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Divinia Abigail Barroso v. Ocwen Loan Servicing

August 21, 2012

DIVINIA ABIGAIL BARROSO, PLAINTIFF AND APPELLANT,
v.
OCWEN LOAN SERVICING, LLC ET AL., DEFENDANTS AND RESPONDENTS.



APPEAL from an order of the Superior Court of Los Angeles County, Yvonne T. Sanchez, Judge. (Los Angeles County Super. Ct. No. VC056571)

The opinion of the court was delivered by: Epstein, P. J.

CERTIFIED FOR PUBLICATION

Reversed and remanded with directions.

Divinia Barroso challenges the trial court order sustaining a demurrer, without leave to amend, to her complaint arising from the failed loan modification and eventual foreclosure sale of her home. We conclude that Barroso alleged formation of a valid contract to modify her loan documents. She did not allege compliance with the conditions for a revised loan modification offered to her later. We reverse the trial court's order as to the breach of contract cause of action because it sufficiently alleged breach of the modification agreement. For the same reason, Barroso should be permitted to allege a cause of action for breach of the covenant of good faith and fair dealing based on breach of the modification agreement. In addition, we conclude that Barroso should be allowed to amend the complaint to allege a cause of action for common law wrongful foreclosure based on the valid modification agreement.

FACTUAL AND PROCEDURAL SUMMARY

In reviewing an order sustaining a demurrer, we assume the factual allegations pleaded to be true and examine the complaint de novo to determine whether it alleges facts sufficient to state a cause of action under any legal theory. (Committee for Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42.) The following facts are alleged or are cognizable by judicial notice.

Barroso purchased a single family dwelling on Mallison Avenue in South Gate in 2005. As part of the purchase, she executed a promissory note secured by a deed of trust in the amount of $372,000 (the loan documents). On information and belief, Barroso alleges that Ocwen Loan Servicing, LLC (Ocwen) acquired the servicing rights to the original loan. In 2008, Barroso encountered financial difficulties and was unable to make timely monthly mortgage payments. Ocwen began foreclosure proceedings on the property by recording a notice of default in January 2009 and a notice of trustee sale on April 16, 2009.

In response, Barroso began to negotiate for a loan modification. In June 2009, she was notified by Ocwen that she was eligible for benefits under the federal government Home Affordable Modification Program (HAMP)*fn1 . She alleges the notice informed her: "If you comply with the terms of the Home Affordable Trial Period Plan and the Modification Agreement, we will modify your mortgage loan and waive all prior late charges that remain unpaid." Barroso claims a copy of this letter was incorporated by reference to the complaint as exhibit A, but that letter is dated October 20, 2009, as we discuss below. She alleges that enclosed with this letter from Ocwen were a "Home Affordable Modification Trial Period Plan (Step One of Two-Step Documentation Process)" which she refers to as the "Trial Period Plan," and a "Home Affordable Modification Agreement (Step Two of Two-Step Documentation Process)," which she refers to as the "Modification Agreement." The complaint incorporated these documents by reference. According to the complaint, Barroso was to make payments of $1,301.60 on the first of the month in July, August, and September 2009 under the Trial Period Plan. Under the Modification Agreement, she would make monthly payments of $1,301.60 beginning on October 1, 2009 and thereafter, with increases in the payment scheduled for October 2014.

Barroso alleges that she signed the Trial Period Plan and the Modification Agreement on July 3, 2009, and submitted both to Ocwen, with the July 1, 2009 payment of $1,301.60. She further alleges that Ocwen acknowledged receipt of that payment. Barroso alleges: "The original signed agreements are in the possession of Defendant Ocwen." She made the monthly payments when due under the Modification Agreement from August through November 2009.

After November 2009, Barroso believed she was making payments under a revised modification agreement. She states that Ocwen sent her a revised Home Affordable Modification Agreement (Step Two of Two-Step Documentation Process) (Revised Modification Agreement) in December 2009, reducing the monthly mortgage payments to $1,294.85 effective October 1, 2009. It stated that if all of Barroso's representations remained true and all preconditions to the modification were met, the loan documents would automatically be modified on October 1, 2009 and all unpaid late charges would be waived. The complaint does not explain why this modification was sent to Barroso two months after its effective date. She alleges that the October 2009 payment already had been made and receipt acknowledged by Ocwen. Barroso alleges that she signed the Revised Modification Agreement on December 11, 2009, and submitted it to Ocwen with a payment of $1,300. She alleged that the original signed Revised Modification Agreement was in the possession of Ocwen.

