Allen v. United Financial Mortgage Corp. et al

Filing 81

FINDINGS OF FACT AND CONCLUSIONS OF LAW. Signed by Judge Samuel Conti on 9/2/2011. (sclc2, COURT STAFF) (Filed on 9/2/2011)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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For the Northern District of California

United States District Court

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EUEL ALLEN,

)
)
Plaintiff,
)
v.
)
)
UNITED FINANCIAL MORTGAGE CORP.;
)
ALLIANCE BANCORP; MORTGAGE
)
ELECTRONIC REGISTRATION SYSTEMS,
)
INC.; CALIFORNIA RECONVEYANCE CO.; )
GMAC MORTGAGE; JP MORGAN CHASE
)
BANK; INVESTORS MORTGAGE AND
)
REALTY; and DOES 1 through 25,
)
inclusive,
)
)
Defendants.
)
)
I.

Case No. 09-2507 SC
MEMORANDUM OF DECISION,
FINDINGS OF FACT AND
CONCLUSIONS OF LAW

INTRODUCTION
This case concerns two loans obtained by Plaintiff Euel Allen

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("Plaintiff" or "Allen") in 2006 that were secured by separate

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deeds of trust encumbering his personal residence.

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("FAC") ¶ 6.

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initiation of non-judicial foreclosure proceedings against his

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home, located at 5701 Morse Drive, Oakland, California ("the Morse

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Drive Property" or "the Property").

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Morgan Chase Bank ("Chase"), Allen alleged fraud in the origination

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and servicing of the loans, violations of the Truth in Lending Act

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("TILA"), and violations of the Real Estate Settlement Procedures

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Act ("RESPA").

ECF No. 29

Allen filed this suit in May 2009 following the

Id.

See id.

Against Defendant JP

Against Defendant California Reconveyance

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Company ("CRC"), Allen alleged violation of the Fair Debt

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Collection Practices Act ("FDCPA").

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defendants, with the exception of Mortgage Electronic Registration

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Systems, Inc. ("MERS"),1 were not served and have not appeared in

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this action.

Id.

The remaining named

ECF No. 64 ("Pl.'s Trial Br.") at 2.

On March 22, 2010, the Court granted in part and denied in

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part a motion to dismiss filed by Chase and CRC.

ECF No. 41 ("Mar.

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22, 2010 Order").

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dismissed Plaintiff's TILA claim for damages, and dismissed

The Court dismissed Plaintiff's RESPA claim,

United States District Court

For the Northern District of California

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Plaintiff's fraud claim to the extent it alleged fraud in the

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origination of the loans.

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has three remaining claims: (1) rescission under TILA against

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Chase; (2) fraud by Chase in the servicing of Plaintiff's loans;

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and (3) violation of the FDCPA by CRC.

Id. at 14-15.

Accordingly, Plaintiff

Id.

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The Court held a one-day bench trial on August 29, 2011.

The

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Court, by this Memorandum of Decision, issues its findings of fact

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and conclusions of law pursuant to Rule 52(a) of the Federal Rules

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of Civil Procedure.

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concludes that the evidence does not support Plaintiff's claims and

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accordingly enters judgment in favor of Defendants Chase and CRC.

For the reasons set forth below, the Court

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II.

FINDINGS OF FACT
1.

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Allen has been employed as a delivery truck driver
Allen Test.2

He is currently on a

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since approximately 2005.

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medical leave of absence recovering from shoulder surgery.

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MERS was served and has appeared in this action.
FAC alleges no claims against MERS. See FAC.
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However, the

Allen was the only witness who testified at trial.
stipulated to the admissibility of all exhibits.
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Id.

The parties

He

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intends to resume work as a truck driver in approximately three

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months.

Id.
2.

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In 2003, Allen inherited the Morse Drive Property

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upon the death of his father.

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Allen Test.

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the past thirty-five years.

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primary residence.
3.

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United States District Court

For the Northern District of California

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Pl.'s Ex. 1 ("Trust Transfer Deed");

Allen has resided at the Property intermittently for
Allen Test.

It is currently his

Id.

