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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1 2 3 4 IN THE UNITED STATES DISTRICT COURT 5 FOR THE NORTHERN DISTRICT OF CALIFORNIA 6 7 8 9 For the Northern District of California United States District Court 10 11 12 13 14 15 16 17 18 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 19 ("Plaintiff" or "Allen") in 2006 that were secured by separate 20 deeds of trust encumbering his personal residence. 21 ("FAC") ¶ 6. 22 initiation of non-judicial foreclosure proceedings against his 23 home, located at 5701 Morse Drive, Oakland, California ("the Morse 24 Drive Property" or "the Property"). 25 Morgan Chase Bank ("Chase"), Allen alleged fraud in the origination 26 and servicing of the loans, violations of the Truth in Lending Act 27 ("TILA"), and violations of the Real Estate Settlement Procedures 28 Act ("RESPA"). ECF No. 29 Allen filed this suit in May 2009 following the Id. See id. Against Defendant JP Against Defendant California Reconveyance 1 Company ("CRC"), Allen alleged violation of the Fair Debt 2 Collection Practices Act ("FDCPA"). 3 defendants, with the exception of Mortgage Electronic Registration 4 Systems, Inc. ("MERS"),1 were not served and have not appeared in 5 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 6 7 part a motion to dismiss filed by Chase and CRC. ECF No. 41 ("Mar. 8 22, 2010 Order"). 9 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 10 Plaintiff's fraud claim to the extent it alleged fraud in the 11 origination of the loans. 12 has three remaining claims: (1) rescission under TILA against 13 Chase; (2) fraud by Chase in the servicing of Plaintiff's loans; 14 and (3) violation of the FDCPA by CRC. Id. at 14-15. Accordingly, Plaintiff Id. 15 The Court held a one-day bench trial on August 29, 2011. The 16 Court, by this Memorandum of Decision, issues its findings of fact 17 and conclusions of law pursuant to Rule 52(a) of the Federal Rules 18 of Civil Procedure. 19 concludes that the evidence does not support Plaintiff's claims and 20 accordingly enters judgment in favor of Defendants Chase and CRC. For the reasons set forth below, the Court 21 22 II. FINDINGS OF FACT 1. 23 Allen has been employed as a delivery truck driver Allen Test.2 He is currently on a 24 since approximately 2005. 25 medical leave of absence recovering from shoulder surgery. 26 1 27 28 MERS was served and has appeared in this action. FAC alleges no claims against MERS. See FAC. 2 However, the Allen was the only witness who testified at trial. stipulated to the admissibility of all exhibits. 2 Id. The parties He 1 intends to resume work as a truck driver in approximately three 2 months. Id. 2. 3 In 2003, Allen inherited the Morse Drive Property 4 upon the death of his father. 5 Allen Test. 6 the past thirty-five years. 7 primary residence. 3. 8 9 United States District Court For the Northern District of California 10 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. 11 In October 2006, Allen received a phone call offering 12 him the opportunity to refinance his home. 13 accepted the offer to refinance and obtained two loans ("the 14 loans") secured by separate deeds of trust against the Morse Drive 15 Property. Allen Id. 5. 16 Allen Test. The first loan was in the amount of $448,000 and was 17 secured by a deed of trust identifying United Financial Mortgage 18 Corporation ("United Financial") as the lender. 19 ("First DOT"). 20 was secured by a deed of trust listing Alliance Bancorp as the 21 lender. 22 First American Title as the trustee, and Mortgage Electronic 23 Registration Systems, Inc. ("MERS"), acting solely as a nominee for 24 the lender, as the beneficiary. 25 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 26 to pay off the existing mortgage on the Property. 27 used between $50,000 and $100,000 to pay his deceased father's 28 3 Allen Test. He 1 outstanding medical bills. 2 money to make repairs to the Property. 7. 3 Id. He also used a portion of the Id. At the time he obtained the loans, Allen believed 4 that the loans carried a low, fixed interest rate. 5 His initial monthly payment was approximately $1,200. 8. 6 Allen Test. Id. The deed of trust for the $448,000 loan provided for 7 an "adjustable rate balloon rider." 8 testified that he did not read the deed of trust before signing it 9 and that he did not understand what an "adjustable rate balloon United States District Court For the Northern District of California 10 rider" was at the time. 11 9. Defs.' Ex. 503. Allen Allen Test. After consummation of the loans, United Financial and 12 Alliance Bancorp each sold their interests in the loans to 13 Washington Mutual Bank ("WaMu"). 