Daniels v. Select Portfolio Servicing, Inc.

246 Cal.App.4th 1150

201 Cal.Rptr.3d 390

Julia DANIELS et al., Plaintiffs and Appellants,

v.SELECT PORTFOLIO SERVICING, INC., et al., Defendants and Respondents.

Julia Daniels et al., Plaintiffs and Appellants,

v.Bank of America, N.A. et al., Defendants and Respondents.

H040487

H040990

Court of Appeal, Sixth District, California.

Filed April 26, 2016

Counsel for Plaintiffs/Appellants: Julia and Andre Daniels, United Law Center, Danny A. Barak, Stephen J. Foondos, Roseville

Counsel for Defendants/Respondents: Select Portfolio Servicing, Inc. U.S. Bank, N.A., Locke Lord, Regina J. McClendon, San Francisco

Counsel for Defendants/Respondents: Bank of America, N.A., ReconTrust Company, N.A., Severson & Werson, Jan T. Chilton, Jon D. Ives, San Francisco

Walsh, J.^* Appellants Julia and Andre Daniels obtained a $650,000 adjustable rate loan secured by a deed of trust on their Santa Cruz residence. When their interest rate adjusted upward, they struggled to make their loan payments. Appellants spent years in unsuccessful attempts to obtain a loan modification from their then-loan servicer, Bank of America, N.A. (BofA). In the process, they fell behind on their loan payments, allegedly at the behest of BofA.

Appellants sued BofA and several other entities to prevent a non-judicial foreclosure sale of their home and to collect monetary damages. Respondents are four entities with ties to the deed of trust on appellants' residence: Select Portfolio Servicing, Inc. (SPS) and BofA, both of which serviced appellants' loan; U.S. Bank National Association (U.S.Bank), the trustee of the securitized trust that owns the loan; and ReconTrust Company, N.A. (ReconTrust), the substituted trustee of the deed of trust (collectively respondents).

The trial court sustained SPS and U.S. Bank's demurrer to the first amended complaint without leave to amend and entered judgment in their favor. The trial court dismissed all of the claims against BofA and ReconTrust by way of a motion for judgment on the pleadings and entered a second judgment in their favor. Appellants appeal both judgments of dismissal.¹

For the reasons set forth below, we reverse and remand with directions. In doing so, we hold, among other conclusions, that: when a lender acquires by assignment a loan being administered by a loan servicer, the lender may be liable to the borrower for misrepresentations made by the loan servicer, as the lender's agent, after that assignment; and, a loan servicer may owe a duty of care to a borrower through application of the Biakanja² factors, even though its involvement in the loan does not exceed its conventional role.

I. FACTUAL AND PROCEDURAL BACKGROUND ³

A. The Loan and Deed of Trust

Appellants obtained an adjustable rate mortgage in the amount of $650,000 from SCME Mortgage Bankers, Inc. (SCME) in May 2005. They wanted a fixed rate loan, but their broker told them the loan with an adjustable rate was the best one for which they qualified and assured them they could refinance to a fixed rate within two years. The loan had a 1 percent interest-only rate for the first year and was secured by a deed of trust on their residence in Santa Cruz, California.

B. Appellants' Attempts to Obtain a Loan Modification From BofA

Countrywide took over the servicing of the loan. In early 2008, appellants requested that Countrywide refinance or modify the loan. They were told neither was possible because BofA was in the process of acquiring the right to service the loan. In December 2008, appellants contacted BofA about refinancing the loan. After contacting BofA on a weekly basis for months, appellants received a loan modification application in mid–2009. BofA employees represented that appellants "would be granted a modification" if they complied with all of BofA's requests and "would be evaluated for a loan modification in good faith." Appellants returned the completed application with the documents BofA requested. When appellants called to check on the status of their application, they were told by multiple BofA employees that they had provided all of the necessary documentation and "were still under review for the loan modification." Between three and five months later, BofA denied their application purportedly because appellants did not provide all of the requested documents. Appellants applied for a loan modification a second time and were again denied for failure to provide documentation, despite BofA's representations that it had received the necessary documents. Appellants continued to make their regularly monthly payments to BofA.

