Boschma v. Home Loan Ctr., Inc.
Decision Date | 10 August 2011 |
Docket Number | No. G043716.,G043716. |
Citation | 129 Cal.Rptr.3d 874,2011 Daily Journal D.A.R. 12103,198 Cal.App.4th 230,11 Cal. Daily Op. Serv. 10237 |
Court | California Court of Appeals Court of Appeals |
Parties | Clarence E. BOSCHMA et al., Plaintiffs and Appellants, v. HOME LOAN CENTER, INC., Defendant and Respondent. |
OPINION TEXT STARTS HERE
Arbogast & Berns, David M. Arbogast, Los Angeles, and Jeffrey K. Berns, Tarzana; Spiro Moss and J. Mark Moore for Plaintiffs and Appellants.
Sheppard, Mullin, Richter & Hampton, Robert S. Beall, Jonathan P. Hersey, Isaiah Z. Weedn, Costa Mesa, and Karin Vogel, San Diego, for Defendant and Respondent.
The defining feature of an option adjustable rate mortgage loan (“Option ARM”) with a discounted initial interest rate (i.e., a “teaser” rate) is, for a limited number of years, the borrower may (by paying the minimum amount required to avoid default on the loan) make a monthly payment that is insufficient to pay off the interest accruing on the loan principal. Rather than amortizing the loan with each minimum monthly payment (as occurs with a standard mortgage loan), “negative amortization” occurs—a borrower who elects to make only the scheduled payment during the initial years of the Option ARM owes more to the lender than he or she did on the date the loan was made. After an initial period of several years in which negative amortization can occur, a borrower's payment schedule then recasts to require a minimum monthly payment that amortizes the loan.
In this case, plaintiffs 1 sued defendant Home Loan Center, Inc., for: (1) fraudulent omissions; and (2) violations of Business and Professions Code section 17200 et seq. ( section 17200). Plaintiffs, individual borrowers who entered into Option ARMs with defendant, allege defendant's loan documents failed to adequately and accurately disclose the essential terms of the loans, namely that plaintiffs would suffer negative amortization if they made monthly payments according to the only payment schedule provided to them prior to the closing of the loan. The court sustained defendant's demurrer to the second amended complaint without leave to amend, reasoning that the loan documentation adequately described the nature of Option ARMs. We reverse the ensuing judgment. Plaintiffs adequately alleged fraud and section 17200 causes of action.
In conducting our de novo review, we ( People ex rel. Gallegos v. Pacific Lumber Co. (2008) 158 Cal.App.4th 950, 957, 70 Cal.Rptr.3d 501.)
The Boschmas refinanced their existing home loan with defendant on or about February 1, 2006, utilizing an Option ARM. Robison agreed to an Option ARM with defendant on or about November 22, 2005; the operative complaint does not specify whether her loan was a purchase money loan or a refinancing of an existing loan.
Plaintiffs attached copies of certain loan documents to the operative complaint. We will set forth the key provisions of these documents before detailing plaintiffs' allegations. ( Barnett v. Fireman's Fund Ins. Co. (2001) 90 Cal.App.4th 500, 505, 108 Cal.Rptr.2d 657 [].)
Plaintiffs executed nearly identical documents entitled “ADJUSTABLE RATE NOTE [ (Note) ].” The Note features a bold, capitalized disclaimer below its title and loan identification numbers: Following this disclaimer, the Note indicates the date of execution (February 1, 2006 for the Boschmas, and November 22, [129 Cal.Rptr.3d 880]2005 for Robison), the site of execution (Irvine, California), and the address of the property that secures the loan for each party. The Note then lists 11 separate terms, which we quote in relevant part below (using the Boschmas's Note, with footnotes describing any differences in the Robison Note).
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