The opinion of the court was delivered by: Lucy H. Koh United States District Judge
In this action, Plaintiff Norlito Soriano (Plaintiff) brings suit against Countrywide Home
Loans, Inc. (CHL) for violation of Californias Unfair Competition Law (UCL, Bus. & Prof.
Code § 17200 et seq.). Trial took place on June 6, 2011. Having considered and weighed all the
evidence and having assessed the credibility of the only witness, the Court now makes these
findings of fact and conclusions of law as required by Fed. Rule Civ. P. 52(a).
I. Introduction and Procedural Background
Plaintiff initially filed a complaint asserting only California law claims in Santa Clara County Superior Court on January 24, 2008. Dkt. No. 1. The matter was removed to this Court on Complaint. Specifically, Plaintiff asserted claims under the Real Estate Settlement Procedures Act and a UCL claim based in part on the RESPA and TILA claims. Id. CHL (and another defendant, 2 who has since been dismissed from the case) moved to dismiss the Third Amended Complaint.
Judge Ware, to whom this case was previously assigned, dismissed the TILA and RESPA federal claims but granted Plaintiff leave to amend those claims. See Dkt. No. 17.
Plaintiff then filed a Fourth Amended Complaint (4AC), reasserting the federal TILA and RESPA claims and a UCL claim based in part on violations of both federal laws. CHL moved to dismiss all of the asserted claims other than the TILA claim. This time, Judge Ware denied the Motion to Dismiss the federal claims, but dismissed with prejudice all the state law claims (except 9 for the UCL claim premised on the alleged RESPA and TILA violations). See Order dated Feb. 5, were Plaintiff's RESPA and TILA claims, and the UCL claim based on the underlying RESPA and TILA claims. reconsideration, the case was narrowed to the UCL claim. The UCL creates a cause of action for 15 business practices that are 1) unlawful, 2) unfair, or 3) fraudulent. Cal. Bus. & Profs. Code § 17200. Each "prong" of the UCL provides a separate and distinct theory of liability, Lozano v. AT 17 & T Wireless Services, Inc., 504 F.3d 718, 731 (9th Cir. 2007). Plaintiff asserts UCL violations 18 based on the first two prongs. First, under the "unlawful" prong of the UCL, Plaintiff claims that Plaintiff's home mortgage loan. Second, under the "unfair" prong of the UCL, Plaintiff claims that CHL acted unfairly by failing to give Plaintiff notice of payment changes as required by TILA's implementing statute, Regulation Z, and by the disclosures associated with Plaintiff's mortgage.
In addition, Plaintiff argues that CHL acted unfairly because it failed to honor the terms of the Note 24 by raising the interest rate charged to Plaintiff in March, 2007. 2010 (Dkt. No. 28). Accordingly, the remaining causes of action after the February 5, 2010 Order Through a series of motions, including motions for summary judgment, clarification, andCHL is liable, as an assignee, for alleged violations of TILA which occurred during origination of.
On November 1, 2006, Plaintiff executed a promissory note, by which he borrowed $281,400 from Alliance Bancorp. Def.'s Ex. 1 (Note) at 1. The Note financed Plaintiff's property 28 at 574 Quady Lane, Madera, California, 93637. Id. The Note secures a Deed of Trust (Deed), also executed on November 1, 2006, and recorded against the Quady Lane property. Def.'s Ex. 2 (Deed). Plaintiff did not argue or submit evidence indicating that CHL was involved in negotiating 3 or executing the Note or Deed. $711.54, unless the payments are adjusted pursuant to Section 3(F). Note ¶ 3(B). These payments 7 are sufficient to pay off the principal and interest due in substantially equal payments over a 40-8 year period (the amortization period). Note ¶ 3(B). Beginning on January 1, 2008, and continuing 9 every year on that day, the monthly payment can change. Note ¶ 3(C). This is a "Payment Change principal in substantially equal payments over the remainder of the amortization period. The new monthly payment will not increase by more than 7.5% of the previous minimum payment (the The loan documents include a number of different forms, all of which were signed by Plaintiff on November 1, 2006. The Note states that the "initial" monthly payments will be Date." Id. The payment will change to an amount that would be sufficient to repay the unpaid "payment cap"), but this restriction has exceptions, noted below. The monthly payment can also 14 change more frequently depending on certain circumstances, discussed below. change beginning on January 1, 2007, and every month thereafter (in other words, the interest rate 17 can change beginning two months after the loan was signed). See Note ¶ 2. Starting on January 1, Rates H.15" published by the Federal Reserve Board), plus 3.75 percentage points, rounded to the 20 nearest .125%. Note ¶ 2(D), (E). The interest rate may be re-calculated each month. Note ¶ 2(E).
