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Graybill v. Wells Fargo Bank, N.A.

United States District Court, N.D. California

June 14, 2013


For John R. Graybill, Patricia Goff-Graybill, Plaintiffs: Edward Joseph LaBarre, LEAD ATTORNEY, Edward J LaBarre, Sausalito, CA.

For Wells Fargo Bank, N.A., Defendant: Christopher Alan Carr, LEAD ATTORNEY, Anglin, Flewelling Rasmussen Campbell & Trytten, LLP, Pasadena, CA; Kenneth Allen Franklin, LEAD ATTORNEY, Anglin, Flewelling, Rasmussen, Pasadena, CA.


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LAUREL BEELER, United States Magistrate Judge.



Plaintiffs John R. Graybill and Patricia Goff-Graybill (the " Graybills" ) filed this lawsuit against Wells Fargo Bank raising eight claims stemming from Wells Fargo's actions regarding their mortgage loan, their 2006 refinancing of it, their 2009 attempts to modify the loan under the Home Affordable Modification Program (" HAMP" ), and the foreclosure of their house: (1) breach of contract; (2) promissory estoppel; (3) fraud; (4) violation of California's unfair competition law, Cal. Bus. & Prof. Code § 17200; (5) negligence; (6) declaratory relief; (7) fraud and breach of fiduciary duty in the sale of the loan; and (8) fraud in the alteration of Plaintiffs'

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loan application. Third Amended Complaint (" TAC" ), ECF No. 33. [1] Wells Fargo moved to dismiss the TAC. See Motion, ECF No. 34. The court finds the matter suitable for determination without oral argument under Civil Local Rule 7-1(b) and GRANTS the motion with prejudice.



From November 1987 to July 23, 2012, the Graybills, who are married, lived at their home at 608 Eastwood Way, Mill Valley, California. Third Amended Complaint (" TAC" ), ECF No. 33, ¶ 5. This case involves their loan refinancing in 2006 with World Bank and their attempts to secure a HAMP loan modification in 2011 with World Bank's successor, Wachovia/Wells Fargo. See id. Through " all times pertinent" to the TAC, Wells Fargo has claimed that it had the right to service and collect on the loan. Id. ¶ 25.

This section first reviews the history of World Bank/Wachovia/Wells Fargo and then summarizes the complaint's allegations about the refinancings and the attempted loan modification under HAMP.

A. The Defendant Wells Fargo Bank[2]

World Bank changed its name to Wachovia Mortgage on December 21, 2007. Id. ¶ 16. Wells Fargo agreed to buy Wachovia in October 2008 and then completed the purchase in January 2009. Id. ¶ 17. On November 1, 2009, Wachovia converted to a national bank called Wells Fargo Bank Southwest, NA, which then merged with and into Wells Fargo Bank, NA. Id. With the merger, ultimately the servicing of Plaintiffs' loans was taken over by Wells Fargo Home Mortgage, a division of Wells Fargo Bank. Id. ¶ 18. Plaintiffs' dealings with Wells Fargo during the years 2010 and 2011 were often with Wachovia and representatives of Wells Fargo Bank that were identified as representatives of Wachovia, and Wachovia's name appears on some of the documents discussed in the complaint and attached to it. Id. ¶ 21. Wells Fargo has also done business as America's Service Company (" ASC" ). Id. ¶ 23.

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On April 13, 2009, Wells Fargo, doing business as ASC, contracted with the Federal Mortgage National Association (" Fannie Mae" ), in its capacity as financial agent of the United States, to provide foreclosure prevention services intended to provide homeowners with affordable loan modifications. Id. ¶ ¶ 26, 40-41; see id. Ex. 1 (copy of the contract or " Servicer Participation Agreement" (" SPA" )). The SPA was titled the Commitment to Purchase Financial Instrument and Servicer Participation Contract for the Home Affordable Modification Program under the Emergency Economic Stabilization Act of 2008. Id. ¶ 40. Under the terms of the SPA, Wells Fargo was eligible to receive $2,873,000,000 in taxpayer funds. Id. ¶ ¶ 26, 85 (" Wells Fargo received consideration for its participation in the HAMP program" ). In return, Wells Fargo agreed to perform certain loan modification and foreclosure prevention services " to benefit homeowners by providing them with affordable loan modifications." Id. ¶ ¶ 26, 40. These services, and the contract provisions that Wells Fargo allegedly violated, are discussed below.

