Rivera v. Servicing

• Decision Date: 22 November 2010
• Docket Number: Case No. C 10–02439 RS.
• Citation: Rivera v. Servicing, 756 F.Supp.2d 1193 (N.D. Cal. 2010)
• Parties: Jason RIVERA, an individual; and Mikala Rivera, an individual, Plaintiffs,v.BAC HOME LOANS SERVICING, L.P., et al., Defendants.
• Court: U.S. District Court — Northern District of California

756 F.Supp.2d 1193

Jason RIVERA, an individual; and Mikala Rivera, an individual, Plaintiffs,

v.BAC HOME LOANS SERVICING, L.P., et al., Defendants.

Case No. C 10–02439 RS.

United States District Court, N.D. California,San Francisco Division.

Nov. 22, 2010.

Justin George Lynch, Mito Law, P.C., Costa Mesa, CA, for Plaintiffs.Adam M. Forest, Reed Smith LLP, San Francisco, CA, for Defendants.

ORDER GRANTING MOTION TO DISMISS

RICHARD SEEBORG, District Judge.

I. INTRODUCTION

Plaintiffs Jason and Mikala Rivera filed their original complaint on June 2, 2010, alleging thirteen claims for relief, and on June 4, 2010 filed an emergency motion for a temporary restraining order (“TRO”) enjoining defendants ReconTrust Company, N.A. (“ReconTrust”) and BAC Home Loans Servicing, LP (“BAC”) from conducting a trustee's sale of plaintiff's property located at 153 Smith Street, Alamo, California, 94507 (the “Property”). This Court issued the TRO along with an order to show cause why a preliminary injunction should not be granted. After a hearing, the Court denied plaintiffs' request for a preliminary injunction. Defendants then filed a motion to dismiss, after which plaintiffs filed a First Amended Complaint (“FAC”) on August 3, 2010 alleging seven claims for relief. Defendants have filed a supplemental memorandum of points and authorities in support of their motion to dismiss, which the Riveras have opposed. For the reasons stated below, the motion to dismiss is granted without leave to amend.

II. BACKGROUND

In the FAC, the Riveras allege that, on August 18, 2006, they purchased the Property after negotiating a mortgage and home equity line of credit (“HELOC”) with defendant Countrywide Bank, N.A. (“Countrywide Bank”), whose successor in interest is defendant Bank of America, N.A. (“BofA”). According to the FAC, the mortgage and HELOC (together, the “Home Loans”), which were memorialized by promissory notes and secured by deeds of trust, were brokered by defendant Countrywide Home Loans, Inc. (“CHL”) and were subsequently assigned by Countrywide Bank to BofA. Plaintiffs allege that the mortgage was eventually assigned from BofA to defendant Vantium Capital, Inc., dba Acqura Loan Services, while the HELOC and related promissory note and deeds of trust were assigned to defendant E*Trade. ReconTrust was the initial trustee on the deeds of trust. The promissory notes executed pursuant to the Home Loans, as well as the deeds of trust, were serviced by defendants Vantium Capital, Inc. and BAC. ¹

The FAC avers that defendants failed to make a number of disclosures required by the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601 et seq., and the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2605 et seq., prior to executing the Home Loans, including disclosing the difference between plaintiffs' applicable interest rate and the promoted rate, a good faith estimate of the closing costs, an itemization of the amount financed, a notice of the plaintiffs' right to cancel and right to rescind, the method used to determine the finance charges and loan balance, and the likelihood of negative amortization given the repayment structure. The FAC also avers that defendant Stephanie Saunders, on behalf of CHL, completed the loan application and that “Defendants inserted an inflated income” in order to qualify the Riveras for loans that they could not otherwise afford.² As a result of these alleged misrepresentations and omissions, plaintiffs contend that they were induced to accept unaffordable loans and eventually fell behind on their payments.

Once the Riveras became delinquent on their loans, ReconTrust recorded a notice of default on May 2, 2008 and eventually recorded a notice of sale on August 3, 2008.³ RJN Ex. D. The Riveras subsequently sent to CHL, ReconTrust, Countrywide Bank and Mortgage Electronic Registration System, Inc. a “Notice of Right to Cancel and Opportunity to Cure” on July 29, 2009 and a “Notice of Removal” of defendants as trustee as well as a “Notice of Revocation of Power of Attorney” on July 24, 2009.⁴ Based on these allegations, plaintiffs assert claims for relief for violations of (1) TILA (against defendants CHL and Countrywide Bank), (2) RESPA, (3) fraud, (4) California Business and Professions Code section 17200 et. seq., (5) negligence, (6) accounting and (7) quiet title. The parties appeared for oral argument on the motion to dismiss on September 2, 2010.

