Alvarado v. 360 Mortgage Group, LLC

Filing 16

ORDER GRANTING 360 MORTGAGE'S MOTION TO DISMISS; ORDER GRANTING IN PART LEAVE TO AMEND COMPLAINT. Re: Dkt. No. 4 . Alvarado must file his amended complaint by 10/30/2017. Signed by Judge Nathanael Cousins. (lmh, COURT STAFF) (Filed on 10/16/2017)

1
2
3
4
5
6
7

UNITED STATES DISTRICT COURT

8

NORTHERN DISTRICT OF CALIFORNIA

9
10

CRISTIAN ALVARADO,
Plaintiff,

United States District Court
Northern District of California

11
v.

12
13

360 MORTGAGE GROUP, LLC,
Defendant.

14

Case No. 17-cv-04655 NC
ORDER GRANTING 360
MORTGAGE’S MOTION TO
DISMISS; ORDER GRANTING IN
PART LEAVE TO AMEND
COMPLAINT
Re: Dkt. No. 4

15
16

In this mortgage foreclosure case, defendant 360 Mortgage Group, LLC moves to

17

dismiss plaintiff Cristian Alvarado’s complaint. For the reasons stated below, the Court

18

GRANTS 360 Mortgage’s motion to dismiss, and gives Alvarado LEAVE TO AMEND

19

the complaint as to the negligence and Unfair Competition Law claims. The claims under

20

California Civil Code §§ 2923.5 and 2923.7 are DISMISSED WITH PREJUDICE.

21

I.

22

BACKGROUND
Alvarado owns a house in Hollister, California. He purchased the house in 2015

23

subject to a mortgage. Dkt. No. 1-1 at 5, 9. In December 2016, Alvarado lost his job, and

24

thereafter began to fall behind on his mortgage payments. Id. at 9. Alvarado alleges that

25

he learned of the foreclosure proceedings “initiated against him” when he called 360

26

Mortgage to request a foreclosure prevention alternative in January 2017. Id. at 10. It is

27

undisputed that 360 Mortgage never assigned Alvarado a single point of contact (SPOC).

28

Id. According to Alvarado, a 360 Mortgage representative falsely informed him that he
Case No. 17-cv-04655 NC

1

could not apply for a foreclosure prevention alternative, and that there was no point in him

2

applying for a loan modification because of his unemployment. Id.

3

On April 3, 2017, 360 Mortgage, Alvarado’s mortgage servicer, recorded a Notice

4

of Default and Election to Sell against the property. Id. at 9. Alvarado alleges he “never

5

received any correspondence, phone calls and had no voicemails from 360 Mortgage prior

6

to recordation of the” Notice of Default. Id. A Notice of Trustee’s Sale was recorded

7

against the property on July 7, 2017. Id. at 11.
Alvarado filed this case in San Benito County Superior Court on August 4, 2017,

8
9

alleging violations of California Civil Code §§ 2923.5 and 2923.7, negligence, and
California Business and Professions Code § 17200 (“Unfair Competition Law” or “UCL”).

11

United States District Court
Northern District of California

10

Dkt. No. 1-1 at 4. 360 Mortgage removed this case on the basis of diversity jurisdiction on

12

August 11, 2017. Dkt. No. 1 at 2. In response to the Court’s order to show cause

13

regarding the citizenship of the members of 360 Mortgage Group, LLC, 360 Mortgage

14

attested that each member of the LLC is a partnership, and that each of the members of

15

those partnerships are citizens of Texas. Dkt. Nos. 8, 12 at 2. 360 Mortgage moves to

16

dismiss each claim in Alvarado’s complaint. Dkt. No. 4. Both parties consented to the

17

jurisdiction of a magistrate judge under 28 U.S.C. § 636(c). Dkt. Nos. 7, 11.

18

II.

19

LEGAL STANDARD
A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal

20

sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). On a

21

motion to dismiss, all allegations of material fact are taken as true and construed in the

22

light most favorable to the non-movant. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-

23

38 (9th Cir. 1996). The Court, however, need not accept as true “allegations that are

24

merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re

25

Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). Although a complaint need

26

not allege detailed factual allegations, it must contain sufficient factual matter, accepted as

27

true, to “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly,

28

550 U.S. 544, 570 (2007). A claim is facially plausible when it “allows the court to draw
Case No. 17-cv-04655 NC

2

1

the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft

2

v. Iqbal, 556 U.S. 662, 678 (2009).