Barroso made monthly payments of $1,300 from January through April 2010, as acknowledged by Ocwen. Barroso alleges she first learned something was wrong on May 7, 2010, when she received a notice to quit from an attorney acting on behalf of defendant U.S. Bank, described in the complaint as trustee for the registered holders of asset-backed certificates, series 2006. She contacted Ocwen and learned that the property had been auctioned at a foreclosure sale in April 2010. There were no bidders and the property reverted to the beneficiary, whom she alleges to be defendant U.S. Bank. In June 2010, Ocwen returned the April 2010 payment made by Barroso for the stated reason that the payment was not sufficient to satisfy the defaulted amount and no alternative payment arrangements had been made. She was directed to contact her home retention specialist immediately to avoid a foreclosure sale (which in fact already had taken place). Barroso alleges that this letter was false because she had accepted three alternative payment agreements, the Trial Period Plan, the Modification Agreement, and the Revised Modification Agreement. The complaint alleges that the Trial Period Plan was fully performed and that the other two agreements were "partially performed".

The complaint alleges a cause of action for breach of the Trial Period Plan, the Modification Agreement, and the Revised Modification Agreement, alleging that Barroso had performed each act required under these agreements, including making all payments when due. Despite Barroso's full performance, she alleges Ocwen breached the agreements by failing to honor their terms, wrongly proceeding to foreclosure sale, and wrongfully selling the property to the trustee without offering her an alternative to avoid foreclosure.

The second cause of action against Ocwen is for specific performance of the Revised Modification Agreement. The third cause of action against Ocwen is for wrongful foreclosure, alleging that Barroso was not in default under the terms of the Revised Modification Agreement. The fourth cause of action is against defendant U.S. Bank for cancellation of the deed on the trustee's sale. The fifth cause of action, also against U.S. Bank, is to enjoin the eviction of Barroso and her family from the property. Barroso unsuccessfully sought a temporary restraining order and preliminary injunction to halt the unlawful detainer action.

Ocwen and U.S. Bank (collectively defendants) demurred to the complaint on the ground that each of the causes of action failed to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) They contended that the loan modification process was not completed due to Barroso's ineligibility and that they never agreed to modify the terms of her existing mortgage or to cancel the pending foreclosure sale. The demurrer includes a factual summary based on documents which the trial court judicially noticed. We granted defendants' request to take judicial notice of these documents on appeal.

Defendants argued that Barroso failed to allege receipt of a fully executed loan modification agreement signifying the satisfaction of all conditions precedent, and therefore there was no loan modification agreement. They also contended that specific performance is not an independent cause of action, but instead is an equitable remedy for breach of contract.*fn2 They also argued that Barroso failed to allege sufficient facts to demonstrate that the foreclosure was unlawful or any other basis for cancellation of the trustee's deed, including a failure to allege tender of the amounts due under the mortgage. Finally, defendants contended that Barroso had failed to allege a basis for injunctive relief. In her opposition, Barroso argued that she had alleged that she signed and returned the agreement, that Ocwen had the fully executed original contracts in its possession, and that the language requiring Ocwen's signature was a condition subsequent and did not defeat the validity of the contract.

The trial court sustained the demurrer without leave to amend. It found Barroso's allegations were contradicted by the exhibits attached to the complaint which stated that the loan documents would not be modified unless and until the borrower received a copy of the agreement signed by Ocwen. The trial court concluded that Barroso's breach of contract cause of action failed on this ground and that the specific performance cause of action, which is derivative of the cause of action for breach of contract, failed for the same reason. The court found that Barroso had not alleged a violation of the foreclosure statutes or any other basis for setting aside the sale or canceling the deed. The court concluded that leave to amend should be denied because it was not probable from the nature of the complaint, and the previous unsuccessful attempt to plead, that plaintiff could state a cause of action. The court denied leave to amend on that basis.

Barroso filed her notice of appeal from this order on November 19, 2010. We issued an order to show cause why the appeal should not be dismissed as being taken from the order sustaining the demurrer, which is a non-appealable order. After Barroso responded, we gave her 30 days to file and serve a judgment of dismissal. In February 2011, the trial court modified a judgment of dismissal submitted pursuant to the stipulation of the parties to entitle it "Order of Dismissal" and signed it. We granted an application to file an amicus brief by the National Housing Law Project, Housing and Economic Rights Advocates, Law Foundation of Silicon Valley, California Reinvestment Coalition, and Eric Mercer. We took the matter off calendar, granted judicial notice of documents presented by defendants to the trial court in opposition to the demurrer, and granted the parties leave to file supplemental briefs regarding amendment to add a cause of action for breach of the covenant of good faith and fair dealing. Supplemental briefs were filed by Barroso and Ocwen.

