loan. The GFE quoted an initial interest rate of 4. 25 percent. Closing was to occur at the end of November, but it was pos tponed for two months. Immediately prior to the closing, Wells Fargo allegedly informed Plaintiff that the interest rate had increased to 4.625 percent. Plaintiff accepted the new intere st rate and proceeded with the closing. Over a year later, Plaintiff sued Wells Fargo, claiming the GFE constituted a binding agreement to make a loan at the liste d 4.25 percent interest rate and that, under the GFE’s terms, the quoted interest rate wa s “available indefinitely.” The trial court rejected this contention, as do we. The federal regulations gove rning GFEs expressly provide , “[i]f the interest rate has not been locked, . . . loan terms related to the interest rate may change.” (24 C.F.R. § 3500.7(f)(5).) Plaintiff admits he did not lock the 4.25 percent intere st rate quoted in the GFE. And, contrary to Plaintiff’s contention, the GFE ca nnot reasonably be interpreted as a binding agreement to make a loan at the quoted interest rate for an indefinite period of time. The judgment is affirmed.
FACTUAL AND PROCED URAL BACKGROUND Because this appeal is from a judgment following the sustaining of a demurrer without leave to amend, we recite the materi al facts pled in the complaint without passing on the truth of the allegations, but disr egard contentions, deductions and legal conclusions. ( Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) In the fall of 2010, Plaintiff applied for a loan from Wells Fargo to purchase real property located in Santa Fe Springs, Califor nia. On November 9, 2010, Wells Fargo provided Plaintiff a GFE, which set forth a summary of the anticip ated loan terms and3 estimated settlement costs. The GFE incl uded an initial interest rate quote of 4.25 percent. In the section entitled “Importa nt dates,” the GFE provi ded:
“1. The interest rate for this GFE is av ailable through N/A . After this time, the interest rate, some of your loan Origination Charges, and the monthly payment shown below can change until you lock your interest rate.
“2. This estimate for all other settleme nt charges is available through
11/22/2010. “3. After you lock your interest rate, you must go to settlement within N/A days (your rate lock period) to receive the locked interest rate.
“4. You must lock the interest rate at least 10 days before settlement.” Plaintiff opened escrow, which was origina lly scheduled to close on November 30, 2010. However, the close of escrow was postponed to January 24, 2011. Immediately prior to the January 24, 2011 close of escrow, Plaintiff alleges Wells Fargo informed him the interest rate on his lo an had been increased to 4.625 percent. Wells Fargo did not consult Plaintiff before raising the interest rate. Plaintiff, nevertheless, accepted the increased interest rate and proceeded with the close of escrow. After closing, Plaintiff unsuccessfully attemp ted to negotiate with Wells Fargo to reduce the interest rate to 4.25 percent. On June 4, 2012, Plaintiff filed a compla int against Wells Fargo, asserting seven causes of action for (1) fraud; (2 ) negligent misrepresentation; (3) intentional interference with prospective economic advantage; (4) vi olation of Business and Professions Code section 17200; (5) violation of Civil Code section 1750; (6) breach of contract; and (7) breach of the implied covena nt of good faith and fair dealing. Each cause of action was premised on the legal theo ry that the GFE constituted a binding agreement to make a loan at an interest rate of 4.25 percen t and that, under the terms of the GFE, the 4.25 percent interest rate was “available indefinitely.”4 Wells Fargo demurred to the complaint, a sserting, among other things, that the complaint failed to allege suffi cient facts to state a claim b ecause the GFE did not, as a matter of law, constitute a bindi ng agreement to make a 4.25 per cent interest ra te loan for an indefinite period of time. In his opposition to the de murrer, Plaintiff withdrew his claims for intentional interference with pros pective economic advant age and violation of
Civil Code section 1750.
The trial court sustained the demurrer to the remaining causes of action without leave to amend. On January 29, 2013, the court entered ju dgment dismissing the action.