3

If a court grants a motion to dismiss, leave to amend should be granted unless the

4

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

5

F.3d 1122, 1127 (9th Cir. 2000).

6

III. DISCUSSION

7
8
9
10

United States District Court
Northern District of California

11

360 Mortgage moves to dismiss each of Alvarado’s claims. The Court will consider
each claim in turn.
A.

Alvarado’s California Civil Code § 2923.5 Claim is Dismissed With
Prejudice.

360 Mortgage argues Alvarado’s Civil Code § 2923.5 claim fails on the basis that:

12

(1) Alvarado has not pled sufficient facts to demonstrate a violation occurred, (2) Alvarado

13

has not shown that any alleged violation of the statute was material, and (3) the declaration

14

attached to the Notice of Default is sufficient to show statutory compliance. Dkt. No. 4 at

15

17. Alvarado opposes the motion. Dkt. No. 10.

16

Under Civil Code § 2923.5, a mortgage servicer may not record a notice of default

17

until either (1) 30 days after initial contact is made in person or by calling the borrower to

18

“assess the borrower’s financial situation and explore options for the borrower to avoid

19

foreclosure[,]” or (2) if contact is not made, the servicer has acted with due diligence in its

20

attempt to contact the borrower. Cal. Civ. Code § 2923.5(a)(1)(A), (a)(2), (e). The

21

requirements of due diligence are enumerated in §2923.5(e)(1)-(5).

22

Here, Alvarado never alleged that 360 Mortgage did not attempt to call him or that

23

it never sent him letters. The complaint states that Alvarado never received a call, letter, or

24

voicemail. Dkt No. 1-1 at 9. Alvarado reasserts this point in his opposition to 360

25

Mortgage’s motion. Dkt. No. 10 at 13. This claim may be dismissed on this ground alone.

26

See Ghuman v. Wells Fargo Bank, N.A., 989 F. Supp. 2d 994, 1004-05 (E.D. Cal. 2013)

27

(Section 2923.5 only requires a defendant “attempt” to make contact with due diligence).

28

Next, the Court also agrees with 360 Mortgage that a § 2923.5 claim is vitiated
Case No. 17-cv-04655 NC

3

1

when the plaintiff has been in contact with the mortgage servicer regarding a mortgage

2

foreclosure alternative before the notice of default was recorded. See Green v. Cent.

3

Mortg. Co., 148 F. Supp. 3d 852, 871 (N.D. Cal. 2015) (collecting cases). This is exactly

4

what Alvarado alleges he did: “Plaintiff discovered that foreclosure proceedings were

5

initiated against him when he called 360 Mortgage to request a foreclosure prevention

6

alternative in early January, 2017.” Dkt. No. 1-1 at 10. These contacts were made months

7

before 360 Mortgage filed the Notice of Default on April 3, 2017. Dkt. No. 1-1 at 9. This

8

defect is not curable.
Lastly, as to 360 Mortgage’s third argument, that the declaration attached to the

9

Notice of Default is sufficient as a matter of law to defeat a claim under § 2923.5, the

11

United States District Court
Northern District of California

10

Court disagrees. The Court notes that the declaration exists,1 but does not agree that its

12

existence necessitates the conclusion that the statements contained in the declaration are

13

truthful. Dkt. No. 5-1 at 20. In sum, the Court DISMISSES WITH PREJUDICE the claim

14

under Civil Code § 2923.5.

15

B.

16

Alvarado’s California Civil Code § 2923.7 Claim is Dismissed With
Prejudice.

Second, 360 Mortgage argues that Civil Code § 2923.7 does not apply to it as a

17
18

small mortgage servicer. Dkt. No. 4 at 9-12. Alvarado does not dispute that 360 Mortgage

19

is a small servicer, but instead argues that the requirements of § 2923.7 should still apply.

20

Dkt. No. 10 at 9-10.

21

Section 2923.7(a) states that “[u]pon request from a borrower who requests a

22

foreclosure prevention alternative, the mortgage servicer shall promptly establish a single

23

point of contact and provide to the borrower one or more direct means of communication

24

with the single point of contact.” However, § 2923.7(g)(1) states that the section does not

25
26
27
28

1

The Court takes judicial notice of the declaration of compliance. Dkt. No. 5-1 at 20.
Alvarado has not opposed the request for judicial notice. The Court GRANTS 360
Mortgage’s request for judicial notice, as the document is in the public record and is
undisputed. Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001) (citing Fed. R.
Evid. 201).
Case No. 17-cv-04655 NC
4

1

apply to a person that during the past year “foreclosed on 175 or fewer residential real

2

properties, containing no more than four dwelling units, that are located in California.”

