Court Opinion

ID: 821574
Source: CourtListenerOpinion
Date Created: 2013-02-28 07:23:18.152422+00
Date Added: 2024-06-11T15:21:11.244390
License: Public Domain

Filed 2/26/13 Ferrales v. Aurora Loan Services CA2/6
                 NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.111.5.

             IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                    SECOND APPELLATE DISTRICT

                                                   DIVISION SIX

WILLIAM FERRALES,                                                               2d Civil No. B242072
                                                                            (Super. Ct. No. CV118097A)
 Plaintiff and Appellant,                                                     (San Luis Obispo County)

v.

AURORA LOAN SERVICES LLC.,

 Defendant and Respondent.

                   William Ferrales appeals from a judgment on demurrer entered in favor
of Aurora Loan Service LLC (Aurora) on appellant's second amended complaint for
negligent misrepresentation, violation of the Rosenthal Fair Debt Collection Practices
Act (Rosenthal Act; Civ. Code, § 1788 et seq), promissory estoppel, and rescission.
We affirm.
                                        Facts and Procedural History
                   In October 2004 appellant took out a $1,209,600 loan, secured by a deed
of trust, to purchase a beach house in Cambria. After appellant defaulted on the 30-
year loan, Aurora recorded a notice of default and scheduled an April 9, 2009 trustee's
sale.
                   Appellant requested a loan modification and executed a workout
agreement providing that appellant would make partial mortgage payments and stay in
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the home while Aurora reviewed the loan modification application. The workout
agreement warned that if a loan modification was not achieved, Aurora would proceed
with the foreclosure. Aurora sent a follow-up form letter stating that "we would like to
offer you a permanent home retention option." (Emphasis added.) The form letter
requested financial information which would be reviewed by Aurora to determine
whether appellant qualified for a loan modification.
              Aurora terminated the work out agreement in 2009 because appellant's
monthly housing-to-income ratio was too high to qualify for a loan modification
Appellant requested that Aurora re-open his file and executed a second workout
agreement on February 22, 2010, acknowledging that $122,631.96 was past due on the
loan. Like the first workout agreement, appellant was required to make monthly
payments and provide financial information for Aurora's review. The agreement
provided that appellant's loan would remain delinquent and, upon termination of the
agreement, Aurora could proceed with the foreclosure.
              In early 2011, Aurora notified appellant that his income was too low to
qualify for a loan modification, recorded a notice of trustee's sale, and sold the
property at a trustee's sale on February 23, 2011. Appellant sued for
misrepresentation, violation of the Rosenthal Act, promissory estoppel, and rescission

1
 "Civil Code section 2933.5 requires, before a notice of default may be filed, that a
lender contact the borrower in person or by phone to 'assess' the borrower's financial
situation and 'explore' options to prevent foreclosure. . . . There is nothing in section
2923.5 that requires the lender to rewrite or modify the loan." (Mabry v. Superior
Court (2010) 185 Cal.App.4th 208, 213-214.) The statute applies to loans on owner-
occupied residential property made between January 1, 2003, and December 31, 2007.
(See Bernhardt, Cal. Mortgages, Deeds of Trust, and Foreclosure Litigation
(Cont.Ed.Bar 2012) § 107, p. 867; Greenwald & Asimow, Cal. Practice Guide, Real
Property Transactions (Rutter 2011) ¶ 6:524.1, p. 6-96.6.)

