Perlas_v_GMAC[1]

Perlas_v_GMAC[1] - MERCEDES PERLAS et al., Plaintiffs and...

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Unformatted text preview: MERCEDES PERLAS et al., Plaintiffs and Appellants, l. v. GMAC MORTGAGE, LLC, et al., Defendants and Respondents. A125212 California Court of Appeal, First District, Fifth Division (Contra Costa County) August 11, 2010 FACTS Appellants own real property located on Drakes Circle in Discovery Bay (the Property). GMAC is a mortgage lender. Prior to November 27, 2007, appellants sought to refinance the Property by obtaining a loan from GMAC “and/or one or more of the Doe defendants” in the principal amount of $417, 000 (the Loan). In connection with the Loan, GMAC provided a note setting forth a fixed interest rate of 6.375 percent and monthly payments of $2, 601.54 (the Note). Respondents also provided appellants a truth—in-lending disclosure statement showing monthly payments of $2, 601.54 for a 360-month term at a fixed rate of 6.393 percent. At the time appellants applied for the Loan, they provided information regarding their actual gross income “to one or more of the Doc defendants.” One of the documents tendered at closing was a “purported” application for the Loan (Application), which appellants had neither prepared nor reviewed. The Application stated appellants’ “total income” was $9, 466 per month, which was substantially greater than the actual income information appellants provided to GMAC. This material change in appellants” income information was not disclosed to them prior to December 21, 2007, and appellants were never requested to confirm the accuracy of the information contained in the Application. At closing, appellants signed the preprinted Application and other documents Without being given an oppmtunity to read or review them. Along with the other documents regarding the Loan, GMAC prepared and tendered to appellants a deed of trust (Deed). The Deed identifies GMAC as “ ‘Lender.’ ” The Deed identifies unnamed defendant Mortgage Electronic Registration Systems, Inc. (MERS), DJ as a “separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the beneficiary under this [Deed].” The Deed identifies ETS as “trustee” of the Deed. Unbeknownst to appellants, the Deed included substantial language which constituted an addendum to the Note. Moreover, the beneficial interest in the Deed is separate from the Note, and appellants were not advised that such bifurcation is contrary to California law and without legal force or effect. On or about December 21, 2007, appellants executed documents prepared by GMAC for a home equity line of credit (Credit Line), which was also intended to refinance the Property. The entire amount of the Credit Line, $114, 000, was advanced as part of the refinance of the Property. However, the Credit Line application was neither prepared nor reviewed by appellants, and bears a preprinted date of November 27, 2007 on the applicant’s signature line. On December 27, 2007, a deed of trust and assignment of rents was recorded to secure the Credit Line (Credit Line Deed).m At no time did appellants’ income permit them to make the payments called for in the Loan documents. On June 9, 2008, ETS recorded a notice of default and election to sell under the deed of trust (notice of default). ETS signed the notice of default “as agent for beneficiary.” On September 19, 2008, ETS recorded a notice of trustee’s sale. On October 2, 2008, appellants filed their complaint against respondents. DISCUSSION Appellants Cannot Amend to State a Cause of Action for F raudulent Misrepresentation or Fraudulent Concealment A. Fraudulent Misrepresentation To establish a claim for fraudulent misrepresentation, the plaintiff must prove: “(1) the defendant represented to the plaintiff that an important fact was true; (2) that representation was false; (3) the defendant knew that the representation was false when the defendant made it, or the defendant made the representation recklessly and without regard for its truth; (4) the defendant intended that the plaintiff rely on the representation; (5) the plaintiff reasonably relied on the representation; (6) the plaintiff was harmed; and, (7) the plaintiff’ s reliance on the defendant’s representation was a substantial factor in causing that harm to the plaintiff. [Citations.]” (Manderville v. PCG&S Group, Inc. (2007) 146 Cal.App.4th 1486, 1498.) “Each element in a cause of action for fraud... must be factually and specifically alleged. [Citation.]” (Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519.) In a fraud claim against a corporation, a plaintiff must allege the names of the persons who made the misrepresentations, their authority to speak for the corporation, to whom they spoke, what they said or wrote, and when it was said or written. