Hughes v. Reality Mortg., LLC

SOLOMON E. HUGHES, et al., Plaintiffs, v. REALITY MORTGAGE, LLC, et al., Defendants.

Case No.18-cv-00576-JSC

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

April 20, 2018

SECTION 1915 SCREENING OF INITIAL COMPLAINT

Re: Dkt. No. 1

Mr. Solomon E. Hughes and Mr. Leroy P. Hughes ("Plaintiffs") allege violations of, among other things, the federal False Claims Act arising from a 2010 mortgage modification culminating in a 2013 foreclosure.¹ (Dkt. No. 1.) Having granted Plaintiffs' Application to Proceed In Forma Pauperis, the Court now screens the complaint pursuant to 28 U.S.C. § 1915 and concludes that Plaintiffs' complaint is deficient for the reasons set forth below.

COMPLAINT ALLEGATIONS

The complaint does not contain a plain statement of facts and allegations. It appears that in 2005, Mr. Solomon P. Hughes entered into a 30-year mortgage providing for the purchase of real property situated at 1221 81st Avenue in Oakland, California. (Dkt. No. 1, Complaint, at 12-14.) Plaintiffs Solomon E. Hughes and Leroy P. Hughes came to own that property in 2007. (Id. at 22-23.) Nearly three years later, Plaintiffs "unwittingly entered into a loan modification agreement with a fixed interest balloon step through BAC Home Loans Servicing, LP." (Id. at 5, 24.) Plaintiffs attach a "Foreclosure Profile Report" showing that the property was foreclosed and sold at auction in July 2013. (Id. at 30.)

Plaintiffs seem to allege that Defendants have violated four statutes: (1) the federal Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., implemented by 12 C.F.R. §§ 226.31-226.44 ("Regulation Z"); (2) the federal False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq.; (3) California's False Claims Act ("CFCA"), Cal. Gov. Code § 12650 et seq.; and (4) the California Legal Remedies Act ("CLRA"), Cal Civ. Code § 1750 et seq. (Id. at 2-3, 7-9.)

With respect to the CLRA claim, "[d]efendants deliberately withheld information and access to mortgage loan remedies available to [Plaintiffs] in order to profit from continuing to service through Bank of America/Countrywide home loan servicing (B.A.C.)" in an act of "fraudulent concealment." (Id. at 7-8.)

The face of the complaint names several defendants: (1) Realty Mortgage, LLC; (2) Mortgage Electronics Registration System, Inc.; and (3) Bank of America. (Id. at 1.) The body of the complaint identifies other defendants: (4) The Bank of New York Trust Series 2006-2CB; (5) Bank of American Home Loans; (6) BAC Home Loans Servicing, LP; (7) Reconstruct Company, N.A.; and (8) DOES 1-50. (Id. at 4.) It is not clear what wrongdoing is attributed to which Defendants. However, with respect to Defendant Mortgage Electronic Registration Systems, Inc. ("MERS"), Plaintiffs seem to imply—by way of webpage printouts appended to the complaint—that MERS was not licensed to do business in California at some time relevant to their claims. Those printouts seem to show that: (1) MERS did not have a California business license in 2002; and (2) MERS had an active Delaware business license in 2010. (Id.)

Plaintiffs are suing "individually and on behalf of the general public of the United States government and specifically the citizens of [California] pursuant to [Cal. Civ. Proc. Code § 382]." (Id. at 6; Dkt. No. 1-1.) This suit concerns a "common or general interest" of the public. (Id. at 6.) The Office of the Special Inspector General for the Troubled Asset Relief Program and the Consumer Financial Protection Bureau:

[H]ave alleged that it was more lucrative for the lender to deliberately force otherwise qualified homeowners including [Plaintiffs] to programs outside of Home Affordable Modification Program (HAMP) so that it could either profit from foreclosure proceedings, to force the[m] into a costly proprietary mortgage modification [other] than HAMP would permi[t] or otherwise profitfrom continuing to service the defaulting and defaulted mortgage.

(Id. at 8.)

PLAINTIFFS' DECLARATION

Plaintiffs attach to the complaint a notarized declaration. (Id. at 10-11.) Plaintiffs state that "the Lenders" used "counterfeit documents with deliberately contrived false and misleading statements to take money from the government. (Id. at 10.) And then "lenders then used the stolen funds to invest through fraction banking which created trillions of dollars that the banks kept for themselves." (Id.)

The attached deed of trust "reveale[s] enumerable intentional errors and ambiguities ... which presen[t] as the signed confession that the USDOJ used to prosecute the lender under [18 U.S.C. § 1001], [15 U.S.C. § 1692e], [and 15 U.S.C. § 78ff]." (Id. at 10; 22-23, Grant Deed). Violations of those statutes "carry a $25 million dollar fine." (Id. at 11.) Upon a "verified submission" to the Department of Justice, they are entitled to "35%" of the "whistleblower fees ... or $8,750,000." (Id. at 10-11.)

