Angelita Johnson v. Aurora Bank, F.S.B. et al

Filing 24

ORDER by Magistrate Judge Jacqueline Scott Corley granting in part and denying in part 16 Motion to Dismiss (ahm, COURT STAFF) (Filed on 3/23/2015)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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ANGELITA JOHNSON,

Case No. 14-cv-05424-JSC

Plaintiff,
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v.

ORDER RE: DEFENDANTS’ MOTION
TO DISMISS

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AURORA BANK, F.S.B., et al.,

Re: Dkt. No. 16

Defendants.

United States District Court
Northern District of California

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Plaintiff Angelita Johnson (“Plaintiff”) brings this action seeking damages stemming from

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the foreclosure of her home. She sues Defendants Aurora Bank, F.S.B. (“Aurora Bank”) and

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Nationstar Mortgage, LLC (“Nationstar”) for violation of California’s Homeowner’s Bill of

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Rights, breach of contract, and misrepresentation. Plaintiff contends that after she defaulted on

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her loan, Aurora induced Plaintiff to enter two forbearance agreements under the pretense that if

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she made payments the bank would consider her for a permanent loan modification; Plaintiff now

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contends that Aurora never intended to consider her for a modification at all, but rather solely

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sought to obtain as much money as possible before foreclosing on the home. Plaintiff also

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contends that Nationstar improperly foreclosed on her property while she was in active loan

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modification review despite a Nationstar representative having told Plaintiff that her application

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was still under review and no sale would take place. Now pending before the Court is Defendants’

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Motion to Dismiss for failure to state a claim upon which relief can be granted. (Dkt. No. 14.)

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The Court finds this matter suitable for disposition without oral argument. See N.D. Cal. Civ. L.R.

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7-1(b). Accordingly, the hearing set for March 26, 2015 is VACATED. Having considered the

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parties’ arguments and the relevant legal authority, and for the reasons set forth in this Order, the

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Court GRANTS IN PART and DENIES IN PART Defendants’ motion to dismiss.

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FACTUAL & PROCEDURAL BACKGROUND

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The following facts are taken from the allegations of the First Amended Complaint

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(“FAC”), the documents attached thereto, and judicially noticeable documents.1 Plaintiff was the

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owner of real property located at 1785-1787 Franklin Street, Berkeley, California (the “Property”).

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In April 2008, Aurora became the servicer under the Deed of Trust on the Property, which is a first

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lien deed of trust. (Dkt. No. 14 ¶ 10.) In 2011, Aurora became the beneficiary under the Deed of

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Trust, as well. (Id.) At all times relevant to this action, Plaintiff lived in the Property as her

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primary residence. (Id. ¶¶ 2, 10.)
In March 2009, Plaintiff began to experience financial difficulty following the death of her

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son and both of her parents and defaulted on the loan. (See id. ¶ 11 & Ex. A.) Aurora filed a

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United States District Court
Northern District of California

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Notice of Default against the Property in June 2009. (Id.) In October of 2009, Aurora recorded a

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Notice of Trustee’s Sale against the Property. (Id.) When Plaintiff received the Notice of

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Trustee’s Sale, she contacted Aurora to find out what she could do to avoid foreclosure. (Id. ¶ 12.)

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In December 2009, Aurora sent Plaintiff a “Special Forbearance Agreement”—titled “Workout

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Agreement”—(the “December 2009 Forbearance Agreement”), which notes that Plaintiff owed

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over $25,000 in arrears, but provides that Aurora would postpone any foreclosure sale in exchange

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for Plaintiff making monthly payments of $1,169.00. (Id. at ¶ 12 & Ex. A, 19 & § a.2.) In

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addition, the December 2009 Forbearance Agreement provides that Aurora “shall be under no

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obligation to dismiss a pending foreclosure proceeding until such time as all terms and conditions

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Pursuant to Federal Rule of Evidence 201, the Court “may judicially notice a fact that is not
subject to reasonable dispute because it: (i) is generally known within the trial court’s territorial
jurisdiction; or (ii) can be accurately and readily determined from sources whose accuracy cannot
reasonably be questioned.” Judicial notice is appropriate for “materials incorporated into the
complaint or matters of public record.” Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th
Cir. 2010). Courts in this District regularly take judicial notice of publicly recorded documents
related to real property, including deeds of trust, assignments and substitutions thereto, trustee’s
deeds upon sale, rescissions of notices of default, and elections to sell under a deed of trust. See,
e.g., Valasquez v. Mortg. Elec. Registration Sys., Inc., No. C 08-3818 PJH, 2008 WL 4938162, at
*2-3 (N.D. Cal. Nov. 17, 2008); Hotel Emps. & Rest. Emps. Local 2 v. Vista Inn Mgmt. Co., 393
F. Supp. 2d 972, 977-78 (N.D. Cal. 2005); W. Fed. Sav. & Loan Ass’n v. Heflin, 797 F. Supp. 790,
792 (N.D. Cal. 1992). Here, Defendants request that the Court take judicial notice of Exhibits 113, all of which are such publicly recorded documents relating to the Property at issue in this case.
(See Dkt. No. 17 ¶¶ 1-13.) Therefore, the Court GRANTS Defendants’ request for judicial notice
of these documents. (Dkt. No. 17.)
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of this Agreement and Attachment A have been fully performed.” (Id. at Ex. A § 4.) Section b of

