McMahon v. JPMorgan Chase Bank, N.A. et al

Filing 44

ORDER signed by District Judge John A. Mendez on 04/25/17 ORDERING that SPS's 30 Motion to Dismiss McMahon's first, second, and fourth claims is GRANTED with prejudice and DENIED as to McMahon's fifth through seventh claims. SPS shall file its Answer to the FAC within 20 days. McMahon's counsel is ORDERED to pay monetary sanctions of $250.00 within 7 days for exceeding page limit. (Benson, A)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 GORDON MCMAHON, an individual; No. 2:16-cv-1459-JAM-KJN 12 Plaintiff, 13 v. 14 15 16 JPMORGAN CHASE BANK, N.A.; SELECT PORTFOLIO SERVICING, INC.; and DOES 1 through 10 inclusive, 17 ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT SELECT PORTFOLIO SERVICING’S MOTION TO DISMISS Defendants. 18 Plaintiff Gordon McMahon (“McMahon”) sued Defendant Select 19 20 Portfolio Servicing (“SPS”) and other defendants seeking to save 21 his home from foreclosure. 22 McMahon’s First Amendment Complaint (“FAC”), ECF No. 26, with 23 prejudice. 24 36. 1 25 /// ECF No. 30. ECF No. 1. SPS moves to dismiss McMahon opposes the motion. ECF No. 26 27 28 1 This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled for April 4, 2017. 1 1 I. 2 3 FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND The Court takes the facts alleged by McMahon as true for purposes of this motion. 4 McMahon obtained a mortgage loan in 2005. FAC ¶ 1. The 5 interest rate and monthly payment increased about two years 6 later, and by the end of 2007, McMahon could not make his 7 mortgage payments. 8 9 Id. SPS began servicing McMahon’s loan in June 2013. FAC ¶ 49. McMahon submitted his first Request for Mortgage Assistance 10 (“RMA”) to SPS two months later. 11 a Trial Period Plan (“TPP”), but calculated that plan using an 12 incorrect amount for McMahon’s monthly income. 13 McMahon informed SPS of this inaccuracy, and SPS revoked the 14 TPP. 15 inaccurate monthly income. 16 of his RMA, but SPS never responded to the appeal. 17 FAC ¶ 60. FAC ¶ 52. SPS offered McMahon FAC ¶ 57. In revoking the TPP, SPS used another Id. McMahon appealed SPS’s denial FAC ¶ 61. In May 2015, Keep Your Home California approved McMahon for 18 up to $100,000 in Principal Reduction Program funds. 19 McMahon submitted an RMA notifying SPS of his change in 20 circumstances. 21 “account would not qualify for another government program such 22 as HAMP.” 23 Id. FAC ¶ 84. SPS denied the RMA, stating that McMahon’s FAC ¶¶ 86, 89. McMahon submitted another application in June 2016, which 24 SPS did not respond to. 25 suit against SPS, seeking a temporary restraining order (“TRO”) 26 and preliminary injunction. 27 28 FAC ¶¶ 96-97. McMahon then filed this FAC ¶ 98. The Court granted McMahon’s application for TRO on June 29, 2016, enjoining SPS from foreclosing on McMahon’s property. 2 ECF 1 No. 7. 2 outcome of McMahon’s pending RMA. 3 application nine days later. 4 denial, and SPS denied the appeal. 5 23, 2016 the Court granted McMahon’s motion for preliminary 6 injunction. 7 On July 11, the Court stayed the case pending the ECF No. 10. FAC ¶ 99. SPS denied the McMahon appealed SPS’s FAC ¶¶ 100, 101. On August ECF No. 17 McMahon filed another RMA in November 2016. FAC ¶ 102. 8 SPS denied the application and the appeal. FAC ¶¶ 103, 107. 9 McMahon alleges that over the past four years, SPS has failed to 10 appropriately consider his loan modification applications and 11 otherwise comply with the law. 12 FAC ¶ 108. McMahon brings six causes of action against SPS in his FAC: 13 (1) violation of the Homeowners Bill of Rights (“HBOR”) at 14 California Civil Code § 2924.12, (2) violation of the Equal 15 Credit Opportunity Act (“ECOA”) at 15 U.S.C. § 1691(d)(1), 16 (3) violation of the Real Estate Settlement Procedures Act 17 (“RESPA”), Regulation X at 12 C.F.R. § 1024.41, (4) violation of 18 Regulation X at 12 C.F.R. §§ 1024.35, 1024.36, (5) negligence, 19 and (6) violation of California Business and Professions Code 20 § 17200. 21 22 II. OPINION 23 A. Request for Judicial Notice 24 SPS asks the Court to take judicial notice of eight 25 documents submitted with its motion to dismiss. 