Nool v. Homeq Servicing

• Decision Date: 04 September 2009
• Docket Number: No. 1:09-CV-0885 OWW DLB.,1:09-CV-0885 OWW DLB.
• Citation: 653 F.Supp.2d 1047
• Parties: Jonathan A. NOOL and Arlene G. Nool, Plaintiffs, v. HOMEQ SERVICING, et al., Defendants.
• Court: U.S. District Court — Eastern District of California

653 F.Supp.2d 1047

Jonathan A. NOOL and Arlene G. Nool, Plaintiffs, v. HOMEQ SERVICING, et al., Defendants.

No. 1:09-CV-0885 OWW DLB.

United States District Court, E.D. California.

September 4, 2009.

COPYRIGHT MATERIAL OMITTED

Joel Richard Bander, Bander Law Firm, LLP, Los Angeles, CA, for Plaintiffs.

John Owen Campbell, Houser & Allison, APC, Irvine, CA, for Defendants.

MEMORANDUM DECISION RE BARCLAYS CAPITAL REAL ESTATE, INC. (erroneously sued as HOMEQ SERVICING) (DOC. 5).

OLIVER W. WANGER, District Judge.

I. INTRODUCTION

Barclays Capital Real Estate Inc. ("Barclays"), erroneously sued as HomeQ Servicing, moves to dismiss Jonathan A. and Arlene G. Nool's ("Plaintiffs") complaint pursuant to Federal Rule of Civil Procedure 9(b) and 12(b)(6). Doc. 8. On May 4, 2009, Plaintiffs filed a complaint in Fresno County Superior Court, alleging ten causes of action under: (1) the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1610, et seq.; (2) California Civil Code § 2923.6; (3) the federal Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §§ 1692, et seq.; (4) California's Rosenthal Fair Debt Collection Practices Act ("RFDCPA"), Cal. Civ. Code §§ 1788 et seq.; (5) various predatory lending/ fraud statutes and regulations, including TILA, 12 C.F.R. § 226.32 (part of "Regulation Z"), Cal. Fin.Code § 4970, and Cal. Civ.Code § 1930; (6) fraud; (7) unfair business practices, Cal. Bus Prof. Code §§ 17200, et seq.; (8) breach of fiduciary duty; (9) for quiet title; and (1) for breach of the implied covenant of good faith and fair dealing. Doc. 1.

On May 19, 2009, Defendant removed the action to federal court pursuant to 28 U.S.C. §§ 1331, 1441 based on federal question jurisdiction. Id. On June 2, 2009, Defendant moved to dismiss all of the claims in the case. Doc. 5. Plaintiff opposes dismissal of the TILA, California Civil Code § 2923.6, FDCPA, RFDCPA, fraud, unfair business practices, and quiet title claims. Doc. 9, filed June 19, 2009. Defendant replied. Doc. 11, filed August 25, 2009.

II. LEGAL STANDARD

A. Rule 12(b)(6) Motion to Dismiss.

A motion to dismiss brought under Federal Rule of Civil Procedure 12(b)(6) "tests the legal sufficiency of a claim." Navarro v. Block, 250 F.3d 729, 732 (9th Cir.2001). In deciding whether to grant a motion to dismiss, the court "accept [s] all factual allegations of the complaint as true and draw[s] all reasonable inferences" in the light most favorable to the nonmoving party. Rodriguez v. Panayiotou, 314 F.3d 979, 983 (9th Cir.2002). To survive a motion to dismiss, a complaint must "contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, ___ U.S. ____, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).

A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that defendant has acted unlawfully. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of `entitlement to relief.'"

Id. (citing Twombly, 550 U.S. at 556-57, 127 S.Ct. 1955). Dismissal also can be based on the lack of a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.1988).

III. BACKGROUND

On or about May 11, 2006, Plaintiff refinanced the purchase of a residential property located at 5799 West Cromwell Avenue, Fresno, California ("Subject Property") in the amount of $397,500.00, at an initial interest rate of 8.180 percent, adjusting after two years, never to exceed 15.180 percent ("Subject Loan"). Compl. ¶¶ 5, 16. Mr. Nool was involved in an automobile accident, rendering Plaintiffs unable to pay their mortgage. Id. at ¶ 2.

Plaintiffs allege that Defendants "work[ed] in concert [and] conspired to place borrowers, such as Plaintiffs ..., in the worst possible home loans for the borrowers, but the most profitable loans for them." Id. at ¶ 1. Plaintiffs further allege that Defendants engaged in wrongful conduct related to its loan practices, including failing to provide mandated disclosures in a clear and conspicuous way; materially misstating other disclosures, such as the actual interest rate on the note; failing to adequately provide adequate notice of the right to rescind; and failing to determine and disclose that Plaintiffs did not qualify to obtain the loan. Id. at ¶ 3. Plaintiffs request rescission of the Subject Loan, damages, and injunctive and declaratory relief.