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Attachment A, in turn, provides in relevant part that

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United States District Court
Northern District of California

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Because payment of the Plan payments will not cure the Arrearage,
Customer’s account will remain delinquent. Upon the Expiration
Date [of this agreement], Customer must cure the Arrearage through
a full reinstatement, payment in full, loan modification agreement,
or other loan workout option that Lender may offer (individually
and collectively, a “Cure Method.”)[.] Customer’s failure to enter
into a Cure Method will result in the loan being disqualified from
any future Lender Loss Mitigation program with respect to the loan
evidenced by the Note, and regular collection activity will continue,
including, but not limited to, commencement or resumption of the
foreclosure process[.]
(Id. at Ex. A § b.) The agreement also provides
No Waiver. Nothing contained herein shall constitute a waiver of
any [or] all of the Lender’s rights or remedies, including the right to
commence or resume foreclosure proceedings. Failure by Lender to
exercise any right or remedy under this Agreement or as otherwise
provided by applicable law shall not be deemed a waiver thereof.

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(Id. at Ex. A § 7 (emphasis in original).) In addition, the agreement includes a provision titled

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“Entire Agreement,” which notes that it “may not be amended, waived, discharged or terminated

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orally but only by an instrument in writing.” (Id. at Ex. A § 14.) Finally, Plaintiff’s Deed of Trust

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explicitly provides that forbearance does not constitute a waiver of the lender’s right to foreclose.

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(Dkt. No. 17-1 at 9.) Plaintiff signed the December 2009 Forbearance Agreement and made the

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monthly payments as required through June 2010. (Id. ¶ 13.)

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Meanwhile, in April 2010, Aurora sent Plaintiff a letter offering Plaintiff a “more

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permanent home retention option” at the completion of the December 2009 Forbearance

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Agreement, provided that Plaintiff continued to make her $1,169.00 monthly payments after the

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completion of that agreement. (Id. ¶ 14.) Plaintiff continued to make those monthly payments

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after the agreement expired and also submitted documents that Aurora regarding a permanent

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modification solution. (Id.)

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Around January 12, 2011, however, Aurora rejected Plaintiff’s monthly payment. (Id.

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¶ 15.) Plaintiff asserts that she had been planning to either reinstate the loan or apply for a

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modification, but before she could do so, on January 21, 2011 Aurora recorded a new Notice of

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Trustee’s Sale against the Property. (Id. ¶ 16.) On January 27, 2011, Aurora sent Plaintiff a
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“Foreclosure Alternative Agreement” (the “January 2011 Forbearance Agreement”), which is

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similar to the December 2011 Forbearance Agreement, and noted that Plaintiff now owed more

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than $44,000 in arrears. (Id. ¶ 17 & Ex. B) The January 2011 Forbearance Agreement required

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Plaintiff to make a first payment of $2,269.56 followed by five monthly payments of $1,654.00.

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(Id. ¶ 17 & Ex. B § a.1.) The January 2011 agreement contained the same language as the

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December 2009 agreement: the “no waiver” provision, the “Entire Agreement” clause providing

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that the agreement could only be amended in writing, and the statement regarding the plaintiff’s

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obligation to cure the arrearage upon the expiration of the plan period. (Id. at Ex. B. §§ 7, b.) In

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addition, the January 2011 agreement provided that it was Plaintiff’s responsibility to provide
Aurora with “accurate and complete financial information and documentation in support of [her]

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United States District Court
Northern District of California

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request for a loan modification or other foreclosure options[,]” and specifically listed the required

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items. (Id. at Ex. B. § a.2.) Plaintiff signed this agreement and made the monthly payments from

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February through July 2011. (Id. ¶ 18.)

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In July 2011, after Plaintiff submitted her last payment under the January 2011

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Forbearance Agreement, Aurora instructed Plaintiff to continue to submit monthly payments

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pursuant to that agreement while Aurora “continued to determine if Plaintiff was eligible for a

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permanent loan modification.” (Id.) Accordingly, Plaintiff made monthly payments of $1,645.00

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for several months until October 2011, when Aurora rejected her payment. (Id.)

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Back in January 2011, and continuing until July 2012, Aurora had been requesting that

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Plaintiff submit new documents in support of her loan modification application. (Id. ¶ 19.)

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Plaintiff complied with these requests but never received a determination of her loan modification

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application. (Id.)

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In June 2012, Plaintiff received notice that servicing on the loan was being transferred to

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Nationstar on July 1, 2012. (Id. ¶ 20.) Aurora remained the beneficiary until October 3, 2012,

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when it transferred its interest to Nationstar. (Id. ¶ 21.) On July 2, 2012, Nationstar, at Aurora’s

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instruction, recorded a new Notice of Trustee’s Sale against the Property. (Id ¶ 20.) Sometime

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thereafter, Nationstar asked Plaintiff to submit additional documents in support of her loan

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modification application, and Plaintiff did so. (Id. ¶ 21.) On January 26, 2013, Nationstar notified
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Plaintiff that her loan modification application was denied because Plaintiff had failed to submit

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documents. (Id. ¶ 22.) Plaintiff immediately contacted Nationstar to inform the servicer that she

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had, in fact, submitted all requested documents. (Id.) Nationstar then agreed to continue

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evaluating Plaintiff for a loan modification. (Id.) During this time, a trustee’s sale was scheduled

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for February 20, 2013. (Id. ¶ 23.) Plaintiff received notice that because she was being considered

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for a loan modification, the sale would be postponed to March 6, 2013. (Id.) On February 23,

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2013, Plaintiff received a letter from Nationstar stating that Nationstar had received all of

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Plaintiff’s documents and her loan modification application was complete. (Id.)