From the time he inherited the Property until October

2006, Allen's monthly mortgage payment was $1,088.30.

Pl.'s Ex. 2;

Allen Test.
4.

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In October 2006, Allen received a phone call offering

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him the opportunity to refinance his home.

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accepted the offer to refinance and obtained two loans ("the

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loans") secured by separate deeds of trust against the Morse Drive

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Property.

Allen

Id.
5.

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Allen Test.

The first loan was in the amount of $448,000 and was

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secured by a deed of trust identifying United Financial Mortgage

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Corporation ("United Financial") as the lender.

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("First DOT").

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was secured by a deed of trust listing Alliance Bancorp as the

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lender.

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First American Title as the trustee, and Mortgage Electronic

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Registration Systems, Inc. ("MERS"), acting solely as a nominee for

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the lender, as the beneficiary.

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The second loan was in the amount of $56,000 and

Defs.' Ex. 504 ("Second DOT").

6.

Defs.' Ex. 503

Both deeds identified

Allen used approximately $300,000 of the loan money

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to pay off the existing mortgage on the Property.

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used between $50,000 and $100,000 to pay his deceased father's

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Allen Test.

He

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outstanding medical bills.

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money to make repairs to the Property.
7.

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Id.

He also used a portion of the
Id.

At the time he obtained the loans, Allen believed

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that the loans carried a low, fixed interest rate.

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His initial monthly payment was approximately $1,200.
8.

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Allen Test.
Id.

The deed of trust for the $448,000 loan provided for

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an "adjustable rate balloon rider."

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testified that he did not read the deed of trust before signing it

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and that he did not understand what an "adjustable rate balloon

United States District Court

For the Northern District of California

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rider" was at the time.

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9.

Defs.' Ex. 503.

Allen

Allen Test.

After consummation of the loans, United Financial and

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Alliance Bancorp each sold their interests in the loans to

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Washington Mutual Bank ("WaMu").

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Ans. to FAC") ¶ 17.
10.

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FAC ¶ 17; ECF No. 44 ("Defs.'

On October 24, 2007, Allen received a letter from

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WaMu informing him that the interest rate on his "adjustable

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mortgage loan" would increase as of December 1, 2007, and that his

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new monthly payment would be $1,217.76.
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Pl.'s Ex. 7; Allen Test.

In April 2008, Allen received a letter from WaMu

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informing him that if he continued to pay only the minimum amount

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due each month his monthly payment would rise to $3,409.02

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effective October 2008.

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Pl.'s Ex. 8; Allen Test.

On May 20, 2008, Allen wrote a letter to WaMu

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explaining that he could not afford an increase in his monthly

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payments, expressing his desire for a loan modification, and

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expressing outrage that the terms of his loan provided for such a

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sharp increase.

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Test.

Pl.'s Ex. 9.

He received no response.

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Allen

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On September 25, 2008, Chase entered into a Purchase

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and Assumption Agreement ("PAA") with the Federal Deposit Insurance

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Corporation, pursuant to which Chase acquired certain of WaMu's

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assets, including WaMu's interest in Allen's loans.

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("PAA").

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14.

Defs.' Ex. 508

In October 2008, Allen received a letter from Chase

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informing him that Chase had acquired the servicing rights to his

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loans from WaMu but that future correspondence would continue to

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take place under the name WaMu.

United States District Court

For the Northern District of California

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15.

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payments on his loans.

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request a loan modification.

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Pl.'s Ex. 11; Allen Test.

In October 2008, Allen ceased making monthly
Allen Test.

He again contacted Chase to

Id.

Between October 2008 and October 2009, Plaintiff

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corresponded with Chase numerous times via telephone, fax, and

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mail, in an attempt to obtain a loan modification.

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see also, e.g., Pl.'s Ex. 14 (Nov. 2008 Letter from Allen to Chase

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requesting modification); Pl.'s Ex. 15 (Letter from WaMu informing

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Allen of "homeowner assistance program"); Defs.' Ex. 510 (Chase

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correspondence log).

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application was incomplete and requesting additional or updated

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financial information.

