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Francis J. Kerrigan, An Individual v. Bank of American


August 12, 2011


The opinion of the court was delivered by: Dean D. Pregerson United States District Judge


This matter comes before the court on Defendant Bank of America's Motion for Summary Judgment, or in the alternative, Summary Adjudication of Issues. (Dkt. No. 42.) Plaintiff Francis J. Kerrigan opposes the motion. Having reviewed the parties papers and considered the arguments therein, the court GRANTS in part and DENIES in part Defendant's Motion for Summary Judgment.

I. Background

In 2002, Plaintiff and his wife, Catherine Kerrigan, purchased property and a manufactured home at 34261 Tractor Trail, Wildomar, CA 92595 (the "Property"). (Plaintiff's Memorandum in Opposition to Motion for Summary Judgment as to Plaintiff's Complaint ("Pl.'s Supp. Opp'n") 8:6, 6:19.) At that time, they were advised by their lender that the home should be in Catherine Kerrigan's name due to Plaintiff's previous bankruptcy and credit score issues. (Id. 8:9.) Accordingly, in February 2002, Plaintiff executed a quitclaim deed for the Property in favor of his wife, Catherine Kerrigan. (Id. 8:11.) The same day, Catherine Kerrigan recorded a grant deed with Future of Five K, Inc. to Property in her favor as "a married woman, as her sole and separate property." (Defendant's Motion For Summary Judgment ("Def.'s Mot."), Grant Deed, Exhibit A.)*fn1 Ms. Kerrigan then executed a deed of trust ("DOT") in the amount of $170,733 in favor of Accubanc Mortgage. (Id., Deed of Trust, Exhibit C.)

On February 25, 2004, Ms. Kerrigan executed a DOT in the amount of $212,135 in favor of Accubanc Mortgage. (Id., Deed of Trust, Exhibit D.) On July 20, 2006, Ms. Kerrigan executed a DOT in the amount of $250,000 in favor of Chase Bank USA ("Chase DOT"). (Id., Deed of Trust, Exhibit E.) A reconveyance of the $212,135 Accubanc DOT was recorded on August 14, 2006. (Id., Reconveyance, Exhibit F.)

On March 20, 2007, Plaintiff and Ms. Kerrigan participated in a counseling session with an independent Home Equity Mortgage counselor. (Def.'s Mot., Exhibit G.) At that time, Ms. Kerrigan received a Certificate of Home Equity Mortgage Counseling signed by Jan Hartwyk of Springboard Non-Profit Consumer Credit Management, Inc. (Id.) Plaintiff, however, was told that because he was not on the title at the time of the HECM loan, only Ms. Kerrigan could be issued a certificate. (Pl.'s Supp. Opp'n 10:7.) Furthermore, during the reverse mortgage application process, Plaintiff was told that since his name was not on title to the home, he did not need to be listed as a co-borrower on the reverse mortgage application. (Pl.'s Opp'n 3:20.) After the loan application was completed, Plaintiff did not sign the "Notice to Non-Borrowing Spouse or Resident" form describing the consequences to non-borrowing spouses should their borrowing spouse predecease them. (Id., Exhibit G.)

On March 26, 2007, Ms. Kerrigan completed the Residential Loan Application for Reverse Mortgage ("Application"), listing herself as the sole borrower. (Def.'s Mot., Exhibit K.) The same day, Ms. Kerrigan completed the HUD/VA Addendum to Uniform Residential Loan Application ("Addendum"), listing Home Capital Funding ("HCF") as the Lender and Seattle Mortgage Company ("SMC") as the Sponsor. (Pl.'s Supp. Opp'n, Exhibit I.)

The loan that Ms. Kerrigan obtained was a home equity conversion mortgage ("HECM"). She secured the HECM through the Housing and Urban Development's ("HUD") reverse mortgage program for elders. (Pl.'s Opp'n 3:15.) A HECM is insured by the United States government. (Id. 7 n.2.)

On May 9, 2007, Ms. Kerrigan recorded a DOT in favor of HCF ("HCF DOT") paying all amounts due and owing on the Chase DOT. (Def.'s Mot., Exhibit M.) All Truth in Lending Disclosure documents pertaining to the HCF DOT were signed by Ms. Kerrigan on May 2, 2007. (Id., Exhibit P.)