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On March 5, 2013, Plaintiff spoke on the telephone with her single point of contact at
Nationstar, Edward Babino, who confirmed that there was no scheduled sale date for the Property,

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United States District Court
Northern District of California

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and that the March 6 sale date had been vacated because Plaintiff had submitted a completed loan

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modification application. (Id. ¶ 24.) Mr. Babino confirmed the same on March 13, 2013. (Id.)

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Notwithstanding Mr. Babibo’s assurances that there would be no sale, on March 19, 2013,

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Plaintiff received a letter stating that her home had been sold at a trustee’s sale on March 13, 2013,

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and Nationstar now owned the home. (Id. ¶ 25.) In shock, Plaintiff contacted Mr. Babino, who

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informed her in writing that his representation on March 13 that there was no sale date was an

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“oversight” and that, to the contrary, there had been a sale scheduled that very day and the

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Property was in fact sold that day. (Id.) On March 21, 2013, Nationstar recorded a Trustee’s

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Deed upon Sale. (Id.)

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Plaintiff contends that if she had known her home was going to a trustee’s sale on March

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13, 2013, she would have pursued other foreclosure prevention alternatives, such as a deed-in-lieu,

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short sale, or reinstatement. (Id. ¶ 26.)

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Plaintiff filed suit in December 2014. (See Dkt. No. 1.) After Defendants moved to

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dismiss her initial complaint, Plaintiff filed the FAC alleging that Nationstar violated the

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California Homeowner’s Bill of Rights by recording a notice of trustee’s sale and proceeding with

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a foreclosure sale while her complete first lien loan modification application was pending, see Cal.

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Civ. Code § 2923.6, and committed fraud by telling her there was no scheduled sale date when

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there actually was. (Dkt. No. 14.) In addition, Plaintiff alleges breach of contract against Aurora,
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on the ground that in the forbearance agreements Aurora gave Plaintiff the right to cure arrearage

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through reinstatement, modification, or other foreclosure alternatives and breached that agreement

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by commencing foreclosure proceedings and filing a Notice of Trustee’s Sale in July of 2012.

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(Id.) Defendants thereafter filed the instant motion to dismiss contending that Plaintiff’s

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allegations fail to state a claim upon which relief could be granted. (Dkt. No. 16.)
LEGAL STANDARD

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A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the

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sufficiency of the complaint where the action fails to allege “enough facts to state a claim to relief

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that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has
facial plausibility when the plaintiff pleads factual content that allows the court to draw the

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United States District Court
Northern District of California

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reasonable inference that the defendant is liable for the misconduct alleged. The plausibility

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standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that

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a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations

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omitted). Under Federal Rule of Civil Procedure 8(a)(2) a party is only required to make “a short

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and plain statement of the claim showing that the pleader is entitled to relief, in order to give the

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defendant fair notice of what the claim is and the grounds upon which it rests.” Twombly, 550

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U.S. at 554 (internal citations and quotations omitted).

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For purposes of ruling on a Rule 12(b)(6) motion, the court “accept[s] factual allegations in

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the complaint as true and construe[s] the pleadings in the light most favorable to the non-moving

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party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008).

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However, even under the liberal pleading standard of Federal Rule of Civil Procedure 8(a)(2), “a

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plaintiff’s obligation to provide the grounds of his entitlement to relief requires more than labels

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and conclusions, and a formulaic recitation of the elements of a cause of action will not do.”

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Twombly, 550 U.S. at 555 (internal citations and quotations omitted). “Determining whether a

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complaint states a plausible claim for relief . . . [is] a context-specific task that requires the

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reviewing court to draw on its judicial experience and common sense.” Ashcroft v. Iqbal, 556

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U.S. 662, 663-64 (2009).

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Generally, when a complaint is dismissed, “leave to amend shall be freely given when
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justice so requires.” Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 892 (9th Cir. 2010); see

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Fed. R. Civ. P. 15(a). The Ninth Circuit has “repeatedly held that a district court should grant

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leave to amend even if no request to amend the pleading was made, unless it determines that the

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pleading could not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d

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1122, 1130 (9th Cir. 2000) (citations and internal quotation marks omitted).
DISCUSSION

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Plaintiff asserts three causes of against Nationstar—violation of the California Homeowner

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Bill of Rights § 2923.6, and intentional and negligent misrepresentation—and one against Aurora,

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for breach of contract. The Court will address each cause of action in the order alleged.

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A. Plaintiff has Stated a Claim for Violation of the HBOR § 2923.6

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United States District Court
Northern District of California

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The California Homeowner Bill of Rights (“HBOR”) is a “state law designed to both

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provide protections for homeowners facing [non-judicial] foreclosure and reform aspects of the

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foreclosure process.” Shapiro v. Sage Point Lender Servs., No. 14-1591-JGB (KKx), 2014 WL

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5419721, at *4 (C.D. Cal. Oct. 24, 2014) (citing Cal. Civ. Code § 2923.4(a)). The HBOR took

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effect on January 1, 2013. Among its protections to home borrowers, the HBOR “attempts to

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eliminate the practice, commonly known as dual tracking, whereby financial institutions continue

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to pursue foreclosure even while evaluating a borrower’s loan modification application.”

