Taniguchi v. Restoration Homes LLC

         [256 Cal.Rptr.3d 680] Superior Court of San Mateo County, Hon. Richard Dubois, Judge. (San Mateo County Super. Ct. No. CIV525919)

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         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.

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          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.

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          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 ...