B. The 2006 Refinancing

In 2005, the Graybills refinanced their home mortgage by taking out a loan from World Savings Bank, FSB (" World Savings" ). Id. ¶ 12. They also had a second mortgage from World Savings. See id. ¶ 13. In August 2006, the Graybills owed $516,000 on their first mortgage and $74,200 on the second for a total of $590,200. Id. ¶ ¶ 12-13.

Around June or July 2006, World Savings solicited the Graybills to refinance their mortgage, and they began working with loan officer Patricia Rufenacht. Id. ¶ 223. One or both plaintiffs met with her in July and August 2006 for a total of about six time to complete an application, and she talked with them by phone a few times in August to persuade them to take out a loan to replace their existing loan. Id. ¶ 224. During conversations in August 2008 in her office, Rufenacht falsely told Plaintiffs that it would be in their best interests to consolidate their two mortgages into one mortgage with a principal of $635,000. Id. ¶ 226. She " falsely informed and assured" them that the best interest plan for their new mortgage was be the " PICK-A-PAYMENT" plan. Id. ¶ 227. She said that the lower interest rate (which was actually variable) and the payment amount flexibility were valuable advantages not available under their existing loan. Id. She also said that -- unlike their previous loans -- the interest rate on the new loan was tied to an index with historically low rates that continued to decrease. Id. She said that industry experts predicted that interest rates would continue to fall, and Plaintiffs' monthly payments would be even lower than the initial payments. Id. Even in the worst case scenario of an interest-rate increase, she said that the increase would have a negligible effect on their monthly payments. Id. ¶ 228. The PICK-A-PAYMENT interest plan allowed interest to be deferred and added to the principal amount of the loan. Id. ¶ 229.

On or about August 29, 2006, the Graybills submitted a partially completed application for a new loan in the principal amount of $635,000 with a variable interest rate that initially was 7.605 percent per annum. Id. ¶ ¶ 225, 249. [3] Later, Rufenacht or another World Savings representative altered the Graybills' loan application

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by falsely adding $135,000 in assets to the list of assets on the application: (1) a $15,000 Toyota automobile; (2) a $20,000 GMC truck; and (3) $100,000 in furniture and fixtures. Id. ¶ ¶ 250-52. Based on a statement that Rufenacht made to John Graybill later, Plaintiffs believe that she falsified the information. Id. ¶ 251. In addition, someone inflated the value of their home by $5,000 on the altered loan application, an appraisal, or both (resulting in a value of $795,000 instead of $790,000). Id. ¶ ¶ 253-54. The Graybills " relied on the approval of their loan application as evidence that they were qualified for it, and that they would be able to make the payments on the loan." Id. ¶ 267.

On December 15, 2006, the refinancing was completed, and the consolidated mortgage value was $609,120 (the " 2006 Loan" ). Id. ¶ ¶ 14-15. Approximately $9,000 of the principal balance was for fees and costs associated with the application and processing of the new loan. Id. ¶ 241. The Graybills allege the following:

o The costs and interest on the new loan were motivations for World Savings to disregard borrowers' interests. Id. ¶ 242.

o Rufenacht acted as a financial advisor and outside of her " loan officer" role when she advised Plaintiffs that the Pick-a-Payment Loan was best for them, and she was motivated by the bank's interests in " selling" the loan. Id. ¶ ¶ 231-32, 236.

o Rufenacht had been trained and encouraged by World Savings to " act as an investment advisor in order to sell borrowers a new loan from World Savings." Id. ¶ 234.
o The advice that she provided the Graybills " was false and misleading, not so much as to the terms of the loan but as to loan [ sic ] being appropriate for the Plaintiffs." Id. ¶ 235.

The Graybills learned that Rufenacht's representations and omissions about the PICK-A-PAYMENT loan -- boiling down to, it was a good financial move for them -- were false only in April 2009, when they could no longer make full payments on the loan. Id. ¶ 244. They learned of the altered application only in July 2012, " when they found an altered application form that had been sent back to them by World Savings after the close of their 2006 loan refinance." Id. ¶ ¶ 256, 260-61.