The Note states that the initial interest rate on the loan is 1%, but that this interest rate can 2007, the interest rate may be set based on an Index interest rate (defined as the "Selected Interest The Note states that the principal amount of the loan may change, but will never exceed 110% of the original principal. Note ¶ 1. Elsewhere, however, it states that the principal may 23 exceed 110% if the borrower makes only minimum payments and if the interest rate increases; in 24 this event, a new minimum payment sufficient to repay the unpaid principal in full over the 25 remainder of the amortization period, based on the interest rate in effect during the prior month, 26 will apply. Note ¶ 3(F). In this event, the 7.5% payment cap does not apply. given four different "payment options." Note ¶ 3 (H). The four payment options are defined as The Note states that starting with the first date the interest rate is changed, Plaintiff will be follows. First is a "Minimum Payment," which is the minimum amount the lender will accept as a 2 monthly payment. The Minimum Payment will be provided after the first interest change date (as 3 early as January 1, 2007) and every month after that. The Minimum Payment will not decrease the 4 principal balance. Note ¶ 3(H)(1). If the Minimum Payment is not enough to cover the interest 5 due, negative amortization will occur, and the loan balance will increase. Id. Second is an "Interest Only Payment," which will cover interest, but will not decrease the principal balance of 7 the loan. Third is a "30-year Amortized Payment," which will pay off the principal and interest in 8 substantially equal payments by the "maturity date." Fourth is a "15-year Amortized Payment," 9 which will pay off the principal and interest in substantially equal amounts within a fifteen year 10 term. Id.
Minimum Payment that exceeds the payment cap). Note ¶ 3(G). This means that the Minimum Payment will become the amount necessary to pay off the remaining principal over the remainder 15 of the amortization period. Note ¶ 3(C).
Rider (Balloon Rider) which states that it "is incorporated into and shall be deemed to amend and 18 supplement the Mortgage Deed of Trust." Def.'s Ex. 2 at CHL00117-122. Like the Note, the Balloon Rider states that the interest rate applied to the principal may change as of January 1, 2007, 20 and that the monthly payment may change starting January 1, 2008, or earlier if the unpaid 21 principal balance exceeds 110%. See Balloon Rider at CHL 00117-18; Note at ¶¶ 2 - 3.
On the fifth annual Payment Change Date, and every succeeding fifth Payment Change Date, the "Full Payment" will become the "Minimum Payment" (even if this results in an increased In addition to the Note itself, Plaintiff executed a document titled Adjustable Rate Balloon Plaintiff also executed a document titled Balloon Payment Disclosure. Def.'s Ex. 3 (Balloon Disclosure). This document states that the "loan provides for 359 monthly payments of principal and interest in the amount of $711.54 each. Assuming that all of the monthly payments have been paid exactly on the date that each is due, a final balloon payment of the then outstanding principal balance plus all earned interest remaining unpaid estimated to be in the amount of $186,191.38 shall become due and payable on DECEMBER 1, 2036." Balloon Disclosure. The Balloon Disclosure also states "I . . . acknowledge that these provisions have also been orally 2 explained to me." Plaintiff signed the Balloon Disclosure under this statement. provides information regarding the different payment options available depending on various circumstances, as defined in the Note. Def.'s Ex. 4 (Variable Rate Disclosure). This document 6 states that "[f]or the first twelve months of your loan, your payment will be based on the Initial Interest Rate, loan amount and loan term. Your payment may change every twelve months, 8 beginning with the thirteenth payment." Variable Rate Disclosure at CHL00235. The Variable Plaintiff also signed a "Variable Rate Mortgage Balloon Loan Program Disclosure," which Rate Disclosure also states "[y]our interest rate under this ARM can change every month, 10 beginning with the first regularly scheduled payment and each month thereafter." Variable Rate Def.'s Ex. 5 (TILDS). This statement shows that Plaintiff's payment schedule would be: $711.54 14 monthly for 12 months; $764.91 monthly for 10 months; $2,280.16 monthly for 337 months; and a 15 final payment of $186,191.39 on December 1, 2036. Id. Regarding the first 12 monthly payments 16 of $711.54, at least the first of these would be principal and interest payments, but, as soon as the 17 interest was raised pursuant to ¶ 2(B) of the Note, these payments would become Minimum Payment Change Date, the Minimum Payment could be increased by 7.5% pursuant to ¶ 3(D) of 20 the Note. $764.91 represents a 7.5% increase from $711.54. Assuming the interest rate was raised 21 in January 2007, the second set of 10 monthly payments of $764.91 would also be Minimum Payments, insufficient to pay both principal and interest due. As a result, after 22 months of 23 making the listed payments, the principal balance on the loan would reach the 110% increase cap 24 as stated in ¶ 3(F) of the Note. At this point, ¶ 3(H) of the Note states that a new Minimum Payment will be set in an amount that "would be sufficient to repay my then unpaid principal in 26 full over the remainder of the Amortization Period in substantially equal installments at the interest 27 rate in effect during the preceding month." In the TILDS, this amount is estimated to be $2,280.16 28 monthly payments for 337 months. The final "balloon" payment of $186,196 is shown due on Disclosure at CHL00234.
Plaintiff also signed a document titled "Federal Truth-in-Lending Disclosure Statement."
Payments insufficient to pay for both principal and interest. As of
January 1, 2008, the first
December 1, 2036. The Note states that if any balance remains on this
date, it is due in full the 2 same day. ¶3(A). The TILDS states that
the loan contains a variable rate feature and that
Plaintiff testified that he did not read the loan documents before he
signed them. Plaintiff
testified that the only information about the loan that he gained
from any of the documents was 6 from the Balloon Disclosure, and that
the only information he took from this document was that his 7 ...