Reeder v. Specialized Loan Servicing LLC ( 2020 )

Filed 7/29/20
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
CHRISTOPHER S. REEDER, B296148
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. LC106994)
v.
SPECIALIZED LOAN
SERVICING LLC et al.,
Defendants and Respondents.
APPEAL from an order of the Superior Court of Los
Angeles County. Virginia Keeny, Judge. Affirmed.
Salisian│Lee, Richard H. Lee, H. Han Pai and Glenn R.
Coffman for Plaintiff and Appellant.
Yu│Mohandesi, B. Ben Mohandesi, Pavel Ekmekchyan and
Lisa M. Lawrence for Defendants and Respondents.
__________________________
SUMMARY
Plaintiff Christopher S. Reeder lost an investment property
to foreclosure after he failed to make the balloon payment due on
a 2005 home equity line of credit that matured on April 1, 2015.
He sued the lender and its assignee, as well as the loan servicer,
alleging breach of contract, wrongful foreclosure and three fraud
claims. All the claims were founded on plaintiff’s assertion that,
before the parties executed the credit agreement and deed of
trust securing it in 2005, the lender made a verbal commitment
that, at the end of the 10-year term, plaintiff could refinance or
re-amortize the loan with a new 20-year repayment period.
The trial court sustained defendants’ demurrer to these
claims without leave to amend, concluding the oral agreement
plaintiff alleged was barred by the statute of frauds, and was in
any event too indefinite to be enforced. This also meant there
could be no wrongful foreclosure cause of action. The court
further found no actionable fraud was alleged.
We agree and affirm the judgment.
FACTS
Plaintiff owned a property on Tiara Street in Encino,
originally as his principal residence and then, starting in 2008, as
an investment property.
On March 16, 2005, plaintiff obtained a home equity line of
credit from defendant E-Loan, Inc. The line of credit (or loan),
evidenced by a written credit agreement, had a maximum
indebtedness of $245,000, a variable interest rate, and a balloon
payment due on its April 1, 2015 maturity date. The loan was
secured by a second deed of trust on the Encino property. Wells
Fargo Bank, N.A. (not a party) held third and fourth lien
positions, with deeds of trust recorded later in April 2005.
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Plaintiff alleges that before he accepted the line of credit,
loan officer Veronica Harmon promised him in a verbal
discussion that the 2005 line of credit “would provide a 10-year
draw or advance period, subject to a balloon payment at
maturity, but [plaintiff] could refinance or re-amortize the loan
into a 20-year amortized, principal and interest repayment
period.” Plaintiff refers to this as the “verbal loan commitment,”
and alleges he would not have entered into the transaction had
he known E-Loan would not honor the verbal loan commitment.
In early 2015, defendant Specialized Loan Servicing LLC
(SLS) began servicing plaintiff’s loan. Plaintiff did not receive
any demand for the balloon payment due on April 1, 2015, and
continued to make monthly payments. Later in 2015, SLS
returned plaintiff’s payments for August, September, and
October 2015.
Plaintiff began active inquiries with SLS in September
2015, and learned SLS had reported to credit bureaus that he
was 60 days late in paying off the loan. Plaintiff submitted a
formal request for loss mitigation assistance from SLS, seeking
“to proceed on the correct loan terms as he understood them,” and
submitted documentation to SLS multiple times in the ensuing
months.
In November 2015, E-Loanassigned plaintiff’s loan to an
affiliate, defendant E*Trade Bank.
In January 2016, SLS erroneously closed its review of
plaintiff’s loss mitigation request, claiming lack of required
documentation. Plaintiff submitted more documents and
continued to seek assistance from SLS. In August 2016, SLS
offered plaintiff a trial loan modification. Plaintiff rejected this
offer “because it was not in accordance with the terms he was
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verbally promised” in 2005. Plaintiff then sent SLS an email
reiterating his request for a 20-year amortization on the loan and
removal of any negative credit reporting. He submitted
additional documents in October 2016, and resubmitted them in
January 2017 after being told they could not be located.
In May 2017, SLS recorded a notice of default, listing a
total amount due of more than $265,000.
In June 2017, plaintiff told SLS he intended to sell the
property, because SLS was unwilling to provide loan terms as in
the verbal loan commitment, and requested removal of the notice
of default. In July, he asked SLS to take a “discounted payoff.”
In August and September, he submitted and resubmitted
documents and further requests for mortgage assistance.
In early October, plaintiff received a notice of trustee’s sale,
recorded on September 25, 2017, setting the sale for October 27,
2017.
