Ferrales v. Aurora Loan Services



















Filed 2/26/13 Ferrales v. Aurora Loan Services CA2/6













NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS



California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.







IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA



SECOND APPELLATE
DISTRICT



DIVISION SIX




>

WILLIAM FERRALES, Plaintiff and Appellant, v. AURORA LOAN SERVICES LLC., Defendant and Respondent.

2d Civil No. B242072 (Super. Ct. No. CV118097A) (San Luis Obispo County)

William Ferrales appeals
from a judgment on demurrer entered in favor of Aurora Loan Service LLC
(Aurora) on appellant's second amended complaint for href="http://www.mcmillanlaw.com/">negligent misrepresentation, violation
of the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act; Civ. Code,
§ 1788 et seq), promissory estoppel,
and rescission. We affirm.

Facts and Procedural History

In October 2004
appellant took out a $1,209,600 loan, secured by a deed of trust, to purchase a
beach house in Cambria.
After appellant defaulted on the 30-year loan, Aurora
recorded a notice of default and scheduled an April 9, 2009 trustee's sale.

Appellant requested a
loan modification and executed a workout agreement providing that appellant would
make partial mortgage payments and stay in the home while Aurora
reviewed the loan modification application.href="#_ftn1" name="_ftnref1" title="">[1] The workout agreement warned that if a loan
modification was not achieved, Aurora
would proceed with the foreclosure. Aurora
sent a follow-up form letter stating that "we would like to offer
you a permanent home retention option."
(Emphasis added.) The form
letter requested financial information which would be reviewed by Aurora
to determine whether appellant qualified for a loan modification.

Aurora
terminated the work out agreement in 2009 because appellant's monthly
housing-to-income ratio was too high to qualify for a loan modification Appellant requested that Aurora
re-open his file and executed a second workout agreement on February 22, 2010, acknowledging that
$122,631.96 was past due on the loan.
Like the first workout agreement, appellant was required to make monthly
payments and provide financial information for Aurora's
review. The agreement provided that
appellant's loan would remain delinquent and, upon termination of the
agreement, Aurora could proceed
with the foreclosure.

In early 2011, Aurora
notified appellant that his income was too low to qualify for a loan
modification, recorded a notice of trustee's sale, and sold the property at a
trustee's sale on February 23, 2011. Appellant sued for misrepresentation,
violation of the Rosenthal Act, promissory estoppel, and rescission and
restitution.href="#_ftn2" name="_ftnref2"
title="">[2] After three pleading attempts, the trial
court sustained Aurora's demurrer
without leave to amend.

Discussion

We review the order
sustaining the demurrer de novo, exercising our independent judgment to
determine whether a cause of action has been stated under any legal
theory. (Ocha v. PacifiCare of California
(2004) 115 Cal.App.4th 782, 788.) While we accept as true properly pleaded
factual allegations, we do not assume the truth of contentions, deductions or
legal conclusions. (Blank v. Kirwan (1985)
39 Cal.3d 311. 318.) The workout
agreements and form letter, which are attached to the second amended complaint,
conflict with the allegations in the complaint and control on demurrer. (Holland
v. Morse Diesel Internat., Inc. (2001) 86 Cal.App.4th 1443, 1447.)

Negligent Misrepresentation

The first cause of
action for negligent misrepresentation states that appellant was told
"there would be an opportunity to cure [the] default at the expiration of
the Agreements."

The
trial court correctly ruled that no cause of action was stated for negligent
misrepresentation. The workout
agreements and form letter state that the "offer" is conditional and
requires that appellant submit financial information to be reviewed by Aurora to determine whether appellant qualifies for
a loan modification. The workout
agreements warn: "The aggregate
Plan payment will be insufficient to pay the [loan] Arrearage." Appellant claims that Aurora orally agreed to postpone the foreclosure
but such an agreement is subject to the statute
of frauds and unenforceable. (Karlsen
v. American Sav. & Loan Ass'n. (1971) 15 Cal.App.3d 112, 121 [oral
agreement to extend foreclosure period unenforceable]; Secrest v. Security
National Mortgage Loan Trust 2002-2 (2008) 167 Cal.App.4th 544, 552-553
[same])

Citing
Pinel v. Aurora Loan Services, LLC. (N.D.Cal. 2011) 814 F.Supp.2d 930,
appellant argues that Aurora used the workout agreements as a pretext to extract mortgage
payments. In Pinel defendant
continued to extract mortgage payments after it denied plaintiff's loan
modification application. Plaintiff was
even duped into paying $1,781 after defendant purchased the property at the
trustee's sale. (>Id., at p. 935.) Unlike Pinel,
appellant's alleged reliance on the form letter "offer" ignores the
conditional nature of the loan modification which required that appellant
qualify for the loan modification.
Appellant paid less than what was due on the loan, stayed in the house,
and delayed the trustee's sale 17 months.
No actionable damages are alleged.

Rescission & Restitution

Appellant's
assertion that the second amended complaint states a cause of action for
rescission and restitution is equally without merit. To sue for rescission and restitution,
appellant must tender back the benefit received. (See Nguyen v. Calhoun (2003) 105
Cal.App.4th 428, 439 [tender rule strictly applied].) A plaintiff may not derive all possible
benefit from the transaction and then claim the right to rescind. (Gill v. Rich (2005) 128 Cal.App.4th 1254, 1264; see also >Shuster v. BAC Home Loans Servicing LP (2012) 211 Cal.App.4th 505, 512-513.)

