Source: http://letbksaveyou.blogspot.com/2011/07/
Timestamp: 2019-10-17 10:24:19
Document Index: 504474527

Matched Legal Cases: ['§ 437', '§ 437', '§ 1638', '§ 1014', '§ 1344', '§ 10176', '§ 1344', '§ 2924', '§ 2924', '§ 761', '§ 761', '§ 663', '§ 671', '§ 1709', '§ 44', '§ 45', '§ 45', '§ 46', '§ 46', '§ 735']

The Truth re Loan Modification, Bankruptcy & Foreclosure in California: July 2011
Its really hard to tell a good lie... A lesson for Loan modification professionals and bankruptcy attorneys alike....
The following case is quite instructional. I tell people all of the time, if you file a bankruptcy you better make sure that the figures closely match what you submitted in your loan modification package. Because it does not, you could get caught committing loan fraud or bankruptcy fraud. In the case below, a borrower asked for a loan modification and was required to submit tax returns (or easily could have been that they signed a 4506T). When the Tax Returns did not reflect the amounts stated in the original loan application, the borrower was BUSTED!!!! As I say it is very hard to tell a good lie. The consequences can be devastating. If you are going to apply for loan modification, bankruptcy, shortsale or any other foreclosure relief defense, make sure you hire an attorney who can coordinate all of the facts and figures so that you are not brushing up against potential civil and or criminal liability for mortgage fraud. ITS WORTH to hire an attorney. Many attorneys offer reasonable rates and easy payment plans. Don't short change yourself because you think you can't afford an attorney. You can afford to go to jail even less!!!
2011 WL 591339
YOUNG AMERICA MORTGAGE CORP., Defendant and Appellant,
SUPERIOR COURT of the County of Los Angeles, Respondent,
ING Bank, FSB, a Delaware corporation, Plaintiff, Respondent and Real Party in Interest.
No. B219955.(Los Angeles County Super. Ct. No. BC398236).
APPEAL from a judgment of the Superior Court of Los Angeles County. Elizabeth A. White, Judge. Reversed and remanded.
Russell J. Thomulka, for Defendant and Appellant.
Hicks Park, James B. Hicks and Gary W. Park, for Plaintiff and Respondent ING Bank, FSB.
*1 Appellant Young America Mortgage (YAM), a mortgage broker, submitted a loan application to Respondent ING Bank on behalf of its client, Jorge Ramon. Several months after the loan was approved, ING discovered that the application misstated Ramon's monthly salary. Ramon later defaulted on the loan and ING sued Ramon and YAM for breach of contract, fraud and negligence. ING filed a motion for summary judgment arguing that, by failing to verify Ramon's salary information, YAM had breached the parties' Broker Origination Agreement and committed fraud. The trial court granted the motion and entered judgment against YAM.
YAM appeals, arguing that: (1) the parties' contract did not require YAM to verify Ramon's income information; (2) ING failed to introduce evidence establishing that it was damaged by YAM's alleged breach of contract, and; (3) there is a triable issue of fact regarding whether YAM knew or should have known that Ramon misstated his salary information in the loan application. We reverse the trial court's grant of summary judgment, concluding that ING has failed to introduce evidence demonstrating that there is no triable issue of fact regarding any of its claims.
A. Events Proceeding ING's Complaint
In 2005, Appellant Young America Mortgage (YAM) and Respondent ING Bank entered into a “Broker Origination Agreement” under which YAM “solicit[ed] prospective Borrowers for residential mortgage loans” and ING, “upon approval of the application, fund[ed] such Loans.” The Agreement included a provision stating that YAM would not “submit a Loan Application Package where the information contained in the application ... is not true, correct and undisputed and does not reflect full, correct and accurate information as the matter represented ...” The Agreement further provided that if any representation regarding a loan failed to be true, YAM would “immediately repurchase, on demand, any Loan which may be affected by such failure.”
In 2007, YAM submitted a loan application to ING on behalf of Jorge Ramon, who was seeking to refinance a residential mortgage initially provided by Chase Manhattan Mortgage. The application, which was signed by Ramon, stated that his monthly salary was $5,761. Ramon later provided YAM an earnings statement that verified the amount of his salary, which YAM then gave to ING.
After reviewing Ramon's loan application and supporting documentation, ING approved a loan for $328,500 and paid YAM a broker fee of approximately $8,000. On June 19, 2007, Ramon executed a promissory note agreeing to repay the loan, along with a deed of trust that gave ING a first priority security interest in Ramon's property.
In February of 2008, Ramon stopped making his required monthly loan payments. Several months later, Ramon requested that ING modify the terms of the loan. As part of its loan modification process, ING obtained copies of Ramon's 2006 and 2007 federal and state tax returns and discovered that his income for that time period was approximately one third the amount stated in his loan application.
*2 After discovering the income discrepancy, ING sent a letter to YAM stating that it had breached the parties' Broker Origination Agreement by submitting a loan application which contained false salary information. ING's letter further stated that, under the parties' Agreement, YAM was required to repurchase the loan from ING. YAM did not respond to the letter.
B. ING's Complaint and Trial Court Proceedings
In September of 2008, ING filed an action against Ramon and YAM alleging breach of contract (both defendants), fraud (both defendants), judicial foreclosure (Ramon only), negligence (YAM only) and unfair business practices (YAM only). All of the claims were predicated on Ramon's misrepresentation of his monthly salary.
During discovery, YAM's president and manager, Fariborz Nouri, testified that YAM did not know Ramon's loan application and earning statement misstated his salary until ING notified it of the misrepresentation. Nouri also stated that while processing the loan application, YAM never asked Ramon if his application and earning statement accurately reflected his current income or take any other actions to verify Ramon's salary.
