Rex v. Chase Home Fin. LLC.
| Decision Date | 19 November 2012 |
| Docket Number | Case No. SACV 12–0609 DOC (RNBx). |
| Citation | 905 F.Supp.2d 1111 |
| Court | U.S. District Court — Central District of California |
| Parties | Michael REX, et al. v. CHASE HOME FINANCE LLC., et al. |
OPINION TEXT STARTS HERE
Bruce Alan Harbin, Harbin & McCarron, Santa Ana, CA, Daniel J. Bulfer, Jon R. Mower, Mower and Carreon LLP, Irvine, CA, for Plaintiffs.
Peter Obstler, John Anthony Polito, Zachary J. Alinder, Bingham McCutchen LLP, San Francisco, CA, for Defendant.
PROCEEDINGS: (IN CHAMBERS): ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS
Before the Court is a Motion to Dismiss (“Motion”) filed by Defendants JPMorgan Chase Bank NA, Chase Home Finance LLC, and Chase Home Finance Inc. (Dkt. 15). After considering the moving, opposing, and replying papers, as well as supplemental briefs, the Court GRANTS IN PART and DENIES IN PART the Motion.1
This case involves an issue of first impression,2 namely, whether California Civil Procedure Code Section 580b applies to bar Defendants, which are mortgage lenders, from collecting a deficiency 3 where Plaintiffs have sold their home after defaulting on their mortgage and with the consent of Defendants in a transaction commonly referred to as a “short sale.” 4 This case also presents a novel issue addressed by only two other courts regarding whether Section 1818(i)(1) of Title 12 of the United States Code divests this court of jurisdiction.
The gravamen of this putative class action is that Plaintiffs, who are borrowers, sold their home for an amount insufficient to pay off their mortgage—a “short sale”—and eschewed other options like foreclosure because they relied on representations by Defendants promising to release Plaintiffs from the obligation to pay this short sale deficiency. After the short sale, Defendants did not release Plaintiffs but rather sought to collect the short sale deficiency and reported Plaintiffs' failure to pay it to credit reporting agencies.
Defendants are JPMorgan Chase Bank, N.A. (“Defendant Chase NA”), Chase Home Finance LLC (“Defendant Chase LLC”), and Chase Home Finance Inc. (collectively, “Defendants”).
Plaintiffs Michael and Naomi Rex (“Plaintiffs”) are “borrowers who obtained financing for the purchase of residential housing in California through Defendants' loan services.” FAC ¶ 2. In 2006, Plaintiffs “financed the purchase of their home,” which was a “single family residence,” with a loan from Defendant Chase NA. Id. at ¶ 5. Defendant Chase NA “was the mortgage holder and the mortgage was thereafter held and administered by” Defendant Chase LLC. Id.
In 2009, Plaintiffs experienced “decreased income” and realized they “would not be able to satisfy the monthly payment demands of the mortgage lender.” Id. at ¶ 6. At that time, Plaintiffs owed approximately $310,000 on their mortgage. Id. at ¶ 6.
Plaintiffs “initially tried to negotiate a loan modification” with Defendant Chase LLC, but it “was unwilling.” Id. at ¶ 8. Plaintiffs “continued to make timely monthly payments on their mortgage.” Id.
“Since they were denied a loan modification and they had no other viable financial option, Plaintiffs elected to pursue [a] short sale ... as opposed to allowing the property to go into foreclosure.” Id. The FAC defines a “short sale” as “a transaction wherein the selling price of the residence is for an amount insufficient to pay off the amount of the loan on the property leaving the sale ‘short’ of a full payoff of the loan.” FAC at ¶ 2.
Defendant Chase LLC informed Plaintiffs that, before it “would approve any short sale, it would be necessary that Plaintiffs be at least thirty days late on their mortgage payments.” Id.
“Chase [LLC] agreed to accept [Plaintiffs'] short sale” and “documented the acceptance of the short sale in a letter to [Plaintiffs on] December 10, 2009” in which Defendant Chase LLC “confirmed its agreement to ‘release its security interest(s) in the ... property upon receipt of $3,000....’ ” FAC ¶ 9; see also id. at ¶¶ 39, 45, 48–49.
In a letter dated December 10, 2009, attached to the original complaint as Exhibit 2, Defendants state that:
You have informed Chase that you would like to sell the reference[d] property for an amount that is not sufficient to pay the Loan in full. In connection with the sale, you have requested that Chase release the lien (the “Lien”) on the Property which secures the Loan and the Note. Chase agrees to do so, subject to all of the following conditions:
1. Payment to Chase of certified funds of not less than $3,000.00....
2. Receipt by Chase of a signed copy of this letter whereby you promise to pay Chase, its successors or assigns, the sum of $2,000.00 by 12/30/09.