Appellant
argues that he is not trying to set aside the foreclosure and only seeks
restitution for the workout payments (i.e., $67,897.44). Appellant, however, received the benefit of
staying in the beach house for 17 months and making smaller payments (average
of $3,993.97 a month) than were due on the 30-year loan (approximately $8,300 a
month).

To
sue for rescission, the complaint must allege "facts demonstrating a
rescission has been effected -- not merely facts that if proved correct,
would establish a legal basis to elect a rescission at some point in the
future." (Myerchin v. Family Benefits, Inc. (2008) 162 Cal.App.4th
1526, 1533.) "[T]here can be no
rescission of an executed contract, upon the ground of fraudulent
misrepresentation, without restoration, before suit, by the party seeking to
rescind, of everything of value which he had received from the other party
under the contract, or a bona fide offer to restore." (Kelley v. Owens (1897) 120 Cal. 502,
507.) The second amended complaint attempts to skirt the rule by alleging that
appellant "derived no benefit from the Agreements and has nothing of value
provided by Defendant to tender in advance of rescission."

Appellant's
reliance on Chao et al. v. Aurora Loan Services (N.D. Cal. 2011) 2011 WL
6963098 is inapposite. In Chao,
plaintiff entered into a six month forbearance agreement and was told that the
foreclosure was "on hold" pending defendant's review of an application for a loan modification. Unlike Chao, appellant entered into two successive
forbearance agreements to delay the foreclosure by 17 months. After the first
workout agreement was terminated, appellant requested and executed a second
workout agreement and submitted more financial information for Aurora's
review. Like the first workout
agreement, the second workout did not work because appellant lacked the income
to cure the loan default and modify the loan.


Appellant
asserts that the workout agreements establish a "pattern of fraud"
but appellant was the one who requested the second agreement, implicitly
waiving any claim for rescission.
"Waiver of a right to rescind will be presumed against a party who,
having full knowledge of the circumstances . . . , nevertheless accepts and
retains benefits accruing to him under the contract. [Citation.]" (Neet
v. Holmes (1944) 25 Cal.2d 447,
458.) The benefits were
substantial. Appellant remained in
possession, delayed the foreclosure for 17 months, and made smaller payments to
service a $1.3+ million loan in default.


Promissory Estoppel

To
sue for promissory estoppel, appellant must allege a clear and unambiguous
promise, reasonable and foreseeable reliance, and injury based on that
reliance. (Laks v. Coast Fed. Sav.
& Loan Assn. (1976) 60 Cal.App.3d 885, 890.) Missing here is a promise with clear and
unambiguous terms.

In
Aceves v. U.S. Bank, N.A. (2011) 192 Cal.App.4th 218 plaintiff was about
to convert a Chapter 7 bankruptcy to a Chapter 13 bankruptcy. (>Id., at p. 223.) Defendant bank
promised to work with plaintiff to reinstate and modify the loan if plaintiff
did not include the home in the Chapter 13 bankruptcy. (Ibid.) Rather then make a good faith attempt to
negotiate a loan modification, defendant imposed punitive loan conditions days
before the trustee's sale and purchased the property at the sale. (Id., at p. 224.) The Court of Appeal concluded that
defendant's promise to work with plaintiff to reinstate and modify the loan was
an unambiguous promise and there was detrimental reliance to support a cause of
action for promissory estoppel. (Id., at pp. 226-227.)

Unlike
Aceves, the second amended complaint fails to allege an unambiguous
promise or justifiable reliance.
Appellant paid $67,897.44 over a 17-month workout period but alleges no
operative facts to support the claim that Aurora promised to modify the $1.3+
million loan. Nor can appellant sue for
promissory estoppel if the promise to forebear foreclosure was in return for
consideration, i.e., $67,897 in interim payments. (Fontenot v. Wells Fargo Bank, N.A. (2011)
198 Cal.App.4th 256, 275.) "The
claim instead must be pleaded as one for breach of the bargained-for
contract. [Citations.] Here, the only alleged promise not to foreclose
is contained in the forbearance agreement.
Because [Aurora's] promise not to foreclose in the forbearance agreement
was given for proper consideration, in the form of [appellant's] agreement to
resume making payments on the promissory note, the complaint cannot state a
claim for promissory estoppel." (Ibid.)


Rosenthal Act

Appellant,
in his appeal, makes no mention of the alleged violation of the Rosenthal Act
(Civ. Code § 1788 et seq.). There
is good reason for this. Foreclosure on
a property that secures a debt is not a debt collection activity encompassed by
the Rosenthal Act. (Izenberg v. ETS
Services, LLC (C.D. Cal. 2008) 589 F.Supp.2d 1193, 1199; Gardner v.
American Home Mortg. Servicing, Inc. (E.D. Cal. 2010) 691 F.Supp.2d 1192,
1198; see also Lal v. American Home Servicing, Inc. (2010) 680 F.Supp.2d
1218, 1224 [mortgage servicing company not a debt collector].)

Appellant's
remaining arguments have been considered and merit no further discussion.

The
judgment (order sustaining demurrer without leave to amend) is affirmed. Aurora is awarded costs on appeal.

NOT
TO BE PUBLISHED.







YEGAN,
J.





We concur:





GILBERT,
P.J.





PERREN,
J.

>

Jac Crawford, Judge



Superior Court County of San Luis Obispo



______________________________





Jeremy
S. Golden; Golden & Cardona-Loya, for Appellant.

Justin
D. Balser and Victoria A. Cantore; Akerman Senterfitt, for Respondent.