On May 8, 2009, ING filed a motion for summary judgment or, alternatively, summary adjudication, arguing that because Ramon and YAM had admitted that the loan application included inaccurate salary information, there was no triable issue of material fact regarding any claim asserted in its complaint. First, ING argued that, by submitting a loan application that falsely stated the borrower's salary information, YAM had breached the Broker Origination Agreement and Ramon had breached his loan agreement. Second, ING argued that both parties committed fraud because the undisputed evidence showed Ramon knowingly misrepresented his salary information and that YAM acted recklessly by submitting “a false loan application ... without regard for the truth of the [salary] information.” ING further contended that YAM's submission of a false loan application violated various federal and state statutes, and therefore constituted negligence as well as an unfair business practice within the meaning of Business and Professions Code section 17200. Finally, ING contended that it was entitled to foreclose on Ramon's property.
After the motion was filed, Ramon settled with ING and was dismissed from the case. The record does not state the terms of the settlement nor does it indicate whether ING permitted Ramon to retain possession of the property that was used to secure the loan.
YAM filed an opposition to ING's motion for summary judgment, arguing that although Ramon had misstated his monthly salary, triable issues of fact remained on each of ING's claims. First, YAM contended that the Broker Origination Agreement did not require it to verify the accuracy of Ramon's salary and therefore ING had not established any breach of the contract. YAM also argued that ING had failed to show that it was damaged by any breach because it had provided no evidence regarding the value or status of the property that had been used to secure Ramon's loan. YAM asserted that, without such evidence, it was impossible to determine whether ING could recoup the full benefit of its loan agreement by foreclosing on the property. In regards to ING's fraud, negligence and unfair business practice claims, YAM asserted that ING was required to prove that YAM knew or should have known that Ramon misstated his salary, which involved a triable issue of fact.
*3 The trial court granted ING's motion for summary judgment, concluding that it had introduced sufficient evidence to prove YAM knowingly submitted a false loan application. On the contract claim, the court ruled the parties' Agreement imposed on YAM an absolute duty to submit accurate loan application materials, which it had failed to do. It further concluded that ING had demonstrated contract damages “in the amount of the loan plus fees paid in connection with the loan.” The court did not address whether or how ING's deed of trust to Ramon's property affected its damages.
The court also ruled ING was entitled to summary judgment on its fraud claim because YAM had admitted it failed to “take any steps to review the information contained in the loan application.” In the court's view, this admission demonstrated “recklessness giving rise to the elements of knowledge and intent.” Finally, the court concluded ING had established that YAM committed negligence and engaged in an unfair business practice by submitting a false loan application in violation of federal and state law.
The court entered judgment in favor of ING and awarded the outstanding amount of the loan principal ($326,176.23), in addition to outstanding interest and late charges. It also awarded ING all the fees it had paid to YAM for originating the loan, along with prejudgment interest. YAM timely appealed the judgment.
“The standard for deciding a summary judgment motion is well-established, as is the standard of review on appeal.” (Richard B. LeVine, Inc. v. Higashi (2005) 131 Cal.App.4th 566, 572 (LeVine ).) A party is entitled to summary judgment if there is no triable issue of material fact and the party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) “[T]he party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850 (Aguilar ).) Where plaintiff is the moving party, this initial burden requires it to produce evidence showing that each element of each cause of action has been established. (§ 437c, subd. (p)(1).) If a moving plaintiff satisfies this initial burden, the burden shifts to the defendant to set forth “specific facts” showing that a triable issue of material fact exists as to the cause of action or a defense. (Ibid.; see also Aguilar, supra, 25 Cal.4th at p. 850.) “Despite the shifting burdens of production, the ... moving party[ ] always bears the ultimate burden of persuasion as to whether summary judgment is warranted. [Citations.]” (Garcia v. W & W Community Development, Inc. (2010) 186 Cal.App.4th 1038, 1041.) “In making this determination, courts view the evidence, including all reasonable inferences supported by that evidence, in the light most favorable to the nonmoving party.” (Ibid.)
*4 “ ‘We review the trial court's decision de novo, considering all of the evidence the parties offered in connection with the motion (except that which the court properly excluded) and the uncontradicted inferences the evidence reasonably supports.” (LeVine, supra, 131 Cal.App.4th at p. 572.)1
B. ING Failed to Establish There is No Material Issue of Fact Regarding its Claim for Breach of Contract
YAM argues that ING failed to demonstrate two elements that are necessary to establish a claim for breach of contract. (See generally CDF Firefighters v. Maldonado (2008) 158 Cal.App.4th 1226, 1239 [breach of contract requires following elements “(1) existence of the contract; (2) plaintiff's performance or excuse for nonperformance; (3) defendant's breach; and (4) damages to plaintiff as a result of the breach”].) First, YAM contends that the Broker Origination Agreement did not require it to verify Ramon's salary information and therefore ING failed to demonstrate that YAM breached the contract. Second, YAM argues that ING did not meet its initial burden to produce evidence showing that it was damaged as a result of YAM's purported breach.
1. ING established that YAM breached the Broker Origination Agreement
YAM argues that the trial court erred in concluding that the submission of a loan application which misstates the borrower's income constitutes a breach of the Broker Origination Agreement. Although YAM concedes that Ramon's application contained false salary information, it contends that, under the parties' Agreement, it had no duty to independently verify Ramon's salary information.
The plain language of a contract governs its interpretation. (Civ.Code, § 1638; Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18.) Section 10, subdivision (bb) of the Broker Origination Agreement states that YAM “shall not submit a Loan Application Package where the information contained in the application or other document submitted in connection with the loan application is not true, correct and undisputed and does not reflect full, correct and accurate information as to the matter represented.” This clause does not contain any qualifying language indicative of a scienter element, such as “knowingly” or “intentionally.” (See generally Margarito v. State Athletic Com . (2010) 189 Cal.App.4th 159, 168.) We therefore agree that the Agreement imposed an unambiguous, absolute duty on YAM to submit truthful salary information in any loan application, which it admittedly failed to do.