III. LEGAL STANDARD

A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). While “detailed factual allegations are not required,” a complaint must have sufficient factual allegations 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) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A claim is facially plausible “when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Claims grounded in fraud are also subject to FRCP Rule 9(b), which provides that “[i]n allegations of fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). To satisfy that rule, a plaintiff must allege the “who, what, where, when, and how” of the charged misconduct. Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir.1997).

A motion to dismiss a complaint under FRCP Rule 12(b)(6) tests the legal sufficiency of the claims alleged in the complaint. See Parks Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir.1995). Dismissal under FRCP Rule 12(b)(6) may be based either on the “lack of a cognizable legal theory” or on “the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.1988). When evaluating such a motion, the court must accept all material allegations in the complaint as true, even if doubtful, and construe them in the light most favorable to the non-moving party. Twombly, 550 U.S. at 570, 127 S.Ct. 1955. “[C]onclusory allegations of law and unwarranted inferences,” however, “are insufficient to defeat a motion to dismiss for failure to state a claim.” Epstein v. Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir.1996); see also Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (“threadbare recitals of the elements of the cause of action, supported by mere conclusory statements,” are not taken as true)). While in dismissing a complaint, leave to amend must be granted unless it is clear that the complaint's deficiencies cannot be cured by amendment, Lucas v. Dep't of Corrections, 66 F.3d 245, 248 (9th Cir.1995), when amendment would be futile, dismissal may be ordered with prejudice. Dumas v. Kipp, 90 F.3d 386, 393 (9th Cir.1996).

IV. DISCUSSION

A. TILA

Plaintiffs allege that defendants failed to make required disclosures under TILA, as amended by the Home Ownership Equity Protection Act and as implemented by Regulation Z. 15 U.S.C. § 1601, et seq.; 12 C.F.R. § 226. In particular, they contend that defendants failed to inform them of their right to rescind under Section 1635, which provides that a borrower is entitled to rescind a consumer credit transaction within three days after execution. 15 U.S.C. § 1635(a). If a creditor fails to disclose that right, a borrower then has three years from the date of consummation in which to rescind. 15 U.S.C. § 1635(f); 12 C.F.R. § 226.23(a)(3). The “date of consummation” of a transaction is the date on which the “consumer becomes contractually obligated on a credit transaction,” which occurs when the loan is executed. 12 C.F.R. § 226.2(a)(13); see also King v. State of Cal., 784 F.2d 910 (9th Cir.1986). As the Ninth Circuit has held, “[Section] 1635 is a statute of repose, depriving the courts of subject matter jurisdiction when a § 1635 claim is brought outside the three-year limitation period.” Miguel v. Country Funding Corp., 309 F.3d 1161, 1165 (9th Cir.2002) Plaintiffs point out in their opposition to the motion to dismiss that, once a borrower exercises the right to rescind, if a creditor refuses to cancel the loan the borrower has one year from the date of that refusal in which to file a suit for damages. See Ramos v. Citimortgage, Inc., 2009 WL 86744 at *3 (E.D.Cal. Jan. 8, 2009) (citing Miguel 309 F.3d at 1165 (citing 15 U.S.C. § 1640(e))). What plaintiffs omit from their brief, however, is that Ramos went on to find that “if the borrower files his or her suit over three years from the date of a loan's consummation, a court is powerless to grant rescission.” Id. (citing Miguel 309 F.3d at 1165) (emphasis added).

Here, plaintiffs executed the Home Loans on August 18, 2006, but did not filed their complaint in this Court until June 2010, nearly four years later. While the Riveras may have sent their “Notice of Right to Cancel and Opportunity to Cure” within three years of executing the loans (and less than a year before bringing their lawsuit), they still nonetheless failed to bring their TILA claims in a timely fashion under the statute. Therefore, their TILA claims must be dismissed without leave to amend.⁵

Moreover, the right to rescind does not apply to residential mortgage transactions. 15 U.S.C. § 1635(e); 12 C.F.R. § 226.23(f). A “residential mortgage transaction” consists of “a transaction in which a mortgage, deed of trust ... or equivalent consensual security interest is created or retained against the consumer's dwelling to finance the acquisition ... of such dwelling.” 15 U.S.C. § 1602(w); 12 C.F.R. § 226.2(a)(24). In their memorandum in support of the motion for a temporary restraining order, plaintiffs relied upon Semar v. Platte Valley Fed. Sav. & Loan Assoc. for the proposition that borrowers have three days to rescind consumer...