Walker v. Countrywide Home Loans, Inc.

• Court: California Court of Appeals
• Writing for the Court: Mosk
• Citation: Walker v. Countrywide Home Loans, Inc., 98 Cal.App.4th 1158, 121 Cal.Rptr.2d 79 (Cal. App. 2002)
• Decision Date: 30 May 2002
• Docket Number: No. B145102.,B145102.
• Parties: J. Lynwood WALKER et al., Plaintiffs and Appellants, v. COUNTRYWIDE HOME LOANS, INC., Defendant and Appellant.

121 Cal.Rptr.2d 79

98 Cal.App.4th 1158

J. Lynwood WALKER et al., Plaintiffs and Appellants, v. COUNTRYWIDE HOME LOANS, INC., Defendant and Appellant.

No. B145102.

Court of Appeal, Second District, Division 5.

May 30, 2002.

Certified for Partial Publication.^*

Susman Godfrey, Marc M. Seltzer, Los Angeles, David H. Boren; Law Offices of Bernard L. Weiner and Bernard L. Weiner for Plaintiffs and Appellants.

Severson & Werson, Jan T. Chilton, San Francisco; Sanford Shatz for Defendant and Appellant.

MOSK, J.

J. Lynwood Walker and Violet Walker (the Walkers) appeal from the trial court's grant of summary judgment in favor of Countrywide Home Loans, Inc. (Countrywide). Countrywide appeals from the court's denial of its motion for attorney fees.

When a borrower is in default on a loan secured by real property, Countrywide conducts inspections of the property, the cost of which Countrywide charges to the delinquent borrower. The Walkers challenge Countrywide's practice of passing the cost of conducting property inspections to delinquent borrowers, contending that the practice is unlawful, unfair, and deceptive under Business and Professions Code section 17200 (the unfair competition law). The Walkers argue property inspection fees are "unlawful" late charges that violate provisions of California's Civil and Financial Codes; the fees are "unfair" in that the utility of charging them to consumers is outweighed by the harm to consumers, they are unethical and they are not permitted by the Walkers' deed of trust; and the fees are "deceptive" because the Walkers' deed of trust does not authorize them.

In the published portion of this opinion, we hold that Countrywide's practice of charging delinquent borrowers with the actual cost of performing property inspections does not violate the unfair competition law. We also hold that the trial court properly denied Countrywide's motion for attorney fees because the Walkers' action was fundamentally one brought under the unfair competition law, which law does not provide for an attorney fees award to the prevailing party. In the unpublished portion of this opinion, we reject the Walkers' claim that the trial court erred when it ruled inadmissible the legislative history of Civil Code section 2954.4 (which section governs late charges on delinquent home loans) and an expert declaration concerning industry custom and practice in charging property inspection fees to borrowers.

We therefore affirm the judgment and affirm the order denying Countrywide's motion for attorney fees.

FACTUAL BACKGROUND

The Walkers' Property Inspection Fees

To purchase their Los Angeles home, the Walkers borrowed $290,000 from Bayside First Mortgage Inc. (Bayside) in June 1995. That loan was evidenced by a note and secured by a deed of trust on the property, both of which Bayside assigned to Countrywide. The deed of trust required the Walkers not to "destroy, damage or impair the Property, allow the Property to deteriorate, or commit waste on the Property." If the Walkers defaulted under the terms of their note, then pursuant to the deed of trust, "Lender may do and pay for whatever is necessary to protect the value of the Property and the Lender's rights in the Property. Lender's actions may include ... appearing in court, paying reasonable attorneys' fees and entering on the Property to make repairs.... [K] Any amounts disbursed by Lender under this paragraph 7 shall become additional debt of Borrower secured by this Security Instrument." The deed of trust also provided, "Lender or its agent may make reasonable entries upon and inspections of the Property. Lender shall give Borrower notice at the time of or prior to an inspection specifying reasonable cause for the inspection."

The Walkers defaulted on their loan in November 1996. Countrywide asserts that, in accordance with its usual practice, it gave the Walkers written warnings and collection calls urging them to reinstate the loan, but that Countrywide's efforts were unavailing. Thereafter, Countrywide ordered an inspection of the Walkers' property in January 1997 for which it charged the Walkers $9.50. Thereafter, Countrywide ordered an additional 12 property inspections that were performed approximately every 30 days and charged the Walkers for the inspections as follows: March 1997, $9.50; April 1997, $9.50; May 1997, $9.50; June 1997, $9.50; July 1997, $9.50; July 1997, $8.50; August 1997, $8.50; October 1997, $8.50; October 1997, $8.50; December 1997, $8.50; December 1997, $8.50; and February 1998, $10. The inspections showed that the Walkers continued to occupy and maintain the property.