YAM, however, argues that other documentation in the record demonstrates that YAM was not required to verify the borrower's salary information. Specifically, YAM points to language in ING's “Lending Guidelines,” which were incorporated into the Broker Origination Agreement. The Guidelines describe various terms and conditions applicable to two different types of ING financial products: “stated income loans” and “verified income loans.” A “stated income loan” is “a loan where the borrower states their monthly income, and the lender will ... accept that as the income upon which to make the loan decision” without requiring any further documentation. A “verified income loan,” on the other hand, requires the applicant to submit verification of salary, including W2s or the borrower's most recent pay stub. YAM argues that ING's Lending Guidelines explain the specific acts that are necessary to verify a borrower's income: for a stated income loan, a broker need only ask the borrower his or her income, and for a verified income loan, it must obtain a wage earning statement. In this case, YAM contends it did both things: it asked Ramon his salary, which he then verified through a wage statement. In YAM's view, compliance with the Guidelines was sufficient to discharge any duty it had to substantiate Ramon's income.
*5 The ING Guidelines do not alter or amend the Broker Origination Agreement's requirement that YAM submit accurate and truthful loan application information. Instead, the Guidelines describe the type of documentation that ING requires a borrower to submit in support of specific types of loans. Although it appears YAM did collect sufficient information and documentation to satisfy the Guidelines' requirements, the Broker Origination Agreement imposed an independent obligation on YAM to ensure the accuracy of any loan application that it submitted to ING.
Because YAM admits the loan application misstated Ramon's salary, ING established breach.
2. ING failed to introduce sufficient evidence to establish contract damages
YAM next contends that, even if ING established a breach of the Broker Origination Agreement, it failed to satisfy its initial burden to introduce evidence demonstrating that it was damaged as a result of the breach. Contract damages are generally intended to “ ‘compensate[ ] the [plaintiff] for the loss of his “expectational interest”-the benefit of his bargain which full performance would have brought.’ [Citation.]” (Sharabianlou v. Karp (2010) 181 Cal.App.4th 1133, 1144-1145.) “The ‘benefit of the bargain’ measure of damages is the difference between the actual value of what the plaintiff has received and that which he expected to receive.” (Salahutdin v. Valley of California, Inc. (1994) 24 Cal.App.4th 555, 564.) Thus, to satisfy its initial burden under summary judgment procedures, ING was required to introduce evidence establishing that YAM's breach caused ING to receive less than what it would have otherwise received under its lending agreement with Ramon. Moreover, it had to show there was no dispute about the total amount of its damages. (See Department of Industrial Relations v. UI Video Stores, Inc. (1997) 55 Cal.App.4th 1084, 1097 [summary judgment or adjudication improper where amount of damages raises factual issue].)
In the trial court, ING introduced evidence demonstrating that Ramon stopped making his monthly loan payments, along with an account statement indicating the unpaid balance of the loan. It also introduced evidence that YAM had refused to repurchase the loan from ING, as required under the parties' broker agreement.2 ING alleges that this evidence demonstrates that it has been damaged as a result of YAM's breach because it is now “stuck with a non-performing loan.” The trial court agreed, concluding that “ING has been damaged in the amount of the loan plus fees paid in connection with the loan, which it would not have made but for the income representation in the loan application.”
YAM, however, contends that ING has not established that it suffered damages (or the amount of any such damages) because it failed to introduce any evidence showing that Ramon's property, which was used to secure the loan, is insufficient to provide ING the full amount it would have received under its loan agreement.
*6 It is undisputed that Ramon provided ING a deed of trust to his property to secure the loan. ING failed to come forward with any evidence indicating the current value of Ramon's property or the current status of the deed of trust. Without doing so, ING has failed to establish whether it has been damaged by YAM's breach of the Broker Origination Agreement, and if so, by how much. If ING still owns the deed of trust and is entitled to foreclose on the property, it is possible that the value of the property is equal to or greater than what ING would have received under the loan agreement. If, on the other hand, ING has foreclosed and sold the property, it has not demonstrated that the amount it received did not offset all or part of its damages.3
Because ING has failed to introduce sufficient evidence proving it suffered any damages, and also failed to demonstrate the total amount of its damages, we reverse the trial court's grant of summary judgment on ING's contract claim.
C. There is a Material Issue of Fact Regarding ING's Fraud Claim
YAM argues the trial court erred in concluding that there is no triable issue of fact in regards to ING's fraud claim. “ ‘Fraud is an intentional tort, the elements of which are (1) misrepresentation; (2) knowledge of falsity; (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. [Citation.]’ [Citation.]” (Intrieri v. Superior Court. (2004) 117 Cal.App.4th 72, 85-86 (Intrieri ).) YAM contends that there is a factual dispute whether YAM knew the loan application misstated Ramon's salary. The trial court concluded the knowledge element was satisfied by YAM's “admitted ... failure” to take any steps to verify Ramon's salary. In the court's view, such conduct constituted “recklessness giving rise to the elements of knowledge and intent.”