C. The 2009 Loan Modification Efforts and the 2010 Modification

After April 2009 through 2011, the Graybills were unable to make the full payments due on their mortgage that Wells Fargo was servicing. Id. ¶ ¶ 27, 29. In July 2009, Mrs. Goff-Graybill contacted a Wells Fargo representative to " discuss the fact that she was then unable to make a full payment on the 2006 loan and that she was able to make only a partial payment." Id. ¶ 30. The Wells Fargo representative " informed her that it would be best for the Plaintiffs to not make any payments if they could not make full payments" and that " Wells Fargo would not consider modifying their mortgage unless they, the Plaintiffs, were in default on their mortgage payments." Id. ¶ 31. After that advice, the Graybills stopped making their mortgage payments and began to communicate with Wells Fargo about a modification of the terms of the 2006 loan. Id. ¶ 32.

In August 2009, the Graybills began working to modify the 2006 loan with Mark Stuart, a Wells Fargo representative in Novato, California. Id. ¶ 33-34. On Stuart's suggestion, in September 2009, the Graybills applied for a loan modification under Wells Fargo's Mortgage Assistance Program 2 (" MAP2R" ). Id. ¶ ¶ 35-36.

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In March 2010, the Graybills' application was approved, and they began making reduced payments under the MAP2R loan modification plan in April 2010. Id. ¶ ¶ 37-38.

" After making reduced payments pursuant to the MAP2R loan modification," Mrs. Goff-Graybill " was injured in a motor vehicle accident and was not physically and mentally able to continue working and earning income." Id. ¶ 38. Due to Mrs. Goff-Graybill's disability, the Graybills were unable to make their payments under the MAP2R program. Id. ¶ 39. After their default, Plaintiffs were gradually able to earn more money, and their household income increased to the point that they were again eligible for a loan modification. Id. ¶ 43.

D. The 2011 Application For a HAMP Loan Modification

At the beginning of 2011, Plaintiffs applied for a loan modification under HAMP. Id. ¶ 44. When they applied for the modification, " Wells Fargo had previously notified Plaintiffs of their default on their mortgage payments as they had not been making full payments on their mortgage loan." Id. ¶ 45. Indeed, on April 1, 2011, a notice of default was recorded based on Plaintiffs' previous default on their payments as of July 2010. Request for Judicial Notice Ex. G, ECF No. 24. On or about June 29, 2011, a notice of trustee's sale on the Graybills' home was recorded and the sale was scheduled for July 26, 2011. Id. ¶ 46.

On or about July 12, 2011, the Graybills were contacted by Wade Stoltz, " who introduced himself as a home preservation specialist of Wachovia Home Mortgage and as their sole contact to lead the Plaintiffs through the HAMP loan modification process." Id. ¶ 47. Stoltz told the Graybills that he personally would help them " every step of the way" and told Mr. Graybill what documents and information were necessary to apply for a HAMP modification. Id. On or about July 14 and 15, 2011, the Graybills faxed Stoltz the completed HAMP loan application, all necessary accompanying documents, and additional documents that Stolz requested on July 15, 2011. Id. ¶ ¶ 49-50. Mr. Stolz sent them a letter on July 16, 2011 again saying that he was their primary contact and would personally assist them with the loan modification process. Id. ¶ 51. Once the Graybills submitted their application for a HAMP modification, the pending foreclosure sale was suspended. Id. ¶ 53.

Plaintiffs allege that Stolz and Wells Fargo " knew or should have known" that his statements orally and in writing were not true. Id. ¶ 147.

On or about July 16, 2011, the Graybills received two letters from Sharon Zuniga, identified as a Senior Vice President at Wachovia. Id. ¶ 52. One letter reiterated what Wade Stolz had conveyed to them, and another dated July 13, 2011 (the " July 13 letter" ) stated in part:

If you do not qualify for HAMP, or if you fail to qualify with the terms of the Trial Period Plan, you will be sent a Non-Approval notice. In most cases you will have 30 days to review the reason for the non-approval and contact us to discuss any concerns you may have. If your loan has been previously referred to foreclosure, during this 30 day review period we may continue with pending foreclosure action, but no foreclosure sale will be conducted and you will not lose your home.

Id. ¶ 52; see id. Ex. 3.

Within a few weeks, the Graybills learned that Wachovia had denied their application. First, on August 10, 2011, a Wachovia representative called them from

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phone number 210-543-4000 to say that their application had been denied and that they had 30 days to contest the figures underlying the decision. Id. ¶ 54. Then on or about August 13, 2011, the Graybills received a notice of non-approval letter from Sharon Zuniga dated August 3, 2011 (the " August 3 Notice" ) stating:

Even though you are ineligible for assistance under the [HAMP Program], you have 30 calendar days from the date of this notice to contact Wachovia Mortgage to discuss the reason for non-approval for a HAMP modification or to discuss alternative loss mitigation options . . . . You may be referred to foreclosure during this time and any pending foreclosure action may continue. However, no foreclosure sale will be conducted and you will not lose your home in this 30-day period (or any longer period required for us to review supplemental material you may provide in response to this Notice).