STANDARD OF REVIEW AND CONTENTIONS “We apply the de novo standard to revi ew an order sustaining a demurrer. [Citation.] Since the trial court sustained th e demurrer without leave to amend, we must
determine ‘whether there is a reasonable probability that th e complaint could have been amended to cure the defect; if so, [we] w ill conclude that the trial court abused its discretion by denying the plaintiff leave to ame nd.’ [Citation.] It is plaintiff’s burden to establish that the complaint c ould be amended to cure any pl eading defect. [Citation.]” ( Barroso v. Ocwen Lo an Servicing, LLC (2012) 208 Cal.Ap p.4th 1001, 1008 ( Barroso ).) Plaintiff challenges the judgment on two grou nds. First, Plaintiff contends a GFE is a binding agreement between a loan originator and a borro wer, the terms of which can be amended only by issuing the borrower a re vised GFE. Second, Plaintiff contends the 4.25 percent interest rate was, under the terms of the GFE provided by Wells Fargo, available for an indefinite period of time. We disagree on both counts. As we shall explain, although a loan or iginator is generally bound by the terms listed in a GFE pertaining to loan settleme nt service charges, the governing federal regulations make clear that with respect to th e listed interest rate, the lender is bound only during the period specified in the GFE or whil e the interest rate is locked. (24 C.F.R. § 3500.7(c), (e)(1)(ii) & (f)(5).) Plaintiff admits that he did not lo ck the 4.25 percent
interest rate. As for Plaintiff’s contention th at the 4.25 percent interest rate was available for an indefinite period of time, we hold that the terms of the GFE are not reasonably susceptible of this interpretation.5 DISCUSSION
1. The Interest Rate Listed on a GFE Is Binding Against th e Loan Originator Only During the Period Specified or While the Interest Rate Is Locked
The Real Estate Settlement Procedures Ac t (RESPA) requires mortgage lenders to
disclose the costs associated with real estate closings. (12 U.S.C. § 2601.) The statute
aims to ensure that loan applicants are “provided w ith greater and more timely
information on the nature and costs of the settlement process and are protected from unnecessarily high settleme nt charges . . . .” ( Ibid. ) To advance this purpose, RESPA requires lenders to provide “a good faith es timate [GFE] of the amount or range of charges for specific settlement services the borrower is likely to incur in connection with settlement . . . .” ( 12 U.S.C. § 2604(c).) Effective January 16, 2009 , the Department of Hous ing and Urban Development (HUD) revised its regulations governing GFE’ s (24 C.F.R. § 3500.7) and adopted a new GFE form that requires lenders to disclose certa in loan terms, includ ing the initial interest rate, along with the various settlement ch arges that RESPA seeks to regulate. (73 Fed.Reg. 68204, 68213-682 16 (Nov. 17, 2008).) In ad opting this requirement, HUD determined that “consumer understanding of mortgage loans and of their settlement costs will be greatly enhanced by re quiring disclosure of certain loan terms in a clear, userfriendly format on the GFE.” ( Id. at p. 68214.) In HUD’s view, the disclosure of key
loan terms “furthers RESPA’s purpose to ‘provide more effective advance disclosure to homebuyers and sellers of settlement costs’ ” since “disclosure of [certain] settlement costs [would be] meaningless (and therefore in effective), absent the context provided by simultaneous disclosure of some loan terms.” ( Id. at p. 68215.) Given RESPA’s focus on settlement charges, it is not surprising that the interest
rate receives different treatment in HUD’s governing regulations. Under HUD’s regulations, “the estimate of the charges an d terms for all settlemen t services must be available for at least 10 business days from when the GFE is provided . . . .” (24 C.F.R. § 3500.7(c).) However, the estimates for “the interest rate [and] charges and terms dependent upon the interest rate” are “excepted from this requirement[.]” ( Ibid. ) In its6 comments concerning the “Per iod During Which the GFE Te rms Are Available to the Borrower,” HUD stated it was “not requiring th e interest rate to be available for any specific length of time”; rather, the “the in terest rate stated on the GFE [would] be available until a date set by the loan originator for the loan.” 1 (73 Fed.Reg. , supra, at p. 68216.) “After that [date], the interest rate [and] the inte rest rate related charges . . . could change until the intere st rate is locked.” ( Ibid. ) Consistent with this exception from the 10 business days