....
Chase's agreement to release the Lien and Note is valid only in connection with the Purchase Contract....
Compl. (Dkt. 1) Ex. 2.
In another December 10, 2009, letter attached to the original Complaint at Exhibit 1, Defendants states that:
This letter is to confirm that JPMorgan Chase Bank, N.A., ... agrees to accept the following:
SHORT SALE on the above account. JPMorgan Chase Bank, N.A., ... agrees to release it[s] security interests in the above collateral upon receipt of $3,000.00 in certified U.S. funds.... This amount is for the release of JPMorgan Chase Bank, N.A., ... security interest only. The customer is still responsible for all deficiency balances per the terms of the original loan documents.
“Within several months” of the short sale, Defendant Chase LLC sought “a deficiency balance of more than $56,000.00 from Plaintiffs.” FAC ¶ 41. Defendant Chase LLC “assigned the collection of this unlawfully claimed deficiency balance ‘debt’ to debt collectors,” who “have continued to ... pursue collection.” Id. at ¶¶ 11, see also id. at ¶ 73(b).
Due to these collection efforts, Plaintiffs “are being forced to, or will be forced to, make payments unauthorized by law and contrary to the express agreement of and representations of Defendant Chase [LLC].” Id. at ¶ 42.
Defendants “[f]alsely and deceptively report[ed] ... the deficiencies of Plaintiffs ... to credit reporting agencies as ‘late,’ ‘charged off,’ ‘collection,’ or other derogatory status ... when in fact under California Code of Civil Procedure 580b no such personal liability exists.” FAC ¶¶ 63, 63(d); see also id. at ¶¶ 73, 73(e).
“As a proximate result of the foregoing, Plaintiffs ... have been damaged and have suffered detriment in that they have been subjected to ... listing of ... unlawful and improperly claimed ‘debt’ with credit reporting agencies.” FAC ¶ 46, see also id. at ¶¶ 49, 56. For example, Defendant Chase LLC “caused Plaintiffs ... to suffer and sustain damages in degraded credit histories.” Id. ¶ 60. Plaintiff also has suffered “damage to [Plaintiffs'] credit reports and credit ratings.” Id. ¶¶ 74(b), 75(b).
On April 13, 2011, Defendant Chase NA consented to the issuance of and entered into a “Consent Cease and Desist Order” (“2011 Consent Order”) issued by the Comptroller of the Currency (“OCC”). Defs.' Request for Judicial Notice (“RJN”) (Dkt. 16) Ex. A (2011 Consent Order) at 1. The 2011 Consent Order states that it is “a final order issued pursuant to 12 U.S.C. § 1818(b).” Id. Ex. A at Art. XIII § 2(8).
By entering into this 2011 Consent Order, Defendant Chase NA “committed to taking all necessary and appropriate steps to remedy the ... unsafe or unsound practices identified by the OCC, and to enhance [Defendant Chase NA] residential mortgage servicing and foreclosure processes.” Id. Ex. A at 1–2. The Consent Order also states that the Comptroller finds and Defendant Chase NA “neither admits nor denies” that Defendant Chase NA “engaged in unsafe or unsound banking practices.” Id. Ex. A at 2–3.
The 2011 Consent Order provides that Defendant Chase NA “shall submit to” the OCC, and, “upon adoption” by the OCC, “implement” 5 the following:
• “Compliance Program,” which “shall” include “processes to ensure that ... compliance programs have the requisite authority ... so that ... deficiencies” in Defendant Chase NA's “Loss Mitigation” activities are “identified and promptly remedied.” Defs.' RJN (Dkt. 16) Ex. A at Art. IV, §§ (1), (1)( o ).
• “plan for operation of its management information system ... to ensure the timely delivery of complete and accurate information” regarding “Loss Mitigation activities.” Id. Ex. A at Art. VIII.
• “plan ... for ensuring effective coordination of communications with borrowers ... related to Loss Mitigation ... and foreclosure activities.” Id. Ex. A at Art. IX, § (1).
• “plan” to “reimburs[e] or otherwise appropriately remediat[e] borrowers for impermissible or excessive penalties, fees, or expenses, or for other financial injury.” Id. Ex. A at Art. VII, § (5)(a).
The 2011 Consent Order defines “loss mitigation activities” to “include ... activities related to special forbearances, modifications, short refinances, short sales, cash-for-keys, and deeds-in-lieu of foreclosure.” Id. Ex. A at Art. III § (2) (emphasis added).
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