Plaintiff submitted a short sale package to SLS on
October 5, 2017, and SLS requested additional information from
plaintiff over the next several weeks. SLS continued the trustee’s
sale date, and plaintiff believed this was because of the ongoing
discussions. On November 1, 2017, plaintiff received an
October 18, 2017 letter denying plaintiff’s short sale request
because there was sufficient equity in the property to fully pay off
the loan.
The trustee’s sale occurred on November 3, 2017, with no
advance notice to plaintiff. The property was sold to a third party
for $300,000.
Plaintiff filed this lawsuit in March 2018. Defendants
demurred, plaintiff filed an amended complaint, and defendants
again demurred. (Plaintiff did not attach the loan agreement or
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deed of trust to his complaint. Defendants sought judicial notice
of the deed of trust when they filed their demurrer.)
As mentioned at the outset, the trial court sustained
defendants’ demurrer to plaintiff’s breach of contract, wrongful
foreclosure, and fraud claims without leave to amend. Plaintiff
then dismissed several other causes of action, and on January 14,
2019, the trial court entered a minute order stating that all
causes of action had either been dismissed or sustained without
leave to amend, and the court deemed the matter complete.
Plaintiff filed a timely notice of appeal from the
January 14, 2019 order.
DISCUSSION
1. Standard of Review
A demurrer tests the legal sufficiency of the complaint. We
review the complaint de novo to determine whether it alleges
facts sufficient to state a cause of action. For purposes of review,
we accept as true all material facts alleged in the complaint, but
not contentions, deductions or conclusions of fact or law. We also
consider matters that may be judicially noticed. (Blank v.
Kirwan (1985) 39 Cal. 3d 311, 318.)
When a demurrer is sustained without leave to amend, “we
decide whether there is a reasonable possibility that the defect
can be cured by amendment: if it can be, the trial court has
abused its discretion and we reverse; if not, there has been no
abuse of discretion and we affirm.” (Blank v. Kirwan, supra,
39 Cal.3d at p. 318.) Plaintiff has the burden to show a
reasonable possibility the complaint can be amended to state a
cause of action. (Ibid.)
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2. The Breach of Contract Claim
We conclude the verbal agreement to refinance or re-
amortize plaintiff’s loan is subject to the statute of frauds and is
unenforceable on that ground. In addition, the oral agreement is
too indefinite to be enforced. Consequently, plaintiff cannot state
a cause of action for breach of contract.
a. The statute of frauds
The statute of frauds provides that certain contracts are
invalid unless they, or some note of them, are in writing and
signed by the party to be charged. (Civ. Code, § 1624, subd. (a).)
This writing requirement “ ‘ “serves only to prevent the contract
from being unenforceable” ’ ”; the statute of frauds “ ‘merely
serve[s] an evidentiary purpose.’ ” (Sterling v. Taylor (2007)
40 Cal. 4th 757, 766; ibid. [“ ‘The primary purpose of the Statute
is evidentiary, to require reliable evidence of the existence and
terms of the contract and to prevent enforcement through fraud
or perjury of contracts never in fact made.’ ”].)
The authorities are clear that the alleged oral agreement is
subject to the statute of frauds. “An agreement for the sale of
real property or an interest in real property comes within the
statute of frauds. That includes a promissory note and a deed of
trust securing performance under the note.” (Rossberg v. Bank of
America, N.A. (2013) 219 Cal. App. 4th 1481, 1503; Secrest v.
Security National Mortgage Loan Trust 2002-2 (2008)
167 Cal. App. 4th 544, 552; see also Civ. Code, § 2922 [“A mortgage
can be created, renewed, or extended, only by writing, executed
with the formalities required in the case of a grant of real
property.”].) Further, “[a]n agreement to modify a contract that
is subject to the statute of frauds is also subject to the statute of
frauds.” (Secrest, at p. 553; ibid. [a forbearance agreement was
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subject to the statute of frauds because it modified the original
promissory note and deed of trust the borrowers executed]; Civ.
Code, § 1698, subd. (a) [“A contract in writing may be modified by
a contract in writing.”]; see also Paul v. Layne & Bowler Corp.
(1937) 9 Cal. 2d 561, 564 [“an oral agreement to make a contract
which must be in writing, is itself within the statute of frauds”].)
Here, the alleged oral agreement modified the 2005 loan
and the trust deed, negating the provision in the trust deed
stating that “[a]ll amounts due under the [line of credit] must be
paid in full not later than April 1, 2015.” It necessarily follows
that the alleged verbal loan commitment was subject to the
statute of frauds and therefore invalid.
Plaintiff resists this conclusion, contending the oral
agreement preceded the loan and trust deed, and therefore did
not and could not modify those documents. For this proposition,
plaintiff cites Secrest and other authorities that refer to
subsequent modification of a contract. While most contract
modifications no doubt do occur later in time, plaintiff cites no
authority that so limits the application of the statute of frauds. It
is incontrovertible that the alleged oral agreement changes—
indeed, eliminates—an important term of the parties’ written
agreement. To be valid, it had to be in writing, and it was not.