requirement, HUD’s regulations create additional carve-outs for the interest rate listed on the GFE. Indeed, this is true of paragraph (f), which Plainti ff relies upon as the l ynchpin for his argument that Wells Fargo could not change the intere st rate without issuing a revised GFE. Paragraph (f) provides: “The loan originator is bound, within the tolerances provided in paragraph (e) of this section, to the se ttlement charges and terms listed on the GFE provided to the borrower, unless a revised GFE is provided prior to settlement consistent with this paragraph (f) . . . .” (24 C.F.R. § 3500.7(f).) The carve-out for “the tolerances provided in paragraph (e)” is notable, be cause paragraph (e) specifically addresses charges related to the quoted interest rate. With respect to those charges, paragraph (e) expressly states that those charges are binding only “[w]hile the bor rower’s interest rate is locked.” (24 C.F.R. § 35 00.7(e) [“the actual charges at settlement may not exceed the
amounts included on the GFE for [¶] . . . [¶] (ii) While the borrower’s interest rate is
locked , the credit or charge for the in terest rate chosen; [¶] (iii) While the borrower’s
interest rate is locked , the adjusted origin ation charge . . . .”], italics added.)

1 HUD’s decision not to require the interest rate to be available for any specific length of time is consistent with comme nts received from some lending industry representatives on the proposed rule. For ex ample, the Mortgage Bankers Association suggested the final rule “should make clear that the interest rate on the GFE may be available until a specified hour and date, sinc e interest rates frequently change several times a day.” (73 Fed.Reg. , supra, at p. 68216.)7 Likewise, paragraph (f)(5) prov ides that “[i]f the interest rate has not been locked,
or a locked interest rate has expired, the charge or credit fo r the interest rate chosen, the adjusted origination charges, pe r diem interest, and loan terms related to the interest rate may change.” (24 C.F.R. § 3500.7(f)(5).) As HUD explained, this exemption for interest rate-related charges necessarily ex tends to the quoted interest ra te itself: “The final rule also clarifies that, where a borrower has not lo cked a particular inte rest rate . . . all interest rate-dependent charges on the GFE are subject to change. . . . Of course, the various specific places where the interest rate is identifie d on the GFE would also be subject to change if the inte rest rate is not locked. ” (73 Fed.Reg. , supra, at p. 68221, italics added.) Further, it is only “[ w]hen the interest rate is later locked , [that] a revised GFE must be provided showing the revised inte rest rate-dependent charges and terms.” (24 C.F.R. § 3500.7(f)(5), italics added; see also 73 Fed.Reg. , supra, at p. 68221 [“If the borrower later locks the interest rate, a revise d GFE should be provid ed at that time to show the revised information.”].) “ ‘Generally, the same rules of constr uction and interpretation which apply to statutes govern the construction and inte rpretation of rules and regulations of administrative agencies. [Citation.]’ [C itation.] Courts do no t examine statutory language ‘in isolation, but in the context of the statutory framework as a whole in order to determine its scope and purpose and to harmoni ze the various parts of the enactment.’ [Citation.] We are required to construe a pr ovision ‘with reference to the entire scheme of law of which it is part so that the whol e may be harmonized and retain effectiveness’ [citation] and to avoid an interpretation that renders language a nullity [citation].’ ” ( May v. City of Milpitas (2013) 217 Cal.App.4th 1307, 1336.) “ ‘While the interpretation of a statute is ultimately a question of law, appellate courts will defer to an administrative agency’s interpretation of a statute or regula tion involving its area of expertise, unless the interpretation flies in the face of the clear language and purpose of the interpreted provision.’ ” ( Estrada v. City of Los Angeles (2013) 218 Cal.App.4th 143, 148-149.)8 Plaintiff’s contention that a lender must provide a revised GFE before it may settle