It is well-established that “[f]alse representations made recklessly and without regard for their truth in order to induce action by another are the equivalent of misrepresentations knowingly and intentionally uttered.” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974.) Whether a party acted with actual knowledge of falsity or reckless disregard for the truth is generally a question of fact to be determined by the jury. (See Buist v. C. Dudley De Velbiss Corp. (1960) 182 Cal.App.2d 325, 332 [for purposes of fraud, “knowledge of party” is “question of fact”]; Radinsky v. T.W. Thomas, Inc. (1968) 264 Cal.App.2d 75, 80 [“Whether there has been fraud by misrepresentation is question of fact for determination by the trial court”]; Initieri, supra, 117 Cal.App.4th at p. 87 [triable question of fact existed as to whether defendant “knew the statements were false” where it is “questionable whether a reasonable person would believe” his testimony]; cf. Cooper v. Los Angeles Terminal Railway Co. (1902) 137 Cal. 229, 232 [whether defendant acts were “reckless ... was for the jury to determine from all the evidence”].) Thus, a plaintiff may only obtain summary judgment on a fraud claim where he has introduced evidence “that would require a reasonable trier of fact to find [more likely than not]” that YAM had actual knowledge of falsity or acted with reckless disregard for the truth. (Aguilar, supra, 25 Cal.4th at p, 845.) Stated differently, summary judgment may only be granted if “undisputed facts leave no room for a reasonable difference of opinion” as to whether YAM had actual knowledge that Ramon misstated his salary or acted with reckless disregard as to the truth of his stated income. (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239 [discussing reliance element of fraud claim]; Guido v. Koopman (1991) 1 Cal.App.4th 837, 843 [“existence of fraud ... is a question of fact” unless reasonable people can come to only one conclusion based on the facts].)
*7 YAM contends that the following evidence establishes a triable issue of fact as to whether it acted with actual knowledge and/or recklessness: (1) YAM introduced evidence that, at the time it submitted the loan application to ING, it was unaware that Ramon misstated his salary; (2) Ramon's loan application stated that he was providing “true and correct” information; (3) the loan application contained language notifying Ramon that any intentional misrepresentation might subject him to civil and criminal penalties; (4) Ramon provided YAM an earnings statement that appeared to confirm the level of income stated in the application; (5) according to ING's Lending Guidelines, an earnings statement is generally sufficient to verify a borrowers' income, and; (6) Ramon was seeking refinance of a Chase Manhattan Mortgage loan, meaning that another lending institution had already determined he was qualified for a $300,000 loan.
In light of this evidence, which we must interpret in the light most favorable to YAM, a reasonable trier of fact could find that YAM did not know that Ramon misstated his salary and did not act recklessly by failing to take any further actions to verify Ramon's salary. First, there is no evidence that YAM knew Ramon misstated his salary or had any reason to doubt the information in Ramon's loan application. Second, Ramon attested to the truth of his current income and provided documentation that appeared to verify his income. Third, ING's Lending Guidelines suggest that, if ING had originated the loan itself, it would not have required any more salary verification or documentation than what YAM gathered. Fourth, a bank had already given Ramon a sizeable loan, which he was trying to refinance. Given all of this evidence, there is a disputed issue of fact as to whether YAM had any reason to question the veracity of Ramon's application and, as a result, whether YAM acted recklessly.
D. ING Failed to Establish YAM Committed Negligence
YAM argues that ING failed to introduce evidence establishing its negligence claim. In the trial court, ING argued that federal and state statutes imposed a legal duty on YAM “to refrain from making any substantial misrepresentation” in a loan application. It further argued that because YAM submitted an application that misstated Ramon's salary, it had violated its statutory duties and therefore was negligent as a matter of law. The trial court agreed, concluding that “the undisputed facts show that YAM submitted a loan application which contained materially false information ... in violation of several statutes.” The court further ruled that these statutory duties “were specifically enacted to prevent fraud on banks such as ING, and supplement Broker's general duties of care not to submit a loan application which contains material factual misstatements.”
ING cites three statutes in support of its contention that YAM had a duty of care to ensure that any information in Ramon's loan application was truthful: 18 U.S.C. section 1014, 18 U.S.C. section 1344 and California Business and Professions Code section 10176. The federal statutes cited by ING only apply where the actor knowingly makes a false statement. (See 18 U.S.C., § 1014 [“Whoever knowingly makes any false statement ...”]; 18 U.S.C., § 1344 [“whoever knowingly executes .... scheme ... [ ] to defraud a financial institution ...”].) Business and Professions Code section 10176, on the other hand, permits the State to suspend or revoke a real estate license if the licensee commits various enumerated acts of dishonesty, including making “any substantial misrepresentation” or engaging in “any other conduct ... which constitutes fraud or dishonest dealing.” (Bus. & Prof.Code, § 10176, subds. (a), (j).) Section 10176 only applies to misrepresentations that are known to be false or are made with reckless disregard for their truth. (See generally Nichandros v. Real Estate Division of Dept. of Inv. (1960) 181 Cal.App.2d 179, 183.) As we have explained, the evidence raises a triable issue of fact regarding whether YAM acted with knowledge or recklessness. Therefore, the evidence does not establish, as a matter of law, that YAM breached its statutory duties nor does it establish that YAM committed negligence by violating the statutes.4
*8 The trial court's judgment in favor of ING is reversed and the case is remanded for further proceedings. YAM to recover its costs on appeal.
We concur: PERLUSS, P.J., and JACKSON, J.
The same standards apply to motions for summary adjudication. (See Haney v. Aramark Uniform Services, Inc. (2004) 121 Cal.App .4th 623, 631.)
Paragraph 11 of the Broker Origination Agreement includes a provision requiring that, in the event the broker (YAM) “fails to abide by any term ... of this Agreement with respect to any Loan or Loan Application Package ... or if any representation ... made by Broker fails to be true, then Broker agrees to immediately repurchase, on demand, any Loan which may be affected by such failure.”
YAM raised this damages argument in both the trial court and its opening appellate brief. ING has never responded to the argument nor has it ever explained the status of its deed of trust.
