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Johnson v. Mortgage

United States District Court, N.D. California, San Francisco Division

August 12, 2014

CHARLOTTE JOHNSON and NELVIN JOHNSON, Plaintiffs,
v.
PNC MORTGAGE, DIVISION OF PNC BANK, NATIONAL ASSOCIATION; U.S. BANK, NATIONAL ASSOCIATION; and DOES 1-10; Defendants.

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS [ECF No. 6] [ECF No. 6]

LAUREL BEELER, Magistrate Judge.

INTRODUCTION

Plaintiffs Charlotte and Nelvin Johnson sued PNC Mortgage and U.S. Bank in Napa County Superior Court based on PNC's conduct in servicing their loan. They allege that PNC prematurely revoked a loan modification offer before the offer expired, subjected them to dual tracking, recorded a notice of default on their property while their loan modification application was pending despite promising not to do so, failed to appoint a single point of contact to handle their modification, and executed an invalid "robo-signed" assignment. See Complaint, ECF No. 1 at 5-21.[1] The Johnsons assert the following seven claims: (1) breach of contract, (2) dual tracking in violation of California Civil Code §§ 2924.18 and 2923.55, (3) and (7) two claims for cancellation of instruments under California Civil Code § 3412, (4) breach of contract (promissory estoppel), (5) unfair business practices, and (6) robo-signing in violation of California Civil Code § 2924.12. See id. PNC removed the lawsuit to this court pursuant to 28 U.S.C. §§ 1332 and 1441 based on diversity jurisdiction. See Notice of Removal, ECF No. 1 at 2. PNC and U.S. Bank now move to dismiss the Johnson's claims pursuant to Federal Rule of Civil Procedure 12(b)(6). The court GRANTS Defendants' motion on all of Plaintiffs' claims without prejudice.[2]

STATEMENT

I. BACKGROUND FACTS

A. Mr. and Mrs. Johnson's Mortgage

Plaintiffs Nelvin L. Johnson and Charlotte Johnson are joint owners of a 414 Knightsbridge Way, American Canyon, California. Complaint ¶ 1. They are married to each other and are more than 65 years old. Id. Defendant PNC Mortgage is a division of PNC Bank, N.A., which is a national banking association with its home office in Delaware and its principal place of business in Pittsburgh, Pennsylvania. See Notice of Removal ¶ 3; Complaint ¶ 2. Defendant U.S. Bank, N.A. is a national banking association with its home office in Ohio and principal place of business in Minneapolis, Minnesota. See Notice of Removal ¶ 3; Complaint ¶ 2.

On October 28, 2005, Mr. and Mrs. Johnson borrowed $450, 000 from Commonwealth United Mortgage ("Commonwealth") as shown by a 10-year interest-only fixed-rate note of the same date. See Complaint ¶¶ 4-5.[3] The mortgage was secured by a Deed of Trust in favor of Commonwealth, "under which legal title to the Subject Property would be held by National City Bank of Indiana as Trustee." Id. ¶ 4. During all relevant times, PNC has held itself out as the servicer of Mr. and Mrs. Johnson's mortgage. Id. ¶ 6. Under the Note, Mr. and Mrs. Johnson's monthly payments were set at $2, 437.50 for the first 120 months of the loan and $3, 355.08 thereafter. Id. ¶ 5.

On January 29, 2013, invoking the Homeowner's Bill of Rights ("HBOR"), Mr. and Mrs. Johnson sent PNC a demand for proof that PNC was the servicer authorized to collect on their loan. See id. ¶ 49. On about April 8, 2013, PNC responded by sending Mr. and Mrs. Johnson several documents. See id. ¶¶ 47-50. One of the documents was an "un-endorsed certified true and correct copy of the Note." Id. ¶ 47. Attached to the back of the Note was a "Final Documentation Transmittal" letter that indicates the Note was "intended to be transferred to National City Mortgage Co., for the purposes of securitizing and transferring the Note into an unidentified loan pool." Id.

PNC also sent Mr. and Mrs. Johnson an "Assignment of Deed of Trust" that "recited and sought to transfer Commonwealth United Mortgage's interest in [Mr. and Mrs. Johnson's] Deed of Trust to Banc of America Funding Corporation Mortgage Pass-Th[r]ough Certificates, Series 2006-2 U.S. Bank National Association as Trustee, by PNC Bank, National Association as Servicer with delegated authority under the transaction documents.'" Id. ¶ 49. The assignment was executed by "PNC Bank, National Association, successor by merger to National City Mortgage, a division of National City Bank." Id. ¶ 50.