DISCUSSION

We apply the de novo standard to review an order sustaining a demurrer. (Sprinkles v. Associated Indemnity Corp. (2010) 188 Cal.App.4th 69, 75.) Since the trial court sustained the demurrer without leave to amend, we must determine "whether there is a reasonable probability that the complaint could have been amended to cure the defect; if so, [we] will conclude that the trial court abused its discretion by denying the plaintiff leave to amend." (Id. at p. 76.) It is plaintiff's burden to establish that the complaint could be amended to cure any pleading defect. (Ibid.)

Barroso attached the three relevant loan modification documents (the Trial Period Plan, the Modification Agreement, and the Revised Modification Agreement) to her complaint and incorporated them by reference. "'Where a written contract is pleaded by attachment to and incorporation in a complaint, and where the complaint fails to allege that the terms of the contract have any special meaning, a court will construe the language of the contract on its face to determine whether, as a matter of law, the contract is reasonably subject to a construction sufficient to sustain a cause of action for breach.' [Citation.] Moreover, '[t]he rule on demurrer is simply a variation on the well-recognized theme that "[i]t is . . . solely a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence." [Citations.]' [Citation.]" (Davies v. Sallie Mae, Inc. (2008) 168 Cal.App.4th 1086, 1091.) "'The basic goal of contract interpretation is to give effect to the parties' mutual intent at the time of contracting. [Citations.] When a contract is reduced to writing, the parties' intention is determined from the writing alone, if possible. [Citation.] "The words of a contract are to be understood in their ordinary and popular sense." [Citations.]' [Citation.]" (Avalon Pacific--Santa Ana, L.P. v. HD Supply Repair & Remodel, LLC (2011) 192 Cal.App.4th 1183, 1198.)

On enforceability of the Modification Agreements, Barroso's position is that she formed a binding contract with Ocwen to modify the terms of her mortgage and that Ocwen waived any right to claim conditions precedent had not been satisfied by accepting modified mortgage payments for nine months. She also argues that leave to amend should have been granted to allow her to plead causes of action for promissory estoppel, wrongful foreclosure, and breach of the covenant of good faith and fair dealing. Defendants argue that no agreement to modify the terms of the mortgage was reached because express conditions precedent were not satisfied. These include Barroso's untimely execution of one of the agreements and failure to have her signature notarized, as well as Ocwen's failure to return a signed copy to Barroso. Defendants contend that the express terms of the modification agreements allowed for acceptance of payments without waiver of any right to foreclose or other remedies. They assert that there was no breach of contract and that Barroso cannot amend her complaint to state causes of action for promissory estoppel, wrongful foreclosure, or breach of the covenant of good faith and fair dealing. We begin with the breach of contract cause of action.

I

The breach of contract cause of action turns on whether Barroso failed to allege performance of a condition precedent to formation of a valid agreement to modify the terms of her loan. "In contract law, a 'condition precedent' is 'either an act of a party that must be performed or an uncertain event that must happen before the contractual right accrues or the contractual duty arises.' [Citation.]" (Wm. R. Clarke Corp. v. Safeco Ins. Co. (1997) 15 Cal.4th 882, 885, fn. 1.)*fn3 "The existence of a condition precedent normally depends upon the intent of the parties as determined from the words they have employed in the contract. (13 Williston on Contracts (4th ed. 2000) § 38:16, at p. 441.)" (Realmuto v. Gagnard (2003) 110 Cal.App.4th 193, 199.) "'The rule is that provisions of a contract will not be construed as conditions precedent in the absence of language plainly requiring such construction. [Citations.]' (Rubin v. Fuchs (1969) 1 Cal.3d 50, 53.) [Footnote omitted.]" (Fireman's Fund Ins. Co. v. Sizzler USA Real Property, Inc. (2008) 169 Cal.App.4th 415, 421.) Barroso invokes the rule that conditions precedent are not favored in the law and that we should not "construe a term of the contract so as to establish a condition precedent absent plain and unambiguous contract language to that effect. [Citation.]" (Frankel v. Board of Dental Examiners (1996) 46 Cal.App.4th 534, 550.)

Three conditions are at issue here: 1) whether Barroso was required to have her signature notarized; 2) whether execution of an agreement depended upon Ocwen returning a copy of the agreement it had signed to Barroso; and 3) whether she met the October 30, ...


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