On August 29, 2007, HCF recorded an assignment of the HCF DOT in favor of SMC. (Def.'s Mot., Exhibit X.) On June 13, 2007, SMC sent a letter to Ms. Kerrigan explaining that through its relationship with HCF it would now be servicing her loan. (Id., Exhibit S.) In June 2007, Defendant purchased the SMC reverse mortgage division and sent a letter to Ms. Kerrigan dated June 15, 2007, advising her of the acquisition. (Id., Exhibit T.) After discovering that no assignment of the HCF DOT had been recorded in favor of Defendant, Defendant recorded an assignment of the HCF DOT in its favor on November 20, 2009. (Id., Exhibit BB.)

Ms. Kerrigan died on June 19, 2007, only weeks after the HECM loan was completed. On July 17, 2007, Defendant's default department sent a letter to the Kerrigans' daughter advising her that the loan was due and payable upon Ms. Kerrigan's death. (Id., Exhibit V.) Bank of America's foreclosure trustee ReconTrust Company recorded a notice of default on June 24, 2008. (Id., Exhibit Y.) ReconTrust Company then recorded a notice of trustee's sale for Property on June 16, 2009, (Id., Exhibit Z), and another on October 16, 2009, (Id., Exhibit AA).

On July 20, 2007, Charles E. Clung, Jr., Plaintiff's former attorney, advised in a written letter that Plaintiff should have been informed that the HECM loan would become due and payable in the event that Ms. Kerrigan predeceased Plaintiff. (Def.'s Mot., Exhibit KK.)

Plaintiff now brings suit alleging that the counselor failed to adequately counsel him and Ms. Kerrigan as required by the HUD Housing Counseling Program Handbook (HUD Housing Counseling Program Handbook 7610.1, Chapter 4 - Reverse Mortgage Housing Counseling, Section 4-5) and that the HECM loan should have included Plaintiff as a co-borrower. (Pl.'s Opp'n 5:3.)

II. Legal Standard

Summary judgment and summary adjudication are appropriate where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett , 477 U.S. 317, 324 (1986). In deciding a motion for summary judgment, the evidence is viewed in the light most favorable to the non-moving party, and all justifiable inferences are to be drawn in its favor. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 255 (1986).

A genuine issue exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party," and material facts are those "that might affect the outcome of the suit under the governing law." Id. at 248. No genuine issue of fact exists "[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party." Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587 (1986).

It is not enough for a party opposing summary judgment to "rest on mere allegations or denials of his pleadings." Anderson, 477 U.S. at 259. Instead, the nonmoving party must go beyond the pleadings to designate specific facts showing that there is a genuine issue for trial. Celotex, 477 U.S. at 325. The "mere existence of a scintilla of evidence" in support of the nonmoving party's claim is insufficient to defeat summary judgment.

Anderson, 477 U.S. at 252. "Credibility determination, the weighing Of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge [when he or she] is ruling on a motion for summary judgment." Id. at 255.

III. Discussion

Plaintiff alleges causes of action for: (1) Reformation of Contract; (2) Breach of Covenant of Good Faith and Fair Dealing; (3) Constructive Fraud; (4) Negligence; (5) Negligent Misrepresentation; (6) Violation of Truth in Lending Act ("TILA"); (7) Financial Elder Abuse; (8) Temporary Restraining Order, Preliminary and Permanent Injunction; (9) Declaratory Relief; and (10) Punitive Damages. The court addresses Plaintiff's claims in turn. Because material triable issues of fact remain concerning Plaintiff's Reformation of Contract claim, the court denies Defendant's Motion for Summary Judgment as to this claim. The court grants summary judgment with respect to all other claims.

A. Reformation of Contract

Plaintiff states it was Ms. Kerrigan's intent at the time of signing the HECM to protect the possession of their home for both of their lifetimes. Plaintiff alleges that the HECM loan filing requirements, as set forth by HUD Form 1099, imposed on the SMC, as an agent of the HECM lenders, and from whom Defendants obtained the loan, a requirement that Plaintiff be included on the HECM application. Plaintiff alleges that this result - in order to protect both the Kerrigans in joint and equal lifetime security in their residence - was the intended result of all parties to the HECM. (Pl.'s Opp'n 3:22.) Plaintiff seeks reformation.

Defendant contends that Plaintiff is not the borrower or a party to the loan agreement and therefore is not entitled to reformation. Defendant relies on Mabb v. Merriam, 129 Cal. 663 (1900), in support of its argument that reforming the contract so as to add Plaintiff as a named borrower is impermissible because it would result in what would be, in essence, a new contract between different parties.

