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Tentative Ruling
Judge Donna Geck
Department 4 SB-Anacapa
1100 Anacapa Street P.O. Box 21107 Santa Barbara, CA 93121-1107

CIVIL LAW & MOTION

Jennifer O’Neil vs FCI Lender Services Inc et al

Case No: 17CV04298
Hearing Date: Fri Feb 09, 2018 9:30

Nature of Proceedings: Demurrer; Case Management Conference

TENTATIVE RULING:

For the reasons set forth herein, the demurrer of defendants to the complaint of plaintiff Jennifer O’Neil is sustained, with leave to amend, as to the second, third, fourth, and sixth causes of action and is otherwise overruled. Plaintiff O’Neil shall file and serve her first amended complaint on or before February 26, 2018.

 

Background:

As alleged in the complaint, plaintiff Jennifer O’Neil resides at real property located at 5210 Austin Road, Santa Barbara (Property). (Complaint, ¶ 1.) On May 5, 2006, O’Neil obtained from lender America’s Wholesale Lender a loan in the principal amount of $1M documented by a promissory note (Note) and secured by a deed of trust (DOT) on the Property. (Complaint, ¶¶ 1, 22 & exhibit A.)

In 2009, the servicing rights of the Note were transferred to Bank of America, N.A. (BANA). (Complaint, ¶ 24.) In 2011, BANA modified O’Neil’s loan (the Modification) through BAC Home Loans Servicing, LP. (Complaint, ¶ 24 & exhibit B.) The servicing rights to the Note were subsequently transferred from BANA to Bayview Loan Servicing, then in February 2017 to Specialized Loan Servicing, and then to defendant FCI Lender Services, Inc. (FCI). (Complaint, ¶ 25.)

O’Neil continued to make timely payments on her Note pursuant to the terms of the Modification. (Complaint, ¶ 26.)

With each servicing rights transfer, O’Neil experienced accounting issues regarding the payments she made on her Note. (Complaint, ¶ 27.) Monthly payments owed randomly changed with each new servicer in breach of the Modification, and the payments made by O’Neill were not always applied toward the principal and interest pursuant to the Modification. (Ibid.) As part of the Modification, O’Neil had a separate escrow account to pay her taxes, but the servicers failed to apply those funds toward O’Neil’s taxes. (Ibid.) With each new servicer, O’Neil was forced to re-explain the Modification and provide proof of payments to the new representatives even though the new servicer was already supposed to have that information. (Complaint, ¶ 28.) O’Neil spent countless hours sending volumes of documents and proof of payments she made on her Note to clear the accounting issues, but each time O’Neil reached a resolution that was supposed to take her account out of default, the servicing rights were transferred to a new servicer and O’Neil was forced to start over. (Ibid.) Despite multiple requests, O’Neil has never received a full accounting of the loan and the documents she did receive were either incomplete or inaccurate. (Complaint, ¶ 29.)

On May 8, 2017, when O’Neil was in the process of clearing the accounting issues with FCI, FCI and defendant Wilmington Savings Fund Society, FSB, dba Christiana Trust as owner trustee of the Residential Credit Opportunities Trust III (Wilmington) recorded a notice of default (NOD) for the Property. (Complaint, ¶ 31 & exhibit F.) Attached to the NOD was a declaration in which FCI alleged that they exercised due diligence pursuant to Civil Code sections 2923.5, subdivision (e), or 2923.55, subdivision (f). (Complaint, ¶ 32.) The declaration is false because it was O’Neil who contacted defendants to ask for help while defendants stonewalled O’Neil’s attempts to seek foreclosure alternatives, even while O’Neil sent volumes of proof showing that her account was not in default. (Ibid.) After receiving the NOD, O’Neil immediately tried to contact FCI, but FCI continued to ignore O’Neil’s calls and continued to give her the runaround. (Complaint, ¶ 33.)

On August 18, 2017, FCI and Wilmington recorded a notice of trustee’s sale (NOTS) for the Property. (Complaint, ¶ 34 & exhibit G.)