14 Ans. to FAC") ¶ 17. 10. 15 FAC ¶ 17; ECF No. 44 ("Defs.' On October 24, 2007, Allen received a letter from 16 WaMu informing him that the interest rate on his "adjustable 17 mortgage loan" would increase as of December 1, 2007, and that his 18 new monthly payment would be $1,217.76. 11. 19 Pl.'s Ex. 7; Allen Test. In April 2008, Allen received a letter from WaMu 20 informing him that if he continued to pay only the minimum amount 21 due each month his monthly payment would rise to $3,409.02 22 effective October 2008. 23 12. Pl.'s Ex. 8; Allen Test. On May 20, 2008, Allen wrote a letter to WaMu 24 explaining that he could not afford an increase in his monthly 25 payments, expressing his desire for a loan modification, and 26 expressing outrage that the terms of his loan provided for such a 27 sharp increase. 28 Test. Pl.'s Ex. 9. He received no response. 4 Allen 13. 1 On September 25, 2008, Chase entered into a Purchase 2 and Assumption Agreement ("PAA") with the Federal Deposit Insurance 3 Corporation, pursuant to which Chase acquired certain of WaMu's 4 assets, including WaMu's interest in Allen's loans. 5 ("PAA"). 6 14. Defs.' Ex. 508 In October 2008, Allen received a letter from Chase 7 informing him that Chase had acquired the servicing rights to his 8 loans from WaMu but that future correspondence would continue to 9 take place under the name WaMu. United States District Court For the Northern District of California 10 15. 11 payments on his loans. 12 request a loan modification. 13 16. 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 14 corresponded with Chase numerous times via telephone, fax, and 15 mail, in an attempt to obtain a loan modification. 16 see also, e.g., Pl.'s Ex. 14 (Nov. 2008 Letter from Allen to Chase 17 requesting modification); Pl.'s Ex. 15 (Letter from WaMu informing 18 Allen of "homeowner assistance program"); Defs.' Ex. 510 (Chase 19 correspondence log). 20 application was incomplete and requesting additional or updated 21 financial information. 22 requesting additional proof of income); Pl.'s Ex. 30 (letter from 23 WaMu requesting updated financials). 24 requested information via fax and certified mail. 25 Pl.'s Ex. 16 (letter from Allen to Chase providing financial 26 documentation for loan modification application); Pl.'s Exs. 17 27 (certified mail receipt), 18 (fax cover sheet). 28 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 5 1 Plaintiff and his NID-Housing Counseling Agent Renee Tucker on 2 numerous occasions to discuss the status of his modification 3 request. 4 these occasions, Chase was unable to reach Plaintiff or his agent. 5 Id. Defs.' Ex. 510 (Chase correspondence log). 18. 6 On many of On January 8, 2009, Allen received a letter from 7 Jack Mullins ("Mullins") of the WaMu Homeownership Preservation 8 Team informing him that WaMu records indicated he had inquired 9 about a loan modification. Pl.'s Ex. 23. The letter stated that United States District Court For the Northern District of California 10 Mullins would review the information Allen had submitted, evaluate 11 modification options, and contact Allen within forty-five days 12 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. 13 14 15 16 17 18 19 20 Id. 19. Foreclosure proceedings against the Property began 21 in January 2009. On January 22, 2009, a Notice of Default and 22 Election to Sell Under the (First) Deed of Trust was recorded with 23 the Alameda County Recorder's Office. 24 NOD indicated that the amount in arrears was $17,608.14. 25 copy of the NOD was also posted on Allen's front door. 26 Also on or about January 22, 2009, MERS assigned all beneficial 27 interest in the First DOT to LaSalle Bank NA as trustee for 28 Washington Mutual Mortgage Pass-Through Certificates WMALT Series 6 Defs.' Ex. 507 ("NOD"). Id. The A Allen Test. 1 2007-OA2. Defs.' Ex. 505. 2 trustee of the First DOT. 3 Notice of Trustee's Sale providing that the Property would be sold 4 at a public sale on May 13, 2009. 20. 5 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. 6 He stated in part that he did not understand why Mullins' January 7 8, 2009 letter informed him that foreclosure proceedings would 8 continue while his request for a modification was reviewed but that 9 if he made any payment in the meantime his request for modification United States District Court For the Northern District of California 10 would be cancelled. 21. 11 Pl.'s Ex. 29. In March 2009 and again in May 2009, Allen received 12 letters from WaMu asking him to provide additional financial 13 information to complete his application for loan modification. 