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) The fraudulent misrepresentation cause of action of the PAC alleges that respondents and the unnamed defendants (Lender Defendants)L7J knew or should have known, at the time the documents were prepared and tendered by GMAC to appellants for the Loan and Credit Line, that it was not possible for appellants to make the payments called for in the Loan and Credit Line based upon the income information actually provided to GMAC. By preparing and tendering the documents to appellants, the Lender Defendants represented to appellants that appellants could, in fact, make the payments called for in the loans and failed to disclose to appellants that they could not possibly afford the payments called for in the loans. Respondents’ demurrer argued that appellants failed to allege a misrepresentation of fact as to their payment obligations because appellants admit they executed all of the loan documents required to obtain the loans and, thereby, agreed to all the terms stated in those documents. Respondents also argued that preparing and tendering documents to appellants for their execution cannot be deemed a representation outside the written terms of the agreement that appellants executed and thereby adopted. Respondents also argued that, even assuming appellants alleged representations of fact, appellants failed to allege who made the representations, when they were made and to whom they were made; how the representations are false; that respondents knew they were false; that respondents intended for appellants to rely on such representations and appellants did in fact rely on such misrepresentations. Appellants argue they can amend the PAC to allege: (1) GMAC represented to them that they qualified for the loans based upon their “true income, ” which appellants provided to GMAC when they applied for the loans; (2) the representation was false since appellants’ qualification for the loans was based upon a “fabricated, inflated income;” (3) GMAC knew the representation was false; (4) GMAC demonstrated its intent that appellants rely on the false representation by requesting “true” financial data from appellants, inserting false financial data into appellants’ Application, failing to inform appellants that the Application contained an inflated gross monthly income for appellants, and failing to provide appellants with an opportunity to read or review the Application and other loan documents; (5) appellants relied on the misrepresentation and obtained the loans believing that GMAC’s approval of the Loan indicated that GMAC thought appellants “could afford” the loans; and (6) appellants were damaged by the misrepresentation because they would not have obtained the loans had they known their qualification was based upon a fabricated, inflated statement of their income. Appellants also argue they can specifically allege the following: “GMAC represented to [appellants] they qualified for the loans based upon their true income.” Based on information and belief, Nick Dutra was “a loan consultant for [GMAC].” In the fall of 2007, Dutra had a telephone interview with appellants during which they told Dutra their true gross income was $50, 000 a year. A couple of days later, Dutra called appellants and told them they qualified for their loans. Appellants were never informed that their qualification for the loans was based upon a fabricated, inflated income of $9, 466 a month. At the time of his misrepresentations, Dutra was located at a Pleasanton address. On information and belief, appellants can allege that Dutra had authority from GMAC to interview and gather financial information from prospective borrowers to submit for GMAC’S loan approval, and to fabricate and inflate a prospective borrower’s income on his or her loan application without the borrower’s knowledge and consent. Neither the PAC nor appellants” proposed amendments allege that GMAC expressly represented to appellants that they had the ability to make the loan payments specified in the loan documents. Appellants appear to conflate loan qualification and loan affordability. In effect, appellants argue that they were entitled to rely upon GMAC’s determination that they qualified for the loans in order to decide if they could aflord the loans. Appellants cite no authority for this proposition, and it ignores the nature of the lender—borrower relationship. “[A]bsent special circumstances... a loan transaction is at arm’s length and there is no fiduciary relationship between the borrower and lender. [Citations.]” (Oaks Management Corporation v. Superior Court (2006) lg Cal.App.4th 453, 466.) A commercial lender pursues its own economic interests in lending money. (Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1096.) A lender “owes no duty of care to the [borrowers] in approving their loan.” (Wagner v. Benson (1980) 101 C al.App.3d 27, 35.) A lender is under no duty “to determine the borrower’s ability to repay the loan.... The lender’s efforts to determine the creditworthiness and ability to repay by a borrower are for the lender’s protection, not the borrower s. (Renteria v. US. (D.Ariz. 2006) 452 F.Supp.2d 910, 922—923 [borrowers rely on their own judgment and risk assessment in deciding whether to accept the loan]; accord, Cross v. Downey Savings and Loan Association (C.D.Cal., Feb. 23, 2009, CV09-317 CAS(SSx)) 2009 WL 481482 [nonpub. opn.].) Thus, appellants fail to demonstrate they can sufficiently amend the PAC to state a cause of action for fraudulent misrepresentation. B. Fraudulent Concealment 5‘6 [T]he elements of an action for fraud and deceit based on concealment are: (l) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.’ [Citation.]” (Lovejoy v. AT &T Corp. (2001) 92 Cal.App.4th 85, 96.) The fraudulent concealment cause of action in the PAC alleges that respondents and the unnamed defendants knew or should have known that it was impossible for appellants to afford to make the payments called for in the loans and, at the time the loan documents were tendered and at all times thereafter, they concealed this fact from appellants. Like fraudulent misrepresentation, each element in a cause of action for fraudulent concealment must be factually and specifically alleged. (Cadlo v. Owens-Illinois, Ina, supra, 125 Cal.App.4th at p. 519.) And, when alleged against a corporation, a plaintiff must allege the names of the persons who committed the fi'aud, their authority to speak for the corporation, to whom they spoke, what they said or wrote and when it was said or‘ written. (Lazar v. Superior Court, supra, 12 Cal.4th at p. 645.) Respondents demurred to the fraudulent concealment cause of action on the ground that appellants were presented with all of the loan documents, which included the monthly loan payment amounts and the income on which qualification was based. If any of the loan terms were unsatisfactory, appellants could have refused to execute the loan documents. Alternatively, respondents argued that even if concealment of a fact was alleged, the complaint failed to state that respondents were under any duty to disclose the concealed fact, that respondent intentionally concealed such fact and that appellants were unaware they could not afford the terms set forth in the loans. Respondents also argued that appellants failed to allege who made the concealment, and when, where, to whom and by what means the concealment was made. Appellants argue they can amend the FAC to allege: (1) At the time of closing, Dutra concealed from appellants that the loan application reflected an amount for appellants’ income that was fabricated and inflated and appellants” qualification for the loans was based on the inflated income amount. (2) “GMAC owed [appellants] a fiduciary duty. GMAC was and is licensed by the department of real estate, license [No.] 00755312. Therefore, GMAC also was a mortgage loan broker to [appellants] in addition to being their lender. [Appellants] went directly to GMAC to obtain their loans.” (3) GMAC never told appellants an inflated income was inserted in the loan applications, appellants did not have the opportunity to read and review the loan documents at closing, and therefore did not see that the income listed on the loan applications was inflated and fabricated. (4) GMAC intentionally concealed the fact of the inflated, fabricated income shown on the loan applications because it knew appellants would not have the opportunity to read the loan documents at the closing of the loans. In their reply brief, appellants cite Financial Code section 4979.5, which provides: “(a) A person who provides brokerage services to a borrower in a covered loan transaction by soliciting lenders or otherwise negotiating a consumer loan secured by real property, is the fiduciary of the consumer, and any Violation of the person’s fiduciary duties shall be a violation of this section. A broker who arranges a covered loan owes this fiduciary duty to the consumer regardless of who else the broker may be acting as an agent for in the course of the loan transaction. [1]] (b) Except for a broker or a person who provides brokerage services, no licensed person or subsequent assignee shall have administrative, civil, or criminal liability for a violation of this section.” Appellants” allegation that GMAC owed them a fiduciary duty because “GMAC was and is licensed by the department of real estate, license [No] 00755312, ” and appellants “went directly to GMAC to obtain their loans” is conclusory and insufficient to establish that GMAC was a fiduciary of appellants pursuant to Financial Code section 4979.5. Moreover, appellants have not alleged that GMAC acted as a broker at any time in its dealings with appellants. Having failed to sufficiently allege a fiduciary duty, appellants” cause of action for fraudulent concealment fails. V. Appellants Cannot Amend to State a Cause of Action to Void and Cancel Deed Next, appellants contend they can amend the FAC to allege facts sufficient to constitute a cause of action to void and cancel the Deeds against respondents and MERS. The cause of action in the FAC to void and cancel the deed of trust alleged that the Deeds are void and voidable because the specific terms of the Deeds were inconsistent with the nature of a deed of trust. Respondents demurred on the ground that the claim is vague and ambiguous, appellants failed to allege how the Deeds are void or voidable, and appellants failed to show they would be able to provide any restoration of consideration in exchange for a decree of cancellation. Appellants assert that the thrust of the FAC’s cause of action to void and cancel a deed of trust is that the Deed, attached as exhibit C to the FAC, is not actually a deed of trust, but instead “is a contract to permit MERS to foreclose upon the Property.” Appellants argue that “Since the true character and essential terms of the Deed were concealed from [appellants], [appellants’] signature upon the Deed constitutes fraud in the inducement/execution, rendering the Deed void.” As a result, appellants argue they may state a statutory cause of action for cancellation of instruments. (Civ. Code, § 3412.)