Miles v. Deutsche Bank National Trust Co.

Opinion

This case involves allegations of a wrongful foreclosure and related causes of action. Plaintiff John Miles appeals from a judgment dismissing his breach of contract, fraud, and negligent misrepresentation causes of action pursuant to a sustained demurrer, and a summary judgment in favor of defendants on the wrongful foreclosure cause of action.

With respect to the demurred causes of action, we reverse. In the record before us, the court did not offer any explanation for its ruling. Based on our independent review of the complaint, we conclude plaintiff adequately stated his claims.

With respect to the wrongful foreclosure cause of action, we also reverse. The court granted summary judgment on the sole basis that plaintiff could not prove damages because he did not have any equity in the home when it was sold at a nonjudicial foreclosure sale. Wrongful foreclosure is a tort, however, and thus plaintiff may recover any damages proximately caused by defendants’ wrongdoing. Plaintiff offered evidence that he lost rental income and suffered emotional distress as a result of the foreclosure. This is disputed, of course, but it is sufficient to survive a summary judgment motion.

I.

The Demurrer

FACTS ALLEGED IN THE FIRST AMENDED COMPLAINT

Plaintiff owned property in Riverside. In July 2005, plaintiff refinanced the loan on his property with a total loan amount of $815,000. This was an adjustable rate mortgage. The loan was serviced by defendant HomEq Servicing (HomEq). For the first 21 months of the loan, plaintiff was current

Next, defendants contend the demurrer to the breach of contract cause of action was properly sustained because the complaint “does not allege whether the contract was in writing, oral or implied.” (See Code Civ. Proc., § 430.10, subd. (g) [complaint demurrable if, “[i]n an action founded upon a contract, it cannot be ascertained from the pleading whether the contract is written, is oral, or is implied by conduct”].) This is a purely technical argument, as defendants’ summary judgment motion demonstrates they knew which contract was at issue, were in possession of it, and thus knew it was in writing. The problem with this purely technical argument is that defendants did not comply with their own technicalities. Defendants’ demurrer did not mention Code of Civil Procedure section 430.10, subdivision (g). Instead, the demurrer simply stated, “Plaintiff’s third cause of action for breach of contract does not state facts sufficient to constitute a cause of action against Defendants. (Cal. Code Civ. Proc. §§ 430.10 (e) and (f).)” We will not uphold a demurrer on a technicality not asserted in the trial court. Further, as noted above, plaintiff alleged that in March 2008, HomEq gave plaintiff a loan modification agreement, to which the parties agreed. And specific terms of that agreement are alleged, such as the balance of the loan, the interest rate, and the required monthly payments. A reasonable inference drawn from those allegations is that the contract plaintiff relies upon, the March 2008 modification agreement, was in writing.

Defendants’ only remaining argument in support of the dismissal of the breach of contract cause of action is that plaintiff failed to attach the contract or to plead its terms verbatim. In support of that argument, defendants cite Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452 , 459 [ 212 Cal.Rptr. 743 ] (Otworth), which stated, “If the action is based on an alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written instrument must be attached and incorporated by reference.” The Otworth court did not offer any

Aside from these arguments, it appears that plaintiff alleged the basic elements of a breach of contract claim. “A cause of action for breach of contract requires proof of the 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.” (CDF Firefighters v. Maldonado (2008) 158 Cal.App.4th 1226 , 1239 [ 70 Cal.Rptr.3d 667 ].) Plaintiff alleged an express contract to refinance his loan, including the loan balance, the interest rate, and the monthly payment. He alleged he performed by making payments under the' agreement. He alleged defendants breached that contract by repudiating it and refusing to accept payments under it. And he alleged he was damaged by various fees he was charged and by being evicted from his home. Accordingly, we reverse the dismissal of plaintiff’s breach of contract claim.

