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Clark v. Countrywide Home Loans

August 9, 2010


The opinion of the court was delivered by: Oliver W. Wanger United States District Judge



On or about August 2, 2007, Plaintiff Bernard F. Clark obtained a mortgage loan in the amount of $360,000 secured by a deed of trust encumbering real property in Groveland, California. Plaintiff defaulted on the loan, and Defendants proceeded to foreclose on the real property. Defendant's Request for Judicial Notice ("RJN"), Exs. B-D.

On August 24, 2009, Plaintiff filed a complaint in the Superior Court of the State of California, County of Tuolumne, alleging ten causes of action. Doc. 1. On November 12, 2009, Defendants removed the action to federal court pursuant to 28 U.S.C. §§ 1331, 1441, based on federal question jurisdiction.

Id . Plaintiff's amended complaint, filed March 17, 2010, alleges 17 causes of action: (1) Fraud; (2) Breach of Loan Commitment; (3) Negligence; (4) Breach of Good Faith; (5) Breach of Fiduciary Duty; (6) Economic Duress; (7) Civil RICO; (8) Cal. Civ. Code § 2923.5; (9) Cal. Civ. Code § 2923.6; (10) California's Rosenthal Fair Debt Collection Practices Act ("RFDCPA"), Cal. Civ. Code. §§ 1788.17; (11) Cal. Civ. Code § 1572; (12) Real Estate Settlement Procedures Act ("RESPA"), (12) U.S.C. § 2607(b); (13) Quiet Title; (14) Unfair business practices, Cal. Bus. Prof. Code §§ 17200, et seq.; (15) Produce the Original Note; (16) Cal. Civ. Code § 1572; (17) Injunctive Relief. Doc. 16.

On April 5, 2010, Defendants Countrywide Home Loans, Inc. ("Countrywide"), ReconTrust Company ("ReconTrust"), Bank of America, N.A. ("BANA"), and Mortgage Electronic Registration Systems, Inc.'s ("MERS"), (collectively "Countrywide Defendants") moved to dismiss all of the claims in the case pursuant to Federal Rule of Civil Procedure 12(b)(6). Doc. 24. Plaintiff opposed the motion to dismiss. Doc. 31, filed June 1, 2010. Countrywide Defendants replied. Doc. 33, filed June 7, 2010. Defendant Chase Home Finance, LLC.*fn1 ("Chase") filed a separate motion to dismiss on June 22, 2010. Doc. 36. Plaintiff filed an opposition to Countrywide Defendants' reply*fn2 and an opposition to Chase's motion to dismiss.*fn3 Doc. 38, filed July 21, 2010. Chase replied.*fn4 Doc. 39.


A motion to dismiss brought under Federal Rule of Civil Procedure 12(b)(6) "tests the legal sufficiency of a claim." Navarro v. Block , 250 F.3d 729, 732 (9th Cir. 2001). In deciding whether to grant a motion to dismiss, the court "accept [s] all factual allegations of the complaint as true and draw[s] all reasonable inferences" in the light most favorable to the nonmoving party. TwoRivers v. Lewis , 174 F.3d 987, 991 (9th Cir. 1999). To survive a motion to dismiss, a complaint must "contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal , 129 S.Ct. 1937, 1949 (May 18, 2009) (quoting Bell Atl. Corp v. Twombly , 550 U.S. 544, 570 (2007)).

A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that defendant has acted unlawfully. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of "entitlement to relief.'"

Id . (citing Twombly , 550 U.S. 556-57). Dismissal also can be based on the lack of a cognizable legal theory. Balistreri v. Pacifica Police Dep't , 901 F.2d 696, 699 (9th Cir. 1990).


On or about July 26, 2007, Plaintiff financed the purchase of a residential property located at 12689 Mt. Jefferson Street, Groveland, California ("Subject Property") through a promissory note with First Magnus Financial Corp. ("First Magnus") in the amount of $360,000 ("Subject Loan") secured by a deed of trust. Doc. 16 at ¶ 9. Plaintiff later defaulted on the Subject Loan. On January 27, 2009, a Notice of Default and Election to Sell Under Deed of Trust, Instrument No. 2007013088, was recorded in the Office of the County Recorder of Tuolumne County. Doc. 16 at ¶ 21. The default was not cured, and on May 1, 2009, a notice of trustee's sale, Instrument No. 2009005160, was also recorded.

Id .

Plaintiff alleges that (1) no Defendant has the original note to prove that it is a party authorized to conduct the foreclosure (Doc. 16 at ¶ 24); (2) Defendants breached an oral promise to modify the existing loan terms (Doc. 16 at ¶ 31); and (3) Plaintiff was not contacted to explore his financial situation prior to notice of default (Doc. 16 at ¶ 156-160). These allegations form the basis of most of Plaintiff's causes of action.