The trial court also concluded that because ING established YAM violated federal and state law, there was no triable issue of fact on ING's unfair business practice under Section 17200:
The Court finds that it is undisputed that YAM submitted a loan application to ING which contained materially false representations as to the borrower's income. YAM's submission of that loan application was both an unlawful act and a fraudulent act. The misrepresentations as to the borrower's income for the purpose of securing a loan violates 18 U.S.C §§ 1344 (bank fraud) and 1014 (false statement in a loan application) and therefore violates the unlawful and fraudulent prongs of a breach of the California Unlawful Business Practices Act.
Because we reverse the trial court's finding that ING's evidence demonstrates YAM violated a statutory duty, we also reverse the court's decision that YAM violated Section 17200.
End of Document © 2011 Thomso
HERITAGE PACIFIC FINANCIAL, LLC
If you have been sued by them for loans originating on property located in CALIFORNIA..... AND you live in CALIFORNIA PLEASE CALL US ASAP we can help you whether you are in bankruptcy or not.
Congratulations goes out to Michael D. Finley, Esq. (661) 964-0444
Mr. Finely had a victory against WELLS FARGO BANK in the non-citable case of DeMucha v. Wells Fargo Home Mortg. Inc., F059476, 2011 WL 2612835 (Cal. Ct. App. July 5, 2011) While you cannot cite to it to support your own case, you can look at the meat and potatoes of it to help you find a way to make legal challenges to foreclosure.
Mr. Finley pleads that the Original NOTE and Deed of Trust were given in favor of BANK A. There were no assignments of both the NOTE AND THE DEED OF TRUST to BANK B. BANK B started foreclosure proceedings. HOMEOWNER files suit saying that BANK B cannot foreclose because BANK B is not the beneficiary under the note & Deed of Trust. How very clever Mr. Finley. Instead of stating that BANK B doesn't have the original Note, you subtlety state something similar but legalistically very different. You state that BANK B is not the beneficiary.
There is another case that says that MERS while it can act as the AGENT for a beneficiary under a note and Deed of trust, it HAS NO AUTHORITY to execute an assignment. How many of you out there have had your loan assigned by MERS. Possible place to challenge any foreclosure when MERS is the purported Agent. Don't leave your case to chance. Hire competent counsel to represent you with these matters.
If you are losing your home in the Santa Clarita Area Mr. Finley just may be the attorney your are looking for who can help you keep your home.
READ BELOW FOR THE WHOLE DECISION
2011 WL 2612835
Mark DEMUCHA et al., Plaintiffs and Appellants,
WELLS FARGO HOME MORTGAGE INC., Defendant and Respondent.
No. F059476.(Super.Ct.No. CV–267074).
Law Offices of Michael D. Finley and Michael D. Finley for Plaintiffs and Appellants.
Kutak Rock, Jeffrey S. Gerardo and Steven M. Dailey for Defendant and Respondent.
*1 This case presents a classic example of the longstanding rule that “in passing upon the question of the sufficiency or insufficiency of a complaint to state a cause of action, it is wholly beyond the scope of the inquiry to ascertain whether the facts stated are true or untrue” as “[t]hat is always the ultimate question to be determined by the evidence upon a trial of the questions of fact.” (Colm v. Francis (1916) 30 Cal.App. 742, 752.)
The trial court dismissed this civil action after sustaining the demurrer of respondent Wells Fargo Home Mortgage, a division of Wells Fargo Bank, N.A. (Wells Fargo), to the first amended complaint of appellants Mark and Cheryl DeMucha. Appellants contended in the trial court, as they do on this appeal, that the allegations of their pleading were sufficient to survive demurrer. As we explain, we agree with appellants on all of their causes of action except the second (their attempt to state a cause of action for removal of a cloud on title) and the fourth (their attempt to state a cause of action for intentional infliction of emotional distress). We reverse the judgment, remand the matter to the trial court, and direct that court to overrule respondent's demurrer as to all causes of action except the second and fourth.
In their first amended complaint, appellants allege as follows. They are the owners of a home located on Fernside Court in Bakersfield. They “executed a Deed of Trust in favor of CTX MORTGAGE COMPANY, LLC, which is the company that held the mortgage on this home, which Deed of Trust was recorded” on or about November 28, 2007. In January of 2008, Wells Fargo “claimed that the mortgage on 5813 Fernside had been transferred to it from CTX MORTGAGE COMPANY, LLC,” (CTX) but Wells Fargo and other unnamed Doe defendants “have all failed and refused to produce the original note or otherwise provide proof that any of the Defendants is or at any time was the holder of the original note that the Defendants, and each of them, are trying to enforce....” The defendants “have repeatedly, beginning on or about 1/4/2008 and continuing in documents issued by the Defendants ... up to and including the month of April 2009, alleged that the mortgage on 5813 Fernside had been transferred to them and/or the entity on whose behalf they were acting, and that the Defendants ... had the right to enforce the note against 5813 Fernside, which claims were false....”
Appellants incorporate the above-described allegations into purported causes of action entitled “Quiet Title” (first), “Action to Remove Cloud” (second), “Fraud & Misrepresentation” (third), “Intentional Infliction of Emotional Distress” (fourth), and “Slander of Credit” (fifth).
Wells Fargo demurred to appellants' first amended complaint and to each purported cause of action contained in it, and asked the court to take judicial notice of the deed of trust recorded on November 28, 2007, and of a Notice of Default recorded on January 9, 2009. The court took judicial notice of these documents, sustained the demurrer without granting leave to amend, and ordered the action dismissed. The court's order stated in pertinent part:
*2 “On September 28, 2009, the Court sustained Defendant WELLS FARGO HOME MORTGAGE, A DIVISION OF WELLS FARGO BANK, N.A.'S [“WELLS FARGO's”] Demurrer to Plaintiffs' First Amended Complaint without leave to amend.