Defendants offer two arguments in support of the dismissal of the fraud and negligent misrepresentation causes of action. First, they contend a misrepresentation cause of action does not lie where the misrepresentation pertains to future events; “The reason for this requirement is obvious: it is not possible to determine whether someone making a representation did so with knowledge, or reckless disregard, of the truth of the alleged representation if the representation was not made at a time in which it was known to be true or false. Therefore, the alleged promise to modify the Plaintiff’s loan cannot form the basis of a fraud or misrepresentation claim, because the Plaintiff cannot allege that the person making such a representation knew it to be true or false, as it concerned a future event.” Defendants later concede, however, “The only circumstances under which a future promise may form the basis of

Defendants’ second argument is that the misrepresentation allegations lack specificity. Defendants rely on the rule that in alleging fraud against a corporation, the plaintiff must “ ‘allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.’ ” (Lazar v. Superior Court, supra, 12 Cal.4th at p. 645.) “We observe, however, certain exceptions which mitigate the rigor of the rule requiring specific pleading of fraud. Less specificity is required when ‘it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy,’ [citation]; ‘[e]ven under the strict rules of common law pleading, one of the canons was that less particularity is required when the facts lie more in the knowledge of the opposite party . . . .’ [Citation.] [¶] Additionally, . . . considerations of practicality enter in.” (Committee On Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197 , 217 [ 197 Cal.Rptr. 783 , 673 P.2d 660 ], superseded by statute on other grounds in Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235 , 242 [ 46 Cal.Rptr.3d 66 , 138 P.3d 214 ].)

Plaintiff alleges defendants induced him to make over $44,000 in payments based on the false promise that they would provide a reasonable modification of the loan. The alleged facts in support are that HomEq initially agreed to the March 2008 contract but then reneged on it and on various particular dates sent more agreements and demanded more fees. The primary omission in the allegations is that plaintiff does not identify the names of the people he spoke to nor their authority to speak. In our view, this omission falls comfortably in the realm of information that lies more in the possession of defendants. (See Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230 , 248 [ 129 Cal.Rptr.3d 874 ] [“ ‘While the precise identities of the employees responsible ... are not specified in the loan instrument, defendants possess the superior knowledge of who was responsible for crafting these

The Summary Judgment Motion

FACTS

On July 1, 2005, plaintiff obtained a mortgage loan and executed a promissory note and deed of trust in the amount of $815,000. The promissory note called for monthly interest only payments in the amount of $4,068.21 from September 2005 to August 2007. “Thereafter, Plaintiff was obligated to pay principal and interest payments through the maturity of the loan.” That loan was ultimately assigned to defendant Deutsche Bank National Trust Company and serviced by HomEq.

In 2005 and 2006 plaintiff failed to pay his property taxes, so HomEq advanced the funds for plaintiff and demanded repayment. In April 2007 there remained an escrow shortage of $31,081. HomEq informed plaintiff that he needed to bring it current and that if he did not, his monthly payment would be increased to $5,937.64 to cover the shortfall. Plaintiff agreed to the increased monthly payment, which he made in May, June, July, August, and September of 2007. In September 2007, plaintiff submitted an application for a loan modification. Plaintiff did not make payments in October or November 2007 (plaintiff claims this was at HomEq’s advice to help the modification process; HomEq denies this). He made a payment in December 2007 and January 2008 of $5,293.99 (the reason for the approximately $540 shortfall is disputed). In February 2008 the proposed loan modification was ready for review. Plaintiff claims, however, that HomEq refused to send the agreement unless he paid a one-time processing fee of $12,075.09. It is undisputed that he paid that amount in February 2008, but defendants dispute that they required the money as a processing fee or otherwise refused to send the agreement.

HomEq sent plaintiff a loan modification agreement dated March 7, 2008. Under the terms of that agreement, plaintiff was to make a $3,500 down

Plaintiff subsequently received a revised agreement dated March 13, 2008. The revised agreement actually slightly reduced the loan balance to $834,051.86 and the monthly payment to $6,236.78. It also confirmed that the interest rate would be fixed at 5.99 percent for the life of the loan. Plaintiff signed the March 13 agreement and returned it to HomEq. HomEq received it, forwarded it to management for review, and the agreement was subsequently signed by Blanca Vargas, HomEq vice-president.

On April 15, 2008, four days after HomEq received, approved and signed the March 13 agreement, HomEq sent plaintiff a default letter demanding that he pay $39,997.18 or face immediate foreclosure. One week later, HomEq accepted plaintiff’s payment of $6,236.78. On April 30, just a little over one week later, HomEq sent another loan modification agreement, this time raising the loan balance to $870,000. HomEq told plaintiff he had to sign the latest loan modification agreement or face foreclosure. Plaintiff claims that, thereafter, HomEq refused any payments under the March 13 agreement. HomEq denies that it refused payments. In any event, it appears no regular payments were made in May 2008. It appears that HomEq believed the balance had been miscalculated on the March 13 agreement and thus refused to honor it (even though management had reviewed it and a vice-president had signed it).

