Court: District Court, E.D. California; April 5, 2017; Federal District Court
Plaintiff Elizabeth A. Willis initiated legal action against JPMorgan Chase Bank for violations of the California Homeowner’s Bill of Rights (HBOR) and negligence related to the mishandling of her loan modification requests. The case is currently before the court on Chase's Motion to Dismiss, asserting that the complaint fails to state a valid claim under Federal Rule of Civil Procedure 12(b)(6).
The factual context reveals that Willis refinanced her mortgage with Chase in 2006 and applied for a loan modification in May 2016, submitting a completed application on July 8, 2016. She alleges that Chase repeatedly lost her documents, leading to multiple resubmissions. Chase denied her modification request for the home equity line of credit (HELOC) but did not respond to her first lien loan application. Subsequently, foreclosure proceedings were initiated against her, prompting another application submission on October 24, 2016, without any feedback regarding the first lien loan modification.
Willis filed her complaint in state court on January 12, 2017, claiming violations of the HBOR and negligence, which Chase later removed to federal court. The court emphasizes that, in evaluating a motion to dismiss, the plaintiff's allegations must be accepted as true, and the complaint should only provide enough factual content to establish a plausible claim for relief. The standard does not require a probability of wrongdoing but rather allows for the possibility of liability based on the facts presented. Mere conclusory statements without factual support are insufficient to meet this standard.
Plaintiff alleges a violation of California Civil Code, 2923.6(c, d) by the defendant for failing to provide a decision on her first lien mortgage modification application before initiating foreclosure proceedings. The defendant contends that the claim should be dismissed because the plaintiff does not allege the recording of a notice of default. Section 2923.6 prohibits "dual tracking," which allows a lender to foreclose while reviewing a loan modification application. Specifically, if a complete application for a first lien loan modification is submitted, the mortgage servicer cannot record a notice of default or conduct a sale while the application is pending. The plaintiff stated that she submitted a complete application on July 8, 2016, but claims the defendant began foreclosure before reviewing her application and failed to provide a written determination or inform her of her right to appeal. However, the plaintiff does not allege that a notice of default or sale was recorded, which is necessary for a violation under subsections (c) and (d). Previous case law supports the notion that without such allegations, the claim cannot proceed. Thus, the court must dismiss the plaintiff's first cause of action due to the lack of necessary allegations regarding the recording of a notice of default or sale.
Plaintiff's second cause of action alleges negligence by the defendant for mishandling her loan modification application, failing to keep her informed about its status, and engaging in dual tracking. To succeed in a negligence claim, the plaintiff must prove the existence of a legal duty, a breach of that duty, and that the breach caused her injuries. The determination of a legal duty is a question of law. The plaintiff contends that the defendant had a duty to fairly review her loan modification request. In contrast, the defendant asserts that it owed no such duty under California law, as financial institutions typically do not owe a duty of care to borrowers when their role is merely that of a lender. However, this does not imply that lenders never owe a duty; the existence of a duty is assessed based on multiple factors, including the intention behind the transaction and the foreseeability of harm. California courts have differing opinions on whether lenders owe a duty of care in the context of loan modifications. For instance, in Lueras v. BAC Home Loans Servicing, the court ruled that lenders do not have a common law duty to consider or approve loan modifications, as these actions fall within their conventional role as lenders, with obligations defined by loan documents and regulatory frameworks.
In Alvarez v. BAC Home Loans Servicing, L.P., the court determined that lenders have a legal duty of care if they agree to consider loan modifications. This reasoning was adopted in Daniels v. Select Portfolio Servicing, Inc. However, judges in the district are divided on this issue, with some, like in Shupe, ruling that loan modifications do not impose common law duties on lenders, while others, such as in Martinez, recognize a duty not to misrepresent loan modification application statuses. The Ninth Circuit leans towards the Lueras line of cases, concluding that the Biakanja factors do not support imposing a duty of care on lenders regarding delays in loan modification processing, as seen in Deschaine and Anderson. Additionally, the court has previously ruled that financial institutions do not owe a common law duty of care to borrowers, a stance that remains unchanged despite the Alvarez and Daniels decisions. An arm's length transaction between lenders and borrowers does not establish a duty of care, and rights and obligations are defined by the note, deed of trust, and relevant laws. Consequently, loan servicers do not have a common law duty to fairly review loan modification applications. The plaintiff's claim that the defendant was obliged to review her application reasonably is insufficient to establish a duty of care, leading to the dismissal of her negligence claim. The plaintiff also mentions a potential violation of California Civil Code § 2923.7 regarding single points of contact, but this claim is not included in her original complaint and must be explicitly stated in her First Amended Complaint if pursued.
Defendant’s Motion to dismiss is granted. The plaintiff has twenty days from the signing of this order to file a First Amended Complaint, provided it aligns with the order. The court acknowledges that it can take judicial notice of facts that are not reasonably disputed and can recognize matters of public record, as outlined in Federal Rules of Evidence 201 and supported by case law. The court approves the defendant's request to take judicial notice of two recorded documents: the deed of trust for the first lien mortgage and the California open-end deed of trust for the HELOC, as they are public records with unquestionable accuracy. Furthermore, the court finds that the plaintiff's claims regarding the loan modification of the HELOC do not apply to California Civil Code sections 2923.6(c, d), which pertain specifically to 'first lien loan modification.'