Plaintiff next contends there is a “fraud exception to the
statute of frauds.” There is not. Plaintiff correctly points out
that the statute of frauds was enacted for the purpose of
preventing frauds, and cannot be used to perpetrate a fraud.
Thus, “ ‘a misrepresentation of one’s intention is actionable even
“when the agreement is oral and made unenforceable by the
statute of frauds.” ’ ” (Tenzer v. Superscope, Inc. (1985) 39 Cal. 3d
18, 29 (Tenzer).) We will revert to this point in our discussion of
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plaintiff’s fraud claims, post, but it has nothing to do with
plaintiff’s breach of contract claim. The contract plaintiff alleges
“ ‘ “is oral and made unenforceable by the statute of frauds.” ’ ”
(Ibid.)1
b. Uncertainty
Aside from the statute of frauds, the alleged oral agreement
is unenforceable for another reason: it is too uncertain and
indefinite to be enforced. One court explains: “ ‘ “ ‘Where a
contract is so uncertain and indefinite that the intention of the
parties in material particulars cannot be ascertained, the
contract is void and unenforceable.’ ” ’ ” (Daniels v. Select
Portfolio Servicing, Inc. (2016) 246 Cal. App. 4th 1150, 1174.) In
1 There are certain circumstances under which a party may
be estopped from relying on the statute of frauds to defeat
enforcement of an oral contract (Tenzer, supra, 39 Cal.3d at p. 27;
Monarco v. Lo Greco (1950) 35 Cal. 2d 621, 623), but plaintiff has
made no such claim. The doctrine is applied “to prevent fraud
that would result from refusal to enforce oral contracts” in
circumstances involving unconscionable injury or unjust
enrichment. (Monarco, at p. 623.) Monarco explains that “fraud
may inhere in the unconscionable injury that would result from
denying enforcement of the contract after one party has been
induced by the other seriously to change his position in reliance
on the contract . . . , or in the unjust enrichment that would
result if a party who has received the benefits of the other’s
performance were allowed to rely upon the statute.” (Id. at
pp. 623-624, citations omitted.) Plaintiff makes no reference to
this point in his opening brief, except to say he could amend the
complaint to allege the estoppel doctrine. On the facts he has
alleged in his complaint, the doctrine does not apply. The facts
alleged identify no serious change of position in reliance on the
oral agreement; plaintiff had the benefit of a $245,000 line of
credit for 10 years.
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addition to the identity of the lender and the borrower, a contract
involving a loan must include its amount and the terms for
repayment. (Ibid.) “Preliminary negotiations or agreements for
future negotiations—so-called agreements to agree—are not
enforceable contracts.” (Ibid.)
The alleged oral agreement fails this test. Plaintiff’s
operative complaint does not allege any of the basic material
terms of a loan that would commence 10 years later—not the loan
amount, not the interest rate, and not the amortization schedule.
It is apparent to us that, absent those particulars, the intention
of the parties cannot be ascertained and the alleged contract is
unenforceable. At most, plaintiff has alleged an agreement to
agree 10 years later. That is not an enforceable contract.
3. The Fraud Claims
The elements of fraud are misrepresentation, knowledge of
falsity, intent to induce reliance on the misrepresentation,
justifiable reliance on the misrepresentation, and resulting
damages. (Lazar v. Superior Court (1996) 12 Cal. 4th 631, 638.)
Promissory fraud is a subspecies of fraud, and an action may lie
where a defendant fraudulently induces the plaintiff to enter into
a contract, by making promises he does not intend to keep.
(Ibid.) “In such cases, the plaintiff's claim does not depend upon
whether the defendant’s promise is ultimately enforceable as a
contract.” (Ibid.) “In California, fraud must be pled specifically;
general and conclusory allegations do not suffice.” (Id. at p. 645;
Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal. 4th
26, 47 [“ ‘ “Every element of the cause of action for fraud must be
alleged in the proper manner (i.e., factually and
specifically).” ’ ”].)
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Plaintiff alleged three fraud claims: intentional
misrepresentation, false promise, and negligent
misrepresentation—all centering on a false promise by E-Loan’s
loan officer, Ms. Harmon, that after 10 years, plaintiff “would be
able to re-amortize or re-finance the 2005 [line of credit] into a
20-year amortized, principal and interest repayment period.” We
find plaintiff’s allegations insufficient to state a fraud claim,
promissory or otherwise.