“WELLS FARGO's Requests for Judicial Notice are granted. The Court based its ruling the Court's finding that Plaintiffs cannot allege and establish that they tendered all amounts due under the loan and based on its finding that, under established case and statutory authority, that a lender has no obligation to ‘possess the note’ pursuant to the non-judicial foreclosure process. The Court sustained the Demurrer to the entire First Amended Complaint without leave to amend.”
Our standard of review of an order sustaining a demurrer on the ground that the complaint fails to state facts sufficient to constitute a cause of action is well settled. We review the sufficiency of the complaint de novo. (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.) Although we are aware that a carefully worded complaint, as alleged here, can avoid disclosure of a demurrable defect known by the parties (see Willson v. Security–First Nat. Bk. (1943) 21 Cal.2d 705, 710), “[w]e give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] Further, we treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law. [Citations.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.]” (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865.) “We also consider matters that may be judicially noticed.” (Reynolds v. Bement (2005) 36 Cal.4th 1075, 1083, disapproved on another ground in Martinez v. Combs (2010) 49 Cal.4th 35, 50, fn. 12.)
When a demurrer is properly sustained on the ground that the complaint fails to state facts sufficient to constitute a cause of action, and leave to amend the pleading is denied and judgment is entered in favor of the demurring defendant, “we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “The burden of proving such reasonable possibility is squarely on the plaintiff.” (Ibid.)
“A real property loan generally involves two documents, a promissory note and a security instrument. The security instrument secures the promissory note. This instrument ‘entitles the lender to reach some asset of the debtor if the note is not paid. In California, the security instrument is most commonly a deed of trust (with the debtor and creditor known as the trustor and beneficiary and a neutral third party known as trustee).... [T]he creditor is said to have a lien on the property given as security, which is also referred to as collateral.’ [Citation.]” (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1235; see also Nguyen v. Calhoun (2003) 105 Cal.App.4th 428, 438.)
*3 The parties have a great deal to say about whether Wells Fargo must “possess the note” or “produce the note” in order to enforce the note. We see nothing in the statutes governing nonjudicial foreclosure (see Civ.Code, §§ 2924 through 2924k; and Moeller v. Lien (1994) 25 Cal.App.4th 822, 830–832) expressly mentioning possession of or production of a note as a prerequisite for initiating foreclosure.1 At the beginning of the nonjudicial foreclosure process, “[t]he trustee, mortgagee, or beneficiary, or any of their authorized agents shall first file for record, in the office of the recorder of each county wherein the mortgaged or trust property or some part of parcel thereof is situated, a notice of default.” (Civ.Code, § 2924, subd. (a)(1).) According to the first amended complaint, however, Wells Fargo is not a trustee, mortgagee or beneficiary. Wells Fargo is, according to the pleading, an entity which “falsely and fraudulently claim[s] to hold title to and/or the right to enforce the note.”
Appellants seek to quiet title against any adverse claims of Well Fargo. “Quiet title claims are governed by California Code of Civil Procedure § 761.020, which requires that five elements be set out in a ‘verified complaint’: (1) a description of the property, both legal description and street address; (2) the title of the plaintiff, and the basis for that title; (3) the adverse claims to the plaintiff's title; (4) the date as of which the determination is sought; and (5) a prayer for the determination of the plaintiff's title against the adverse claims. Cal.Civ.Proc.Code § 761.020(a)-(e).” (Briosos v. Wells Fargo Bank (2010) 737 F.Supp.2d 1018, 1031; see also 5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 663, p. 90.) Those elements all appear in the first amended complaint. Wells Fargo argues that the pleading does not allege facts showing the basis for the plaintiff's title. But it does. It alleges that the plaintiffs “are and were rightful owners of a home located at 5813 Fernside Court, Bakersfield, CA ... pursuant to a Grant Deed that was recorded on 11/28/2007.” Wells Fargo then argues that the pleading does not allege the adverse claims to plaintiff's title. But it does. It alleges that Wells Fargo “claimed that the mortgage on 5813 Fernside had been transferred to it from CTX Mortgage Company, LLC.” It further alleges that Wells Fargo is “trying to enforce” the note signed by the plaintiffs, that Wells Fargo has “repeatedly ... alleged” that it “had the right to enforce the note against 5813 Fernside” and that these “claims were false.”
The court took judicial notice of the deed of trust. The document identifies the “Borrower” as the DeMuchas, and “CTX MORTGAGE COMPANY, LLC,” as the “Lender” and “Trustee.” The “beneficiary under this Security Instrument” is “Mortgage Electronic Registration Systems, Inc.” or “MERS,” as nominee for Lender CTX.2 Thus, Wells Fargo was not a party to the original transaction and was not mentioned in the deed of trust. There are no allegations that Wells Fargo was a nominee, successor, assignee, or agent of CTX or MERS under the deed of trust. Appellants allege in essence that Wells Fargo is an interloper with no interest in the property. What the actual facts are we do not know. Evidence, when it is received, might perhaps ultimately show that Wells Fargo does indeed have some interest in the note and/or deed of trust that it is now trying to enforce. But that interest does not appear on the face of the first amended complaint or in any matter of which the court took judicial notice.