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               2
and restitution. After three pleading attempts, the trial court sustained Aurora's
demurrer without leave to amend.
                                       Discussion
              We review the order sustaining the demurrer de novo, exercising our
independent judgment to determine whether a cause of action has been stated under
any legal theory. (Ocha v. PacifiCare of California (2004) 115 Cal.App.4th 782, 788.)
While we accept as true properly pleaded factual allegations, we do not assume the
truth of contentions, deductions or legal conclusions. (Blank v. Kirwan (1985) 39
Cal.3d 311. 318.) The workout agreements and form letter, which are attached to the
second amended complaint, conflict with the allegations in the complaint and control
on demurrer. (Holland v. Morse Diesel Internat., Inc. (2001) 86 Cal.App.4th 1443,
1447.)
                              Negligent Misrepresentation
              The first cause of action for negligent misrepresentation states that
appellant was told "there would be an opportunity to cure [the] default at the
expiration of the Agreements."
              The trial court correctly ruled that no cause of action was stated for
negligent misrepresentation. The workout agreements and form letter state that the
"offer" is conditional and requires that appellant submit financial information to be
reviewed by Aurora to determine whether appellant qualifies for a loan modification.
The workout agreements warn: "The aggregate Plan payment will be insufficient to
pay the [loan] Arrearage." Appellant claims that Aurora orally agreed to postpone the
foreclosure but such an agreement is subject to the statute of frauds and unenforceable.
(Karlsen v. American Sav. & Loan Ass'n. (1971) 15 Cal.App.3d 112, 121 [oral

2
 The second amended complaint alleges $27,248.76 in payments on the first workout
agreement and $40,648.68 on the second workout agreement.

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agreement to extend foreclosure period unenforceable]; Secrest v. Security National
Mortgage Loan Trust 2002-2 (2008) 167 Cal.App.4th 544, 552-553 [same])
               Citing Pinel v. Aurora Loan Services, LLC. (N.D.Cal. 2011) 814
F.Supp.2d 930, appellant argues that Aurora used the workout agreements as a pretext
to extract mortgage payments. In Pinel defendant continued to extract mortgage
payments after it denied plaintiff's loan modification application. Plaintiff was even
duped into paying $1,781 after defendant purchased the property at the trustee's sale.
(Id., at p. 935.) Unlike Pinel, appellant's alleged reliance on the form letter "offer"
ignores the conditional nature of the loan modification which required that appellant
qualify for the loan modification. Appellant paid less than what was due on the loan,
stayed in the house, and delayed the trustee's sale 17 months. No actionable damages
are alleged.
                                 Rescission & Restitution
               Appellant's assertion that the second amended complaint states a cause
of action for rescission and restitution is equally without merit. To sue for rescission
and restitution, appellant must tender back the benefit received. (See Nguyen v.
Calhoun (2003) 105 Cal.App.4th 428, 439 [tender rule strictly applied].) A plaintiff
may not derive all possible benefit from the transaction and then claim the right to
rescind. (Gill v. Rich (2005) 128 Cal.App.4th 1254, 1264; see also Shuster v. BAC
Home Loans Servicing LP (2012) 211 Cal.App.4th 505, 512-513.)
               Appellant argues that he is not trying to set aside the foreclosure and
only seeks restitution for the workout payments (i.e., $67,897.44). Appellant,
however, received the benefit of staying in the beach house for 17 months and making
smaller payments (average of $3,993.97 a month) than were due on the 30-year loan
(approximately $8,300 a month).
               To sue for rescission, the complaint must allege "facts demonstrating a
rescission has been effected -- not merely facts that if proved correct, would establish a
legal basis to elect a rescission at some point in the future." (Myerchin v. Family

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Benefits, Inc. (2008) 162 Cal.App.4th 1526, 1533.) "[T]here can be no rescission of an
executed contract, upon the ground of fraudulent misrepresentation, without
restoration, before suit, by the party seeking to rescind, of everything of value which
he had received from the other party under the contract, or a bona fide offer to
restore." (Kelley v. Owens (1897) 120 Cal. 502, 507.) The second amended complaint
attempts to skirt the rule by alleging that appellant "derived no benefit from the
Agreements and has nothing of value provided by Defendant to tender in advance of
rescission."
               Appellant's reliance on Chao et al. v. Aurora Loan Services (N.D. Cal.
2011) 2011 WL 6963098 is inapposite. In Chao, plaintiff entered into a six month
forbearance agreement and was told that the foreclosure was "on hold" pending
defendant's review of an application for a loan modification. Unlike Chao, appellant
entered into two successive forbearance agreements to delay the foreclosure by 17
months. After the first workout agreement was terminated, appellant requested and
executed a second workout agreement and submitted more financial information for
Aurora's review. Like the first workout agreement, the second workout did not work
because appellant lacked the income to cure the loan default and modify the loan.
               Appellant asserts that the workout agreements establish a "pattern of
fraud" but appellant was the one who requested the second agreement, implicitly
waiving any claim for rescission. "Waiver of a right to rescind will be presumed
against a party who, having full knowledge of the circumstances . . . , nevertheless
accepts and retains benefits accruing to him under the contract. [Citation.]" (Neet v.
Holmes (1944) 25 Cal.2d 447, 458.) The benefits were substantial. Appellant
remained in possession, delayed the foreclosure for 17 months, and made smaller
payments to service a $1.3+ million loan in default.
                                  Promissory Estoppel
               To sue for promissory estoppel, appellant must allege a clear and
unambiguous promise, reasonable and foreseeable reliance, and injury based on that