Throughout the default asserted by defendants, O’Neil was assigned no fewer than 20 single points of contact. (Complaint, ¶ 35.) To date, O’Neil is yet to be assigned a single point of contact pursuant to Civil Code section 2923.7. (Complaint, ¶ 37.)

Defendants threaten foreclosure of the Property with a sale date, as of the filing of the complaint, scheduled for September 28, 2017.

On September 13, 2017, O’Neil filed a voluntary petition for bankruptcy. (Defendants’ Request for Judicial Notice [RJN], exhibit 18.)

On September 25, 2017, O’Neil filed her original complaint in this action asserting seven causes of action: (1) violation of Civil Code section 2923.7; (2) violation of Civil Code section 2923.6; (3) violation of Civil Code section 2923.55; (4) accounting; (5) breach of the covenant of good faith and fair dealing; (6) negligence; and, (7) unfair business practices.

Defendants now demur to the complaint as discussed below. The demurrer is opposed by O’Neil.

Analysis:

“We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed. [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.]” (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6, internal quotation marks omitted.)

            (1)        Requests for Judicial Notice

Defendants request that the court take judicial notice of the following: (RJN, exhibit 1) the recorded grant deed for the Property, recorded May 16, 2006; (exhibit 2) the recorded DOT; (exhibit 3) a second deed of trust on the Property, also recorded May 16, 2006; (exhibit 4) a third deed of trust on the Property, recorded June 2, 2006; (exhibit 5) a notice of default, recorded on October 7, 2009; (exhibit 6) an assignment of deed of trust, recorded October 20, 2009; (exhibit 7) a notice of trustee’s sale, recorded on April 2, 2010; (exhibit 8) a notice or rescission of the notice of default, recorded June 15, 2011; (exhibit 9) the Modification, recorded November 27, 2012; (exhibit 10) an assignment of deed of trust, recorded February 4, 2015; (exhibit 11) an assignment of deed of trust, recorded August 31, 2016; (exhibit 12) another assignment of deed of trust, recorded August 31, 2016; (exhibit 13) an assignment of deed of trust, recorded January 31, 2017; (exhibit 14) an assignment of deed of trust, recorded April 14, 2017; (exhibit 15) a substitution of trustee, recorded May 8, 2017; (exhibit 16) the recorded NOD; (exhibit 17) the recorded NOTS; (exhibit 18) O’Neil’s bankruptcy petition in United States Bankruptcy Court for the Central District of California, case number 9:17-bk-11647-DS (the Bankruptcy Case), filed September 13, 2017; and, (exhibit 19) schedules filed in the Bankruptcy Case on October 5, 2017.

The court grants the requests for judicial notice of the recorded documents, exhibits 1 through 17.(See Poseidon Development, Inc. v. Woodland Lane Estates, LLC (2007) 152 Cal.App.4th 1106, 1117.) The court also grants the request for judicial notice of court records in the Bankruptcy Case. (Evid. Code, § 452, subd. (d)(2).) Judicial notice does not extend to the truth of factual matters set forth in recorded documents or in court records. (Poseidon Development, Inc. v. Woodland Lane Estates, LLC, supra, 152 Cal.App.4th at p. 1117; Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1569.)

            (2)        Owner-Occupied Property

Defendants demur to the causes of action in the complaint on multiple grounds. One recurring argument made by defendants is that O’Neil may not assert claims under the Homeowners’ Bill of Rights (HBOR), in particular Civil Code sections 2923.6, 2923.7, and 2923.55, because the Property is not owner-occupied, pointing to the address given in the petition in the Bankruptcy Case. (Note: In the absence of any contrary argument by the parties, for purposes of this demurrer, the court considers HBOR citations to the text of the respective statutes as they existed at the time of the filing of the complaint. For that reason, the court omits the descriptive term “former” where the statutes have changed effective January 1, 2018.) Defendants assert that the petition in the Bankruptcy Case constitutes a judicial admission that is conclusively binding on O’Neil, citing In re Rolland (Bankr. C.D.Cal. 2004) 317 B.R. 402, 421-422: “ ‘Judicial admissions are formal admissions in the pleadings which have the effect of withdrawing a fact from issue and dispensing wholly with the need for proof of the fact.’ [Citation.] Judicial admissions are conclusively binding on the party who made them.”