Mr. and Mrs. Johnson allege on information and belief that Commonwealth (their original mortgage lender) never assigned its interest in the Note or the Deed of Trust to any other entity, including National City Bank of Indiana. See id. ¶¶ 48, 51. Therefore, PNC lacked "apparent authority to assign the interest of National City Bank of Indiana'" and failed to establish that any of the entities on the face of the assignment have an interest in the property. Id. ¶¶ 50, 53. This means that the assignment is void. Id. ¶ 53. Mr. and Mrs. Johnson also allege, on information and belief, that the assignment was "robosigned without reliance on competent or reliable evidence to substantiate the right to foreclose, including the borrower's loan status and loan information" in violation of California Civil Code § 2924.17(b). See id. ¶¶ 55-56. Instead, PNC "had the assignment created in order to create its own evidence, which was knowingly without basis in truth and that PNC did record the assignment illegally." Id. ¶ 56.

B. Mr. and Mrs. Johnson's Loan Modification Applications

Mr. and Mrs. Johnson applied for a mortgage modification, which PNC granted in or about May 2013.[4] See id. ¶ 8. PNC had promised that it would negotiate more affordable terms with Mr. and Mrs. Johnson because they had decreased income after they retired. Id. Because the sole purpose of the modification was to alleviate Mr. and Mrs. Johnson's hardship, they expected the modification would be affordable to them. Id. Mr. and Mrs. Johnson received a written loan modification offer with an increasing interest rate and monthly payment. See id. ¶ 9. As modified, the loan balance would be $469, 676.27, and the maturity date would be December 1, 2035. Id. Beginning July 2013, Mr. and Mrs. Johnson would pay $2, 161.00 per month with 2% interest. Id. On July 1, 2016, the interest rate would increase to 3% with $2, 364.84 monthly payments. Id. Finally, in July 2017, the interest rate would increase to 3.75% and the monthly payments to $2, 516.98. Id. PNC promised to keep the offer open until June 12, 2013. Id. ¶¶ 9-10.

At some point before the modification offer expired, Mr. and Mrs. Johnson sent a letter to Defendants asking whether they could negotiate the modification terms because they still could not afford the proposed payments. Id. ¶ 11. They asked whether they could cap the interest rate at 2.5% or, alternatively, they were willing to extend the payments over a 40 year term. Id. ¶ 11. Mr. and Mrs. Johnson allege that this would have lowered their monthly payments significantly, while ensuring a higher net benefit to Defendants. Id.

Defendants responded by denying Mr. and Mrs. Johnson's loan modification and rescinding the modification offer, "on the alleged grounds that plaintiffs had rejected the offer by asking for negotiation as promised." Id. ¶ 12. Mr. and Mrs. Johnson allege that this constitutes a breach of the duty of good faith and fair dealing. Id. As a result, Mr. and Mrs. Johnson were forced to appeal the rejection of their loan modification application, though their appeal was unsuccessful. Id. ¶ 13.

Around November 2013, Mr. and Mrs. Johnson submitted another complete loan modification application to PNC. Id. ¶¶ 14, 17. In a letter dated December 4, 2013, PNC acknowledged receiving Mr. and Mrs. Johnson's application and asked to receive additional documents by January 3, 2014. Id. ¶ 18. The letter stated, "During the MHAP evaluation, the property will not be referred to foreclosure; or be sold at foreclosure sale, if the foreclosure process has already been initiated." Id. (errors in original).

On December 27, 2013, Mr. and Mrs. Johnson sent the additional documentation to PNC via fax to PNC's "Central Receipts - HAMP.MHA PNC MORTGAGE" department at the telephone number provided in the PNC's December 4, 2013 letter.[5] Id. PNC's receipt was confirmed. See id. ¶ 20. Nonetheless, on December 30, 2014, PNC recorded a Notice of Default against the Property. Id.

Mr. and Mrs. Johnson allege that by recording the NOD before the loan modification process was complete, PNC engaged in illegal dual tracking. See id. ¶¶ 21-23. They allege that the dual tracking was intentional and "meant to pressure them to waive any right to negotiate the modification terms presented, and that the NOD was filed in retaliation of their appeal and demand to reopen and negotiate the previous, illegally withdrawn modification offer before its expiry date." Id. ¶ 23.

Based on statements of PNC's call center agent, Mr. and Mrs. Johnson believe that PNC "has narrowed its loan modification options as of January 1, 2014." Id. ¶ 36.

On January 16, 2014, Mr. and Mrs. Johnson's loan modification application was rejected and closed. Id. ¶¶ 38, 43. They were not allowed to speak with anyone who was familiar with their prior application, the supplementation, or the bank's mistake.[6] Id. ¶ 43. Instead, they were instructed to start the loan modification process over again. Id.