IV. ANALYSIS

A. TILA.

Plaintiffs allege that Defendants failed to make certain "cost of credit" disclosures to them before closing the loan in violation of TILA and Regulation Z, 12 C.F.R. § 226, et seq.¹ Compl. ¶ 23. There are two types of remedies available under TILA and Regulation Z: statutory damages and rescission. 15 U.S.C. §§ 1635(f), 1640(a). The statute of limitations for bringing a claim for statutory damages is one year from the date of the occurrence of the violation. § 1640(e).

Here, Plaintiffs entered into the challenged loan transaction on May 11, 2006. There is no allegation in the complaint suggesting that any TILA violation would have accrued on a later date. Therefore, the statute of limitations for any statutory damages claim expired on May 11, 2007. Plaintiffs did not file this lawsuit until May 4, 2009, almost two years later. Any damages claims under TILA are barred.

In addition to damages, rescission is available under TILA in some circumstances. 15 U.S.C. § 1635; 12 C.F.R. § 226.23. The consumer's right to rescission is absolute only for a period of three days after the loan is consummated, 15 U.S.C. § 1635(a); 12 C.F.R. § 226.23(a)(3), unless the lender fails to provide "material disclosures" at the closing, in which case the period is extended to three years, 15 U.S.C. § 1635(f); 12 C.F.R. § 226.23(a)(3). Here, there is an allegation in complaint that the lender failed to make "material disclosures," and Plaintiffs did initiate this lawsuit within the three year time period.

However, the property has been sold at a foreclosure auction, which terminates any right of rescission under TILA. 15 U.S.C. § 1635(f) provides that "an obligor's right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first...." See also Hallas v. Ameriquest Mortg'g Co., 406 F.Supp.2d 1176, 1183 (D.Or.2005); Worthy v. World Wide Fin. Servs. Inc., 347 F.Supp.2d 502, 507 (E.D.Mich.2004).

Plaintiffs' TILA claim is DISMISSED WITHOUT LEAVE TO AMEND.

B. Cal. Civ.Code § 2923.6.

Plaintiffs next claim that California Civil Code § 2923.6 mandates that loan servicers, such as Defendant, attempt to negotiate a loan modification with the borrower. Compl. ¶ 30. Section 2923.6 provides in pertinent part:

(a) The Legislature finds and declares that any duty servicers may have to maximize net present value under their pooling and servicing agreements is owed to all parties in a loan pool, not to any particular parties, and that a servicer acts in the best interests of all parties if it agrees to or implements a loan modification or workout plan for which both of the following apply:

(1) The loan is in payment default, or payment default is reasonably foreseeable.

(2) Anticipated recovery under the loan modification or workout plan exceeds the anticipated recovery through foreclosure on a net present value basis.

(b) It is the intent of the Legislature that the mortgagee, beneficiary, or authorized agent offer the borrower a loan modification or workout plan if such a modification or plan is consistent with its contractual or other authority.

This legislation was recently enacted, and there is little authority interpreting it. Section (a) provides that modifying individual loans within a loan pool does not violate the servicer's duty to maximize net present value under their pooling/servicing agreements, so long as the modified loan was at risk of default. This section is not applicable here. See Pittman v. Barclays Capital Real Estate, Inc., 2009 WL 1108889, at *3 (S.D.Cal. Apr. 24, 2009) ("[T]he cited statute clearly addresses this concern by creating a duty between a loan servicer and a loan pool member. The statute in no way confers standing on a borrower to contest a breach of that duty.").

Some courts have suggested that section (b) imposes a duty upon lenders to negotiate loan modifications. See In re Morgan-Austin, No. 08-40399, 2009 WL 780457, at *3 (Bankr.N.D.Cal. Feb. 14, 2009) ("Because of the national epidemic of foreclosures on home mortgages, in July 2008, the California legislature enacted emergency legislation, requiring lenders to attempt to negotiate workout agreements on loan defaults before commencing or continuing foreclosure proceedings.") (applying Cal. Civ.Code §§ 2923.5, 2923.6, 2924.8, and 2929.3.). However, the language of section (b) belies the imposition of any duty to engage in loan modification discussions, as the provision merely expresses legislative "intent" that the mortgagee, beneficiary, or authorized agent offer the borrower a loan modification if doing so is consistent with its authority. Pantoja v. Countrywide Home Loans, Inc., 640 F.Supp.2d 1177 (N.D.Cal.2009); see also Farner v. Countrywide Home Loans, 2009 WL 189025, at *2 (S.D.Cal. Jan. 26, 2009) ("[N]othing in Cal. Civ.Code § 2923.6 imposes a duty on servicers of loans to modify the terms of loans or creates a private right of action for borrowers.").²

Plaintiffs request leave to amend to assert a claim under sections 2923.5 and 2923.6. The California Civil Code § 2923.6 claim is DISMISSED WITH LEAVE TO AMEND, but P...