Around June 11, 2008, HomEq sent another revised proposed loan modification agreement. The revised agreement would have raised the loan balance to $895,000. On June 19, 2008, plaintiff made another payment of $6,236, consistent with the March 13 agreement.

On June 24, 2008, HomEq sent plaintiff an account statement demanding a payment of $80,034.46 to bring the account current. On July 24, 2008,

PROCEDURAL HISTORY

After the court sustained the demurrer, defendants moved for summary judgment on the only remaining cause of action, wrongful foreclosure. The court granted the motion, reasoning, “Damages in a wrongful foreclosure action are based on the fair market value of the property at the time it was sold, minus any mortgages and liens against the property. [Citation.] Defendant provided evidence that Plaintiff owed $891,375.18 when the property was sold, and evidence that the property was worth less than $815,000 when it was sold.” “Although Plaintiff argued that he should be entitled to include lost rental income, monies spent on improvements[,] attorneys’ fees and emotional distress damages when calculating damages, the Court finds no case supporting this specific method of calculating damages when only wrongful foreclosure is alleged. To the contrary, each item identified would necessarily be reflected in the value of the property.” The court also noted there was no evidence that defendants were served with the temporary restraining order prior to the sale of the property.

DISCUSSION

The court granted summary judgment on the wrongful foreclosure cause of action on the sole ground that plaintiff could not prove damages. The court believed the only permissible damages in a wrongful foreclosure suit is the lost equity in the home, and where there is no equity, no cause of action will lie. We disagree.

There are surprisingly few California cases describing the nature of a wrongful foreclosure cause of action. The most thorough treatment is found in Munger v. Moore (1970) 11 Cal.App.3d 1 [ 89 Cal.Rptr. 323 ] (Munger), the case both the court and defendants relied upon. The facts of that case are somewhat complicated, but to simplify to only the relevant facts, the plaintiff defaulted on a loan secured by real property. (Id. at p. 5.) Prior to any foreclosure sale, the plaintiff timely tendered the amount in default under the loan. (Id. at pp. 5-6.) The defendants (the lenders) refused the tender and foreclosed on the property. (Id. at p. 6.) They were ultimately able to sell the property for an amount that exceeded all encumbrances on the property by $30,000. At trial, the court awarded that amount to the plaintiff in damages. (Id. at pp. 11-12.)

We agree with this basic analysis of the tort of wrongful foreclosure. The tort of wrongful foreclosure satisfies the basic factors for finding a tort duty enunciated in Biakanja v. Irving (1958) 49 Cal.2d 647 , 650-651 [ 320 P.2d 16 ]. The transaction is intended to affect the plaintiff — it is intended to dispossess the plaintiff; it is easily foreseeable that doing so wrongfully will cause serious damage and disruption to the plaintiff’s life; the injuries are directly caused by the wrongful foreclosure; the moral blame of foreclosing on someone’s home without right supports finding, a tort duty; and recognizing a duty will help prevent future harm by discouraging wrongful foreclosures. (See Ibid.) Such a tort bears some analogy to a wrongful eviction tort, which is well recognized and can exist in parallel with a breach of lease claim. (Nativi v. Deutsche Bank National Trust Co. (2014) 223 Cal.App.4th 261 , 293 [ 167 Cal.Rptr.3d 173 ] [“California recognizes the tort of wrongful eviction.”]; Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th 1004 , 1033, 1039 [ 90 Cal.Rptr.3d 453 ] [permitting both a breach of lease and tortious wrongful eviction to proceed].)

The basic elements of a tort cause of action for wrongful foreclosure track the elements of an equitable cause of action to set aside a foreclosure sale. They are: “(1) the trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the party attacking the sale (usually but not always the trustor or mortgagor) was prejudiced or harmed; and (3) in cases where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the amount of the secured indebtedness or was excused from tendering.” (Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89 , 104 [ 134 Cal.Rptr.3d 622 ].) Federal district courts interpreting this cause of action have frequently cited the Nevada rule articulated in Collins v. Union Federal Sav. & Loan Assn. (1983) 99 Nev. 284 [ 662 P.2d 610 , 623], that “[a]n action for the tort of wrongful foreclosure will lie if the trustor or mortgagor can establish that at the time the power of sale was exercised or the foreclosure occurred, no breach of condition or failure of performance existed on the mortgagor’s or trustor’s part which would have authorized the foreclosure or exercise of the power of sale.” (See, e.g., Das v. WMC Mortgage Corp.