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Rockridge Trust v. Wells Fargo, N.A., 985 F. Supp. 2d 1110, 1149 (N.D. Cal. 2013); see Cal. Civ.

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Code § 2923.4 (noting that the purpose of the act is to ensure that borrowers are “considered for,

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and have a meaningful opportunity to obtain, available loss mitigation options” in order to avoid

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foreclosure).

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Thus, while a borrower’s complete application for a first lien loan modification is pending,

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the servicer may not record a notice of default, notice of trustee’s sale, or conduct a trustee’s sale.

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See Cal. Civ. Code § 2923.6(c). The provisions of the HBOR relevant to Plaintiff’s dual-tracking

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claim are:

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(c) If a borrower submits a complete application for a first lien loan
modification offered by, or through, the borrower’s mortgage
servicer, a mortgage servicer, trustee, mortgagee, beneficiary, or
authorized agent shall not record a notice of default, notice of sale,
or conduct a trustee’s sale while the complete first lien loan
modification application is pending . . . until . . . the mortgage
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servicer makes a written determination that the borrower is not
eligible for a first lien loan modification, and any appeal period . . .
has expired.
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(g) In order to minimize the risk of borrowers submitting multiple
applications for first lien loan modification for the purpose of delay,
the mortgage servicer shall not be obligated to evaluate applications
from borrowers who have already been evaluated or afforded a fair
opportunity to be evaluated for a first lien loan modification prior to
January 1, 2013, or who have been evaluated or afforded a fair
opportunity to be evaluated consistent with the requirements of this
section, unless there has been a material change in the borrower's
financial circumstances since the date of the borrower's previous
application and that change is documented by the borrower and
submitted to the mortgage servicer.

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Cal. Civ. Code § 2923.6.
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United States District Court
Northern District of California

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Nationstar contends that Plaintiff’s claim is barred because Plaintiff had a “full and fair
opportunity to be reviewed for a loan modification” from 2009 and 2012, but they rejected her
application in 2013. (Dkt. No. 16 at 9.2) Nationstar further argues that because Plaintiff has not

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alleged any changed circumstances since the January 2013 denial, she is not eligible for Section
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2923.6(g)’s exception for when “there has been a material change in the borrower’s financial
circumstances since the date of the borrower’s previous application and that change is documented
by the borrower and submitted to the mortgage servicer.”

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According to the FAC, Plaintiff began sending Aurora documents in support of a loan
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modification application in January 2011. (Dkt. No. 14 ¶ 19.) She had not yet received a decision
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on her application when Nationstar became her servicer and recorded a Notice of Trustee’s Sale.

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(Id. ¶¶ 19-20.) Thereafter, Nationstar requested that Plaintiff submit additional documents, which
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she did; then, in January 2013, it notified Plaintiff that her application was denied for failure to
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submit documents, even though it later admitted that she had, in fact, submitted all requested
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documents. (Id. ¶¶ 21-23.) There are no allegations that Nationstar reviewed the merits of
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Plaintiff’s application or the requested documents that she did submit.

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Plaintiff argues that because the denial was not on the merits, it cannot constitute a good
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faith evaluation of Plaintiff’s loan application. While nothing in the statute’s language requires
the prior denial to be “on the merits” or a “good faith evaluation,” the provision is limited to

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All page number references in this Order are to the ECF page number.
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borrowers “who have already been evaluated or afforded a fair opportunity to be evaluated for a

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first lien loan modification.” Cal. Civ. Code § 2923.6(g). The HBOR’s legislative history states

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that one purpose of the amendments “is to ensure that, as part of the non-judicial process,

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borrowers have a meaningful opportunity to obtain available loss mitigation options[.]” Sen.

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Floor Analysis of Assemb. Bill No. 278 (“AB 278 Analysis”), Conf. Rep. No. 1, Reg. Sess., at 27

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(Cal. July 2, 2012). Thus, “[b]orrowers must be thoroughly evaluated for all available loss

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mitigation options before foreclosure referral, and banks must act on loss mitigation applications

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before referring loans to foreclosure; i.e. “dual tracking” will be restricted.” Id. at 3. Neither

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party has submitted any case law interpreting what it means to be “evaluated” or “afforded a fair

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opportunity to be evaluated,” but the Court addressed this issue in the context of Plaintiff’s other

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United States District Court
Northern District of California

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mortgage foreclosure case, also pending before the Court. See Johnson v. Bank of Am., N.A., No.

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14-cv-05053-JSC, 2015 WL 351210, at *5 (N.D. Cal. Jan. 23, 2015).

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Just as in Plaintiff’s other case, in this action “[t]he Court cannot conclude as a matter of

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law that Plaintiff’s application was evaluated or that she was afforded a fair opportunity to be

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evaluated.” Id. In Johnson, the Court so concluded because

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Plaintiff has not alleged that her application was actually evaluated;
to the contrary, Defendant denied her application for failing to
submit documents, not because upon evaluation Defendant
concluded that she did not qualify for a loan modification. Second,
drawing all reasonable inferences in Plaintiff’s favor, Plaintiff was
also not afforded a fair opportunity to be evaluated. Her application
was denied for failing to submit documents that she did in fact
submit[.] . . . Such circumstances are not a fair opportunity to be
evaluated.