*4 Wells Fargo argues that the demurrer was properly sustained because appellants did not allege tender of all amounts due on the note appellants allege they signed. This might be correct if appellants were attempting to quiet title as against the lender, CTX, or MERS, as its nominee. “[A] mortgagor cannot quiet his title against the mortgagee without paying the debt secured.” (Shimpones v. Stickney (1934) 219 Cal. 637, 649; see also Aguilar v. Bocci (1974) 39 Cal.App.3d 475; and Briosos v. Wells Fargo Bank, supra, 737 F.Supp.2d at p. 1032.) The first amended complaint does not allege, however, that Wells Fargo is a mortgagee or a lender or a trustee on the deed of trust, or that it has any connection whatsoever to the November 2007 loan and deed of trust. Wells Fargo cites a number of cases holding that a plaintiff attempting to attack a trustee's sale must allege tender of payment of amounts due on the loan, but appellants are not attempting to attack any trustee's sale and there is no allegation that any trustee's sale has taken place.
A deed of trust is not valid without a note. Transfer the note, and the deed of trust follows, not vice versa. “[A] deed of trust is a mere incident of the debt it secures and ... an assignment of the debt ‘carries with it the security.’ [Citations.]” (Domarad v. Fisher & Burke, Inc. (1969) 270 Cal.App.2d 543, 553; see also Lewis v. Booth (1935) 3 Cal.2d 345, 349 [“A lien is but an incident of the debt secured, and cannot be transferred apart therefrom. A transfer of the debt carries with it the lien”] .) We think a fair reading of appellants' complaint is that the note they signed was never transferred or assigned to Wells Fargo from CTX, that the deed of trust securing the debt therefore does not secure any debt owed to Wells Fargo, and that Wells Fargo therefore has no right to initiate nonjudicial foreclosure proceedings against appellants. Wells Fargo points to nothing in the first amended complaint alleging that Wells Fargo holds any interest in the note secured by the deed of trust. Wells Fargo argues that it is a “creditor,” but points to nothing in the first amended complaint so alleging.
B. ACTION TO REMOVE CLOUD
An action to remove a cloud on title is authorized by Civil Code section 3412, which states: “A written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be delivered up or canceled.” (See also Smith v. Williams (1961) 55 Cal.2d 617; and 5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, §§ 671–674.) “A suit to quiet title must be distinguished from an action to remove a cloud on the title alleged to have been created by a designated instrument. In a suit to remove a cloud the complaint must state facts, not mere conclusions, showing the apparent validity of the instrument designated, and point out the reason for asserting that it is actually invalid. [Citations.]” (Ephraim v. Metropolitan Trust Company of California (1946) 28 Cal.2d 824, 833–834 (Ephraim ).)
*5 Respondent correctly points out that appellants' first amended complaint does not identify any instrument claimed by appellants to be invalid. The pleading alleges that Wells Fargo and Doe defendants “are attempting to claim title based upon a false and fraudulent claim that they are entitled to enforce the note against the property.” Appellants do not contend or allege that the note and deed of trust they executed are invalid, but rather only that the debt on the note is not owed to Wells Fargo. The first amended complaint does contain an allegation stating “Plaintiff ... respectfully requests an order that the instrument through which the Defendants claim title to and/or the right to enforce the note against 5813 Fernside be declared invalid and void, and that it be destroyed,” but the pleading nowhere alleges what that instrument is. No cause of action to a remove a cloud on title is therefore stated. (Ephraim, supra, 28 Cal.2d 824.)
“The essential allegations of an action for fraud are a misrepresentation, knowledge of its falsity, intent to defraud, justifiable reliance, and resulting damage.” (Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976) 57 Cal.App.3d 104, 109; see also Civ.Code, §§ 1709, 1710.) Appellants' first amended complaint alleges that on January 4, 2008, Wells Fargo “falsely and fraudulently stated, ‘... your loan was recently transferred from CTX Mortgage Company, LLC.... Your first payment to Wells Fargo Bank, N.A. is due 02/01/08.” It further alleges: “The Defendants knew that the statements were false and fraudulent and the truth was that none of the defendants ever legally obtained the transfer of the loan that Plaintiffs legally owed to CTX Mortgage Company, LLC. While acting in reliance upon the false and fraudulent claims of Defendants, ... plaintiff has made mortgage payments to the Defendants to his damage.”
Wells Fargo argues that the pleading contains no allegation that any representation Wells Fargo made was false. It does. It alleges that Wells Fargo falsely told appellants their loan had been transferred from CTX to Wells Fargo. Wells Fargo argues that the pleading fails to allege that any misrepresentation was made with knowledge of its falsity. It does. It alleges “[t]he Defendants knew that the statements were false.” Wells Fargo argues that the pleading alleges no facts showing reliance on a misrepresentation. It does. It alleges that “plaintiff has made mortgage payments to the Defendants to his damage.” A cause of action for fraud has been properly stated.
“The elements of a prima facie case for the tort of intentional infliction of emotional distress are: (1) extreme and outrageous conduct by the defendant with the intention of causing, or reckless disregard of the probability of causing, emotional distress; (2) the plaintiff's suffering severe or extreme emotional distress; and (3) the actual and proximate causation of the emotional distress by the defendant's outrageous conduct.” (Cervantez v. J.C. Penney Company, Inc. (1979) 24 Cal.3d 579, 593 (Cervantez ).) An attempt to collect an alleged debt by means of a false document has been held to be sufficiently outrageous to constitute an outrageous act for purposes of this tort. (Kachig v. Boothe (1971) 22 Cal.App.3d 626, 641, fn. 1.) Appellants incorporate their prior allegations that Wells Fargo sent them a document falsely stating that they owed mortgage payments to Wells Fargo. Appellants further allege:
*6 “From approximately November 2, 2008 through April 2009, the Defendants and each of them, have falsely asserted that Plaintiffs are in default in paying the loan on 5813 Fernside to the Defendants and have threatened to commence and have commenced non-judicial foreclosure proceedings against the Plaintiffs based upon false and fraudulent pretenses and without compliance with the laws necessary to commence foreclosure proceedings.