In addition, the federal False Claims Act qui tam (whistleblower) provision allows "for the loan on the subject property to be erased with no mortgage balance owed." (Id. at 11.) Plaintiffs also state that "[i]f the borrower's credit was damaged, the lender is also required to repair and restore all damaged credit." (Id.)

PLAINTIFFS' DOCUMENTS

Plaintiffs attach several documents to the complaint. The first document consists of several pages from a 2005 mortgage instrument. (Id. at 12-19.) It shows that: (1) the lender was Realty Mortgage, LLC; and (2) MERS was Realty's assigned agent and beneficiary. (Id. at 12.) The second document appears to be a Grant Deed, transferring the property to Plaintiffs (in equal share) in 2007. (Id. at 22-23.) The third is a Loan Modification Agreement showing that Plaintiff Solomon E. Hughes signed a "fixed interest rate balloon step" mortgage modification in September 2010. (Id. at 24-25.) The fourth is an "Illegible Notary Seal Declaration." (Id. at 27.) The fifth is a Foreclosure Profile Report showing that the property was sold at a foreclosure auction in July 2013. (Id. at 30.) The sixth and seventh documents show the status of MERS'California and Delaware business licenses in May 2002 and July 2010, respectively. (Id. at 31-34.) There are several duplicative pages. (Id. at 35-38, 41.) The eighth document is a Prepayment Penalty Rider from October 2005. (Id. at 39.)

LEGAL STANDARD

The Court has a continuing duty to dismiss any case in which a party is proceeding in forma pauperis upon a determination that the case is: (1) frivolous or malicious; (2) fails to state a claim on which relief may be granted; or (3) seeks monetary relief against a defendant who is immune from such relief. See 28 U.S.C. § 1915(e)(2).

The standard of review under 28 U.S.C. § 1915(e)(2) mirrors that of Rule 12(b)(6). Lopez v. Smith, 203 F.3d 1122, 1126-27 (9th Cir. 2000). In other words, the complaint must allege facts that plausibly establish the defendant's liability. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-57 (2007). When a plaintiff files a complaint pro se, the court must "construe the pleadings liberally ... to afford the petitioner the benefit of any doubt." Hebbe v. Pliler, 627 F.3d 338, 342 (9th Cir. 2010) (citations omitted). When a claim is dismissed, a pro se plaintiff proceeding In Forma Pauperis must be given leave to "amend their complaint unless it is absolutely clear that the deficiencies of the complaint could not be cured by amendment." Franklin v. Murphy, 745 F.2d 1221, 1235 n.9 (9th Cir. 1984); Lopez, 203 F.3d at 1130-31.

DISCUSSION

The Court has federal question jurisdiction over Plaintiffs' purported TILA and FCA claims and supplemental jurisdiction over Plaintiffs' other claims.

A. Federal Truth in Lending Act

The Truth in Lending Act ("TILA") seeks to "avoid the uninformed use of credit and to protect the consumer against inaccurate and unfair credit billing." 15 U.S.C. § 1601(a). TILA "requires creditors to provide borrowers with clear and accurate disclosures of terms dealing with things like finance charges, annual percentage rates of interest, and the borrower's rights." Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1998) (citing 15 U.S.C. §§ 1631, 1632, 1635 and 1638).

Generally, TILA claims must be filed within one year of a violation. 15 U.S.C. § 1640(e). A violation based on specific disclosures must be filed within three years of theviolation. 15 U.S.C. § 1639; see also 15 U.S.C. §§ 1639 (Requirements for certain mortgages); 1639b (Residential mortgage loan origination); and 1639c (Minimum standards for residential mortgage loans). Plaintiffs do not state a TILA claim for several reasons.

First, it appears that potential violations could have occurred in 2005 (mortgage), 2007 (grant deed); 2009 (date on a transferee/buyer form); 2010 (modification), and 2013 (foreclosure). (Dkt. No. 1 at 13, 22-25, 30.) Plaintiffs filed this action in January 2018. Therefore, Plaintiffs' claim appears to be untimely. U.S. ex rel. Air Control Techs., Inc. v. Pre Con Indus., Inc., 720 F.3d 1174, 1178 (9th Cir. 2013) ("A claim may be dismissed as untimely pursuant to a 12(b)(6) motion only when the running of the statute [of limitations] is apparent on the face of the complaint.")

Second, plaintiffs cannot seek rescission, described by the complaint as "erasure" of the loan. (Dkt. No. 1 at 11.) The right of rescission requires that the lender be noticed within three years. 15 U.S.C § 1635(f) (three-year period to exercise right of rescission); Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790, 792 (2015) (requiring written notice to lender within three years). And the right of recession ends with the sale of the property, including involuntary foreclosure. 15 U.S.C § 1635(f) ("right of rescission shall expire three years after the ... transaction or upon sale of the property") (emphasis added); Hughes v. Residential Mortg. Capital, No. C 09-4511 SI, 2010 WL 986998, at *2 (N.D. Cal. Mar. 17, 2010) (collecting cases where foreclosure barred rescission). Furthermore, the three-year limitation...