California Court of Appeals, First District, Second Division
[256
Cal.Rptr.3d 680] Superior Court of San Mateo County, Hon.
Richard Dubois, Judge. (San Mateo County Super. Ct. No.
CIV525919)
Page 479
[Copyrighted Material Omitted]
Page 480
COUNSEL
Mellen
Law Firm, Matthew Mellen, San Mateo, for Plaintiffs and
Appellants
Law
Offices of Glenn H. Wechsler, Glenn H. Wechsler, Walnut
Creek, for Defendant and Respondent
Wright,
Finlay & Zak, LLP, Jonathan D. Fink, T. Robert Finlay,
Newport Beach, for Amici California Mortgage Association,
California Mortgage Bankers Association and United Trustees
Association in support of Respondent
OPINION
Miller,
J.
Page 481
If all
or part of the principal secured by a mortgage or deed of
trust becomes due as the result of the borrower’s default in
paying interest or installments of principal, Civil Code
section 2924c[1] allows the borrower to cure the
default, reinstate the loan, and avoid foreclosure by paying
the amount in default, plus specified fees and expenses.
Under section 2953, the right of reinstatement cannot be
waived in "[a]ny express agreement made or entered into
by a borrower at the time of or in connection with the making
of or renewing of any loan secured by a deed of trust,
mortgage or other instrument creating a lien on real
property."
The
borrowers in this appeal missed four monthly payments on a
mortgage loan that had been modified after an earlier
default. The modification deferred certain amounts due on the
original loan, including principal, and provided that any
default would allow the lender to void the modification and
enforce the original loan terms. The borrowers argue that
under sections 2924c and 2953, they can reinstate the
modified loan by paying the four missed payments, plus fees
and expenses. The lender argues that section 2953 does not
apply to the modified loan, and that under section 2924c the
borrowers have the right to reinstate the original loan by
paying the amount of the earlier default on the original
loan, which had been deferred under the modification to the
end of the loan term, as well as paying the missed modified
monthly payments that caused the default on the modified
loan.
We
conclude that the borrowers have the better argument, and
therefore we vacate the trial court judgment and remand for
further proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
In
2006, Charles and Marie Louise Taniguchi (the Taniguchis)
obtained a home [256 Cal.Rptr.3d 681] loan of $510,500,
secured by a deed of trust. The deed of trust stated that the
loan would be paid "in regular Periodic Payments,"
with the debt to be paid in full by 2036. By early 2008 the
Taniguchis were having difficulty making the required loan
payments, and in 2009 they agreed to a "Balloon Loan
Modification Agreement" (Modification) that adjusted the
principal amount, eliminated an adjustable interest rate
rider, reduced the interest rate and monthly payments, and
deferred until the maturity of the loan approximately
$116,000 of indebtedness, including accrued and unpaid
interest and principal, fees, and foreclosure expenses. Under
the Modification, the Taniguchis’ loan matured in 10 years,
at which point the Taniguchis would need to refinance or make
a balloon payment of about $531,000, plus any additional
charges.
Page 482
The
Modification provided that failure to make modified payments
as scheduled would be an event of default, and that in the
event of a default the Modification would be null and void at
the lender’s option, and the lender would have the right to
enforce the loan and associated agreements according to the
original terms. The Modification left unchanged certain
provisions of the original loan documents, including
acceleration clauses authorizing the lender to require
immediate payment by a defaulting borrower of the full amount
of principal not yet paid and all interest owed on that
amount, and to invoke the power of sale.
The
Taniguchis defaulted on the modified loan, which was
eventually assigned to Restoration Homes, LLC (Restoration
Homes). Restoration Homes caused a notice of default to be
recorded in 2013. The Taniguchis were informed that to
reinstate their account and avoid foreclosure, they would be
required to pay their four missed monthly payments and the
associated late charges specified in the modified loan
(totaling about $11,000) and $4,500 in foreclosure fees and
costs, plus all the sums that had previously been deferred
under the Modification. By then, the deferred amount was over
$120,000 in principal, interest and charges (deferred
amounts).
The
Taniguchis took exception to the amount Restoration Homes
required for reinstatement and they filed suit in superior
court. Shortly after that, Restoration Homes caused a notice
of trustee’s sale to be recorded, which led the Taniguchis to
file a second suit and seek a temporary restraining order to
prevent the foreclosure sale. The temporary restraining order
was granted; the two lawsuits were consolidated; and the
consolidated matter was stayed for approximately a year as a
result of Charles Taniguchi filing for bankruptcy.
Eventually, the Taniguchis filed a third lawsuit, and all
three superior court cases were consolidated.
As
relevant here, the Taniguchis alleged four causes of action
against Restoration Homes: violation of section 2924c by
demanding excessive amounts to reinstate the loan, unfair
competition, breach of contract, and breach of the covenant
of good faith and fair dealing. The unfair competition cause
of action alleged that Restoration Homes’ violation of
section 2924c constitutes a violation of Business and
Professions Code section 17200 et seq. (the UCL). Restoration
Homes sought summary judgment, or in the alternative summary
...