a loan at a different interest rate is not co nsistent with RESPA’s statutory purpose or the regulatory framework governing GFEs. HUD’s regulations and the agency’s interpretation of those regulations make clear that the initial in terest rate is disclosed in the GFE to give context to th e settlement charges that are RE SPA’s primary focus. Thus, while most of the settlement charges are binding against the lender for a minimum of 10 business days after the GFE is issued, the regulations expressly exempt the interest rate from this requirement. The interest rate is binding against the lender only during the period of time specified in the GFE. (See 24 C.F.R. § 35 00.7(c), (e)(ii) & (e)(iii).) The obligation to provide a revised GFE also has a carve-out for the interest rate. Unlike other settlement charges, with respect to the inte rest rate, the regulations contemplate that a revised GFE will be provided only “[w]hen the interest rate is later
locked . . . .” (24 C.F.R. § 35 00.7(f)(5), italics added.) Fo cusing on paragraph (f) in isolation, as Plaintiff urges, would ignore the various carve-outs and express exemptions provided for the interest rate in the regulations governing GFEs. 2 Congress intended RESPA and the GFE to protect prospective borrowers from exorbitant settlement charges by facilita ting shopping among lenders. (73 Fed.Reg.
, supra, at p. 68216 [“[a] central purpose of RE SPA regulatory reform is to facilitate shopping in order to lower settlement cost s”].) Neither RESPA nor HUD’s regulations manifest a legislative intent to establish the GFE as a substitute for an interest rate lock agreement. On the contrary , HUD’s regulations and its interpretive commentary suggest just the opposite.

2 Nor is this to discount the significance of paragraph (g), which expressly states that a “GFE is not a loan commi tment” and “[n]othing in this section shall be interpreted to require a loan originator to make a lo an to a particular borrower.” (24 C.F.R. § 3500.7(g), italics omitted.) Thus, while the lender is bo und by the quoted settlement charges (and the quoted interest rate during th e period specified in the GFE), the lender is nevertheless free, at least with respect to its obligations under the GF E, to decide not to make the loan.9 Here, Plaintiff admits he ne ver locked an interest rate . He nevertheless contends
he had no reason to “concern himself with a fu ture change in [interest] rate, because the date on which those future changes would begin to occur was not specified” in the GFE. Consequently, Plaintiff avers, he “never thought that his rate was subject to change.” We now consider whether the subj ect GFE is reasonably susceptib le of Plaintiff’s proffered interpretation.
2. The GFE Is Not Reasonably Susceptible of the Interpretation that the Listed
Interest Rate Would Be Availabl e for an Indefinite Period of Time Plaintiff contends that, under the terms of his GFE, Wells Fargo was bound by the listed 4.25 percent interest rate indefinitely, if it ever decided to make the loan. Plaintiff premises his contention on the following clause from the “Important dates” section of the subject GFE: “The interest rate for this GFE is available through N/A . After this time, the interest rate, some of y our loan Origination Charges, and the monthly payment shown below can change until you lock your interest rate.” Plain tiff contends that, “[b]y not providing a date after which th e interest rate may change, [Wells Fargo] was informing [Plaintiff] that there was no su ch date,” and the interest rate could not be changed. 3 We disagree. “ ‘Where a written contract is pleaded by attachment to and incorporation in a complaint, and where the complaint fails to allege that th e terms of the contract have any special meaning, a court will construe the language of the contract on its face to determine whether, as a matter of law, the c ontract is reasonably subject to a construction
sufficient to sustain a cause of action for breach.’ [Citation.] Moreover, ‘[t]he rule on

3 Plaintiff places a caveat on this proffe red interpretation. Plaintiff says his interpretation, coupled with his “understandin g of the regulations[,] do not require a rate lock in perpetuity.” Rather, Plaintiff argues, Wells Far go could still make “the loan at a higher interest rate so long as it offers a ne w GFE and explains the hi gher rate.” As we discussed in the preceding section, insofar as the interest rate is concerned, HUD’s governing regulations require a revised GFE only “[w]hen the interest rate is later locked . . . .” (24 C.F.R. § 3500.7(f)(5).) As Plaintiff admits he did not lock an interest rate, Wells Fargo had no obligation to provide a revised GFE.10 demurrer is simply a variation on the well-reco gnized theme that “[i]t is . . . solely a judicial function to interpret a written instru ment unless the interpre tation turns upon the credibility of extrinsi c evidence.” [Citations.]’ [Citation.]” ( Davies v. Sallie Mae, Inc. (2008) 168 Cal.App. 4th 1086, 1091.)