@ Alternatively, appellants argue the Deed is voidable under Revenue and Taxation Code section 23304.1 because MERS conducts business in California Without paying state taxes. They argue that their claim to void and cancel the Deed is not based on fraud in the inducement, but is based on “fraud in the execution/inception.” A. Fraud in the Execution of the Deed Appellants argue they can allege facts demonstrating that the Deed, which secured the Loan, did not meet the definition of a deed of trust, [2] but instead was a contract which permitted MERS to foreclose upon the Property. Appellants argue the Deed is void for fraud in the execution. “When a plaintiff alleges fraud in the inducement, the plaintiff is asserting it understood the contract it was signing, but that its consent to the contract was induced by fraud. In contrast, when a plaintiff alleges fraud in the execution, the plaintiff is asserting that it was deceived as to the very nature of the contract execution, and did not know what it was signing. A contract fraudulently induced is voidable; but a contract fraudulently executed is void, because there never was an agreement. [Citation.]” (Brown v. Wells Fargo Bank, NA. (2008) 168 Cal.App.4th 938, 958 (Brown).) Appellants assert they can amend the FAC to allege the following language contained in the Deed: “The beneficiary of this Security lnstrumentw is MERS (solely as nominee for [GMAC] and [GMAC’s] successors and assigns) and the successors and assigns of MERS. [T]his Security Instrument secures to [GMAC]: (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii) the performance of [appellants’] covenants and agreements under this Security Instrument and the Note. For this purpose, [appellants] irrevocably grant and convey to [ETS], in trust, with power of sale, the [Property]...: [fl]... [fl] Together With all the improvements now or hereafter erected on the property, and all easements, appurtenances, and fixtures now or hereafter a part of the property.... [Appellants] understand and agree that MERS holds only legal title to the interests granted by [appellants] in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for [GA/MC] and [GMAC ’s] successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of [GMAC] including, but not limited to, releasing and canceling this Security Instrument.” (Italics added.) Appellants argue the italicized language in the Deed demonstrates that the Deed is not securing the debt for GMAC, and the Deed does not permit GMAC to reach an asset if appellants default. Instead, it is a contract pursuant to which appellants agree that MERS may foreclose on the property. Appellants impliedly acknowledge that reasonable reliance is a necessary element of fraud in the execution. That is, “[t]he contract is only considered void when the plaintiff” s failure to discover the true nature of the document executed was without negligence on the plaintiff’ s part. [Citation.]” (Brown, supra, 168 Cal.App.4th at pp. 958—959.) Citing Brown, at page 959, appellants note that where parties to a contract are in a fiduciary relationship requiring the defendant to explain the terms of the contract between them, the plaintiff’ 3 failure to read the contract is reasonable and the defendant’s failure to exercise its fiduciary duty may constitute constructive fraud. Appellants argue they can amend the FAC to allege: (l) GMAC owed appellants a fiduciary duty as their mortgage broker, not as a lender; (2) GMAC failed to inform appellants the Deed was actually a contract which permits MERS to foreclose, a fact unknown to appellants; and (3) appellants’ failure to read the Deed was reasonable given GMAC’S fiduciary duty. Based on such allegations, appellants assert they can allege sufficient facts to state a cause of action to void and cancel the Deed against GMAC, ETS, and MERS due to fraud in the execution. The short answer to appellants’ claim for fraud in the execution of the Deed is that, as we noted above, appellants have failed to demonstrate that they can sufficiently allege any special circumstances that would establish a fiduciary duty on the part of GMAC in its dealings with appellants. B. Revenue and Taxation Code Violation Appellants appear to argue that the Deed is really a contract between them and MERS and this contract is void because MERS is unlawfully transacting business in California. The argument lacks merit. “A deed of trust involves three parties: the trustor, the trustee, and the beneficiary. The trustor is the debtor owning the property that is conveyed to the trustee as security for the obligation owed to the beneficiary.” (4 Miller & Starr, Cal. Real Estate (3d. ed. 2003) § 10:3, p. 20.) The Deed expressly designates appellants as the trustors, ETS as the trustee and MERS as the beneficiary “acting solely as nominee for [GMAC] and [GMAC’S] successors and assigns.” The copy of the Deed attached to the complaint is unsigned and has signature lines only for “Borrower.” However, the Deed contains “uniform covenants” and “non-uniform covenants, ” both of which state: “Borrower and Lender covenant and agree as follows:” Nothing in the proposed amending language suggested by appellants or in their supporting argument establishes that the Deed is a contract solely between them and MERS. Consequently, they have failed to establish that the Deed is voidable and subject to cancellation. ...
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This note was uploaded on 09/06/2011 for the course FI 365 taught by Professor Staff during the Spring '11 term at S.F. State.

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Perlas_v_GMAC[1] - MERCEDES PERLAS et al., Plaintiffs and...

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