Calif. App. Court Rejects Borrower’s HBOR ‘Dual Tracking,’ SPOC Allegations

The Court of Appeals of California, Second Appellate District, recently held that a borrower failed to state a cause of action for alleged violations of the “dual tracking” and “single point of contact” provisions of California’s Homeowners Bill of Rights (HBOR), Calif. Civ. Code, §§ 2923.6, 2923.7, because:

(1) the borrower did not allege acceptance of a loan modification agreement within 14 days after receiving it; and

(2) the borrower’s allegations demonstrated that the servicer assigned a customer service representative to process the loan modification application.

The Court also dismissed the borrower’s allegations of lack of standing to foreclose, illegal substitution of trustee, and fraud as meritless and held that the doctrine of res judicata applied to the borrower’s new theory of wrongful foreclosure which was premised on the same primary right as past litigation that had resulted in final judgments allowing foreclosure proceedings to go forward.

Of note, the Court prefaced its ruling by stating:

‘The purpose of the law of contracts is to protect the reasonable expectations of the parties.’ (Ben-Zvi v. Edmar Co. (1995) 40 Cal.App.4th 468, 475.) This principle applies to the law of ‘mortgages.’  A person who borrows money from a bank to purchase or refinance a home has a reasonable expectation that the bank will fund the loan. The bank has a reasonable expectation that monthly mortgage payments will be made. Here, appellant’s reasonable expectations were met. The bank’s were not. Nonpayment of the mortgage for approximately eight years while the borrower remains in possession is an egregious abuse. Respondent argued, and the trial court agreed, that appellant is ‘gaming the system.’ The game is over.

A copy of the opinion in Gillies v. JPMorgan Chase Bank, NA is available at:  Link to Opinion.

This lawsuit was the fifth in a series of state and federal lawsuits brought by a borrower since 2009 challenging a servicer’s efforts to foreclose upon his real property. The lawsuits concerned similar allegations of claimed wrongful foreclosure procedures and the bank’s standing to foreclose.

In 1992, the borrower acquired residential property. He subsequently obtained a $500,000 loan from a lender, and executed an adjustable interest rate promissory note in favor of the lender. A deed of trust was recorded to secure the loan.

Sixteen years later, the Federal Deposit Insurance Corporation, as receiver for the lender, and a bank entered into a Purchase and Assumption Agreement whereby the bank purchased all right, title, and interest in the assets of the lender. The agreement also stated that the bank specifically purchased all mortgage servicing rights and obligations of the lender.

A year later, in 2009, the borrower defaulted on the loan, and the bank’s foreclosure trustee recorded a notice of default and a notice of trustee’s sale.

Before the foreclosure sale, the borrower filed a complaint against the foreclosure trustee and the bank, alleging that the notice of default was not properly recorded, that it was not filed in compliance with Cal. Civil Code section 2923.5, and that the notice of sale was not properly recorded. The trial court dismissed the action without leave to amend.  The borrower appealed and the Court of Appeal affirmed the trial court’s judgment of dismissal.

In 2011, the foreclosure trustee recorded a second notice of trustee’s sale. The borrower filed a second action against the foreclosure trustee, alleging that the notice of default was defective and that the bank violated section 2923.52 by giving premature notice of sale. The trial court dismissed this action. The borrower appealed, and the Court of Appeal affirmed the trial court’s judgment of dismissal.

In 2012, the foreclosure trustee recorded another notice of trustee’s sale. In response, the borrower filed a third lawsuit against the bank, this time in federal court. In part, he repeated allegations made in his previous state court cases regarding the misspelling of his first name. The borrower also challenged the bank’s right to nonjudicial foreclosure.

The trial court granted the bank’s motion to dismiss the action without leave to amend.  The borrower appealed, and the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal without leave to amend. See Gillies v. JPMorgan Chase Bank N.A. (Gillies III) (9th Cir. 2016) 644 Fed.Appx. 716.

In 2015, a new foreclosure trustee recorded a notice of trustee’s sale setting a foreclosure sale of the property. The borrower responded by filing yet another complaint alleging violations of the California Homeowners Bill of Rights (HBOR), lack of standing to foreclose, unlawful substitution of trustee, fraud, injunctive relief, and damages. He also obtained a temporary restraining order and filed an application for a preliminary injunction.

Once again, the bank demurred, asserting that the borrower’s allegations did not state facts sufficient to constitute a cause of action. The trial court sustained the demurrer without leave to amend, vacated the temporary restraining order, denied the borrower’s request for a preliminary injunction, and dismissed the borrower’s action. The borrower appealed again,

For his first cause of action, the borrower alleged that the bank violated the “dual-tracking” prohibition of HBOR, Cal. Civil Code § 2923.6(c), by proceeding with the foreclosure while his loan modification application was pending. He also alleged that the bank did not assign “a single point of contact,” as required by § 2923.7(a).