“A contract must receive su ch an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carri ed into effect, if it can be done without violating the intention of the parties.” (Civ. Code, § 1643.) “ ‘ “The court must avoid an interpretation which will make a c ontract extraordinary, harsh, unjust, or inequitable.” ’ ” ( Barroso, supra, 208 Cal.App.4th at p. 1013.) The clause providing that “[ t]he interest rate for this GFE is available through N/A ” cannot be reasonably interpreted to bind Wells Far go to the quoted 4.25 percent interest rate indefinitely. Such an interpretation would ma ke an extraordinary contract, and one with potentially harsh and inequitable consequences for both parties. This case demonstrates the point. After a two-month postponement of the closing, Wells Fargo was willing to make the loan on ly at an interest rate of 4.625 percent. As Plaintiff acknowledges, and paragraph (g) of HUD’s g overning regulations pr ovides, “[a] GFE is not a loan commitment” and nothing in the GFE is to be interpreted to “require a loan originator to make a loan to a particular borrower.” (24 C.F. R. § 3500.7(g), italics omitted.) Thus, if Plaintiff’s interpretation of the clause were correct, Wells Fargo would be left with only two options: (1) make th e loan to Plaintiff on terms that are not supported by prevailing market rates, or (2 ) refuse to make the loan—leaving Plaintiff without means to purchase the desired real property. 4 That cannot be what the parties
intended.

4 This would not be the case if Plaintiff had entered an agreement with Wells Fargo locking the interest rate. Ha d such an agreement been entered, Plaintiff would have received an enforceable commitm ent from Wells Fargo to make the loan at the specified interest rate during the rate lock period and Wells Fargo wo uld have received a fee from Plaintiff to compensate for poten tial swings in market rates of interest during this period.11 If “N/A” in the subject clause does not m ean that the interest rate would be available indefinitely, then it can only mean that the rate was not guaranteed for any amount of time. Such an interpretation comp orts with common usage of the abbreviation “N/A,” which “can mean ‘not available’ as well as ‘not applicable.’ ” ( In re C.B . (2010) 190 Cal.App.4th 102, 146; see also Evid. Code, § 451, subd. (e).) The interpretation also is consistent with the governing HUD regu lations, which make clear that there is no minimum period of time for which the lender must make the interest ra te listed in a GFE available to a prospective borrower. (24 C.F.R. § 3500.7(c); see also 73 Fed.Reg. , supra, at p. 68216.) And, this interpretation is bols tered by the GFE’s defin ite statement that the “estimate for all other settlement charges is available through 11/22/2010”—10 business days after the November 9, 2010 date of the GFE, as required by the governing regulations. (24 C.F.R. § 3500.7(c).) Because the 4.25 percent interest rate li sted in the subject GFE was not binding upon Wells Fargo for any period of time, each of Plaintiff’s causes of action fails as a matter of law. The demurrer was properly sustained without leave to amend.12 DISPOSITION The judgment is affirmed. Defenda nt is awarded its costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

KITCHING, J.
We concur:

KLEIN, P. J.

ALDRICH, J.