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reliance. (Laks v. Coast Fed. Sav. & Loan Assn. (1976) 60 Cal.App.3d 885, 890.)
Missing here is a promise with clear and unambiguous terms.
                In Aceves v. U.S. Bank, N.A. (2011) 192 Cal.App.4th 218 plaintiff was
about to convert a Chapter 7 bankruptcy to a Chapter 13 bankruptcy. (Id., at p. 223.)
Defendant bank promised to work with plaintiff to reinstate and modify the loan if
plaintiff did not include the home in the Chapter 13 bankruptcy. (Ibid.) Rather then
make a good faith attempt to negotiate a loan modification, defendant imposed
punitive loan conditions days before the trustee's sale and purchased the property at the
sale. (Id., at p. 224.) The Court of Appeal concluded that defendant's promise to work
with plaintiff to reinstate and modify the loan was an unambiguous promise and there
was detrimental reliance to support a cause of action for promissory estoppel. (Id., at
pp. 226-227.)
                Unlike Aceves, the second amended complaint fails to allege an
unambiguous promise or justifiable reliance. Appellant paid $67,897.44 over a 17-
month workout period but alleges no operative facts to support the claim that Aurora
promised to modify the $1.3+ million loan. Nor can appellant sue for promissory
estoppel if the promise to forebear foreclosure was in return for consideration, i.e.,
$67,897 in interim payments. (Fontenot v. Wells Fargo Bank, N.A. (2011) 198
Cal.App.4th 256, 275.) "The claim instead must be pleaded as one for breach of the
bargained-for contract. [Citations.] Here, the only alleged promise not to foreclose is
contained in the forbearance agreement. Because [Aurora's] promise not to foreclose
in the forbearance agreement was given for proper consideration, in the form of
[appellant's] agreement to resume making payments on the promissory note, the
complaint cannot state a claim for promissory estoppel." (Ibid.)
                                      Rosenthal Act
                Appellant, in his appeal, makes no mention of the alleged violation of
the Rosenthal Act (Civ. Code § 1788 et seq.). There is good reason for this.
Foreclosure on a property that secures a debt is not a debt collection activity

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encompassed by the Rosenthal Act. (Izenberg v. ETS Services, LLC (C.D. Cal. 2008)
589 F.Supp.2d 1193, 1199; Gardner v. American Home Mortg. Servicing, Inc. (E.D.
Cal. 2010) 691 F.Supp.2d 1192, 1198; see also Lal v. American Home Servicing, Inc.
(2010) 680 F.Supp.2d 1218, 1224 [mortgage servicing company not a debt collector].)

              Appellant's remaining arguments have been considered and merit no
further discussion.
              The judgment (order sustaining demurrer without leave to amend) is
affirmed. Aurora is awarded costs on appeal.
              NOT TO BE PUBLISHED.

                                                      YEGAN, J.

We concur:

              GILBERT, P.J.

              PERREN, J.

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                                 Jac Crawford, Judge

                      Superior Court County of San Luis Obispo

                        ______________________________

              Jeremy S. Golden; Golden & Cardona-Loya, for Appellant.
              Justin D. Balser and Victoria A. Cantore; Akerman Senterfitt, for
Respondent.

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