California Civil Code section 3399 articulates when a contract may be revised:

When, through fraud or a mutual mistake of the parties, or a mistake of one party, which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved, so as to express that intention, so far as it can be done without prejudice to rights acquired by third persons, in good faith and for value.

An "aggrieved party," for purposes of reformation of a contract, as provided by this section, need not be an original party to the transaction, but merely one who has suffered prejudice or pecuniary loss. See Watson v. Collins, 204 Cal. App. 2d 27 (1962); see also Shupe v. Nelson, 254 Cal. App. 2d 693, 698 (1967) ("The right to reformation of an instrument is not restricted to the original parties to the transaction."). Accordingly, although Plaintiff was not a party to the HECM, he may seek reformation.

Furthermore, it is settled that "[f]raud in the execution or inducement of a written contract may be shown, and revision of a written contract may be sought where mistake or imperfection of the writing is put in issue by the pleadings." Alameda County Title Ins. Co. v. Panella, 218 Cal. 510, 513 (1933).

Here, Plaintiff offers the Residential Loan Application, among other evidence, in support of his position that the contract did not "truly express the intention of the parties." The Residential Loan Application for Reverse Mortgages states in relevant part:

This application is designed to be completed by the applicant(s) with the lender's assistance . . . . Co-borrower information must be provided when a person other than the 'Borrower' (including the Borrower's spouse) is a co-owner of the real property that will be used as a basis for loan qualification or the Borrower's spouse is not a co-owner of the real property that will be used as a basis for loan qualification, but the Borrower resides in a community property state.

California is a community property state, In re Marriage of Padgett, 172 Cal. App. 4th 830, 852 (2009), and therefore, Plaintiff points out, the application itself considers Plaintiff

(i.e. the borrower's spouse) and expressly requires that information about being a co-borrower must be provided to him. Plaintiff alleges that he was not provided with this information.

In addition, the statute which governs HECMs, namely the "Insurance of home equity conversion mortgages for elderly homeowners," 12 U.S.C. 1715z-20(j), whose stated purpose is to "authorize the Secretary to carry out a program of mortgage insurance designed to meet the special needs of elderly homeowners" mandates the following:

The Secretary may not insure a home equity conversion mortgage under this section unless such mortgage provides that the homeowner's obligation to satisfy the loan obligation is deferred until the homeowner's death, the sale of the home, or the occurrence of other events specified in regulations of the Secretary. For purposes of this subsection, the term 'homeowner' includes the spouse of a homeowner.

(emphasis added). The statute suggests that HECM loans, by default, apply to both spouses and that any reference to homeowner is, again, by default, a reference to the couple. Therefore, Plaintiff seeks to reform the loan to incorporate himself, a necessary party who was wrongfully omitted, thereby conforming the agreement to the intent of the parties.

Plaintiff points out, and Defendant does not dispute, that both Defendant and Seattle Mortgage Company are Direct Endorsement Lenders with HUD, and the HECM Application lists SMC as the sponsor of the subject loan. In this capacity, SMC was responsible for meeting the stated requirements of HUD. Given that the Application was not filled out in its entirety and the certifications required on the Addendum were not accurate, the Application is not in accordance with HUD requirements and the loan should not have been approved. Defendants argue that even if the loan does not reflect the intent of the parties, reformation is not possible at this late hour. However, there is at least a factual dispute about whether this is indeed the case. After a mortgage has been insured, the HUD allows for recasting without HUD approval when "the recasting is limited to the remaining term of the mortgage or to a term extending not more than 10 years beyond the original maturity date and the requirements of 24 CFR 203.614(b)(1) are met[,] the mortgagor does not own the property subject to a mortgage insured by the Secretary; and [] the default was caused by circumstances beyond the control of the mortgagor." HUD Housing Handbook 4330.1 § 3-1A ("Amendments after the mortgage has been insured").

Here, the court concludes that there is a factual dispute related to the mutual intent of the parties at the time that the subject HECM loan was executed. In reaching this conclusion, the is mindful that "where reformation of an instrument is under consideration, inquiry to ascertain the true intent of the parties is not only permissible but essential." First American Title Ins. & Trust Co. v. Cook, 90 Cal. Rptr. 645, (1970). California Civil Code 340 further instructs that "in revising a written instrument, the Court may inquire what the instrument was intended to mean, and what were intended to be its legal consequences, and is not confined to the inquiry what the language of the instrument was intended to be."