Defendants misapprehend what constitutes a judicial admission. As the above quotation from In re Rolland points out, a judicial admission is a substitute for evidence because it removes a factual matter from dispute. “However, ‘[a] judicial admission is effective (i.e., conclusive) only in the particular case.’ [Citations.]” (Minish v. Hanuman Fellowship (2013) 214 Cal.App.4th 437, 456.) The Bankruptcy Case is a different case from this action and so statements in pleadings filed in the Bankruptcy Case are not judicial admissions with respect to this case. As noted in connection with granting judicial notice of the Bankruptcy Case filings, judicial notice does not extend to the truth of matters set forth therein. Doctrines of res judicata, collateral estoppel, and judicial estoppel may apply where there is a judicial effect of the filings in another proceeding (see Sosinsky v. Grant, supra, 6 Cal.App.4th at p. 1564; Minish v. Hanuman Fellowship, supra, 214 Cal.App.4th at pp. 448-449), but otherwise, the effect of a pleading in another proceeding is only evidentiary (Minish v. Hanuman Fellowship, 214 Cal.App.4th at p. 457). The court does not consider evidence outside the pleadings in the context of a demurrer. (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 459.) Consequently, the court assumes as true O’Neil’s allegation of residency at the Property. Defendants’ demurrers based upon defendants’ arguments that the Property is not owner-occupied are on that ground overruled.

Similarly, the court does not consider for purposes of the demurrer evidence presented by way of the Bankruptcy Case schedules as to whether or not O’Neil could afford to make payments as required under the terms of the loan as modified.

            (3)        HBOR and Civil Code Violations

O’Neil’s first cause of action is for violation of Civil Code section 2923.7, subdivision (a), which provides: “Upon request from a borrower who requests a foreclosure prevention alternative, the mortgage servicer shall promptly establish a single point of contact and provide to the borrower one or more direct means of communication with the single point of contact.” Defendants argue that O’Neil does not allege a material violation of section 2923.7, subdivision (a).

“The single point of contact shall be responsible for doing all of the following:

            “(1) Communicating the process by which a borrower may apply for an available foreclosure prevention alternative and the deadline for any required submissions to be considered for these options.

            “(2) Coordinating receipt of all documents associated with available foreclosure prevention alternatives and notifying the borrower of any missing documents necessary to complete the application.

            “(3) Having access to current information and personnel sufficient to timely, accurately, and adequately inform the borrower of the current status of the foreclosure prevention alternative.

            “(4) Ensuring that a borrower is considered for all foreclosure prevention alternatives offered by, or through, the mortgage servicer, if any.

            “(5) Having access to individuals with the ability and authority to stop foreclosure proceedings when necessary.” (Civ. Code, § 2923.7, subd. (b).)

“The single point of contact shall remain assigned to the borrower’s account until the mortgage servicer determines that all loss mitigation options offered by, or through, the mortgage servicer have been exhausted or the borrower’s account becomes current.” (Civ. Code, § 2923.7, subd. (c).)

“ ‘Foreclosure prevention alternative’ means a first lien loan modification or another available loss mitigation option.” (Civ. Code, § 2920.5, subd. (b).) “ ‘First lien’ means the most senior mortgage or deed of trust on the property that is the subject of the notice of default or notice of sale.” (Civ. Code, § 2920.5, subd. (d).)

O’Neil alleges that she was effectively not assigned single point of contact because she was assigned to no less than 20 different people who were unorganized and provided inconsistent information regarding O’Neil’s alleged default and foreclosure alternative requests and who consistently failed to answer her calls and voicemails. (Complaint, ¶ 43.) O’Neil alleges that her loan was not actually in default, yet foreclosure proceedings were continuing and she could not contact or get accurate information from these assigned contacts. (Complaint, ¶¶ 43-46.) These are sufficient allegations of a material violation of section 2923.7, subdivision (a). Defendants’ demurrer to the first cause of action will be overruled.