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Id. So it is here, where Plaintiff’s rejection was premised on the absence of documents that she

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alleges she actually submitted—which the lender later acknowledged—not on a review of the

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merits of the completed application. (See Dkt. No. 14 ¶¶ 19-22.)

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Nationstar laments that such a holding cannot stick because “no loan modification

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application denial could ever achieve statutory effect as long as a defaulting borrower claimed that

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the denial was the result of a purported error on the part of the lender.” It complains that “[s]imply

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sending more documents after a denial cannot invalidate that denial.” (Dkt. No. 19 at 3.) But the

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FAC does not allege that Plaintiff unilaterally sent in documents after the denial; it alleges that
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Plaintiff always submitted the documents requested by Defendants, that the denial for failure to

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submit documents was therefore in error, and that Defendants, in effect, admitted that error by

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subsequently advising her in writing that her application was complete. Defendants’ argument is

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premised on facts and inferences not pled in the FAC and therefore must be rejected. In short,

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Plaintiff has adequately pled a violation of the HBOR.

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B. Plaintiff has not Stated a Claim for Breach of Contract

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Plaintiff’s second cause of action, against Aurora only, is for breach of the January 2011

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Forbearance Agreement. (Dkt. No. 14 ¶¶ 34-39.) Plaintiff insists the Agreement gave her “the

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right to cure the arrearage through reinstatement, modification, or other foreclosure alternative
options.” (Id. ¶ 35; see Dkt. No. 18 at 7.) She alleges that after signing the January 2011

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United States District Court
Northern District of California

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Agreement, the parties entered a subsequent agreement: specifically, “in July 2011, Plaintiff and

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Defendant entered into a foreclosure avoidance option whereby Defendant agreed to continue to

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review Plaintiff’s loan for a loan modification . . . Therefore, pursuant to the Agreement, because

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Plaintiff was still pursuing foreclosure avoidance options and had entered into a Cure Method,

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Defendant breached the Agreement by initiating foreclosure proceedings against Plaintiff in July

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2012.” (Dkt. No. 18 at 7-8 (citations omitted); see also Dkt. No. 14 ¶ 18 (alleging that Aurora

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“told Plaintiff to continue to submit payments pursuant to the Forbearance Agreement while

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Aurora continued to determine if Plaintiff was eligible for a permanent loan modification”).)

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The elements of a cause of action for breach of contract are: (1) the existence of a

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contract; (2) performance by the plaintiff or excuse for nonperformance; (3) breach by the

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defendant; and (4) damages. First Comm. Mortg. Co. v. Reece, 89 Cal. App. 4th 731, 745 (2001).

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Defendants argue that the claim against Aurora must fail because the plain language of the

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forbearance agreements belies her claim; in particular, the forbearance agreements and Deed of

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Trust specified that Aurora was not waiving the right to proceed with foreclosure.

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A borrower can state a claim for breach of contract based on forbearance agreements

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where the agreement includes a contractual obligation for the lender to provide a loan

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modification. In Corvello v. Wells Fargo Bank, NA, 728 F.3d 878, 880 (9th Cir. 2013), the court

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held that a mortgage servicer may be contractually bound to offer a borrower a permanent
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mortgage modification if the borrower satisfied the terms of a trial mortgage modification

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program—a type of forbearance program. But in Corvello, the agreement at issue stated that if the

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borrower complies with payments during the trial period, “then the Lender will provide me with a

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Loan Modification Agreement.” Id. at 881. The Ninth Circuit premised its decision on this clear

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language guaranteeing a loan modification if the borrower complied. See id.

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Notwithstanding the particular agreement at issue in Corvello, “[i]n the context of

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mortgage foreclosures, courts applying California law have generally been reluctant to permit

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borrowers to assert claims arising out of forbearance agreements[.]” Reyes v. Wells Fargo Bank,

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N.A., No. C-10-01667 JCS, 2011 WL 30759, at *13 (N.D. Cal. Jan. 3, 2011) (collecting cases);
see, e.g., Mehta v. Wells Fargo Bank, N.A., No. 10-CV-944 JLS (AJB), 2010 WL 3385020, at *8

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United States District Court
Northern District of California

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(S.D. Cal. Aug. 26, 2010) (holding that plaintiff could not state a claim for breach of contract

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based on forbearance agreement); Smith v. Nat’l City Bank, No. C 09-5715 SI, 2010 WL 1729392,

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at *2 (N.D. Cal. Apr. 27, 2010) (same); Morgan v. Aurora Loan Servs., LLC, No. CV 12-4350-

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CAS (MRWx), 2014 WL 47939, at *3 (C.D. Cal. Jan. 6, 2014) (same).