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requesting additional proof of income); Pl.'s Ex. 30 (letter from

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WaMu requesting updated financials).

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requested information via fax and certified mail.

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Pl.'s Ex. 16 (letter from Allen to Chase providing financial

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documentation for loan modification application); Pl.'s Exs. 17

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(certified mail receipt), 18 (fax cover sheet).

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17.

Allen Test.;

He received numerous letters stating that his

E.g., Pl.'s Ex. 19 (letter from WaMu

Each time, he sent the
Allen Test;

During this time period, Chase personnel called

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Plaintiff and his NID-Housing Counseling Agent Renee Tucker on

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numerous occasions to discuss the status of his modification

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request.

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these occasions, Chase was unable to reach Plaintiff or his agent.

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Id.

Defs.' Ex. 510 (Chase correspondence log).

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On many of

On January 8, 2009, Allen received a letter from

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Jack Mullins ("Mullins") of the WaMu Homeownership Preservation

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Team informing him that WaMu records indicated he had inquired

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about a loan modification.

Pl.'s Ex. 23.

The letter stated that

United States District Court

For the Northern District of California

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Mullins would review the information Allen had submitted, evaluate

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modification options, and contact Allen within forty-five days

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regarding the request.

Id.

The letter also stated

This letter is not an approval by WaMu of a
loan workout plan.
During the review period,
default servicing will continue, including
collection and foreclosure activity.
If you
payoff, reinstate or agree to a repayment plan
while we are reviewing your loan modification
request, then you will have withdrawn your
request for a loan modification, we will
consider your inquiry cancelled and will take
no further action to process your request.

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Id.
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Foreclosure proceedings against the Property began

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in January 2009.

On January 22, 2009, a Notice of Default and

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Election to Sell Under the (First) Deed of Trust was recorded with

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the Alameda County Recorder's Office.

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NOD indicated that the amount in arrears was $17,608.14.

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copy of the NOD was also posted on Allen's front door.

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Also on or about January 22, 2009, MERS assigned all beneficial

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interest in the First DOT to LaSalle Bank NA as trustee for

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Washington Mutual Mortgage Pass-Through Certificates WMALT Series

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Defs.' Ex. 507 ("NOD").
Id.

The
A

Allen Test.

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2007-OA2.

Defs.' Ex. 505.

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trustee of the First DOT.

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Notice of Trustee's Sale providing that the Property would be sold

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at a public sale on May 13, 2009.
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LaSalle Bank NA then substituted CRC as
Defs.' Ex. 506.

CRC then issued a

Pl.'s Ex. 37.

On March 2, 2009, Allen wrote a letter to Mullins.

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He stated in part that he did not understand why Mullins' January

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8, 2009 letter informed him that foreclosure proceedings would

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continue while his request for a modification was reviewed but that

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if he made any payment in the meantime his request for modification

United States District Court

For the Northern District of California

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would be cancelled.
21.

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Pl.'s Ex. 29.

In March 2009 and again in May 2009, Allen received

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letters from WaMu asking him to provide additional financial

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information to complete his application for loan modification.

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Pl.'s Exs. 30, 35.
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In October 2009, Allen received a letter from

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WaMu/Chase informing him that he may qualify for a "Home Affordable

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Modification Trial Period Plan."

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plan called for Allen to make three trial monthly payments of

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$2,425.80.

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in the trial payment plan by returning a signed copy of the plan,

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documentation of hardship and income, and a check for the first

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trial payment.

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returned the required documentation, Chase would review it to

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determine whether he qualified for the federal government's Home

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Affordable Modification Program ("HAMP").

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trial plan payments and Chase determined that he qualified for

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HAMP, then Chase would modify his loan.

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provided that if Allen complied with the terms of the trial plan,

Id. at 10.

Allen Test.; Defs.' Ex. 513.

The

The letter provided that Allen could enroll

Id. at 1.

The letter provided that if Allen

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If he made the three

Id.

The letter also

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Chase would not pursue foreclosure during the trial plan period.

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Id.
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Allen did not accept the trial period plan offer

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because he could not afford the trial payment amount.