O’Neil’s second cause of action is for violation of Civil Code section 2923.6, subdivision (c), which provides:

“If a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower’s mortgage servicer, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale, or conduct a trustee’s sale, while the complete first lien loan modification application is pending. A mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale or conduct a trustee’s sale until any of the following occurs:

            “(1) The mortgage servicer makes a written determination that the borrower is not eligible for a first lien loan modification, and any appeal period pursuant to subdivision (d) has expired.

            “(2) The borrower does not accept an offered first lien loan modification within 14 days of the offer.

            “(3) The borrower accepts a written first lien loan modification, but defaults on, or otherwise breaches the borrower’s obligations under, the first lien loan modification.”

Defendants argue that section 2923.6, subdivision (c), is inapplicable because O’Neil has not alleged that she submitted a complete loan modification application and O’Neil has alleged that she obtained a full modification in 2011.

“For purposes of this section, an application shall be deemed ‘complete’ when a borrower has supplied the mortgage servicer with all documents required by the mortgage servicer within the reasonable timeframes specified by the mortgage servicer.” (Civ. Code, § 2923.6, subd. (h).)

“In order to minimize the risk of borrowers submitting multiple applications for first lien loan modifications for the purpose of delay, the mortgage servicer shall not be obligated to evaluate applications from borrowers who have already been evaluated or afforded a fair opportunity to be evaluated for a first lien loan modification prior to January 1, 2013, or who have been evaluated or afforded a fair opportunity to be evaluated consistent with the requirements of this section, unless there has been a material change in the borrower's financial circumstances since the date of the borrower’s previous application and that change is documented by the borrower and submitted to the mortgage servicer.” (Civ. Code, § 2923.6, subd. (g).)

O’Neil does not allege that a first lien loan modification was being evaluated when the NOD was recorded. O’Neil alleges that the loan was not in default. (Complaint, ¶ 55.) While foreclosure proceedings when a loan is not in default is contrary to various other foreclosure rules, it is not a violation of section 2923, subdivision (c). The demurrer to the second cause of action will be sustained with leave to amend.

O’Neil’s third cause of action is for violation of Civil Code section 2923.55, subdivision (b)(2), which provides:

“A mortgage servicer shall contact the borrower in person or by telephone in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure. During the initial contact, the mortgage servicer shall advise the borrower that he or she has the right to request a subsequent meeting and, if requested, the mortgage servicer shall schedule the meeting to occur within 14 days. The assessment of the borrower’s financial situation and discussion of options may occur during the first contact, or at the subsequent meeting scheduled for that purpose. In either case, the borrower shall be provided the toll-free telephone number made available by the United States Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency. Any meeting may occur telephonically.”

O’Neil alleges that the declaration filed in connection with the NOD stating that the FCI was unable to contact O’Neil despite due diligence was false because it was O’Neil who contacted defendants and defendants stonewalled O’Neil’s attempts to seek foreclosure alternatives. (Complaint, ¶ 62.)

Civil Code section 2923.55, subdivision (b)(2), requires contact but does not require that the contact be initiated specifically by the servicer. O’Neil alleges contact. O’Neil generally alleges that the contact was not productive, but O’Neil does not allege specifically that the contact failed to comply with the requirements of subdivision (b)(2). (See Mabry v. Superior Court (2010) 185 Cal.App.4th 208, 232.) Defendants’ demurrer to the third cause of action will be sustained with leave to amend.

O’Neil’s fourth cause of action is for an accounting pursuant to Civil Code section 2943. (Complaint, ¶ 65.) Section 2943 relates to payoff demand statements and beneficiary statements and not to accountings. In opposition, O’Neil mentions this cause of action only in a section title and provides no citation or argument to section 2943. (Opposition, p. 6.) O’Neil clearly complains of issues regarding the financial status of her account, but this is different from the statutory provision for a payoff statement of section 2943 or from a traditional action for an accounting (see Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179). O’Neil does not specifically allege facts showing that section 2943 has been violated. Defendants’ demurrer to the fourth cause of action will be sustained with leave to amend.