26 The first seven documents concern the real property at issue and 27 are recorded with the Solano County Recorder’s Office. 28 for Judicial Notice (“RJN”) at 2-3. 3 ECF No. 31. Request The Court may take judicial 1 notice of publically recorded documents. 2 Chase Bank, N.A., 725 F. Supp. 2d 1087, 1091 (E.D. Cal. 2010). 3 The eighth document is McMahon’s First Amended Complaint in the 4 case he filed in superior court in December 2014. 5 district court may take judicial notice of records in a state 6 court case. 7 *1 (N.D. Cal. Nov. 13, 2012). 8 request for judicial notice in full. 9 B. 10 RJN at 3. A Simpson v. Best W. Int'l, Inc., 2012 WL 5499928, at The Court therefore grants SPS’s Analysis 1. 11 Sullivan v. JP Morgan First Cause of Action California Civil Code § 2924.12 permits a borrower to bring 12 a lawsuit based upon a violation of the HBOR “[a]fter a 13 trustee's deed upon sale has been recorded” if “actual economic 14 damages . . . result[ed] from a material violation of 15 [s]ection[s] . . . 2923.55, 2923.6 . . . or 2924.17.” 16 Code § 2924.12(b). 17 alleges SPS has violated §§ 2923.55, 2923.6, and 2924.17. 18 a. 19 Cal. Civ. Under his first cause of action, McMahon California Civil Code § 2923.55 Section 2923.55 states that a servicer may not record a 20 notice of default until after the servicer sends the borrower a 21 statement notifying the borrower that he may request a copy of 22 the promissory note, deed of trust, any assignment, and payment 23 history. Cal. Civ. Code § 2923.55(b)(1)(B). SPS argues McMahon has not plead a § 2923.55 claim because 24 25 he has not alleged that a material violation occurred. 26 4. 27 indicating how any alleged violation of § 2923.55 was material. 28 Mot. at McMahon does not point to any allegation in the FAC Because the need to plead materiality is evident from the 4 1 face of statute, McMahon has already amended his complaint once, 2 and McMahon brought similar claims in his state court case, the 3 Court finds that granting leave to further amend the complaint 4 would be futile. 5 (E.D. Cal. May 17, 2010) (“[L]eave to amend may be denied if it 6 appears to be futile.”). 7 McMahon’s § 2923.55 claim with prejudice. 8 9 Centeno v. Wilson, 2010 WL 1980157, at *1 b. The Court therefore dismisses California Civil Code § 2923.6 Section 2923.6(c) states that a servicer cannot record a 10 notice of default or a notice of trustee’s sale while a complete 11 first lien loan modification is pending. 12 § 2923.6(c). 13 denial of a first lien loan modification application, the 14 mortgage servicer shall send a written notice to the borrower 15 identifying the reasons for the denial, including . . . [i]f the 16 denial was based on investor disallowance, the specific reasons 17 for the investor disallowance.” 18 Cal. Civ. Code Section 2923.6(f)(2) states that “[f]ollowing the Cal. Civ. Code § 2923.6(f)(2). SPS argues it did not violate § 2923.6 because “the 19 operative Notice of Trustee’s Sale was recorded on June 6, 20 2016,” before McMahon sent in his loan application. 21 Mot. at 5. McMahon does not address SPS’s argument in his opposition 22 brief, nor does he indicate in the FAC when the alleged § 2923.6 23 violation occurred. 24 § 2923.6 violation occurred in the context of the June 6, 2016 25 Notice of Trustee’s Sale or at some other point. 26 dismisses McMahon’s § 2923.6(c) claim with prejudice. 27 28 c. McMahon does not clarify whether any The Court California Civil Code § 2924.17 Section 2924.17(a) requires that any document filed in the 5 1 context of a foreclosure proceeding “shall be accurate and 2 complete and supported by competent and reliable evidence.” 3 Cal. Civ. Code § 2924.17(a). 4 § 2924.17 because it “failed to ensure Plaintiff’s loan is 5 subject to the [Pooling and Servicing Agreements (“PSA”)] in 6 question, because the PSA lacks Exhibit B, which identifies the 7 loans subject into the PSA in question.” 