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Martinez v. Flagstar Bank, FSB

United States District Court, E.D. California

July 18, 2016

EDGAR MARTINEZ et al., Plaintiffs,
v.
FLAGSTAR BANK, FSB et al., Defendants.

          ORDER

         The plaintiffs, Edgar Martinez, Erika Martinez, and Delfina Prado, allege Flagstar Bank, FSB foreclosed on their home while their application for a loan modification was pending. They also allege the application process was so bewildering that it shows Flagstar was negligent, and so deceptive that it shows Flagstar acted fraudulently. Flagstar moves to dismiss their first amended complaint. The matter was submitted for decision without a hearing. As discussed below, the motion is granted in part and denied in part.

         I. JUDICIAL NOTICE

         As a preliminary matter, the court grants the defendants’ unopposed request for judicial notice. The documents for which judicial notice is requested are public records, including publicly recorded documents and court filings in related cases. See Fed. R. Civ. P. 201 (governing judicial notice); Harris v. Cty. of Orange, 682 F.3d 1126, 1132 (9th Cir. 2012) (undisputed matters of public record are subject to judicial notice on a motion to dismiss); Olmstead v. ReconTrust Co., 852 F.Supp.2d 1318, 1321 (D. Or. 2012) (recorded documents, such as a deed of trust, may be subject to judicial notice on a motion to dismiss). The court notes, however, that Flagstar can save effort in the future by simply citing the court’s previous orders in this case rather than requesting judicial notice of them. See, e.g., L.H. v. Schwarzenegger, 645 F.Supp.2d 888, 891 n.1 (E.D. Cal. 2009).

         II. BACKGROUND

         A. Allegations

         On this motion, the court assumes the plaintiffs’ allegations are true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Here, the plaintiffs’ first amended complaint alleges as follows: Mr. and Ms. Martinez purchased a house in Stockton, California in September 2008, and lived there with their children. First Am. Compl. ¶ 10, ECF No. 15. Their purchase was financed by a mortgage loan through Wholesale America Mortgage, Inc. Id. ¶ 11. The deed of trust names Mr. Martinez and Ms. Prado as borrowers, Req. J. Notice Ex. 1, ECF No. 17-1, but in October 2008, the property was conveyed from Ms. Prado and Mr. Martinez to Mr. and Mrs. Martinez as husband and wife as joint tenants. Id. Exs. 2, 3. The loan was refinanced in late 2008, and Flagstar acquired it soon afterwards. See First Am. Compl. ¶¶ 12-13.

         In late 2011, after Mr. Martinez lost his job and Ms. Martinez began suffering from health problems, they began experiencing financial hardship. Id. ¶ 14. In about January 2012, they contacted Flagstar and asked whether they could obtain mortgage relief assistance. Id. ¶ 15. They were current in their payments at the time. Id. Flagstar sent them an application for a loan modification, which they completed and returned. Id. For the next six months, Flagstar representatives frequently told the Martinezes they must miss payments before Flagstar would consider a modification. Id. ¶ 16. They were reluctant to follow this advice, and they could have borrowed money from friends or family or even declared bankruptcy instead of missing payments, but in July 2012, they decided to miss a payment. Id. ¶ 17. At about this time, Ms. Prado moved into the house. Id. ¶ 11. In 2012, she also signed a quitclaim deed, transferring her rights in the property to Mr. Martinez. Req. J. Notice Ex. 6, ECF No. 17-2.

         Flagstar repeatedly asked the Martinezes to resubmit the same documents, and despite the fact that they submitted everything Flagstar requested, their application was repeatedly denied for incompleteness. First Am. Compl. ¶¶ 18-19. These delays, claim the Martinezes, were intentional and meant to prolong the loan modification process. Id. Flagstar assured them it would not foreclose on the house while their applications were pending, but in September 2012, while their application for a loan modification was pending, Flagstar recorded a notice of default. Id. ¶ 20; Req. J. Notice Ex. 4, ECF No. 17-1 (notice of default). In April 2013, Flagstar recorded a notice of trustee’s sale. First Am. Compl. ¶ 21; Req. J. Notice Ex. 5, ECF No. 17-2 (notice of trustee’s sale).