Mr. and Mrs. Johnson restarted the loan modification process again on January 16, 2014. See id. ¶ 38. This delay meant that the banks' consideration of their loan modification "would be on a higher principal balance, and over a shorter amortization period under the original term." Id.

Mr. and Mrs. Johnson requested that their January 2014 application be handled by a single point of contact and expected this would occur, but it did not. Id. ¶¶ 39-40. A representative named Susan was assigned to be their single point of contact. Id. ¶ 41. Nonetheless, on January 23, 2014, a representative named Elyssa explained that Mr. and Mrs. Johnson had "a named single point of contact, Susan, who works with Elessa, that they are ALL single point of contacts', and that any of them can help you." Id. ¶ 41 (spelling and punctuation as in original). Between January 23, 2014 and the time they filed their complaint, every time Mr. and Mrs. Johnson called, they reached a different representative. Id. "Defendants in fact do not assign individuals or teams, but instead PNC has created a department, called all the reps Single Points of Contact', and then continue in operations as like a hotline...." Id. ¶ 42.

As a result of PNC's failure to designate a single point of contact, Mr. and Mrs. Johnson received conflicting information, including the following examples. Id. ¶ 43. First, at least five times between January and May 2014, Mr. and Mrs. Johnson called PNC, asked to speak with their single point of contact, but were never able to speak with her. Id. At least five times[7] between January and May 2014, Mr. and Mrs. Johnson called PNC to discuss what further documentation was needed on their January 2014 loan modification application, and each time they received a different list of necessary documentation. Id. Also between January and May 2014, they called PNC at least five times, stated that they do not have any investment income, and explained that they do not own an investment property, only a timeshare that does not provide them with any income. Id. During subsequent calls, the representatives "had no recollection, notes, or indication of any familiarity of knowledge of [P]laintiff[]s['] situation in this regard." Id.

Around April 2014, [8] Mr. and Mrs. Johnson were approved for a new loan modification. Id. This modification provided a higher payment than the previous one. Id. In response to Mr. and Mrs. Johnson's inquiries a representative noted that their income had been over calculated by $700, but could not explain that because another representative had not put the notes in the file. Id. Moreover, the representative on the call incorrectly assured them that they had a variable rate note, and said that the new payment was higher because the interest was being fixed. Id. Defendants' failure to designate a single point of contact for their loan modification application caused Plaintiffs to receive less favorable loan terms, incur the cost of multiple overnight mailings, led to the dual tracking of their loan modification application and the foreclosure process, forced them to hire litigation attorneys, led to the wrongful rejection of their November 2013 loan modification application, and forced them to re-apply after new guidelines limited the loan modification programs that were offered. Id. ¶ 44.

II. PROCEDURAL HISTORY

On May 22, 2014, Mr. and Mrs. Johnson filed suit in Napa County Superior Court against PNC and U.S. Bank. See Complaint, ECF No. 1 at 5. Based on the allegations discussed above, they allege the following seven causes of action: (1) and (4) breach of contract (based respectively on the retraction of the Notice of Default and promissory estoppel), [9] (2) dual tracking in violation of California Civil Code §§ 2924.18 and 2923.55, (3) and (7) two claims for cancellation of instruments under California Civil Code § 3412, (5) unfair business practices based on Defendants' failure to appoint a single point of contact for Plaintiffs, and (6) robo-signing in violation of California Civil Code §§ 2924.12, 2924.17. Id. ¶¶ 7-60. They seek the following relief: (1) actual damages, (2) statutory damages of $100, 000, (3) an order cancelling the Notice of Default and the Assignment discussed in the Complaint, (4) equitable relief restoring Plaintiffs "to a position equivalent in every way to prior to the breaches, or in the alternative, to require specific performance of the Defendants of their promise to negotiate a loan modification affordable to plaintiffs based initially on the terms of the June 2013 loan modification offer, " (5) attorney's fees, (6) costs, and (7) any other relief the court deems just and proper. See id. ¶ 57 (requesting attorney's fees), at 20-21.

PNC received the summons and complaint on June 3, 2014 and removed the action to this court on June 27, 2014 based on diversity jurisdiction.[10] See Notice of Removal, ECF No. 1 at 1. In the Notice of Removal, PNC stated that it believed U.S. Bank had not been served. Id. ¶ 6. On July 7, 2014, PNC and U.S. Bank, now represented by the same counsel, file a motion to dismiss. See Motion to Dismiss ("Motion"), ECF No. 6. Mr. and Mrs. Johnson filed a timely opposition brief, see Opp'n, ECF No. 12, ...


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