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Don Stephenson et al v. Chase Home Finance LLC et al

May 23, 2011


The opinion of the court was delivered by: M. James Lorenz United States District Court Judge


In this mortgage foreclosure action Defendants Chase Home Finance LLC ("Chase") and JP Morgan Chase Bank, N.A. ("JP Morgan") filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Plaintiff filed an opposition. For the reasons which follow, the motion is DENIED.

According to the complaint, Plaintiffs are former co-owners of property located at 10963 Avenida Roberta in Spring Valley, California ("Property"). On or about January 23, 2009 they refinanced the Property with Chase. The loan was secured by a deed of trust on the Property. At the time of entering into the transaction, each Plaintiff had a right to receive a Notice of Right to Cancel. They claim that Plaintiff Don Stephenson's notice was defective and that Plaintiff Staci Stephenson did not receive a notice at all.

After the transaction was consummated, Chase acquired the servicing rights to Plaintiffs' debt obligation. Plaintiffs made tens of thousands of dollars in timely payments to Chase, but eventually fell behind. On October 8, 2009 they sent a Qualified Written Request ("QWR") to Chase seeking to identify the current owner of their promissory note, identify the master servicer of the debt and obtain other information. They received a response from Chase on January 6, 2010; however, Chase did not provide all the requested information.

Plaintiffs claim that because they did not have the necessary information, they were not able to seek modification of their loan and were forced to file for bankruptcy pursuant to Chapter 13 of the Bankruptcy Code. In addition, they contend that Defendants collected thousands of dollars in fees and interest charges from Plaintiffs which were not due and payable.

On December 21, 2010 Plaintiffs filed a complaint alleging that Defendants violated the Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA"), 15 U.S.C. § 1635(a) by failing to provide the requisite notices of rescission and 15 U.S.C. § 1641(f)(2) by failing to properly respond to their request for information contained in the October 8, 2009 letter. Plaintiffs also alleged that Defendants violated the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et . ("RESPA"), 12 U.S.C. § 2605(e)(2)(C) by failing to properly respond their October 8, 2009 letter, which constituted a QWR under RESPA. Last, Plaintiffs alleged that Defendants engaged in unlawful and unfair business practices pursuant to the Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq. ("UCL"), by maintaining a business practice of not responding to borrower inquiries and concealing information from them. Plaintiffs seek damages and an order requiring Chase to identify the owner and holder of the promissory note.

Defendants filed a motion to dismiss for failure to state a claim upon which relief can be granted. A Rule 12(b)(6) motion tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotation marks, brackets and citations omitted). In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all factual allegations and must construe them in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. , 80 F.3d 336, 337-38 (9th Cir. 1996). Legal conclusions need not be taken as true merely because they are cast in the form of factual allegations. Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987); W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). Similarly, "conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss." Pareto v. Fed. Deposit Ins. Corp., 139 F.3d 696, 699 (9th Cir. 1998).

Defendants argue that the first cause of action for violation of 15 U.S.C. § 1641(f)(2) should be dismissed because Plaintiffs did not allege a violation, the claim is time-barred and Plaintiffs did not allege actual damages. With respect to the third cause of action for violation of 12 U.S.C. Section 2605(e)(2)(C), they similarly argue that it should be dismissed because Plaintiffs failed to allege a violation and actual damages.*fn1 The court disagrees.

In pertinent part, Plaintiffs alleged that on October 8, 2009 they sent a letter to Chase requesting a copy of the note "showing all endorsements that have occurred, together with any allonge that exists on that Note" (Compl. at 3), and the names of the current owner of the note and the master servicer of the loan. They received a response from Chase on January 6, 2010, with included a copy of the note identifying the lender, but not including any endorsements or allonges, and a statement that Chase was the servicer. The response did not include an affirmative statement identifying the current owner of the note or the master servicer*fn2 of the loan, as requested in the letter, and did not state that the requested information was unavailable or could not be obtained by Chase. (Cf. Compl. Exh. B (Oct. 8, 2009 letter) with Exh. C (Jan. 6, 2010 response).) Defendants argue that providing Plaintiffs with a copy of an unmarked note and a statement that Chase was the servicer more than complied with TILA and RESPA. TILA provides that, "[u]pon written request by the obligor, the servicer shall provide the obligor, to the best knowledge of the servicer, with the name, address, and telephone number of the owner of the obligation or the master servicer of the obligation." 15 U.S.C. § 1641(f)(2). TILA's provisions are construed "liberally in favor of the consumer and require absolute compliance by creditors." Hauk v. JP Morgan Chase Bank USA, 552 F.3d 1114, 1118 (9th Cir. 2009) (internal quotation marks and citations omitted). "Even technical or minor violations of the TILA impose liability on the creditor." Jackson v. Grant, 890 F.2d 118, 120 (9th Cir. 1989).

RESPA is more specific in its requirements for responding to borrower inquiries than TILA. Section 2605(e)(2)(C) provides in pertinent part:

(2) Action with respect to inquiry

Not later than 60 days (excluding legal public holidays, Saturdays, and Sundays) after the receipt from any borrower of any qualified written request under paragraph (1) and, if applicable, before taking any action with respect to the inquiry of the borrower, the servicer shall-- . . . [¶]

(C) after conducting an investigation, provide the borrower with a written explanation or clarification that includes--(I) information requested by the borrower or an explanation of why the information requested is unavailable or cannot be obtained by the servicer; and (ii) the name and telephone number of an individual employed by, or the office or department of, the servicer who can provide assistance to the borrower.

Plaintiffs sufficiently alleged that Chase's response did not comply with TILA or RESPA because it was inherently ambiguous. Although Defendants are correct that the response could be interpreted that the note has never been transferred and therefore had no endorsements, the lender continued to be the current owner of the note and that the Chase was the only servicer on the loan, Plaintiffs' interpretation of the response as simply incomplete is reasonable. Because the response was authored by Chase, Chase could have avoided the ambiguity by providing an unambiguous response. Chase's argument that while RESPA requires an explanation if the information is unavailable or cannot be obtained by the ...

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