            (4)        Breach of Covenant of Good Faith and Fair Dealing

O’Neil’s fifth cause of action is for breach of the covenant of good faith and fair dealing. Defendants argue that O’Neil has not alleged such a cause of action.

“ ‘[T]he elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” [Citation.] ‘ “The [implied] covenant of good faith and fair dealing [is] implied by law in every contract.” ’ [Citation.] The covenant is read into contracts and functions ‘ “as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party’s rights to the benefits of the contract.” ’ [Citation.] The covenant also requires each party to do everything the contract presupposes the party will do to accomplish the agreement’s purposes. [Citation.] A breach of the implied covenant of good faith is a breach of the contract [citation], and ‘breach of a specific provision of the contract is not ... necessary’ to a claim for breach of the implied covenant of good faith and fair dealing [citation].” (Thrifty Payless, Inc. v. Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244.)

O’Neil has alleged a contract by alleging the Note and Modification. (Complaint, ¶ 23-24.) O’Neil has alleged that she has performed under the contract. (Complaint, ¶ 26.) O’Neil has alleged that defendant breached the covenant of good faith and fair dealing by, among other things, failing to apply payments made to her account. (Complaint, ¶ 27.) O’Neil has been damaged by the breach by having credit detrimentally affected and having unnecessary penalties and fees tacked on to her account. (Complaint, ¶ 75.)

O’Neil has adequately allege a cause of action for breach of the implied covenant of good faith and fair dealing. Defendants’ demurrer will be overruled to this cause of action.

            (5)        Negligence

O’Neil’s sixth cause of action is for negligence. Defendants argue that they have no duty to O’Neil because the relationship of the parties is merely as a lender of money. “[F]or purposes of a negligence claim, ‘as a general rule, a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.’ [Citation.]” (Das v. Bank of America, N.A. (2010) 186 Cal.App.4th 727, 740.) O’Neil argues that the broad no-duty language does not apply to the loan modification and servicing process. (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1181; Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941, 951; Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 902.)

While not deciding that no duty can exist here to support a claim for negligence, the court concludes that O’Neil’s allegations are insufficient. In paragraph 78 of the complaint, O’Neil sets forth nine asserted breaches of duty. The first breach is failing to apply mortgage payment to her account; the eighth and ninth breaches are for providing contradictory information regarding her account and in initiating and continuing foreclosure. These items of breach are breach of duty arising solely from defendants’ conventional role as a lender. No tort duty exists as to such breaches. The remaining alleged breaches relate in a conclusory way to the loan modification process but these breaches do not connect to O’Neil’s factual allegations regarding her specific loan. For example, O’Neil does not allege that she sought a modification and during that process defendants mishandled her application. Instead, O’Neil alleges simply that defendants failed properly to account for her payments. O’Neil has failed to allege the foundational facts upon which a duty would arise under the cases she cites. Defendants’ demurrer to this cause of action will be sustained with leave to amend.

            (6)        UCL Claim

O’Neil’s seventh cause of action is for violation of Business and Professions Code section 17200 et seq. (UCL). Defendants argue that O’Neil has not stated this claim because it is derivative of her other claims which defendants argue all fail.

As discussed above, the court concludes that O’Neil has stated a claim for violation of Civil Code section 2923.7, subdivision (a). “By proscribing ‘any unlawful’ business practice, ‘section 17200 “borrows” violations of other laws and treats them as unlawful practices’ that the unfair competition law makes independently actionable. [Citation.]” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180.) O’Neil has therefore stated a cause of action under the UCL. The court therefore need not consider to what extent O’Neil has also stated a cause of action under the UCL based upon different predicate violations. (See Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1047 [“[A] demurrer cannot rightfully be sustained to part of a cause of action or to a particular type of damage or remedy.”].) Defendants’ demurrer to this cause of action will be overruled.

 

 
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