The present action concerns an elderly married couple that co-mingled their funds, cohabitated for almost fifty years, and jointly met with lenders to procure the subject HECM -- a mortgage loan which is offered and marketed to protect the elderly. Here, the court is satisfied that there is at least a factual dispute as to whether the SMC erred and Plaintiff and Ms. Kerrigan were not informed when they excluded Plaintiff in the execution of the HECM. The court finds it particularly significant that the statute which governs HECMs expressly requires that under the terms of the HECM, a "homeowner's obligation to satisfy the loan obligation is deferred until the homeowner's death" and that the term "homeowner" "includes the spouse of a homeowner." 12 U.S.C. 1715z-20(j). Under these circumstances, a misunderstanding on the part of Ms. Kerrigan as to the terms of the HECM and whether "homeowner" included Plaintiff was reasonable.

In light of the above factual issues raised by Plaintiff, which call into question the intent of the signing parties and raise a triable issue of fact as to whether the subject loan agreement represents the true intent of the parties to the original, the court denies Defendant's request for summary adjudication of this issue.

B. Breach of the Implied Covenant of Good Faith and Fair Dealing; Constructive Fraud

Plaintiff brings a claim for breach of the implied covenant of good faith and fair dealing and for constructive fraud. In support thereof, Plaintiff alleges that a confidential relationship was established when he and Ms. Kerrigan reposed their trust and confidence in the lender and counselor as to their integrity and fidelity. Plaintiff contends that Defendant is liable for the acts of its predecessors and agents who breached the covenant of good faith and fair dealing by wrongfully excluding Plaintiff from the contract at issue and thereby depriving him of the benefits of that contract. Plaintiff further contends that 12 U.S.C. 1715z-20 ("Insurance of Home Equity Conversion Mortgage for Elderly Homeowners") establishes a special relationship between banks participating in the reverse mortgage program and borrowers, as evidenced by the need for counseling and a thorough application process designed to insure that all HECM requirements are met for both spouses. Plaintiff claims that Bank of America, in accepting the responsibilities of Direct Endorsement Lender under HUD, was responsible for all matters related to the statutes, rules and regulations that form the HECM program for elderly homeowners, including their proper implementation and servicing.

As a general rule, a financial institution owes no duty of care to a borrower when the institution's involvement in the loan transaction does not exceed the scope of its conventional role as a lender of money. Wagner v. Benson, 101 Cal. App. 3d 27, 34-35 (1980); Fox & Carskadon Financial Corp. v. San Francisco Fed. Sav. & Loan Assn., 52 Cal. App. 3d 484, 488-89 (1975). Tort remedies for breach of the implied covenant of good faith and fair dealing are only available where there is a special relationship between the parties. Wallis v. Superior Court, 160 Cal. App. 3d 1109 (1984). Similarly, constructive fraud usually arises from a breach of duty where a relation of trust and confidence exists. Barrett v. Bank of America, 183 Cal. App. 3d 1362, 1369 (1986) (citing Darrow v. Robert A. Klein & Co., Inc., 111 Cal. App. 310, 315-16 (1931)).

In this case, there was no special or fiduciary relationship between Bank of America and the Kerrigans. Defendant did not participate in the origination process or closing of the subject loan. Defendant did not acquire its interest from SMC until after the loan closed, and the Asset Purchase Agreement establishes that Defendant did not assume the purported liability upon which Plaintiff's claims are based. Accordingly, Defendant is entitled to summary adjudication in its favor on these claims.

C. Negligence & Negligent Misrepresentation

Plaintiff sets forth a claim of negligence, stemming from the execution of the HECM in May 2007. Plaintiff's claim, however is time barred. By his own admission, Plaintiff learned of the facts pertaining to his claim no later than July 20, 2007, when he received a letter from his former attorney advising him that the loan would become due and payable upon Ms. Kerrigan's death and that Plaintiff could not assume the HECM loan.

Under California law, a cause of action for negligence has a two-year statute of limitations. Cal. Civ. Proc. Code Ann. § 335.1. Because Plaintiff did not file this lawsuit until November 6, 2009, over two years after he received the letter from his attorney and over two years from the date of the execution of the HECM, his negligence as well as his negligent misrepresentation claims are time barred. Defendant is entitled to summary adjudication in its favor on this claim.

D. Violation of Truth in Lending Act

Plaintiff's Truth in Lending Act claim is also time barred. The Truth in Lending Act requires borrowers to file an action "within one year from the date of the occurrence of the violation."