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On November 12, 2009, Allen contacted Chase and advised that he

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could not afford the trial plan payments.
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Allen Test.

Defs.' Ex. 510.

In response to the Court's inquiry, counsel for both

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parties agreed that Chase was under no legal obligation to offer

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Plaintiff a loan modification, and that the trial payment plan

United States District Court

For the Northern District of California

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offered to Plaintiff was part of a program voluntarily initiated by

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Chase.
25.

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Allen concedes that he is not currently able to

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tender the balance of the loans minus interest and penalties.

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Allen Test.

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III. CONCLUSIONS OF LAW

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A.

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TILA imposes several disclosure requirements on lenders of

TILA Claim for Rescission

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consumer loans and their assignees.

Generally, the law requires a

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lender to disclose, among other things, the amount financed, the

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total finance charge, the finance charge expressed as an annual

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percentage rate, the sum of the amount financed and the finance

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charge ("total of payments"), and the number, amount, and due dates

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of payments scheduled to repay the total of payments.

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U.S.C. § 1638.

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disclosures he received were untimely and inaccurate.

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15.

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Chase learned of and concealed these TILA violations.

See 15

In his FAC, Plaintiff alleges that the TILA
FAC ¶¶ 13-

He further alleges that upon acquiring Plaintiff's loans,

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Id. ¶ 30.

At trial, Plaintiff sought to rescind the loan because of the

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alleged TILA violations.3

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TILA is to restore the parties to the "status quo ante."

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v. Bank of New York, 329 F.3d 1167, 1172 (9th Cir. 2003).

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Accordingly, the Ninth Circuit has held that a trial court may

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condition rescission under TILA on the debtor's ability to tender

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the loan principal.

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Fed. Sav. & Loan Ass'n, 619 F.2d 360, 365 (5th Cir. 1980)

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(creditor's TILA obligations were not automatically triggered until

United States District Court

For the Northern District of California

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The equitable goal of rescission under
Yamamoto

Id. at 1170-72; see also Bustamante v. First

obligor tendered repayment).
Plaintiff presented no evidence at trial regarding whether he

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received or did not receive the disclosures required by TILA.

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Moreover, Plaintiff conceded that he has not made and cannot make a

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tender offer to repay Chase the amount owed minus finance charges

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and penalties.

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Chase violated TILA at all, and because he has admitted that he

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cannot tender the remaining loan principal, the Court finds against

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Plaintiff on his claim for rescission under TILA.

Thus, because Plaintiff has failed to prove that

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B.

Claim for Fraud in the Servicing of the Loan

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Plaintiff alleges that Chase engaged in fraud in the servicing

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of his loan.

FAC ¶¶ 52-53.

In order to prove fraud, Plaintiff

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must prove: (1) a false representation of a material fact; (2)

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knowledge of the falsity (scienter); (3) intent to induce another

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into relying on the representation; (4) reliance on the

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representation; and (5) resulting damage.

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Cal. App. 2d 667, 674 (1968).

Ach v. Finkelstein, 264

The Court finds that Plaintiff has

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As noted above, Plaintiff's TILA claim for damages was dismissed
as untimely in the Court's March 22, 2010 Order.
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failed to prove that Chase made any false representations of

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material fact.

contends were committed by Chase in the servicing of the loans.4

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At trial, Plaintiff emphasized the letter he received from Mullins,

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which informed Plaintiff that he should not make payments while his

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loan modification was being reviewed even though foreclosure

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proceedings would continue during the review process.

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While Plaintiff understandably testified that he was confused by

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United States District Court

It is unclear precisely what fraudulent acts Plaintiff

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For the Northern District of California

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this statement, he presented no evidence that the statement was

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false or that it was made with the intent to defraud Plaintiff.

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More generally, Plaintiff's counsel argued in closing that

See FF ¶ 18.

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Plaintiff relied to his detriment on Chase's repeated

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representations that modification of his loan might be possible,

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when in fact Chase had no intention of modifying the loan.

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However, Plaintiff presented no evidence that Chase's

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representations regarding the possibility of a loan modification

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were false.

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payment plan that, if completed, may have resulted in a permanent

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loan modification.