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Smith is instructive. In that case, the defendant-bank and plaintiff-borrower entered into a

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written forbearance agreement to postpone foreclosure proceedings during the term of the

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agreement if the plaintiff made three payments of $1,283.21. 2010 WL 1729392, at *1. The

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agreement provided, in relevant part, that the bank would not foreclose while the plaintiff made

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certain payments, but that it was the plaintiff’s “sole responsibility to contact Lender prior to the

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expiration of this Agreement . . . to determine the current status of the loan and the potential

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necessity for further loss mitigation efforts, such as an extension of the repayment period or other

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options made available by Lender.” Id. The plaintiff made the payments as the forbearance

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agreement required, but after the last payment had been made, the bank informed him that it was

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not willing to modify the loan, and foreclosure proceedings began anew. Id. at *2. The plaintiff

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sued the bank for, among other things, breach of contract, alleging that the lender breached the

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forbearance agreement by failing to modify the loan even though the plaintiff had successfully

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completed payments pursuant to the agreement. Id. The court held that the plaintiff failed to state

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a claim for breach of contract because “nothing in the Forbearance Agreement require[d]
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defendant to modify the loan, and nothing in the agreement prohibits defendant from foreclosing

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on the property after the expiration of the agreement.” Id. at *3.

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Plaintiff hangs her hat on a pre-Corvello case: Pinel v. Aurora Loan Services, LLC, 814 F.

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Supp. 2d 930 (N.D. Cal. 2011), in which the court came out the other way, denying Aurora’s

5

motion to dismiss causes of action—including a breach of contract claim—based on its use of the

6

very forbearance agreements at issue here. Id. at 944. In Pinel, the plaintiff-borrower defaulted

7

on her loan and entered a forbearance agreement with Aurora that also included the provisions at

8

issue here in Attachment A. Id. at 935. The plaintiff timely made all of her payments under the

9

plan, but Aurora denied Plaintiff’s pending request for a loan modification, then continued to
accept additional payments from the plaintiff, even after the plaintiff’s property had been sold to

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Aurora at a trustee’s sale. Id. The court found that the breach of contract claim could not be

12

dismissed because the forbearance agreement itself was ambiguous: on the one hand, it purported

13

to allow the borrower to pay back all arrearage, but on the other, it explicitly noted that the

14

payment plan would be insufficient to pay that arrearage. Id. at 943.

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But in Corvello’s wake—and especially given the Ninth Circuit’s instruction that only a

16

very clear promise to provide a loan modification in a forbearance agreement will give rise to

17

breach of contract—other cases interpreting these same Aurora agreements have disagreed with

18

Pinel. For example, in Morgan, the plaintiff-borrower alleged that Aurora had breached its

19

contract by failing to provide a permanent loan modification after the plaintiff complied with the

20

payment plan set forth in a forbearance agreement with the same provisions as in Pinel and the

21

case at bar. 2014 WL 47939, at *3. Based on the agreement’s language that “upon the Expiration

22

Date, Customer must cure the Arrearage through a cure method, which may, but did not

23

necessarily include a permanent loan modification[,]” the court “conclude[d] that the [forbearance

24

agreement] unambiguously disclaim[ed] any guarantee of a permanent mortgage modification”

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and dismissed the plaintiff’s breach of contract claim. Id.

26

In addition, as Plaintiff now asserts, the plaintiff in Morgan further alleged that Aurora

27

breached a separate oral promise to permanently modify the plaintiff’s loan after extending the

28

forbearance agreement. Id. at *4. Although noting that a homeowner can state a claim for breach
12

1

of an oral promise to offer a permanent modification, id. (citing Lueras v. BAC Home Loans

2

Servicing, LP, 221 Cal. App. 4th 49, 58 (2013)), the court held that an allegation of such an oral

3

agreement is barred by the parol evidence rule where, as with Aurora’s forbearance agreements,

4

the parties’ written agreement contains an integration clause. Id.

5

The facts of this case mirror those in Morgan and compel the same result. Unlike the

6

forbearance agreement at issue in Corvello, the forbearance agreement here does not include clear

7

language expressing Aurora’s promise, guarantee, or obligation to provide Plaintiff with a

8

permanent loan modification: rather than stating that “the Lender will provide [the borrower] with

9

a Loan Modification Agreement[,]” Corvello, 728 F.3d at 881, the agreement here merely notifies
the lender that it is her obligation to cure any remaining defect at the close of the forbearance

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Northern District of California

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period based on any cure method the lender “may offer.” (Dkt. No. 14 at Exs. A & B §§ b.) Thus,

12

because Aurora never promised Plaintiff a loan modification as a provision of the forbearance

13

agreement, its failure to provide one does not constitute a breach. See Morgan, 2014 WL 47939,

14

at *3; cf. Corvello, 814 F.2d at 881.

15

Plaintiff’s claim that Aurora breached a later agreement to extend the written forbearance

16

contract and provide a loan modification is not actionable either. In the FAC, Plaintiff alleges

17

only that “Aurora, once more, told Plaintiff to continue to submit payments pursuant to the

18

Forbearance Agreement while Aurora continued to determine if Plaintiff was eligible for a

19

permanent loan modification.” (Id. ¶ 18 (emphasis added).) First, as written, these allegations

20

establish neither a promise to grant Plaintiff a permanent loan modification nor an agreement not

21

to “commence or resume the foreclosure process until after Plaintiff did not qualify for a loan

22

modification.” (Id. ¶ 37.) But even if the FAC did allege facts sufficient to plausibly establish

23

that Aurora told Plaintiff that it would extend the forbearance agreement in order to review her for

24

a loan modification, and until it reached such a decision, her breach of contract claim would still

25

be a non-starter. That is, to the extent that Plaintiff is asserting that this “extension agreement”

26

was actually one to lengthen the duration of the parties’ written contract, the FAC does not allege

27

that it was in writing. (See id. ¶¶ 18, 37-38.) But the forbearance agreements in this case

28

contained an integration clause, noting that any amendment thereto must be in writing. (Dkt. No.
13

1

14 at Exs. A & B §§ 14.) Accordingly, an agreement to extend the duration of that forbearance

2

agreement that is not in writing is not actionable. See Morgan, 2014 WL 47939, at *4.