14 Pl.'s Exs. 30, 35. 22. 15 In October 2009, Allen received a letter from 16 WaMu/Chase informing him that he may qualify for a "Home Affordable 17 Modification Trial Period Plan." 18 plan called for Allen to make three trial monthly payments of 19 $2,425.80. 20 in the trial payment plan by returning a signed copy of the plan, 21 documentation of hardship and income, and a check for the first 22 trial payment. 23 returned the required documentation, Chase would review it to 24 determine whether he qualified for the federal government's Home 25 Affordable Modification Program ("HAMP"). 26 trial plan payments and Chase determined that he qualified for 27 HAMP, then Chase would modify his loan. 28 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 7 If he made the three Id. The letter also 1 Chase would not pursue foreclosure during the trial plan period. 2 Id. 23. 3 Allen did not accept the trial period plan offer 4 because he could not afford the trial payment amount. 5 On November 12, 2009, Allen contacted Chase and advised that he 6 could not afford the trial plan payments. 24. 7 Allen Test. Defs.' Ex. 510. In response to the Court's inquiry, counsel for both 8 parties agreed that Chase was under no legal obligation to offer 9 Plaintiff a loan modification, and that the trial payment plan United States District Court For the Northern District of California 10 offered to Plaintiff was part of a program voluntarily initiated by 11 Chase. 25. 12 Allen concedes that he is not currently able to 13 tender the balance of the loans minus interest and penalties. 14 Allen Test. 15 16 III. CONCLUSIONS OF LAW 17 A. 18 TILA imposes several disclosure requirements on lenders of TILA Claim for Rescission 19 consumer loans and their assignees. Generally, the law requires a 20 lender to disclose, among other things, the amount financed, the 21 total finance charge, the finance charge expressed as an annual 22 percentage rate, the sum of the amount financed and the finance 23 charge ("total of payments"), and the number, amount, and due dates 24 of payments scheduled to repay the total of payments. 25 U.S.C. § 1638. 26 disclosures he received were untimely and inaccurate. 27 15. 28 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, 8 Id. ¶ 30. At trial, Plaintiff sought to rescind the loan because of the 1 2 alleged TILA violations.3 3 TILA is to restore the parties to the "status quo ante." 4 v. Bank of New York, 329 F.3d 1167, 1172 (9th Cir. 2003). 5 Accordingly, the Ninth Circuit has held that a trial court may 6 condition rescission under TILA on the debtor's ability to tender 7 the loan principal. 8 Fed. Sav. & Loan Ass'n, 619 F.2d 360, 365 (5th Cir. 1980) 9 (creditor's TILA obligations were not automatically triggered until United States District Court For the Northern District of California 10 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 11 12 received or did not receive the disclosures required by TILA. 13 Moreover, Plaintiff conceded that he has not made and cannot make a 14 tender offer to repay Chase the amount owed minus finance charges 15 and penalties. 16 Chase violated TILA at all, and because he has admitted that he 17 cannot tender the remaining loan principal, the Court finds against 18 Plaintiff on his claim for rescission under TILA. Thus, because Plaintiff has failed to prove that 19 B. Claim for Fraud in the Servicing of the Loan 20 Plaintiff alleges that Chase engaged in fraud in the servicing 21 of his loan. FAC ¶¶ 52-53. In order to prove fraud, Plaintiff 22 must prove: (1) a false representation of a material fact; (2) 23 knowledge of the falsity (scienter); (3) intent to induce another 24 into relying on the representation; (4) reliance on the 25 representation; and (5) resulting damage. 26 Cal. App. 2d 667, 674 (1968). Ach v. Finkelstein, 264 The Court finds that Plaintiff has 27 28 3 As noted above, Plaintiff's TILA claim for damages was dismissed as untimely in the Court's March 22, 2010 Order. 9 1 failed to prove that Chase made any false representations of 2 material fact. contends were committed by Chase in the servicing of the loans.4 5 At trial, Plaintiff emphasized the letter he received from Mullins, 6 which informed Plaintiff that he should not make payments while his 7 loan modification was being reviewed even though foreclosure 8 proceedings would continue during the review process. 9 While Plaintiff understandably testified that he was confused by 10 United States District Court It is unclear precisely what fraudulent acts Plaintiff 4 For the Northern District of California 3 this statement, he presented no evidence that the statement was 11 false or that it was made with the intent to defraud Plaintiff. 