         After recording these notices, Flagstar informed the Martinezes their application had been denied because it was incomplete, but the Martinezes had in fact submitted a complete application. First Am. Compl. ¶ 22. The same day Flagstar denied their application for incompleteness, the Martinezes submitted another complete application, and Flagstar postponed the foreclosure sale date. Id. ¶ 23. The next month, Flagstar sent the Martinezes a letter that stated they did not qualify for a modification due to “excessive obligations” and because they did not meet the investor requirements. Id. ¶ 24. But Flagstar had known about their obligations, it was itself the “investor, ” and since the outset it had told the Martinezes they were qualified for a loan modification. Id. In May and July 2013, the Martinezes again submitted complete applications for a loan modification, but as before, Flagstar claimed the applications were incomplete. Id. ¶ 25.

         On July 9, 2013, Flagstar sold the house in a foreclosure sale. Id. ¶ 26. The Martinezes moved out in the second week of August 2013. Id. ¶ 26. They were forced to sell many of their possessions for less than their true value. Id. ¶ 30. If Flagstar had fairly considered the applications for loan modifications, it would have granted them, and the Martinezes would have made payments to bring their account current. Id. Fees, interest, and penalties would not have accrued, and they would not have suffered negative reports to their credit. Id. The process caused them stress, anxiety, migraines, depression, and marital difficulties. Id.

         B. Ms. Prado

         The plaintiffs assert many facts about Ms. Prado in their opposition brief that they do not allege in their complaint. Ms. Prado’s identity is the first of these facts. According to the plaintiffs’ opposition brief, Ms. Prado is Ms. Martinez’s mother. See Opp’n at 1, ECF No. 19. In addition, the briefing asserts Ms. Prado lived with the Martinez family in 2008, but later moved away to Arizona. See Id. at 1, 3.

         The plaintiffs’ opposition brief also asserts that in about July 2012, Ms. Prado moved back to California to help the Martinezes with their expenses and begin looking for a job. Opp’n at 3. As noted above, in 2012 she signed a quitclaim deed, transferring her rights in the property to Mr. Martinez. Req. J. Notice Ex. 6. In the plaintiffs’ opposition brief, they assert she signed the quitclaim deed at the request of “the bank.” Opp’n at 3.

         Finally, the complaint alleges Ms. Prado was “generally aware of the modification process and foreclosure proceedings” and that she, along with the Martinezes, was forced to leave the house and suffered harm to her credit as a result of the foreclosure. See First Am. Compl. ¶¶ 11 & 31. In their opposition brief, the plaintiffs assert in addition that Ms. Prado submitted documents with the Martinezes’ application for a loan modification, including a financial worksheet, a letter of hardship, a statement of her income, and an explanation of her residence in California and Arizona. Opp’n at 3.

         C. Procedural History

         The plaintiffs filed a complaint in San Joaquin County Superior Court in July 2015. ECF No. 1-2. They alleged claims for negligent and intentional misrepresentation, false promise, negligence, intentional infliction of emotional distress, violation of California Civil Code sections 2923.6[1] and 2924.10, [2] and violations of California’s Unfair Competition Law (UCL), Cal. Bus. & Prof. Code §§ 17200 et seq. See generally Id. Flagstar removed the case to this court on the basis of this court’s diversity jurisdiction. Not. of Removal, ECF No. 1.

         Flagstar moved to dismiss in September 2015. ECF No. 7. In January 2016, the motion was granted in part and denied in part: (1) Ms. Prado’s claims were dismissed with leave to amend to allege facts showing she suffered a redressable injury; (2) the motion was granted with respect to the claims for negligence and negligent infliction of emotional distress, but leave to amend was granted to allege facts that showed these claims accrued within the limitations period; and (3) the motion was denied with respect to the claims for negligent and intentional misrepresentation, false promise, and violation of the California Civil Code and UCL. Order Jan. 7, 2016, ECF No. 12.

         The plaintiffs filed an amended complaint later in January, alleging the same claims as in the original complaint. ECF No. 15. In February 2016, Flagstar renewed its motion to dismiss Ms. Prado’s claims and the claims for negligence and intentional infliction of emotional distress. ECF No. 16. As to Ms. Prado’s claims, Flagstar argues the plaintiffs have still not alleged facts that establish Ms. Prado’s standing. As to the negligence claims, Flagstar argues the plaintiffs’ allegations show neither that Flagstar owed a duty nor that the plaintiffs suffered damages. And as to the claim for intentional infliction of emotional distress, Flagstar argues the plaintiffs have not alleged facts that show it acted outrageously or that they suffered anything but financial losses.

         III. L ...


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