As you may recall, Cal. Civ. Code § 2923.6(c)(2) permits a “mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent” to record a notice of default or notice of sale or conduct a trustee’s sale if a borrower does not accept a first lien loan modification within 14 days of the offer.

Cal. Civ. Code § 2923.7(a) requires that “[u]pon request from a borrower who requests a foreclosure prevention alternative, the mortgage servicer shall promptly establish a single point of contact and provide to the borrower one or more direct means of communication with the single point of contact.”

The Court of Appeal rejected the borrower’s arguments, noting that the allegations of his complaint belied his contention that the bank violated HBOR, because he did not allege that he accepted the loan modification during the four-month period after he received the modification agreement and before the servicer recorded the notice of sale.

In addition, the Appellate Court held that the borrower’s allegations demonstrated that the bank assigned a customer service representative to whom the borrower submitted his loan modification application.

For his second cause of action, the borrower alleged that the bank lacked standing to foreclose because he alleged that the note and deed of trust were sold to a third party before the bank assumed the assets of the lender.

The Court of Appeal, taking judicial notice of the agreement between the bank and the Federal Deposit Insurance Corporation, disagreed. It dismissed the borrower allegations as speculation with no reasonable basis.

For his third cause of action, the borrower alleged that the bank was not the beneficiary of his trust deed and could not substitute the servicer as trustee to foreclose his property.

Again, the Court of Appeal disagreed, holding that it was beyond dispute that the bank succeeded to the lender’s interest as beneficiary, and affirming the trial court’s conclusion that the borrower did not state a cause of action regarding the substitution of trustee.

In his fourth cause of action, the borrower alleged that the bank committed fraud on each occasion that it noticed a trustee’s sale by misstating his name although he admitted that the misspelling was a clerical error.

The Appellate Court concluded that the allegation of fraud did not state a cause of action, observing no reasonable person would be confused by this minor typographical error. It noted that the notices contained the street address of the property and correctly spelled the borrower’s surname.

Thus, the Appellate Court held that the trial court properly denied the borrower’s motion for a preliminary injunction.

The Court also rejected the borrower’s arguments concerning his new theory of wrongful foreclosure, noting that it was the same primary right that the borrower had always claimed and was precluded by the principle of res judicata. See Weikel v. TCW Realty Fund II Holding Co. (1997) 55 Cal.App.4th 1234, 1245.

By now, the borrower had lost three superior court cases, a federal case in the United States District Court, an appeal in the Ninth Circuit Court of Appeals. He also lost an emergency petition for relief in the Ninth Circuit as well as in the United States Bankruptcy Court.

The Court of Appeal admonished the borrower, who was an attorney, for not complying with lawful court orders, and continuing to tax the legal system in an attempt to retain possession of his house.

The Court observed that no litigant has an entitlement to file a lawsuit seeking relief from an alleged wrong and then not follow the court’s ruling denying relief. By submitting to the court to resolve a dispute, a litigant who is willing to abide by an order granting relief must be willing to abide by an order denying relief. The sanctity and integrity of a final judgment must be honored or there is no such thing as a final judgment. See People v. Barragan (2004) 32 Cal.4th 236, 255.

The Court of Appeal therefore affirmed the trial court’s dismissal of the complaint.

Print Friendly, PDF & Email

Patrick Kane practices in Maurice Wutscher’s commercial litigation, consumer credit litigation, insurance recovery and advisory, intellectual property litigation, and equine law practice groups. Patrick has substantial experience in a variety of civil matters including business litigation, insurance recovery, foreclosure litigation, wrongful death, product liability, general tort litigation and general liability defense. Among other achievements, he has served as first chair in a five-day jury trial and as second chair during a weeklong arbitration. In 2012, the San Diego Daily Transcript named him a “Young Attorney of the Year.” Patrick's equine practice focuses on the representation of industry participants at administrative hearing and appeals, purchase and sale agreements, partnership and limited liability creation, gaming law, regulatory matters, and equine related negligence actions. In 2015, he was appointed to serve the California Horse Racing Board as a hearing officer. Patrick graduated from the University of San Diego School of Law. He obtained his undergraduate degree from the University of Arizona where he majored in Animal Science and was a graduate of the Race Track Industry Program; there he received the Mildred Vessels Scholarship Award and the Race Track Industry Program’s Scholarship Award.