8 9 McMahon alleges SPS violated FAC at 20. SPS argues “Plaintiff’s allegations . . . are predicated on his challenge to ownership of the loan. However, Section 10 2924.17 does not pertain to authority to foreclose, but rather 11 to declarations substantiating the default precipitating the 12 foreclosure.” 13 Mot. at 6. McMahon does not respond to this argument in his 14 opposition. 15 inaccurate or incomplete or indicate how any alleged § 2924.17 16 violation was material. 17 with such vague allegations, and he has not indicated that he 18 has any more specific allegations to support this claim. 19 Court dismisses McMahon’s § 2924.17 claim with prejudice. 20 2. 21 McMahon also does not clarify which document was McMahon cannot go forward on this claim The Second Cause of Action McMahon brings his second claim under 15 U.S.C. 22 § 1691(d)(1), which states “[w]ithin thirty days . . . after 23 receipt of a completed application for credit, a creditor shall 24 notify the applicant of its action on the application.” 25 20. 26 creditor’s “refusal to extend additional credit under an existing 27 credit arrangement where the applicant is delinquent or otherwise 28 in default.” FAC at However, the ECOA’s notice requirements do not apply to a Vasquez v. Bank of Am., N.A., 2013 WL 6001924, at 6 1 *12 (N.D. Cal. Nov. 12, 2013) (quoting 15 U.S.C. § 1691(d)(6)). 2 Exhibit C to SPS’s RJN shows McMahon defaulted on his mortgage in 3 September 2010. 4 requirements do not apply here, and the Court dismisses McMahon’s 5 second cause of action with prejudice. 6 3. 7 Exh. C to RJN. Accordingly, the ECOA notice Fourth Cause of Action 2 McMahon alleges SPS violated Regulation X of RESPA because 8 SPS “failed to evaluate and make a determination on each of 9 Plaintiff’s [RMAs] 3 within thirty days and failed to acknowledge 10 that Plaintiff’s application was complete or . . . provide an 11 incomplete information notice.” 12 Regulation X states: 13 (i) FAC § 145. If a servicer receives a loss mitigation application [the] servicer shall . . . 14 (B) Notify the borrower in writing within 5 days . . . after receiving the loss mitigation application that the servicer acknowledges receipt of the loss mitigation application and that the servicer has determined that the loss mitigation application is either complete or incomplete. If a loss mitigation application is incomplete, the notice shall state the additional documents and information the borrower must submit to make the loss mitigation application complete. 15 16 17 18 19 20 21 12 C.F.R. § 1024.41(b)(2)(i). Regulation X also states that “[a] 22 servicer is only required to comply with the requirements of this 23 section for a single complete loss mitigation application for a 24 borrower's mortgage loan account.” 12 C.F.R. § 1024.41(i). 25 2 26 27 28 McMahon brings his third cause of action against only JPMorgan Chase—not SPS—and therefore it is not at issue in this Order. 3 McMahon alleges he submitted RMAs on January 29, 2014, November 12, 2014, May 29, 2015, June 20, 2016, and November 25, 2016. FAC § 144. 7 1 SPS argues that the safe harbor provisions of this statute 2 are applicable in that McMahon has admitted that the required 3 written notifications were given after the January 10, 2014 4 effective date of the regulation. In McMahon’s state court 5 complaint, attached to SPS’s request for judicial notice as 6 Exhibit 8, McMahon states that he sent SPS a loan modification on 7 January 29, 2014. 8 that “SPS acknowledged Plaintiff’s submission of documents” four 9 days later. Compl. ¶ 58, RJN Exh. 8. Id. ¶ 59. McMahon then states McMahon also states that SPS sent McMahon 10 a letter indicating SPS had received his complete application. 11 Id. ¶ 60. 12 In light of McMahon’s allegations in his state court 13 complaint, the Court finds that McMahon is unable to set forth a 14 viable claim for a violation of 12 C.F.R. § 1024.41 and dismisses 15 this claim with prejudice. 16 17 4. Fifth Cause of Action Under his heading for the fifth cause of action, McMahon 18 alleges violations of three different provisions of Regulation 19 X: 12 C.F.R. § 1024.35(d), (e) and 12 C.F.R. § 1024.36(d). 