3

Defendant contends that even if Plaintiff can identify an actionable agreement, her claim

4

will still fail because the FAC does not sufficiently allege damages because under the terms of the

5

contract she owed the amount in default to Defendant. To be sure, Plaintiff has alleged that she

6

was harmed because she “ma[de] payments under the contract” and is therefore entitled to

7

damages. (Id. ¶ 39.) But a closer reading of the claim makes clear that Plaintiff’s damages

8

request does not include any such payments; rather, Plaintiff has specifically pleaded damages

9

apart from any payments made pursuant to the forbearance agreements: she seeks “increased late
fees and arrears, attorneys’ fees, overcharge of fees, destruction of credit, [and] loss of the

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Property[.]” (Id.) These damages allegations are independent of Plaintiff’s obligation to meet her

12

mortgage payments. See Johnson, 2015 WL 351210, at *7 (finding that allegations that damages

13

including “imminent loss of her Property, loss of money including but not limited to losses

14

through overcharges, incurred attorneys’ fees and costs to save her home, the accumulation of

15

excessive arrears which could have been avoided through other foreclosure prevention

16

alternatives, a loss of reputation and goodwill, [and] destruction of credit” sufficient allegations of

17

damages); Peterson v. Wells Fargo Bank, N.A., No. 13-03392, 2014 WL 3418870, at *5 (N.D.

18

Cal. July 11, 2014) (finding in accordance with other courts that unwarranted late fees and

19

attorney’s fees were sufficient allegations of damages); Izsak v. Wells Fargo Bank, N.A., No. C

20

13-05362, 2014 WL 1478711, at *4 (N.D. Cal. Apr. 14, 2014) (holding that the plaintiff’s

21

allegations that he had been charged with unwarranted late fees, attorneys’ fees, and that his credit

22

has been damaged were sufficient to allege damages based on fraud). Although Defendant argues

23

that the credit report damages would have occurred absent the misrepresentations alleged because

24

it was Plaintiff’s underlying default that caused the foreclosure, the FAC alleges that Plaintiff

25

would have taken other steps to prevent foreclosure if she had been advised of the impending sale.

26

(Dkt. No. 14 ¶ 43.) Thus, Plaintiff adequately alleges at this stage of the litigation that the credit

27

report damages were the result of Defendant’s conduct, not her own.

28

The Court will therefore dismiss Plaintiff’s breach of contract claim against Aurora for
14

1

failure to state a claim. However, this dismissal is without prejudice; Plaintiff will have leave to

2

amend the Complaint to cure the deficiencies described above.
Plaintiff’s Claims for Misrepresentation

3

C.

4

Plaintiff’s final two causes of action allege misrepresentation—both intentional and
negligent—against Nationstar. (Dkt. No. 14 ¶¶ 40-57.) The gravamen of Plaintiff’s

6

misrepresentation claims is that Nationstar representative Edward Babino either fraudulently or

7

negligently misrepresented to her on the telephone on March 5 and March 13, 2013 that there was

8

no scheduled sale date for Plaintiff’s property because she had submitted a complete loan

9

modification application and that, in reliance on that misrepresentation, Plaintiff did not pursue

10

other foreclosure prevention measures, such as deed-in-lieu, refinancing options, a conventional

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Northern District of California

5

sale, or reinstatement of the loan. (Id. ¶ 43.)

12

To state a claim for fraudulent misrepresentation, the plaintiff must allege: (1) a

13

misrepresentation; (2) knowledge of falsity; (3) intent to defraud, i.e., to induce reliance; (4)

14

justifiable reliance; and (5) resulting damage. Lazar v. Superior Court, 49 Cal.Rptr.2d 377

15

(1996). Rule 9(b) requires that these facts be alleged with particularity. In re Glen Fed. Sec.

16

Litig., 42 F.3d 1541, 1547-49 (9th Cir. 1994). “Negligent misrepresentation is [also] a fraud-

17

based claim and also requires pleading with particularity.” Samson v. One West Bank, No. C 10-

18

4827 PJH, 2011 WL 3269397, at *3 (N.D. Cal. July 28, 2011) (citation omitted). “The elements

19

of a negligent misrepresentation claim are the same as those for a claim of fraudulent

20

misrepresentation, except that there is no requirement of an intent to induce reliance. The

21

misrepresentation must concern a past or existing fact.” Id. (citation omitted).

22

Rule 9(b) states: “[i]n alleging fraud or mistake, a party must state with particularity the

23

circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a

24

person’s mind may be alleged generally.” Fed. R. Civ. P. 9. Thus, the Ninth Circuit has held that,

25

“while a federal court will examine state law to determine whether the elements of fraud have

26

been pled sufficiently to state a cause of action, the Rule 9(b) requirement that the circumstances

27

of the fraud must be stated with particularity is a federally imposed rule.” Vess v. Ciba–Geigy

28

Corp. USA, 317 F.3d 1097, 1103 (9th Cir. 2003). In other words, “[a]verments of fraud must be
15

1

accompanied by ‘the who, what, when, where, and how’ of the misconduct charged.” Kearns v.