“The Defendants' acts were intentional, unreasonable, and so outrageous that they exceed all bounds usually tolerated by a decent society and Defendants knew or should have known that the commission of these wrongful acts against the Plaintiffs would be likely to cause illness, injury, and emotional distress. As a direct result of the Defendants' conduct, Plaintiffs suffered illness, injury, and emotional distress.”
Wells Fargo argues that the pleading does not allege an outrageous act because “a debt collector is entitled to a qualified privilege.” There is no allegation, however, that appellants owe any debt to Wells Fargo. Appellants allege that they owe nothing to Wells Fargo. Wells Fargo further contends, however, and correctly in our view, that the first amended complaint fails to allege that Wells Fargo acted with the intention of causing, or reckless disregard of the probability of causing, emotional distress. (Cervantez, supra, 24 Cal.3d 579.) Also, there is no allegation that Appellants' suffered serious or extreme emotional distress. While these omissions would appear to be capable of correction by amendment, they are omissions of essential elements of the cause of action, and thus the demurrer was properly sustained as to appellant's attempt to state a cause of action for intentional infliction of emotional distress.
The tort of defamation is effected by either “libel” or “slander.” (Civ.Code, § 44.) These two terms are statutorily defined (see Civ.Code, §§ 45 and 46), but it may be said, generally speaking, that libel is defamation effected through “writing” (Civ .Code, § 45) while slander is “orally uttered.” (Civ.Code, § 46.) Slander is defined to include “a false and unprivileged publication, orally uttered ... [¶] ... [¶][w]hich, by natural consequence, causes actual damage.” (Civ.Code, § 46.) The essential elements of a cause of action for defamation are simply that the specified false and defamatory matter was published to third persons. (5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 735, p. 156.)
Appellants' first amended complaint alleges: “Defendants, and each of them, from November 2008 to and including April 2009, have maliciously published statements to third parties that Plaintiffs are in default in paying the loan on 5813 Fernside to the Defendants, which statements are and were false and the Defendants knew or should have known that the statements were false at the time they published the statements. The third parties to whom the false statements were maliciously published included, but were not limited to, credit reporting agencies, which have reduced Plaintiffs' credit ratings as a result of the publication of the false statements, to Plaintiffs' damage.”
*7 Appellants contend the required elements have been pled. We agree. Wells Fargo argues that appellants “failed to identify the allegedly defamatory statement.” But they did. They alleged that Wells Fargo told third parties that appellants were in default in paying the loan to Wells Fargo. Wells Fargo argues that appellants “failed to allege that any statement about their credit was false.” But they did. Appellants alleged that the statements made by Wells Fargo “are and were false.” Wells Fargo then argues that “[t]ruth of the statements made is a complete defense against civil liability for defamation.” This principle may or may not ultimately help Wells Fargo to defend the action on its merits, but this argument ignores the procedural reality that on a demurrer a court is “passing upon the question of the sufficiency or insufficiency of a complaint to state a cause of action” and is not determining “whether the facts stated are true or untrue.” (Colm v. Francis, supra, 30 Cal.App. at p. 752.) Appellants' pleading alleges that the statements made by Wells Fargo “are and were false.” Whether the statements made by Wells Fargo were in fact false, or instead were true, will be determined by the trier of fact upon the evidence ultimately offered and received in the case.
Wells Fargo then cites Pavlovsky v. Board of Trade (1959) 171 Cal.App.2d 110, which states: “Ordinarily, privilege must be pleaded as an affirmative defense. [Citation.] But where the existence of the privilege is shown on the face of the complaint, it may be raised by general demurrer.” (Id. at p. 113.) Wells Fargo fails to identify, however, anything at all in the first amended complaint that would show the applicability of any privilege. Wells Fargo appears to just assume that it is a creditor, and that it therefore has a Civil Code section 47 privilege to make a false statement to a credit agency if the statement is made without malice. Civil Code section 47, subdivision (3), provides a privilege for “a communication without malice to persons interested therein by one who is also interested.” (Pavlovsky, supra, 171 Cal.App.2d at p. 113.) Nothing in appellants' first amended complaint alleges, however, that Wells Fargo is appellants' creditor or that Wells Fargo has any interest in the subject loan what would enable Wells Fargo to invoke the privilege.
The judgment is reversed and the matter is remanded to the trial court for that court to overrule respondents' demurrer to all causes of action except the second (“action to remove cloud”) and the fourth (“intentional infliction of emotional distress”). Costs on appeal awarded to appellants.
WE CONCUR: KANE, Acting P.J., and DETJEN, J.
Numerous federal district courts have held in recent years that possession of the original is not a requirement for initiating non-judicial foreclosure. (Nool v. HomeQ Servicing (E.D.Cal.2009) 653 F.Supp.2d 1047, 1053; Castaneda v. Saxon Mortgage Services, Inc. (E.D.Cal.2009) 687 F.Supp.2d 1191, 1201; and Jensen v. Quality Loan Service Corp. (E.D.Cal.2010) 702 F.Supp.2d 1183, 1189.) Because appellant's first amended complaint can survive a demurrer without that allegation, we need not address or resolve this issue in our decision.
MERS is a national electronic registry that tracks the transfer of ownership interests and servicing rights in mortgage loans and is a key player in the secondary mortgage market. (See Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1151.) However, because MERS is not a party to this action or mentioned in the first amended complaint, we need not discuss its involvement here.
This case presents a classic example of the longstanding rule that “in passing upon the question of the sufficiency or insufficiency of a complaint to state a cause of action, it is wholly beyond the scope of the inquiry to ascertain whether the facts stated are true or untrue” as “[t]hat is always the ultimate question to be determined by the evidence upon a trial of the questions of fact.” (Colm v. Francis (1916) 30 Cal.App. 742, 752.)
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