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Solano v. MidCountry Bank

August 25, 2010

VICTOR SOLANO; SANDRA MORENO SOLANO, PLAINTIFFS,
v.
MIDCOUNTRY BANK; COBS HOMES, LLC; RELIABLE TRUST DEED SERVICES, INC.; HR RE HOLDINGS, LLC; EDGAR SILVA; HECTOR SILVA; ALL PERSONS UNKNOWN CLAIMING ANY LEGAL OR EQUITABLE RIGHT, TITLE, ESTATE, LIEN, OR INTEREST IN THE PROPERTY DESCRIBED IN THE COMPLAINT ADVERSE TO PLAINTIFFS' TITLE THERETO; DOES 1 THROUGH 100, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Hayes, Judge

ORDER

The matters before the Court are Defendant MidCountry Bank's Motion to Dismiss (Doc. # 4) and Plaintiffs' Motion to Remand to State Court (Doc. # 4).

BACKGROUND

On May 1, 2010, Plaintiffs initiated this action by filing their Complaint in the Superior Court of the State of California for the County of San Diego. See Doc. # 1 at 14. On June 17, 2010, Defendant MidCountry Bank ("MidCountry") filed its Notice of Removal removing the case to this Court. Id. at 1. The Complaint alleges only state law claims, however, MidCountry stated in its Notice of Removal that those claims are preempted by the Truth in Lending Act ("TILA") 16 U.S.C. § 1601, et seq. The Notice of Removal cites to Paragraphs 24, 28, 46, 54 and 90 of the Complaint as the basis for this Court's jurisdiction.

ALLEGATIONS OF THE COMPLAINT

Plaintiff Sandra Moreno Solano's mother transferred titled to a property known as Lot 24 in Block A of Wadsworth Olive Grove in San Diego, California, to Sandra Moreno Solano on February 4, 2002. (Doc. # 1 at ¶ 14). Plaintiffs intended to build their own home on this property. Id. at ¶ 15. Plaintiffs contracted with COBS Homes to assist Plaintiffs with planning and managing construction of their home. Id. Through COBS, Plaintiffs obtained a construction loan with the First Federal Bank of Minnesota in the amount of $333,700. Id. at ¶ 16. The loan matured on July 9, 2005. Id. First Federal Bank of Minnesota assigned the loan to MidCountry. Id. As construction progressed, under the terms of the loan, Plaintiffs were to submit "draw requests" to MidCountry for release of loan proceeds. Id. at ¶ 17.

In support of their first cause of action for breach of contract, Plaintiffs allege they obtained extensions on the loan. Id. at ¶ 19. In consideration for the extensions, MidCountry charged Plaintiffs $8,180.00. Id. COBS abandoned Plaintiffs, leaving them to complete construction without their services. Id. In October 2007, Plaintiffs made the first draw request. Id. MidCountry refused to pay the disbursement. Id. Four months later, MidCountry informed Plaintiffs that the money was instead applied to "expenses or fees or charges of some sort that had been allowed to accrue by MidCountry." Id. Because MidCountry refused to disburse the funds, Plaintiffs were unable to continue construction, which placed them in default on the loan. Id. MidCountry foreclosed on the property. Id.

In support of their second cause of action for breach of the covenant of good faith and fair dealing, Plaintiffs allege MidCountry "allowed unspecified fees and charges to accrue without advising Plaintiffs." Id. at ¶ 24. MidCountry "unilaterally and secretly" applied the funds from the draw request to these fees and charges instead of paying the money out to Plaintiffs. Id. MidCountry's actions prevented Plaintiffs from completing construction on their home when it was substantially complete, causing Plaintiffs to default under the terms of the loan. Id.

In support of their third cause of action for unfair business practices, Plaintiffs allege MidCountry "unfairly and wrongfully" withheld the money Plaintiffs requested without informing Plaintiffs, resulting in default and foreclosure. Id. at ¶ 28. These acts were "unfair, deceptive, and designed to deprive Plaintiffs of valuable property rights, of labor, and of the benefit of the bargain" they entered with MidCountry. Id. at ¶ 29.

Plaintiffs' fourth and fifth causes of action are also for unfair business practices. See id. at ¶¶ 35-41. MidCountry does not rely on these claims as a basis for jurisdiction.

In support of their fifth cause of action for fraud, Plaintiffs allege MidCountry entered the loan with the intent to fail to provide the funds. Id. at ¶¶ 43-44. MidCountry withheld disbursements in order to cause default. Id. MidCountry did not inform Plaintiffs that fees and charges were accumulating on the loan and did not inform Plaintiffs that their draw request would be used to pay these fees and charges instead of being paid out to fund construction. Id. at ¶ 46. As a result, Plaintiffs were unable to continue construction and lost the property to foreclosure. Id.

In support of their sixth cause of action for negligence, Plaintiffs allege MidCountry had a duty to disburse funds promptly upon receipt of a valid draw request until the loan balance was depleted. Id. at 54. MidCountry had a duty to keep Plaintiffs reasonably informed of the status of their loan including how much had been disbursed. Id.

Plaintiffs' seventh through twelfth causes of action are state law causes of action against other Defendants. Id. at ¶¶ 58-87.

In support of Plaintiffs' thirteenth cause of action for accounting, Plaintiffs allege that they are entitled to an accounting of all money distributed by MidCountry and all fees charged by MidCountry. Id. at ΒΆ 90. Plaintiffs allege that MidCountry charged interest on all of the funds even before the money was disbursed in violation of the ...


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