In mid–2010, appellants again contacted BofA about a loan modification and were told they needed to be at least three months delinquent in their payments to qualify. The BofA employees "led [appellants] to believe that they would be granted a loan modification if they complied with all of [BofA's] instructions, requests and if they became at least three months delinquent in their monthly mortgage payments." Appellants, who until that time were current on their monthly payments, missed three payments at the behest of BofA. They again contacted BofA and were told to make reduced payments of $1,000 per month, which they did. Appellants "believed that the payments were trial plan payments and that upon completion of the trial plan, [they] would be granted a permanent modification that would provide them with a fixed interest rate."

At some point, appellants attempted to resume making their regular, higher monthly payments, but BofA refused to accept those payments. BofA continued to accept the $1,000 monthly payments until the end of 2011, at which point it stopped accepting payments from appellants.

Appellants "continued to attempt to obtain a loan modification" and "continued to submit any and all documents that [BofA] requested." They "were continually told," by, among others, BofA employee Johnny Pearson "in or about the end of 2011", that BofA did not receive the documents they submitted, even after BofA confirmed receipt of those documents. They "were continually denied for a loan modification."

In June 2012, appellants again applied to BofA for a loan modification. Pearson informed them BofA would not modify their loan because their house was "underwater."

SPS began servicing appellants' loan on December 1, 2012. In supplemental briefing, appellants informed us that SPS no longer services their loan and that, during the pendency of this appeal, they entered into a loan modification agreement with their new loan servicer.

C. Assignment of the Deed of Trust

In August 2011, Mortgage Electronic Registration Systems, Inc., assigned its interest in the deed of trust to U.S. Bank as trustee for the certificate holders of Harborview Mortgage Loan Trust 2005–08, Mortgage Loan Pass-through Certificates, Series 2005–08 (Securitized Trust). Appellants allege that assignment was void because the Securitized Trust closed on July 29, 2005, prior to the date of the assignment. Alternatively, appellants allege the deed of trust and note never were transferred into the Securitized Trust. U.S. Bank substituted ReconTrust as the trustee under appellants' deed of trust in August 2012.

D. Notices of Default and Trustee's Sale

In August 2012, ReconTrust recorded a notice of default and election to sell, stating appellants were more than $127,000 in arrears. On November 28, 2012, ReconTrust recorded a notice of trustee's sale. The property has not been sold.

E. The Maxam Action

Appellants were plaintiffs in a mass joinder action against Countrywide, BofA, ReconTrust, and CTC Real Estate Services, Inc., in 2011. That action, Maxam et al. v. Bank of America, N.A. et al. (Super. Ct. Orange County, 2011, No. 30–2011–00450819–CU–MT–CXC (Maxam )), was filed in February 2011 in Orange County Superior Court. The second amended complaint, filed on June 9, 2011, added appellants as plaintiffs and asserted causes of action for (1) fraudulent concealment; (2) intentional misrepresentation; (3) negligent misrepresentation; (4) injunctive relief for violation of Civil Code section 2923.5 ; and (5) unfair competition under Business and Professions Code section 17200 on behalf of more than 1,000 plaintiffs.

The Maxam second amended complaint alleged the plaintiffs "borrowed money from Countrywide or its subsidiaries or affiliates." It further alleged that Countrywide falsely inflated property appraisals and then, using those overstated home values and disregarding their own underwriting requirements, induced the plaintiffs into taking loans Countrywide knew they could not afford. Countrywide then allegedly securitized plaintiffs' loans and sold the resulting collateralized mortgage pools to third party investors at inflated prices in a scheme to "bilk" those investors. As a result of the ensuing liquidity crisis and collapse of Countrywide, both of which Countrywide allegedly foresaw, plaintiffs' property values fell, they lost access to other sources of financing, and their credit ratings were damaged.

With respect to loan modification, the second amended complaint alleged BofA directed other respondents to "advis[e] [Appellants] that [Respondents] would consider loan modifications, while at the same time covertly referring Plaintiffs' files to servicing companies in India instructed to obfuscate, badger, delay and divert the Plaintiffs from enforcing their rights." It further alleged "Defendant profess willingness to modify Plaintiffs' loans ..., but ... persist ... in their secret plan to use Indian or other offshore servicing companies to deprive Plaintiffs of their rights." And the Maxam plaintiffs alleged BofA and Countrywide falsely represented to "multiple Plaintiffs that they would be assisted by [Respondents] in a loan modification."

The Maxam respondents demurred to the second amended complaint. On January 27, 2012, the trial court sustained the demurrer with 60 days' leave to amend, reasoning the plaintiffs had failed "to state facts which provide a basis for...