Orcilla v. Big Sur, Inc. - 244 Cal. App. 4th 982, 198 Cal. Rptr. 3d 715 (2016)

Rule:

The elements of an equitable cause of action to set aside a foreclosure sale are: (1) the trustee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a deed of trust; (2) the party attacking the sale was prejudiced or harmed; and (3) in cases where the trustor challenges the sale, the trustor tendered the amount of the secured indebtedness or was excused from tendering.

Facts:

Plaintiffs Virgilio and Teodora Orcillas are Filipino and English is their second language. Virgilio is unable to work due to a 2004 medical diagnosis. In 2006, Teodora contacted Quick Loan Funding, Inc. (Quick Loan), about refinancing their San Jose home (the Property). She did so in response to marketing materials she had received from the company. After speaking with a Quick Loan agent, Teodora applied to refinance the Property for $525,000. At the Quick Loan agent's recommendation, Teodora did not include Virgilio on the loan application. Teodora told the agent she could not afford the loan modification because the monthly payments would be more than her monthly income, but she eventually accepted the agent's false representation that she could afford the loan modification. On May 9, 2006, Teodora obtained a $525,000 real property loan from Quick Loan. She alone executed an adjustable rate note (the Note), in which she promised to repay the loan at an initial interest rate of 8.99 percent. The Note provided that the interest rate would be variable after two years and would never exceed 14.99 percent. The Note further provided that Teodora's initial monthly payments would be in the amount of $4,220.49. (In 2005 and 2006, Teodora's monthly income was less than $3,000 and Virgilio did not work.) The Note was secured by a deed of trust (the Deed of Trust) on the Property. The Deed of Trust, which was signed jointly by the Orcillas, named Mortgage Electronic Registration Systems, Inc. (MERS) as the beneficiary and LandAmerica Commonwealth as the trustee. ReconTrust, as trustee of the Deed of Trust, recorded a notice of default and election to sell under deed of trust (First Notice of Default) on February 2, 2007, but rescinded this. On April 18, 2008, ReconTrust recorded a second notice of default (Second Notice of Default), which reflected an arrearage of $32,048. The Second Notice of Default was signed by Anselmo Pagkaliwangan. On March 28, 2013, Teodora contacted ReconTrust. The representatives with whom Teodora spoke could not confirm whether Anselmo Pagkaliwangan had ever worked for ReconTrust.

On April 23, 2010, ReconTrust sent a notice of trustee's sale to the Orcillas that listed the sale date as May 18, 2010. On May 12, 2010, the Orcillas submitted a HAMP loan modification application to BofA with the assistance of a nonprofit, California Community Transitional Housing, Inc. Attached to the second amended complaint is the declaration of Nicholas Agbabiaka, the California Community Transitional Housing, Inc., employee who assisted the Orcillas. Agbabiaka declared “I sent the … HAMP package … to Bank of America. I also contacted Bank of America letting them know that the Orcillas … wanted to pursue a HAMP modification. … Bank of America stated that it had received and was reviewing the Orcillas' HAMP application. Bank of America also stated that it would send a packet for the Orcillas to complete and that a Trustee's Sale scheduled for May 24, 2010 would not proceed.” Agbabiaka passed that information along to Teodora. However, the trustee's sale did proceed. On May 24, 2010, the Bank Defendants sold the Property to Big Sur at a public auction for $495,500. Following the trustee's sale, BofA informed Agbabiaka that it never received the Orcillas' HAMP loan modification application. That application was never granted nor denied.

Big Sur filed an unlawful detainer action against the Orcillas and obtained a judgment against them. The Orcillas and their three minor grandchildren were forced to vacate the Property. Thus, the Orcillas filed suit against Big Sur and the Bank Defendants. The operative second amended complaint, filed on asserts 13 causes of action: wrongful foreclosure; violation of Civil Code section 2924; violation of section 2924b; violation of section 2924c; violation of section 2924f; violation of section 2932.5; breach of contract; fraud; breach of oral contract; promissory estoppel; quiet title; unlawful business practices in violation of the unfair business competition law (UCL), Business and Professions Code section 17200 et seq.; and declaratory relief. The Bank defendants and Big Sur successfully demurred. After the Orcillas failed to file a third amended complaint within the leave period, the Bank Defendants moved to dismiss the action. The court granted that motion and entered judgment in favor of defendants. The Orcillas timely appealed.

Issue:

Did the trial court err in granting the demurrer with regard to the equitable cause of action to set aside the trustee’s sale?

Answer:

Yes.

Conclusion:

Re: illegality — As to both the original loan and the 2008 modification, the Orcillas allege they have limited English fluency and education and that the loan documents were on standard, preprinted forms in English. These allegations are sufficient to allege at least some measure of procedural unconscionability. Further, the Orcillas maintained that the disparity between the monthly loan payments and their income indicates that the loan and loan modification were overly harsh and one sided. We agree that the allegation that the monthly loan payments exceeded the couple's income by more than $1,000 is sufficient to allege substantive unconscionability.

Re: harm — Following the court’s duty to liberally construe the complaint’s allegations, the court ruled that the Orcillas were able to adequately allege that “they were harmed by the sale of their home of 18 years,” caused by their reliance on the misrepresentations of an alleged “robo-signer.” 

Re: tender or excuse — The Orcillas did not allege tender or any exceptions to the tender rule in the first cause of action. However, elsewhere in their complaint (in paragraphs not incorporated into the first cause of action), they alleged that all four exceptions to the tender rule apply, to wit: (1) the borrower attacks the validity of the debt (e.g., based on fraud); (2) the borrower has a counterclaim or setoff sufficient to cover the amount due; (3) it would be inequitable as to a party not liable for the debt; or (4) the trustee's deed is void on its face (e.g., because the trustee lacked power to convey property). As to the first exception, they allege the debt is invalid because the original loan and loan modification were unconscionable. As discussed above, the allegations in the second amended complaint are sufficient to allege those agreements were unconscionable and thus unenforceable. The court also overlooked their procedural defect here and rules that they were able to adequately allege the tender requirement.

Re: presumption of validity upon sale to a bona fide purchaser — Even assuming Big Sur is a bona fide purchaser, its status as such does not bar the Orcillas' first cause of action. “Section 2924's conclusive presumption language for [bona fide purchasers] applies only to challenges to statutory compliance with respect to default and sales notices.” The challenge to the trustee's sale asserted in the first cause of action “does not involve a claim concerning whether [ReconTrust, the trustee,] followed all statutory procedures with respect to the default and sales notices … .” Instead, it is based on the alleged unconscionability, and consequent unenforceability, of the loan agreements. Thus the conclusive presumption for bona fide purchasers under section 2924 does not apply to bar the Orcillas' first cause of action.