The complaint alleges that when defendants made their
promise that plaintiff would be able to re-amortize or refinance
after 10 years, they “had no intention of allowing Plaintiff to re-
amortize or re-finance.” The complaint alleges defendants,
through Ms. Harmon, “made their false promises with the intent
to induce Plaintiff to enter into the 2005 [line of credit]”; plaintiff
“had a right to rely on Defendants’ false promises, acted in
reasonable reliance on those promises, and, in ignorance of their
falsity, entered into the 2005 [line of credit].”
These allegations are the very sort of general and
conclusory allegations that are insufficient to state a fraud claim.
For one thing, plaintiff has alleged no facts or circumstances
suggesting defendants’ intent not to perform the alleged promise
when it was made. “It is insufficient to show an unkept but
honest promise, or mere subsequent failure of performance.”
(Riverisland Cold Storage, Inc. v. Fresno-Madera Production
Credit Assn. (2013) 55 Cal. 4th 1169, 1183 (Riverisland).)
Plaintiff has alleged no facts or surrounding circumstances
suggesting anything more.
More importantly, entirely absent from plaintiff’s
complaint are any facts that, if proved, would demonstrate
plaintiff’s justifiable reliance on a promise he could refinance the
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loan 10 years later. It is patently unreasonable to rely on a
promise of refinancing 10 years down the road, with no indication
of what any of the terms of such a refinancing might be. It is
obvious that innumerable factors pertinent to refinancing may
change during a 10-year period—property value, equity in the
property, income, and so on. “[P]romissory fraud, like all forms of
fraud, requires a showing of justifiable reliance on the
defendant’s misrepresentation.” (Riverisland, supra, 55 Cal.4th
at p. 1183.) Plaintiff has alleged no facts or circumstances
suggesting such a showing could ever be made.
We conclude with a final note. Plaintiff argues at some
length about the parol evidence rule, but is mistaken about its
application here. The parol evidence rule is a rule of substantive
law, providing that “when parties enter an integrated written
agreement, extrinsic evidence may not be relied upon to alter or
add to the terms of the writing.” (Riverisland, supra, 55 Cal.4th
at p. 1174; see also Code Civ. Proc., § 1856.) There is an
exception, however, for evidence of fraud. (§ 1856, subd. (g);
Riverisland, at p. 1182 [“ ‘[I]t was never intended that the parol
evidence rule should be used as a shield to prevent the proof of
fraud.’ ”].)
Here, plaintiff contends the oral agreement “is admissible
as parol evidence to establish fraud in inducing [plaintiff] to enter
into the 2005 [line of credit] under the guise of false promises.”
But the fraud exception to the parol evidence rule does not come
into play here, where the only question is whether plaintiff has
sufficiently alleged a fraud claim in the first place. As we have
seen, he has not. (Cf. Julius Castle Restaurant, Inc. v. Payne
(2013) 216 Cal. App. 4th 1423, 1442 [“A party claiming fraud in
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the inducement is still required to prove they relied on the parol
evidence and that their reliance was reasonable.”].)
4. Wrongful Foreclosure
The basic elements of a cause of action for wrongful
foreclosure are that the trustee has caused “ ‘an illegal,
fraudulent, or willfully oppressive sale’ ” under the power of sale
in a deed of trust; the trustor or other party challenging the sale
was prejudiced or harmed; and the trustor tendered the amount
of the secured indebtedness or was excused from doing so. (Miles
v. Deutsche Bank National Trust Co. (2015) 236 Cal. App. 4th 394,
408.)
The sole basis for plaintiff’s wrongful foreclosure
allegations is his claim that defendants breached the alleged oral
loan commitment. He contends that, “[g]iven the allegations of
an enforceable contract and subsequent breach,” the foreclosure
sale “was illegal, fraudulent, or willfully oppressive.” Because, as
we have found, the alleged oral agreement is not an enforceable
contract, its breach cannot support a claim of wrongful
foreclosure.
5. Amendment of the Complaint
Plaintiff contends the trial court abused its discretion in
failing to grant leave to amend, and points out that a showing as
to how the complaint can be amended to state a legal claim may
be made for the first time on appeal. But plaintiff has not shown
how he can amend to cure the defects in the complaint. He says
that he can “provide further details” to show the oral agreement
was not subject to the statute of frauds and was not an
agreement to agree; to explain he was not in default and the
foreclosure sale was illegal; and to show the oral promises made
are actionable in fraud. But he does not tell us what those
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“further details” are—only what he contends their legal effect
would be. Plaintiff’s operative complaint does not allege facts
sufficient to state a cause of action, and plaintiff adds nothing
more in his briefs.
DISPOSITION
The judgment is affirmed. Respondents shall recover costs
of appeal.
GRIMES, Acting P. J.
WE CONCUR:
STRATTON, J.
WILEY, J.
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