20 21 a. Sections 1024.35(d), (e) Under § 1024.35(d), a servicer who receives a notice of 22 error (“NOE”) from a borrower “shall provide to the borrower a 23 written response acknowledging receipt of the notice of error.” 24 12 C.F.R. § 1024.35(d). 25 26 27 28 Section 1024.35(e) states that a “servicer must respond to a notice of error by either: (A) Correcting the error or errors identified by the borrower and providing the borrower with a written notification of the correction, 8 1 the effective date of the correction, and contact information, including a telephone number, for further assistance; or 2 3 (B) 4 5 6 7 8 Conducting a reasonable investigation and providing the borrower with a written notification that includes a statement that the servicer has determined that no error occurred, a statement of the reason or reasons for this determination, a statement of the borrower's right to request documents relied upon by the servicer in reaching its determination, information regarding how the borrower can request such documents, and contact information, including a telephone number, for further assistance. 9 12 C.F.R. § 1024.35(e)(1)(i). 10 A servicer need not comply with these sections, however, if 11 an “asserted error is substantially the same as an error 12 previously asserted by the borrower.” 12 C.F.R. 13 § 1024.35(g)(1)(i). If a servicer determines it does not need 14 to comply with paragraphs (d) or (e) because the asserted error 15 is duplicative of a previously asserted error, “the servicer 16 shall notify the borrower of its determination in writing.” 12 17 C.F.R. § 1024.35(g)(2). 18 McMahon alleges he sent “an NOE and/or RFI” on May 26, 19 2014, December 5, 2015, December 29, 2016, and January 20, 2017. 20 FAC ¶ 153. SPS contends it responded to McMahon’s December 5, 21 2015 NOE. Mot. at 8. SPS argues after it responded to 22 McMahon’s December 5 NOE, it did not need to respond to the 23 subsequent NOEs because the assertions of error were duplicative 24 of the December 5 NOE. Mot. at 8-9. McMahon responds that even 25 if SPS found the asserted errors duplicative, SPS had to notify 26 McMahon of its decision, which McMahon alleges SPS did not do. 27 SPS’s argument ignores the plain text of the regulation, 28 9 1 which states that a servicer has to notify a borrower in writing 2 if the servicer determines an NOE is duplicative. 3 § 1024.35(g)(2). 4 not respond to his subsequent NOEs, even to tell him they were 5 duplicative, and therefore SPS violated § 1024.35(g)(2). 6 7 10 11 12 13 14 15 16 17 According to McMahon’s allegations, SPS did The Court denies SPS’s motion to dismiss McMahon’s claim based on 12 C.F.R. §§ 1024.35(d), (e). 8 9 12 C.F.R. b. Section 1024.36(d) Under § 1024.36(d), “a servicer must respond to an information request by either: (i) Providing the borrower with the requested information and contact information, including a telephone number, for further assistance in writing; or (ii) Conducting a reasonable search for the requested information and providing the borrower with a written notification that states that the servicer has determined that the requested information is not available to the servicer, provides the basis for the servicer's determination, and provides contact information, including a telephone number, for further assistance. 18 12 C.F.R. § 1024.36(d)(1). 19 A servicer need not comply with this section if the 20 information requested “is substantially the same as 21 information previously requested by the borrower.” 12 22 C.F.R. § 1024.36(f)(1)(i). But a servicer still has to 23 notify the borrower of its determination that it is not 24 required to comply with § 1024.36(d). 12 C.F.R. 25 § 1024.36(f)(2). McMahon alleges that SPS did not send the 26 requested information or notify McMahon that SPS did not 27 need to send him the information. 28 10 FAC ¶ 155. SPS does not 1 2 3 dispute this allegation. The Court denies SPS’s motion to dismiss McMahon’s § 1024.36(d) claim. 4 5 5. Sixth Cause of Action McMahon alleges SPS negligently handled his loan 6 modification applications. FAC at 26-27. SPS argues McMahon 7 cannot establish a negligence claim because he cannot show that 8 SPS owed McMahon a duty of care. Mot. at 9-10. 