3

Cal. Civ. Code § 2923.7(g)(1). Further, Civil Code § 2924.12, which creates a private

4

right of action for violations of § 2923.7, specifically excludes small servicers, which are

5

defined at § 2924.18, and that definition is identical to the definition in § 2923.7. Cal. Civ.

6

Code § 2924.12(j). The upshot of this is that it appears the requirement that a mortgage

7

servicer assign a SPOC upon request did not apply to 360 Mortgage because it was a small

8

mortgage servicer. Alvarado does not dispute that 360 Mortgage is a small servicer. See

9

Dkt. No. 10. The Court has not found any evidence to the contrary.
To support its contention that it is a small mortgage servicer, 360 Mortgage

11

United States District Court
Northern District of California

10

proffered the 2016 California Department of Business Oversight Annual Report, pursuant

12

to the California Residential Mortgage Lending Act.2 That report lists all of the licensed

13

mortgage servicers that foreclosed on more than 175 properties in 2016. 360 Mortgage’s

14

name does not appear on that list. Dkt. 5-1 at 38. Alvarado does not dispute that Civil

15

Code § 2923.7 does not apply to small servicers, and does not argue that an exception to

16

the statute exists.
Thus, the Court GRANTS 360 Mortgage’s motion to dismiss the § 2923.7 claim.

17
18

Because nothing would change the fact that 360 Mortgage is a small servicer at this time,

19

the Court does not find that Alvarado could cure the deficiencies in this claim. This claim

20

is DISMISSED WITH PREJUDICE.

21

C.

360 Mortgage moves to dismiss Alvarado’s negligence claim on the ground that it

22
23

Alvarado’s Negligence Claim is Dismissed Without Prejudice.

owed no legal duty of care to Alvarado. Dkt. No. 4 at 12-14. Alvarado argues 360

24
25
26
27
28

2

Available at http://dbo.ca.gov/Licensees/Residential_Mortgage/pdf/2016%20CRMLA%
20Annual%20Report%20FINAL%207-6-17.1.pdf. 360 Mortgage requests, and Alvarado
does not oppose, that the Court take judicial notice of the Annual Report. Dkt. No. 5-1 at
27-38. The Court GRANTS 360 Mortgage’s request for judicial notice, as the document is
in the public record and is undisputed. Lee, 250 F.3d at 689 (citing Fed. R. Evid. 201).
Case No. 17-cv-04655 NC

5

1

Mortgage does owe a duty to him. Dkt. No. 10 at 14-15.

2

“The elements of negligence in California are: (1) defendant had a legal duty to use

3

due care towards the plaintiff; (2) the defendant breached that duty; and (3) the breach was

4

the proximate or legal cause of (4) the resulting injury.” Hutchins v. Nationstar Mortg.

5

LLC, No. 16-cv-07067 PJH, 2017 WL 4224720, at *14 (N.D. Cal. Sept. 22, 2017) (citing

6

Ladd v. Cty. of San Mateo, 12 Cal. 4th 913, 917 (1996)). It is for the court to decide

7

whether a legal duty exists under the circumstances of the case. Vasquez v. Residential

8

Investments, Inc., 118 Cal. App. 4th 269, 278 (2004). Generally, “a financial institution

9

owes no duty of care to a borrower when the institution’s involvement in the loan
transaction does not exceed the scope of its conventional role as a mere lender of money.”

11

United States District Court
Northern District of California

10

Nymark v. Heart Fed. Sav. & Loan Assn., 231 Cal. App. 3d 1089, 1096 (1991).

12

“However, courts sometimes apply the so-called Biakanja factors to determine

13

whether a duty is owed [to a borrower] under a narrow exception to the general rule.”

14

Hutchins, 2017 WL 4224720, at *14 (citing Alvarez v. BAC Home Loans Servicing, L.P.,

15

228 Cal. App. 4th 941, 945-46 (2014)). These factors are: “the extent to which the

16

transaction was intended to affect the plaintiff, the foreseeability of harm to him, the

17

degree of certainty that the plaintiff suffered injury, the closeness of the connection

18

between the defendant’s conduct and the injury suffered, the moral blame attached to the

19

defendant’s conduct, and the policy of preventing future harm.” Anderson v. Deutsche

20

Bank Nat. Tr. Co. Americas, 649 Fed. Appx. 550, 552 (9th Cir.), cert. denied sub nom.