On at least two occasions, no one was home at the time of the inspections, but the inspector left a calling card. Violet Walker testified that the first time she recalled learning that Countrywide had charged for property inspections was during the bankruptcy refinance period, which date is not in the record. J. Lynwood Walker testified that until February 1998 the Walkers had been unaware that there were inspections of their property.

By January 1998, the Walkers had not cured their default. Therefore, Countrywide noticed a foreclosure sale of the Walkers' home. In February 1998, the day before the foreclosure sale date, the Walkers paid off their loan, although the record does not specify in what manner they did so. The Walkers also paid the $118 charge for the 13 property inspections.

Countrywide's Property Inspection Practice

Countrywide enters into and buys home mortgage loan contracts secured by real property and sells the loans to secondary market investors. After selling the loans, Countrywide continues to administer or "service" them on the investors' behalf. Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), and Government National Mortgage Association (Ginnie Mae) own the majority of loans Countrywide services.

Freddie Mac and Fannie Mae publish guidelines concerning when loan servicers, such as Countrywide, should conduct property inspections. Freddie Mac requires a loan servicer within 45 to 59 days of a loan default to conduct a property inspection and face-to-face interview with the borrower if no arrangements have been made to bring a delinquent mortgage current. (2 Fed. Home Loan Mortgage Corporation, Single-Family Seller/Servicer Guide (July 31, 1994) ch. 64, § 64.6, pp. 64-67.) Inspections continue every month thereafter until satisfactory repayment arrangements have been made. (Ibid.) Similarly, Fannie Mae's servicing guidebook states that a "[p]art of a servicer's responsibility for safeguarding the integrity of the properties securing mortgages [that Fannie Mae has] purchased or securitized includes making periodic inspections of the property .... [¶] ... [¶] The servicer must inspect a property that secures a delinquent first mortgage before the 60th day of delinquency. ... After the servicer's initial inspection and until such time as the mortgage is referred for foreclosure, the servicer should schedule subsequent property inspections for delinquent mortgages as often as it considers necessary to protect our interests." (Fed. National Mortgage Association, Servicing (Sept. 30, 1996) ch. 3, § 303, p. 321.) Once a property has been referred for foreclosure, the servicer must inspect the property at least every 30 days, and 30 days before the foreclosure sale. (Ibid.)

When a default on a loan secured by residential property occurs, Countrywide's computer program orders property inspections depending on the existence of factors such as the amount of time the loan has been delinquent and whether the property is subject to a foreclosure sale. Countrywide orders follow-up inspections each month if the default is not cured. Beginning in 1999, after the inspections of the Walkers' property took place, when a borrower defaulted on a loan, before inspecting the property, Countrywide sent a written notice to the borrower that Countrywide would conduct periodic property inspections so long as the loan remained delinquent and that the borrower would be responsible for paying the cost of those inspections.

Countrywide's expressed primary purpose in conducting the property inspections is to ascertain whether the home is occupied. To that end, and depending on the particular circumstances of a delinquent loan, Countrywide orders one of three types of property inspections: (1) an inspection to "verify occupancy," which inspection may include an inspector contacting neighbors to determine who, if anyone, is occupying the property; (2) in the event the borrower has commenced a bankruptcy proceeding, a "bankruptcy drive-by" inspection by which the investigator verifies occupancy by means other than contacting the property's resident; and (3) for an unoccupied property, a "vacant walk-thru" inspection, which inspection includes examining the property's interior and exterior.

A "verify occupancy" inspection cost Countrywide $9.50 in 1995; $10 in 1998; and $12 in 1999. A "bankruptcy drive-by" inspection cost $8.50 in 1995; $9 in 1998; and $11 in 1999. A "vacant walk thru" inspection cost $15 in 1995; $15.75 in 1998; and $17.75 in 1999. Countrywide charged these costs, without markup, to the delinquent borrower. The costs are included in the borrower's monthly bills, and, if they are not paid and there is a foreclosure on the property, Countrywide seeks reimbursement of the property inspection costs from the owner of the loan. Countrywide charges the borrower only the cost of property inspections performed before a notice of default is recorded.

Of about 3,000 inspections performed per month, approximately 10 percent reveal that the property is vacant. Based on the property inspection report, Countrywide may change locks and make repairs, protect the property against vandalism, winterize the property, and drain the swimming pool.

Since late 1997, Countrywide subcontracted...