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Castaneda v. Saxon Mortgage Services

February 25, 2010

CESAR CASTANEDA AND SUZZANNE CASTANEDA, PLAINTIFFS,
v.
SAXON MORTGAGE SERVICES, INC.; NOVASTAR MORTGAGE, INC.; QUALITY LOAN SERVICE CORP.; SYNERGY FINANCIAL MANAGEMENT DBA DIRECT LENDER; THE BANK OF NEW YORK MELLON, AS SUCCESSOR TRUSTEE UNDER NOVASTAR MORTGAGE FUNDING TRUST 2005-2 BY SAXON; MORTGAGE SERVICES, INC.; LOUIS LEON PACIFIC; MICHAEL TIMOSHUCK; IVETTE CAMPOS;, AND DOES 1-20, INCLUSIVE, DEFENDANTS.



MEMORANDUM AND ORDER RE: MOTIONS TO DISMISS AND EXPUNGE NOTICE OF PENDENCY OF ACTION

Plaintiffs Cesar and Suzzanne Castaneda filed this action against defendants Saxon Mortgage Services, Inc. ("Saxon"), Novastar Mortgage, Inc. ("Novastar"), Quality Loan Service Corp. ("Quality Loan"), Synergy Financial Management, d/b/a Direct Lender ("Synergy"), The New York Bank of Mellon, as successor Trustee under Novastar Mortgage Funding Trust 2005-2 by Saxon ("Mellon"), Louis Leon Pacific, Michael Timoshuck, and Ivette Campos, alleging various state and federal claims relating to a loan they obtained to refinance their home in Sacramento, California. In their Second Amended Complaint ("SAC"), plaintiffs assert ten causes of action against nine defendants.

Saxon and Mellon move to dismiss those causes of action in the SAC that apply to them pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted and also move to expunge a Notice of Pendency of Action under California Code of Civil Procedure sections 405.30-405.39. Novastar separately moves to dismiss the claims that apply to it pursuant to Rule 12(b)(6).

I. Motion to Dismiss

On a motion to dismiss, the court must accept the allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 (1972). To survive a motion to dismiss, a plaintiff needs to plead "only enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This "plausibility standard," however, "asks for more than a sheer possibility that a defendant has acted unlawfully," and where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009)(quoting Twombly, 550 U.S. at 556-57).

A. Truth in Lending Act

Plaintiffs' first claim is against only Novastar for violations of the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601-1667f. Plaintiffs allege that Novastar violated TILA when it allegedly failed to: (1) provide required disclosures prior to consummation of their loan,(2) make TILA disclosures clearly and conspicuously in writing, (3) timely deliver TILA notices, and (4) disclose all finance charge details of their loan. (SAC ¶ 72.) Specifically, plaintiffs claim that Novastar "failed to provide [them] with any disclosures prior to closing that would have allowed [them] to review the terms of their loan." (Id. ¶ 73.) Plaintiffs pray for both damages and rescission of the loan based on these violations.

1. Damages

The statute of limitations for a TILA damages claim is one year from the date of the alleged TILA violation. 15 U.S.C. § 1640(e). Novastar argues that plaintiffs' TILA damages claim is foreclosed by the statute of limitations because it was filed more than one year after the alleged TILA violations. Here, plaintiffs' TILA claim arises solely out of failure to make required disclosures at the time the loan was entered, which was on May 17, 2005. (See SAC ¶ 46.) The limitations period began to run at that time, King v. California, 784 F.2d 910, 914 (9th Cir. 1986), and would normally have expired on May 17, 2006.

Plaintiffs' initial complaint was not filed until April 23, 2009, almost three years past the statute of limitations. Plaintiff's TILA claim is therefore time barred, unless the doctrine of equitable tolling applies.

The Ninth Circuit has held that equitable tolling of claims for damages under TILA may be appropriate "in certain circumstances," and can operate to "suspend the limitations period until the borrower discovers or had reasonable opportunity to discover the fraud or non-disclosures that form the basis of the TILA action." Id. at 914-15. Because the applicability of the equitable tolling doctrine often depends on matters outside the pleadings, it "is not generally amenable to resolution on a Rule 12(b)(6) motion." Supermail Cargo, Inc. v. U.S., 68 F.3d 1204, 1206 (9th Cir. 1995). However, when a plaintiff does not allege any facts demonstrating that he or she could have not discovered the alleged violations by exercising due diligence, dismissal may be appropriate. See Meyer v. Ameriquest Mortg. Co., 342 F.3d 899, 902-03 (9th Cir. 2003) (dismissing equitable tolling of TILA claim because plaintiff was in full possession of all loan documents and did not allege any actions that would have prevented discovery of the alleged TILA violations); Hubbard v. Fidelity Fed. Bank, 91 F.3d 75, 79 (9th Cir. 1996) (finding that plaintiff was not entitled to equitable tolling because "nothing prevented [plaintiff] from comparing the loan contract, [the lender's] initial disclosures, and TILA's statutory and regulatory requirements").

Plaintiffs allege that equitable tolling is appropriate because they were not given a copy of any of the loan documents prior to closing, were not allowed to review the documents, and finally because "[t]he facts surrounding these loan transactions were purposefully hidden to prevent [p]laintiffs from discovering the true nature of the transactions . . . and continue to be hidden from [p]laintiffs to this day." (SAC ¶¶ 73, 75.) However, plaintiffs do not offer any facts that demonstrate how Novastar concealed the facts surrounding their mortgage. Plaintiffs also do not explain what prevented them from later reviewing the loan documents, which they admittedly were given at closing, and TILA's statutory requirements. "Such factual underpinnings are all the more important . . . since the vast majority of [p]laintiffs' alleged violations under TILA are violations that are self-apparent at the consummation of the transaction." Cervantes v. Countrywide Home Loans, Inc., 2009 U.S. Dist. LEXIS 87997, at *13-14 (D. Ariz. 2009) (holding that equitable tolling was not appropriate when plaintiffs simply alleged that defendants "fraudulently misrepresented and concealed the true facts related to the items subject to disclosure").

2. Rescission

"TILA provides two private remedies: damages and rescission." Shelley v. Quality Loan Serv. Corp., 2009 U.S. Dist. LEXIS 58156, at *5 (C.D. Cal. June 17, 2009). A borrower has the right to rescind the loan transaction "until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms . . . together with a statement containing the material disclosures." 15 U.S.C. § 1635(a). However, where the required forms and disclosures have not been delivered to the obligor, 15 U.S.C. § 1635(f) provides that "[a]n obligor's right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first." Under the statute of limitations for rescission under TILA, plaintiffs' right to rescind ended on May 17, 2008, almost a year before plaintiffs allegedly sent a notice of rescission to defendants on March 31, 2009. See Miguel v. Country Funding Corp., 309 F.3d 1161, 1164 (9th Cir. 2002). (SAC ¶ 53.) Plaintiffs' claim is therefore clearly time-barred. Accordingly, Novastar's motion to dismiss plaintiffs' TILA claim will be granted.

B. Real Estate Settlement Procedures Act

Plaintiffs' second claim accuses Saxon and Novastar with violations of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. ยงยง 2601-2617. In response to defendants' motions to dismiss the RESPA claim, plaintiffs indicate they do not oppose dismissal. Accordingly, the court will grant Saxon and Novastar's motions to dismiss the RESPA claim ...


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