A. Constructive or Actual Fraud

Plaintiff's first cause of action alleges fraud by each Defendant. This claim is based largely on the allegation that "each Defendant has represented to Plaintiff and to third parties that they were the owner of the Trust Deed and Note as either the Trustee or the beneficiary regarding ... Possession of the Note is not incidental to the right to foreclose, it is absolutely necessary." Doc. 16 at ¶ 34. This is a wholly discredited legal theory serially advanced in mortgage fraud cases.

It is well established that there is no requirement under California law that the party initiating foreclosure be in possession of the original note. Nool v. HomeQ Servicing , 653 F. Supp. 2d 1047, 1053 (E.D. Cal. 2009); Candelo v. NDEX West, LLC , 2008 WL 5382259, at *4 (E.D. Cal. Dec. 23, 2008) ("No requirement exists under statutory framework to produce the original note to initiate non-judicial foreclosure."); Putkkuri v. ReconTrust Co. , 2009 WL 32567, *2 (S.D. Cal. Jan 5, 2009)("Production of the original note is not required to proceed with a non-judicial foreclosure."). Therefore, Plaintiff's assertion that Countrywide Defendants and Chase did not possess the note is not grounds for a wrongful foreclosure or a fraud claim.

Plaintiff also alleges that the "broker" committed fraud by placing him in a sub-prime mortgage "on the promise that things would get better and the borrower could refinance when the value of their home increases." Doc. 1 ¶ 39. All claims for fraud must comply with Federal Rule of Civil Procedure 9(b), which requires that Plaintiff clearly set forth the "who, what, when, where, and how" concerning their fraud allegations. Vess v. Ciba Geigy Corp. USA , 317 F.3d 1097, 1106 (9th Cir. 2003). Plaintiff entirely fails to describe which of the many defendants was the "broker," what the broker told him, and when and how any such statements were made.

Plaintiff has been previously afforded leave to amend the fraud claim. The fraud cause of action against the Countrywide Defendants and Chase is DISMISSED WITH PREJUDICE.

B. Breach of Loan Commitment

Plaintiff's second cause of action alleges a breach of loan commitment against MERS and First Magnus. This allegation is based on supposed oral promises made by First Magnus to modify the loan and a breach of those promises. Doc. 16 at ¶ 127. Plaintiff further alleges that MERS is liable as a nominee of the lender who breached a contract. Doc. 16 at ¶ 128. As "breach of loan commitment" is not a cognizable legal claim, Plaintiff's claim is analyzed as a breach of contract claim. The elements for a breach of contract are: (1) the existence of a valid contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendants' breach, and (4) resulting damage. McKell v. Washington Mutual , Inc. 142 Cal. App. 4th 1457, 1489 (2006).

Certain types of contracts are invalid unless memorialized by a written document signed by the party against whom the contract is being enforced. Cal. Civ. Code § 1624. Mortgages and deeds of trust are subject to the statute of frauds. Secrest v. Sec. Nat'l Mortg. Loan Trust 2002-2 , 167 Cal. App. 4th 544, 552 (2008). "An agreement to modify a contract that is subject to the statute of frauds is also subject to the statute of frauds" and must be in writing. Id . at 553; see also Basham v. Pac. Funding Group , 2010 WL 2902368 (E.D. Cal. July 22, 2010)(dismissing a claim that defendant breached an oral contract to provide plaintiffs with a loan modification because, under the statute of frauds, "absent a writing, there can be no contract, much less a breach of contract."); Justo v. Indymac Bancorp, et al. , 2010 WL 623715 (E.D. Cal. Feb. 19, 2010)(plaintiff's claim that defendants breached an oral contract to modify his loan and cancel the foreclosure sale was barred by the statute of frauds). A written contract may not be modified by an oral agreement, unless that oral agreement is memorialized in writing and signed by the parties. Cal. Civ. Code § 1698.

Here, the alleged promise for a loan modification is subject to the statute of frauds. Absent a written agreement to modify the loan, any claim based upon an oral contract to modify the loan is barred by the statute of frauds. See Secrest , 167 Cal. App. 4th at 552.

At oral argument, Plaintiff claimed that Countrywide promised him that if he brought the loan current, they would modify his loan. Plaintiff further claims that, in reliance on this promise, he obtained money (approximately $8,000) to bring the loan current, but Countrywide refused the loan modification. Although Plaintiff cannot state a breach of contract claim based upon this conduct, he may be able to state a claim for fraud. In California, the elements for a claim of fraud are: (1) misrepresentation; (2) knowledge of falsity; (3) intent to defraud; (4) justifiable reliance; and (5) resulting damage. Small v. Fritz Companies , Inc., 30 Cal. 4th 167, 173 (2003). Upon removal to federal court, all claims for fraud must be pled with sufficient particularity to satisfy Federal Rule of Civil Procedure Rule 9(b). "[W]hile a federal court will examine state law to determine whether the elements of fraud have been pled sufficiently to state a cause of action, the Rule 9(b) requirement ... is a federally imposed rule." Vess , 317 F.3d at 1103).

The Countrywide Defendants' motion to dismiss the second cause of action is GRANTED WITH LEAVE TO AMEND. Plaintiff shall have one final opportunity to amend his complaint to state a fraud claim ...

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