2

Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009). “The requirement of specificity in a fraud

3

action against a corporation requires the plaintiff to allege the names of the persons who made the

4

allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said

5

or wrote, and when it was said or written.” Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal.

6

App. 4th 153, 157 (1991).

7

Here, Plaintiff has sufficiently pled the circumstances of the fraud for the purposes of Rule
9(b): Mr. Babino, a Nationstar representative, (the who) told Plaintiff that there was no sale date

9

for the Property (the what) over the phone (the how) on March 6 and 13 (the when). (Dkt. No. 14

10

¶ 43.) This representation was material because it directly impacted Plaintiff’s decision not to take

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United States District Court
Northern District of California

8

other measures to prevent foreclosure. Relatedly, Plaintiff has adequately alleged reliance because

12

she alleges that did not pursue other foreclosure alternatives because she believed Nationstar was

13

considering her application for a loan modification. (Id.) Similarly, the FAC also sufficiently

14

alleges knowledge and intent: Plaintiff alleges that Mr. Babino made the statements “knowingly

15

and in order to induce Plaintiff to continue submitting loan modification application materials

16

rather than reinstate the loan or pursue other foreclosure alternatives” and that he “knew that

17

Plaintiff had a sale date of March 13, 2013, but intentionally did not tell Plaintiff about [it] so that

18

Nationstar could take Plaintiff’s property at the sale and reap the benefits of the equity contained

19

in the property.” (Id. ¶ 45.) Based on these allegations, Defendant’s argument that Plaintiff has

20

failed to plead intent to deceive, and instead has merely pleaded “mistake with regard to the sale

21

date status,” is unavailing. (See Dkt. No. 1 at 15.)

22

For both causes of action, Nationstar also Defendants argues that Plaintiff’s claims sound

23

in promissory fraud based on the allegation that Nationstar misrepresented that they would review

24

her for a loan modification and would not sell her home, and that the FAC does not sufficiently

25

allege such a claim. (Dkt. No. 16 at 15.) Promissory fraud “is a subspecies of fraud which

26

permits a plaintiff to state a cause of action in tort when a defendant fraudulently induces him to

27

enter into a contract.” Richardson v. Reliance Nat’l Indem. Co., No. C-9-2952-CRB, 2000 WL

28

284211, at *4 (N.D. Cal. Mar. 9, 2000). In short, “[w]hile mere failure to perform on a contract
16

1

does not constitute fraud, a promise made without the intention to perform can be actionable

2

fraud.” Id. (emphasis in original). To be sure, if the gravamen of Plaintiff’s misrepresentation

3

claim was that Nationstar entered into a contract with Plaintiff in which it promised to review her

4

for a loan modification but never intended to do so, promissory fraud would be in play. But such

5

is not the case here, where Plaintiff’s misrepresentation claims turn on Mr. Babino’s particular

6

statement that there was no sale date for the Property—statements that were made long after any

7

agreement, and that cannot be read to have fraudulently induced Plaintiff to enter any contract. Cf.

8

Richardson, 2000 WL 284211, at *4.

9

Finally, Defendant argues that Plaintiff has not adequately alleged damages because the
amount in default is owed to Defendant under the terms of the contract. But—as with her breach

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United States District Court
Northern District of California

10

of contract claim against Aurora—in her misrepresentation claims Plaintiff has specifically

12

pleaded damages apart from any payments made pursuant to the forbearance agreements: she lost

13

the opportunity to take other steps to save her home, which damaged her credit, caused emotional

14

distress, and caused her to lose equity she had in the home. (Dkt. No. 14 ¶ 44.) Once again, these

15

allegations of damages are independent of Plaintiff’s obligation to meet her mortgage payments.

16

See Johnson, 2015 WL 351210, at *7; Peterson, 2014 WL 3418870, at *5; Izsak, 2014 WL

17

1478711, at *4. Here, too, although Defendant argues that the credit report damages would have

18

occurred absent the misrepresentations alleged because it was Plaintiff’s underlying default that

19

caused the foreclosure, the FAC alleges that Plaintiff would have taken other steps to prevent

20

foreclosure if she had been advised of the impending sale. (Dkt. No. 14 ¶ 43.) Thus, Plaintiff

21

adequately alleges at this stage of the litigation that the credit report damages were the result of

22

Defendant’s conduct, not her own. Accordingly, Plaintiff has stated a claim for misrepresentation

23

and Defendant’s motion to dismiss the third and fourth causes of action is denied.

24

CONCLUSION

25

For the reasons set forth above, Defendant’s Motion to Dismiss (Dkt. No. 16) is

26

GRANTED in part and DENIED in part. The motion is GRANTED as to Plaintiff’s breach of

27

contract claim against Aurora with leave to amend. The motion is DENIED as to Plaintiff’s

28

remaining claims arising under the Homeowner’s Bill of Rights or common law
17

1
2
3

misrepresentation.
Plaintiff shall file an amended complaint within 14 days. Failure to file an amended
complaint may result in dismissal of the breach of contract claim with prejudice.

4

The hearing previously set for March 26, 2015 is VACATED.

5

This Order disposes of Docket Nos. 16 and 17.

6

IT IS SO ORDERED.

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9

Dated: March 23, 2015
______________________________________
Jacqueline Scott Corley
United States Magistrate Judge

10

United States District Court
Northern District of California

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