21

Anderson v. Aurora Loan Servs., LLC, 137 S. Ct. 496 (2016) (citing Biakanja v. Irving, 49

22

Cal. 2d 647, 650 (1958)).

23

In considering whether a loan servicer owes a common law duty to approve a loan

24

modification within a particular time frame, the Ninth Circuit in an unpublished opinion

25

concluded “that application of the Biakanja factors does not support imposition of such a

26

duty where, as here, the borrowers’ negligence claims are based on allegations of delays in

27

the processing of their loan modification applications.” Id. Anderson cited Lueras v. BAC

28

Home Loans Servicing, LP with approval, and quoted the following language: “when, as
Case No. 17-cv-04655 NC

6

1

here, ‘the modification was necessary [sic] due to the borrower’s inability to repay the

2

loan, the borrower’s harm, suffered from denial of a loan modification, [is] not . . . closely

3

connected to the lender’s conduct.’ Similarly, when ‘the lender did not place the borrower

4

in a position creating a need for a loan modification, [ ] no moral blame . . . attache[s] to

5

the lender’s conduct.’” Id. (quoting Lueras, 221 Cal. App. 4th 49, 67 (2013)) (internal

6

citation omitted) (brackets in original).

7

The Ninth Circuit’s decision in Anderson was at least in part animated by a split in

8

authority within the California Courts of Appeal between those cases which found lenders

9

owed a duty of care to borrowers once they agreed to consider a loan modification
application, Alvarez, 228 Cal. App. 4th at 948, and those that did not. See Lueras, 221 Cal.

11

United States District Court
Northern District of California

10

App. 4th at 67. As noted above, the Ninth Circuit found that there was no duty where the

12

negligence claim was premised on delays in processing an application.

13

Here, Alvarado has a weaker case under the Biakanja factors than Anderson,

14

Alvarez, or Lueras, because so far as the complaint provides, he never submitted a loan

15

modification application. Id. (“The Biakanja factors do not support imposition of a

16

common law duty to offer or approve a loan modification.”); see Gilmore v. Wells Fargo

17

Bank N.A., 75 F. Supp. 3d 1255, 1267 (N.D. Cal. 2014) (distinguishing between the lack of

18

duty to offer or approve a loan modification application and the duty to consider an

19

application once submitted).

20

Alvarado argues 360 Mortgage owed him a duty to exercise reasonable care in

21

“processing and reviewing” his request for a foreclosure prevention alternative. Dkt. No.

22

1-1 at 13. The facts in this case are different than discussed in Anderson, but the same

23

reasoning applies because both deal with the processing of a foreclosure prevention

24

alternative, though Anderson dealt with an actual loan modification application. See

25

Manson v. Guar. Bank, No. 16-cv02921 MMA (JLB), 2017 WL 1094079, at *4 (S.D. Cal.

26

Mar. 23, 2017) (dismissing a claim for negligence where loan servicer was not diligent in

27

processing a loan modification application).

28

Even assuming a duty of care existed, Alvarado does not state a claim because he
Case No. 17-cv-04655 NC

7

has not alleged a breach occurred. Alvarado’s claims regarding Keep Your Home

2

California are insufficient because the Court has no information regarding what that

3

program is or any factual background about the circumstances leading up to 360

4

Mortgage’s alleged rejection of the offer. Alvarado also claims that 360 Mortgage misled

5

him by informing him that he could not apply for a foreclosure prevention alternative.

6

Dkt. No. 1-1 at 14. This appears to be a fraud allegation, and must meet the requirements

7

of Federal Rule of Civil Procedure 9(b), which provides that “a party must state with

8

particularity the circumstances constituting fraud or mistake.” “Averments of fraud must

9

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

10

Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Cooper v.

11

United States District Court
Northern District of California

1

Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). In addition, if Alvarado wants this alleged

12

failure to be actionable, he must explain what law it violates.3
Thus, the Court finds that 360 Mortgage had no legal duty to Alvarado based on the

13
14

allegations in the complaint and that even if a duty existed, Alvarado failed to assert a

15

breach of the duty. However, because Alvarado could feasibly amend the complaint to

16

state a claim for negligence under another theory, the Court DISMISSES the negligence

17

claim WITHOUT PREJUDICE.

18

D.

Alvarado’s UCL Claim Is Dismissed Without Prejudice.

