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Santos v. Countrywide Home Loans

November 5, 2009



Plaintiff Kristine Rose Santos filed this action against defendants Countrywide Home Loans ("CHL"), Resurgent Corp Service ("Resurgent"), and ReconTrust Company, N.A. ("ReconTrust") alleging various state and federal claims relating to loans she obtained to refinance her home in Stockton, California. CHL and ReconTrust move to dismiss plaintiff's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted.

Plaintiff did not oppose the motion. Nor did plaintiff file a statement of non-opposition pursuant to Civil Local Rule 78-230(c). Therefore, the hearing date of November 9, 2009 was vacated pursuant to Civil Local Rule 78-230(c), and the court took defendants' motion to dismiss under submission without oral argument.

The court has examined each of the claims in plaintiff's complaint, and for the following reasons finds not one of them sufficient to withstand defendants' motions to dismiss.

A. Rescission and/or Reformation of Contract

Plaintiff's complaint alleges a cause of action for recision or reformation of her loan with defendants because she was fraudulently induced into her loan agreement. (See Compl. ¶¶ 18-23.) Rescission and reformation are remedies, not a cause of action. Hafiz v. Greenpoint Mortgage Funding, Inc., --- F. Supp. 2d ----, No. C 09-01729 WHA, 2009 WL 2137393, at *7 (N.D. Cal. July 16, 2009). Plaintiff's prayer to the court to rescind or reform her loan is based on her fraud claim, where she claims she was fraudulently induced into the loan. As plaintiff's fraud claim fails, rescission and reformation are not available to plaintiff.

Additionally, under California Civil Code section 1691, a request for rescission requires the rescinding party to "[r]estore to the other party everything of value which he has received from him under the contract or offer to restore the same upon condition that the other party do likewise." Cal. Civ. Code § 1691. Plaintiff offers to "restore to [d]efendants the subject property in return for defendants [sic] return to plaintiff all monies paid to defendants in connection with the placement of the loan, service of the loan, loan payments made, improvements made to the property, and other costs and expenses plaintiff has incurred in the maintenance and upkeep of the subject property." (Compl. ¶ 27.) However, this offer does not restore defendants to their former position by returning the consideration received under the contract.

Rescission is also unavailable to plaintiff because the accusations in her complaint address the actions of her lender, Argent Mortgage Company, not defendants. Rescission is unavailable as a remedy if "the rights of other have intervened and circumstances have so far changed that rescission may not be decreed without injury to [third] parties and their rights . . . ." Gill v. Rich, 128 Cal. App. 4th 1254, 1265 (2005) (internal quotation marks omitted). In this case CHL and ReconTrust's rights have intervene, as Argent Mortgage Company assigned them right to service the loan. The alleged wrongs in the complaint are against plaintiff's lender, not the instant defendants. Plaintiff has not alleged that defendants knew of the alleged fraud of her lender, outside of conclusory allegations of conspiracy. Defendants would be prejudiced if plaintiff were permitted to rescind the loan, and accordingly rescission is unavailable to plaintiff as a remedy.

Finally, plaintiff's prayer for reformation cannot succeed. "A complaint for the reformation of a contract should allege what the real agreement was, what the agreement as reduced to writing was, and where the writing fails to embody the real agreement. It is also necessary to aver facts showing how the mistake was made, whose mistake it was and what brought it about, so that mutuality may appear." Lane v. Davis, 172 Cal. App. 2d 302, 309 (1959). Plaintiff fails to allege any of these facts, and accordingly has not stated an adequate prayer for reformation. Plaintiff's first cause of action for rescission or reformation will therefore be dismissed.

B. Fraud

In California, the essential elements of a claim for fraud are "(a) a misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or 'scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage." In re Estate of Young, 160 Cal. App. 4th 62, 79 (2008). Under the heightened pleading requirements for claims of fraud under Federal Rule of Civil Procedure 9(b), "a party must state with particularity the circumstances constituting the fraud." Fed. R. Civ. P. 9(b). The plaintiffs must include the "who, what, when, where, and how" of the fraud. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1006 (9th Cir. 2003) (citation omitted); Decker v. Glenfed, Inc., 42 F.3d 1541, 1548 (9th Cir. 1994). Additionally, "[w]here multiple defendants are asked to respond to allegations of fraud, the complaint must inform each defendant of his alleged participation in the fraud." Ricon v. Reconstrust Co., No. 09-937, 2009 WL 2407396, at *3 (S.D. Cal. Aug. 4, 2009) (quoting DiVittorio v. Equidyne Extractive Indus., 822 F.2d 1242, 1247 (2d Cir. 1987)).

Plaintiff's fraud allegations do not even come close to surviving a motion to dismiss. Plaintiff simply alleges that she was not provided proper disclosures by "defendants" and was "deliberately misled into believing she was entering into a predatory loan with a much lower interest rate than was actually imposed." (Compl. ¶¶ 32-33.) Plaintiff's conclusory statements do not identify with any specificity what, if any, representations were made, when they were made, who made them, or why they were false. These sort of conclusory statements come nowhere close to meeting the pleading standard generally required under Rule 8, let alone the heightened pleading standard of Rule 9(b). See Iqbal, 129 S.Ct. at 1949; Vess, 317 F.3d at 1006. Accordingly, the court will grant defendants' motion to dismiss plaintiff's second cause of action for fraud against CHL and ReconTrust.

C. Specific Performance to Modify Plaintiff's Loan

Plaintiff claims that she is entitled to specific performance to force defendants to offer her a "reasonable and feasible" loan modification. (Compl. ¶ 39.) Plaintiff bases this demand for relief on California Civil Code section 2923.6, which plaintiff asserts "requires California lenders to accept loan modification upon owner-occupied residences upon home loans made from January 1, 2003 through December 31, 2007," as well as the Emergency Economic Stabilization Act of 2008 ("EESA"), 12 U.S.C. §§ 5201-61, and the Hope for Homeowners Act, Pub. L. 110-289. (Id. at ¶ 37.) However, section 2923.6 indicates nothing more than the California legislature's intent that a mortgagee "offer the borrower a loan modification or workout plan if such modification or plan is consistent with its contractual or other authority." Cal. Civ. Code § 2923.6(b). Accordingly, "nothing in Cal. Civ. Code § 2923.6 imposes a duty on servicers of loans to modify the terms of loans or creates a private right of action for borrowers." Farner v. Countrywide Home Loans, No. 08cv2193, 2009 WL 189025, at *2 (S.D. Cal. Jan. 26, 2009).

Plaintiff also has no private right of action against defendants under the EESA or the Hope for Homeowners Act. The EESA does not provide for a private right of action. Ramirez v. Litton Loan Servicing, LP, No, CV-09-319-PHX-GMS, 2009 WL 1750617, at *1 (D. Ariz. June 22, 2009); Barrey v. Ocwen Loan Servicing, LLC, No. CV-09-573-PHX-GMS, 2009 WL 1940717, at *1 (D. Ariz. July 2, 2009). The Hope for Homeowners Act was intended to help borrowers refinance their mortgages and obtain loans insured by the Federal Housing Administration. It is unintelligible why this act would entitle plaintiff to specific ...

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