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a modification may be possible were sincere.

To the contrary, Chase offered Plaintiff a trial

This suggests that Chase's representations that

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There is no doubt that Chase was disorganized in its

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communications with Plaintiff, that the process of approving or

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denying Plaintiff's request for a loan modification proceeded at an

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alarmingly slow rate, that Chase's representatives often failed to

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The more specific fraud allegations in Plaintiff's FAC alleged
fraud in the origination of Plaintiff's loans. FAC ¶¶ 50-52. The
Court dismissed all claims of fraud pertaining to loan origination
in its March 22, 2010 Order.
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respond to Plaintiff's inquiries, and that this conduct was deeply

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upsetting to Plaintiff as he sought to prevent the loss of the home

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he inherited from his father.

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the handling of Plaintiff's loan was far from exemplary, Plaintiff

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has failed to show it was fraudulent.
Accordingly, the Court finds that Plaintiff has failed to

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However, while Chase's conduct in

prove his claim for fraud.

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C.

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The FDCPA seeks to eliminate "abusive, deceptive, and unfair

Violation of the FDCPA

United States District Court

For the Northern District of California

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debt collection practices" by regulating the type and number of

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contacts a debt collector can make with a debtor.

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1692.

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lacked legal authority to collect on the loans; (2) it attempted to

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collect more than the amount owed; and (3) it failed to properly

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"validate the debt" as required by the FDCPA.

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Plaintiff's counsel did not indicate what, if any, evidence

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purportedly supports these allegations, and the Court finds none.

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See 15 U.S.C. §

Plaintiff alleges that CRC violated the FDCPA because (1) it

FAC ¶ 60.

At trial,

First, Defendants presented the Assignment of Deed of Trust by

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which MERS assigned all beneficial interest in the First DOT to

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LaSalle Bank NA, Defs.' Ex. 505, and the Substitution of Trustee

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through which LaSalle Bank NA then substituted CRC as trustee of

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the First DOT, Def. Ex. 506.

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properly substituted as trustee and therefore possessed legal

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authority to foreclose on the Property.

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The evidence thus shows that CRC was

Second, no evidence was presented showing that CRC attempted

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to collect more than the amount owed.

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indicated that the amount Plaintiff owed under the First DOT had

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actually increased from $448,000 to approximately $521,000.

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The Notice of Trustee's Sale

Pl.'s

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Ex. 37.

Plaintiff admitted that he ceased making monthly loan

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payments in October 2008, and as of January 2009 Plaintiff was in

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arrears in the amount of $17,608.14.

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the evidence does not support Plaintiff's claim that by attempting

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to foreclose on the Property CRC was attempting to collect more

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than the amount owed.

Defs.' Ex. 507.

Therefore,

Third, Plaintiff presented no evidence that CRC failed to

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FDCPA provides that, within five days of making initial contact

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United States District Court

provide a debt validation notice as required by the FDCPA.

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For the Northern District of California

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The

with a debtor "in connection with the collection of any debt," a

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debt collector must send the debtor a written notice containing the

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amount of the debt; the name of the creditor; the time period in

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which the validity of the debt may be challenged; and instructions

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explaining how the debtor may obtain further evidence of the debt

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and information about the creditor.

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Plaintiff presented no evidence as to whether CRC provided him with

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a debt validation notice, and if so, when the notice was provided

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and whether it conformed to the requirements of section 1692g(a).

15 U.S.C. § 1692g(a).

Accordingly, the Court finds that Plaintiff has failed to

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prove his claim for violation of the FDCPA.

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///

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///

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///

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///

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///

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///

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///

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///

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IV. CONCLUSION
For the foregoing reasons, the Court enters judgment in favor

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of Defendants JP Morgan Chase Bank and California Reconveyance

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Company on Plaintiff Euel Allen's claims for fraud, violations of

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the Truth In Lending Act, and violations of the Fair Debt

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Collection Practices Act.

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IT IS SO ORDERED, ADJUDGED, AND DECREED.

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United States District Court

For the Northern District of California

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Dated: September 2, 2011
UNITED STATES DISTRICT JUDGE

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