360 Mortgage moves to dismiss Alvarado’s UCL claim on the basis that it does not

19
20

state a claim for unlawful or unfair business practices and because Alvarado lacks

21

standing. Dkt. No. 4 at 16-17. Alvarado opposes the motion. Dkt. No. 10 at 11.
The UCL prohibits unlawful, unfair, or fraudulent business practices. Cal. Bus. &

22
23

Prof. Code § 17200. “A defendant cannot be liable under § 17200 for committing

24

‘unlawful business practices’ without having violated another law.” Kenery v. Wells

25
26
27
28

In Alvarado’s opposition, he cites law regarding negligence per se, but provides no
argument as to its application to this case. Negligence per se is an evidentiary doctrine that
if met creates the presumption of negligence where the defendant violated a statute.
Quiroz v. Seventh Ave. Ctr., 140 Cal. App. 4th 1256, 1285 (2006). For purposes of this
motion, the Court finds there has been no statutory violation, so negligence per se is not
relevant to this motion.
Case No. 17-cv-04655 NC
8
3

1

Fargo, N.A., No. 13-cv-02411 EJD, 2014 WL 129262, at *5 (N.D. Cal. Jan. 14, 2014)

2

(citing Ingels v. Westwood One Broad. Servs., Inc., 129 Cal. App. 4th 1050, 1060 (2005)).

3

Here, the Court has dismissed both claims under the California Civil Code with prejudice,

4

and dismissed the negligence claim without prejudice. As a result, there is no freestanding

5

claim for the UCL claim to hook onto. Thus, the claim under the unlawful prong of the

6

UCL is DISMISSED WITHOUT PREJUDICE.
360 Mortgage also challenges Alvarado’s ability to bring a claim under the “unfair”

7

prong of the UCL. Alvarado disagrees. It is unclear what conduct Alvarado is alleging is

9

unfair. “[A] practice may be deemed unfair even if not specifically proscribed by some

10

other law.” Cel-Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163,

11

United States District Court
Northern District of California

8

180 (1999). The word “unfair” in the UCL “means conduct that threatens an incipient

12

violation of an antitrust law, or violates the policy or spirit of one of those laws because its

13

effects are comparable to or the same as a violation of the law, or otherwise significantly

14

threatens or harms competition.” Id. at 186. Here, the relevant alleged acts that give rise

15

to the claim under the UCL are that 360 Mortgage “refused to accept the offer from Keep

16

Your Home California” and “misinformed” him that he could not apply for a foreclosure

17

prevention alternative.4 Dkt. No. 1-1 at 15. The Court lacks facts to know what Keep

18

Your Home California is, and does not know how 360 Mortgage’s misinforming Alvarado

19

“violates the policy or spirit” of an unknown law. Cel-Tech, 20 Cal. 4th at 186.

20

In short, the Court requires additional facts as to what happened to Alvarado

21

specifically. If this claim under the “unfair” prong is to have any possibility of surviving a

22

subsequent motion to dismiss, Alvarado must clarify what he is referring to. The claim

23

under the unfair prong is DISMISSED WITHOUT PREJUDICE. Because the Court

24

dismisses this claim on the basis of Rule 12(b)(6), it will not reach the standing issue,

25

except to note that “the threat of foreclosure is sufficient to establish standing under the

26

UCL.” Foronda v. Wells Fargo Home Mortg., Inc., No. 14-cv-03513 LHK, 2014 WL

27
28

Alvarado alleges other “unfair” acts, but those are related to the California Civil Code
claims the Court already dismissed.
Case No. 17-cv-04655 NC
9
4

1

6706815, at *9 (N.D. Cal. Nov. 26, 2014). This claim is DISMISSED WITHOUT

2

PREJUDICE.

3

IV. CONCLUSION

4

For the reasons stated above, the Court GRANTS 360 Mortgage’s motion to

5

dismiss, and gives Alvarado LEAVE TO AMEND the complaint as to the negligence and

6

UCL claims. The claims under California Civil Code §§ 2923.5 and 2923.7 are

7

DISMISSED WITH PREJUDICE. Alvarado must file his amended complaint by October

8

30, 2017.

9

Alvarado may not add new defendants or new claims absent leave of court. If
Alvarado does not file a timely amended complaint, the Court will enter judgment and

11

United States District Court
Northern District of California

10

close the case.

12
13

IT IS SO ORDERED.

14
15

Dated: October 16, 2017

16

_____________________________________
NATHANAEL M. COUSINS
United States Magistrate Judge

17
18
19
20
21
22
23
24
25
26
27
28
Case No. 17-cv-04655 NC

10