15 U.S.C. 1640(e); Pacific Shore Funding v. Lozo, 138 Cal. App. 4th 1342, 1350-51 (2006). The alleged violation here is the failure to make proper and timely disclosures at least three days before consummation of the transaction, which occurred on May 9, 2007. Under TILA, therefore, Plaintiff's filing deadline was May 9, 2008. Plaintiff did not file his complaint until October 6, 2009. Therefore, Plaintiff's claim for purported TILA violations is time barred without exception.

E. Financial Elder Abuse

Plaintiff claims that Defendant recklessly, and by oppression and fraud, deprived Plaintiff of his property right and interest in the home, thereby committing financial abuse of an elder.

Financial abuse of an elder is defined in California Welfare & Institutions Code section 15610.30:

(a) "Financial abuse" of an elder or dependent adult occurs when a person or entity does any of the following:

(1) Takes, secretes, appropriates, obtains, or retains real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud, or both.

(2) Assists in taking, secreting, appropriating, obtaining, or retaining real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud, or both.

(3) Takes, secretes, appropriates, obtains, retains, or assists in taking, secreting, appropriating, obtaining, or retaining, real or personal property of an elder or dependent adult by undue influence, as defined in Section 1575 of the Civil Code.

(b) A person or entity shall be deemed to have taken, secreted, appropriated, obtained, or retained property for a wrongful use if, among other things, the person or entity takes, secretes, appropriates, obtains, or retains the property and the person or entity knew or should have known that this conduct is likely to be harmful to the elder or dependent adult.

(c) For purposes of this section, a person or entity takes, secretes, appropriates, obtains, or retains real or personal property when an elder or dependent adult is deprived of any property right, including by means of an agreement, donative transfer, or testamentary bequest, regardless of whether the property is held directly or by a representative of an elder or dependent adult.

According to Plaintiff, Defendant has taken property for a wrongful use inasmuch as Defendant knew or should have known that its conduct was likely to be harmful to the Plaintiff, an elder under California statute. Specifically, Plaintiff claims to have been falsely led to believe that a HECM loan would protect both he and his wife with safeguards from displacement from their home in their lifetime.

The court, however, is not persuaded that Plaintiff has pleaded or offered facts to support a finding that Defendant wrongfully took property from Plaintiff. First, Plaintiff was not record title owner at the time of the subject loan; he had quit claimed Property to Ms. Kerrigan, and all prior mortgages identified Ms. Kerrigan as the sole borrower. Second, Defendant properly commenced foreclosure proceedings because, under the terms of the HECM, the loan became due and payable upon Ms. Kerrigan's death. Plaintiff has not alleged that the loan is not in default or that the foreclosure proceedings are improper. Because Plaintiff has offered no evidence that Defendant either exercised undue influence or is wrongfully taking real property belonging to Plaintiff, Defendant is entitled to summary judgment in its favor on this claim.

F. Punitive Damages; Injunctive Relief; and Declaratory Relief

Plaintiff seeks punitive damages in connection with his causes of action for constructive fraud, TILA violations, and financial elder abuse. (Complaint ¶ 77.) For the reasons stated above, Defendant is entitled to summary adjudication in Defendant's favor on these claims. Therefore, Plaintiff's request for punitive damages for violations thereof is moot.

Plaintiff also states a claim for declaratory relief. (Complaint ¶ 37.) The court may refuse to award declaratory relief in any case where its declaration or determination is not necessary or proper at the time under all the circumstances. Cal Code Civ. Proc. section 1060; City of Alturas v. Gloster, 16 Cal.2d 46, 49 (1940). The availability of another form of adequate relief may justify denial of declaratory relief, C.J.L. Const., Inc. v. Universal Plumbing, 18 Cal. App. 4th 376, 390 (1993), and it is enough that the complaint alleges facts showing an "actual controversy" and asks the court to adjudicate the parties' rights and duties. Olszewski v. Scripps Health, 30 Cal.4th 798, 807 (2003). Here, because Plaintiff states a valid claim for reformation, Defendant seeks summary denial of Plaintiff's request for declaratory relief. Because triable issues of fact remain with respect to the reformation claim and Plaintiff's request for declaratory relief concerns related issues, the court declines to exercise its discretion and denies Defendant's motion as to this issue.

The court does, however, grant Defendant's request to strike Plaintiff's claim for injunctive relief. Injunctive relief is a remedy and not, in itself, a cause of action. See Shell Oil Co. v. Richter, 52 Cal. App. 2d 164, 168 (1942).

IV. Conclusion

For the foregoing reasons, the court GRANTS in part and DENIES in part Defendant's Motion for Summary Judgment.


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