12 More generally, Plaintiff's counsel argued in closing that See FF ¶ 18. 13 Plaintiff relied to his detriment on Chase's repeated 14 representations that modification of his loan might be possible, 15 when in fact Chase had no intention of modifying the loan. 16 However, Plaintiff presented no evidence that Chase's 17 representations regarding the possibility of a loan modification 18 were false. 19 payment plan that, if completed, may have resulted in a permanent 20 loan modification. 21 a modification may be possible were sincere. To the contrary, Chase offered Plaintiff a trial This suggests that Chase's representations that 22 There is no doubt that Chase was disorganized in its 23 communications with Plaintiff, that the process of approving or 24 denying Plaintiff's request for a loan modification proceeded at an 25 alarmingly slow rate, that Chase's representatives often failed to 26 27 28 4 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. 10 1 respond to Plaintiff's inquiries, and that this conduct was deeply 2 upsetting to Plaintiff as he sought to prevent the loss of the home 3 he inherited from his father. 4 the handling of Plaintiff's loan was far from exemplary, Plaintiff 5 has failed to show it was fraudulent. Accordingly, the Court finds that Plaintiff has failed to 6 7 However, while Chase's conduct in prove his claim for fraud. 8 C. 9 The FDCPA seeks to eliminate "abusive, deceptive, and unfair Violation of the FDCPA United States District Court For the Northern District of California 10 debt collection practices" by regulating the type and number of 11 contacts a debt collector can make with a debtor. 12 1692. 13 lacked legal authority to collect on the loans; (2) it attempted to 14 collect more than the amount owed; and (3) it failed to properly 15 "validate the debt" as required by the FDCPA. 16 Plaintiff's counsel did not indicate what, if any, evidence 17 purportedly supports these allegations, and the Court finds none. 18 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 19 which MERS assigned all beneficial interest in the First DOT to 20 LaSalle Bank NA, Defs.' Ex. 505, and the Substitution of Trustee 21 through which LaSalle Bank NA then substituted CRC as trustee of 22 the First DOT, Def. Ex. 506. 23 properly substituted as trustee and therefore possessed legal 24 authority to foreclose on the Property. 25 The evidence thus shows that CRC was Second, no evidence was presented showing that CRC attempted 26 to collect more than the amount owed. 27 indicated that the amount Plaintiff owed under the First DOT had 28 actually increased from $448,000 to approximately $521,000. 11 The Notice of Trustee's Sale Pl.'s 1 Ex. 37. Plaintiff admitted that he ceased making monthly loan 2 payments in October 2008, and as of January 2009 Plaintiff was in 3 arrears in the amount of $17,608.14. 4 the evidence does not support Plaintiff's claim that by attempting 5 to foreclose on the Property CRC was attempting to collect more 6 than the amount owed. Defs.' Ex. 507. Therefore, Third, Plaintiff presented no evidence that CRC failed to 7 FDCPA provides that, within five days of making initial contact 10 United States District Court provide a debt validation notice as required by the FDCPA. 9 For the Northern District of California 8 The with a debtor "in connection with the collection of any debt," a 11 debt collector must send the debtor a written notice containing the 12 amount of the debt; the name of the creditor; the time period in 13 which the validity of the debt may be challenged; and instructions 14 explaining how the debtor may obtain further evidence of the debt 15 and information about the creditor. 16 Plaintiff presented no evidence as to whether CRC provided him with 17 a debt validation notice, and if so, when the notice was provided 18 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 19 20 prove his claim for violation of the FDCPA. 21 /// 22 /// 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 12 1 2 IV. CONCLUSION For the foregoing reasons, the Court enters judgment in favor 3 of Defendants JP Morgan Chase Bank and California Reconveyance 4 Company on Plaintiff Euel Allen's claims for fraud, violations of 5 the Truth In Lending Act, and violations of the Fair Debt 6 Collection Practices Act. 7 8 IT IS SO ORDERED, ADJUDGED, AND DECREED. 9 United States District Court For the Northern District of California 10 11 Dated: September 2, 2011 UNITED STATES DISTRICT JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13

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