9 “[A]s a general rule, a financial institution owes no duty 10 of care to a borrower when the institution's involvement in the 11 loan transaction does not exceed the scope of its conventional 12 role as a mere lender of money.” 13 Loan Assn., 231 Cal. App. 3d 1089, 1096 (1991). 14 lender agrees to consider a modification of a borrower's loan . 15 . . the lender owes the borrower a duty to exercise reasonable 16 care in reviewing a loan modification application.” 17 Bank of Am. N.A., 2017 WL 590253, at *4 (E.D. Cal. Feb. 14, 18 2017) (citing Alvarez v. BAC Home Loans Servicing, LP, 228 Cal. 19 App. 4th 941, 948 (2014)); see also Clinton v. Select Portfolio 20 Servicing, Inc., 2016 WL 7034895, at *4 (E.D. Cal. Dec. 2, 2016) 21 (holding that SPS as the loan servicer owed a duty of care to 22 the borrower in processing his loan modification application). 23 Nymark v. Heart Fed. Savings & But “[o]nce a Hawkins v. McMahon alleges SPS invited him to apply for a loan 24 modification and SPS at least began considering his application 25 several times. 26 allegations sufficient to plead SPS owed a duty of care to 27 McMahon. 28 FAC ¶¶ 51, 77. The Court finds McMahon’s SPS also argues that McMahon fails to allege damages 11 1 because he does not allege that he “would have received [a loan 2 modification] had the application been ‘properly’ reviewed.” 3 Mot. at 11. 4 income incorrectly twice and that SPS should have offered him a 5 modification based on his correct income. 6 McMahon also alleges SPS damaged him by “causing [him] to forego 7 other options for addressing the default and/or unaffordable 8 mortgage payments, injury to credit reputation, [and] costs and 9 expenses incurred to prevent or fight foreclosure.” But McMahon alleges SPS calculated his monthly FAC ¶¶ 57-61, 82, 86. FAC ¶ 165. 10 The Court find McMahon has sufficiently alleged duty, 11 breach, causation, and damages to state a negligence claim and 12 denies SPS’s motion to dismiss this claim. 13 14 6. Seventh Cause of Action McMahon alleges SPS violated California Business and 15 Professions Code § 17200 et seq. 16 cause of action based on [§ 17200], a plaintiff must allege 17 facts sufficient to show a violation of some underlying law.” 18 Dougherty v. Bank of Am., N.A., 177 F. Supp. 3d 1230, 1251 (E.D. 19 Cal. 2016) (citing People v. McKale, 25 Cal.3d 626, 635 (1979)). 20 FAC at 27-28. “To state a SPS argues McMahon’s § 17200 claim fails because McMahon 21 has not alleged injury-in-fact and because it relies “on his 22 remaining causes of action, all of which fail.” 23 SPS’s arguments lack merit. Mot. at 12. As discussed above, McMahon has 24 properly alleged injury. See Doughherty, 177 F. Supp. 3d at 1260 25 (finding damage to credit sufficient to allege injury under 26 § 17200). 27 and he can predicate his § 17200 claim on those remaining claims. 28 The Court denies SPS’s motion to dismiss McMahon’s § 17200 claim. Additionally, McMahon’s fifth and sixth claims remain, 12 1 2 III. ORDER 3 For the reasons set forth above, the Court GRANTS SPS’s 4 motion to dismiss McMahon’s first, second, and fourth claims with 5 prejudice and DENIES SPS’s motion to dismiss McMahon’s fifth 6 through seventh claims. SPS shall file its Answer to the FAC 7 within twenty days of the date of this Order. 8 9 Additionally, the Court’s Order re Filing Requirements (“Order”), ECF No. 5-2, limits memoranda in support of and 10 opposition to motions to dismiss to fifteen pages. 11 A violation of the Order requires the offending counsel (not the 12 client) to pay $50.00 per page over the page limit to the Clerk 13 of Court. 14 the page limit. 15 page limit by 5 pages. 16 monetary sanctions in the amount of $250.00 no later than seven 17 days from the date of this Order. 18 19 Id. Order at 1. The Court does not consider arguments made past Id. McMahon’s opposition brief exceeded the McMahon’s counsel must therefore pay IT IS SO ORDERED. Dated: April 25, 2017 20 21 22 23 24 25 26 27 28 13

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