Id. ¶ 55; see id. Ex. 4.

The Graybills obtained and provided an appraisal of their home to show that Wachovia's calculations had underestimated the net present value (" NPV" ) of their home, and Wachovia received it on September 1, 2011. Id. ¶ 56. Wachovia sent a letter confirming receipt of the information and saying that it would reconsider their eligibility for a HAMP loan modification. Id. ¶ 57. On September 6, 2011, Mr. Graybill contacted a Wachovia representative called Vickie Weldon, who told him that she had received the information, she expected to have a decision by September 30, 2011, " if that decision was not favorable, the Plaintiffs would then have thirty days to again dispute the NPV determination and submit other documentation to contest the non-approval," and the house would not be scheduled for a foreclosure sale while the information was being considered (or during the 30-day dispute process if the NPV was again determined to be negative). Id. ¶ 58. She also told him that the Graybills could not apply for another loan modification program while their appeal was pending. Id. ¶ ¶ 58-59. (Plaintiffs assert that Vickie Weldon and Wells Fargo " knew or should have known" that Weldon's statements were not true. Id. ¶ 149.)

On October 7 or 8, 2011, the Graybills received notice from Wells Fargo (dated September 27, 2011) that their appeal had been denied and they were ineligible for the HAMP loan modification. Id. ¶ 60; see id. Ex. 5 (letter attached to TAC). Nothing on the notice said that a foreclosure sale had been scheduled. Id. ¶ 60 & Ex. 5. The notice said that the reason for the non-approval was a negative NPV determination. Id. ¶ 61. The Graybills studied the criteria disclosed in the notice about the denial and " noticed significant errors that effected [ sic ] their eligibility for a HAMP loan modification." Id. ¶ 62. They then began to gather evidence to show that the determination of their ineligibility had been made in error, that their application should be reconsidered, and they prepared to discuss these inaccuracies with Wells Fargo (Wachovia). Id. ¶ 63. The Graybills relied on the statements previously made to them in writing and verbally by Wells Fargo representatives that the Graybills had 30 days from the Notice of Non-Approval to show that the decision had been made in error and that if they submitted supplemental information, Wells Fargo would reconsider their application for a HAMP modification. Id. ¶ 64.

Had the NPV been calculated properly, they allege, they would have been eligible for a HAMP loan modification. Id. ¶ 65. They tried to contact Wells Fargo Bank to discuss the reasons for non-approval and

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the errors Plaintiffs had identified. Id. ¶ 66.

On October 19, 2011, they received an advertising mailer showing that their home was scheduled for foreclosure on October 26, 2011, which was their first notice of the foreclosure. Id. ¶ 67. They tried calling Wells Fargo, but the telephone numbers that the Wells Fargo representatives provided them previously " were no longer connecting them to those representatives or to anyone who had any knowledge of there [ sic ] HAMP application. Id. ¶ 68. They called on October 20 and October 21, using the numbers that Wells Fargo " had reassigned to them" and tried calling other telephone numbers and left messages. Id. ¶ 70. On October 21, 2011, they spoke to someone in the loan department who was unable to give them any information about their loan or foreclosure but did give them the telephone number of the legal department. Id. ¶ 72. That day, they spoke to someone in the legal department who told them that she could not find any information about the loan on Wells Fargo's system. Id. ¶ 73. Plaintiffs have records of their calls to document this. Id. ¶ 74.

On October 26, 2011, Wells Fargo sold and purchased the Graybills' home at a foreclosure auction for " $522,500, an amount $112,500 less than the $635,000 amount used by Wells Fargo to determine the NPV which Plaintiffs attempted to dispute." Id. ¶ 76; see Request for Judicial Notice, Ex. H. This foreclosure sale happened before the Graybills were able to contact a Wells Fargo representative to discuss the September 27, 2011 notice of non-approval and the errors in the NPV calculation. TAC ¶ 77. Also, " Plaintiffs' home was not sold to a third party without notice of the defects in the foreclosure proceeding." Id. ¶ 79.

Wells Fargo brought eviction proceedings against the Plaintiffs and obtained a judgment for possession of the Property. Id. ¶ 81. The Graybills were evicted on July 24, 2012. Id. ...

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