Opinion
A156287
04-23-2020
PATRICIA JUNG, Plaintiff and Appellant, v. OCWEN LOAN SERVICING, LLC, et al., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Mateo County Super. Ct. No. 16CIV00108)
Plaintiff Patricia Jung appeals a summary judgment in favor of defendants Ocwen Loan Servicing, LLC (Ocwen) and Christiana Trust on plaintiff's complaint for declaratory relief, violation of the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) (Civ. Code, § 1788 et seq.) and conversion. We find no error and shall affirm the judgment.
Background
The following facts are undisputed:
In May 2007, plaintiff obtained a home loan in the amount of $648,000 from Countrywide Bank. The mortgage was secured by an adjustable rate promissory note which contained a negative amortization feature. The note contains the following relevant terms:
The loan was assigned a number of times, including most recently in 2014 to defendant Christiana Trust. Defendant Ocwen began servicing the loan in 2012.
"1. BORROWER'S PROMISE TO PAY [¶] In return for a loan that I have received, I promise to pay U.S. $648,000.00 ('Principal'), plus interest, to the order of Lender. The Principal may increase as provided under the terms of this Note but will not exceed 115 percent of the Principal amount I originally borrowed. This is called the 'Maximum Negative Amortization Cap.' If I default under this Note . . . , then default charges may cause the Maximum Negative Amortization Cap to be exceeded. . . . [¶] . . .
"2. INTEREST [¶] (A) Fixed Rate Interest [¶] Interest will be charged on unpaid Principal until the full amount has been paid. Interest will initially accrue at a yearly rate of 7.625 %. . . . [¶] (B) Adjustable Interest Rate [¶] The initial fixed interest rate I owe will change to an adjustable interest rate on the first day of June 2012 . . . . [¶] (C) . . . .
"3. PAYMENTS [¶] (A) . . . [¶] (B) Minimum Payment [¶] The 'Minimum Payment' is the minimum amount Note Holder will accept for my monthly payment. The Minimum Payment is calculated three (3) different ways during the loan term: [¶] (i) Until June 1, 2017 ('Recast Date') or until the Maximum Negative Amortization Cap is reached, whichever is earlier, the Minimum Payment will be calculated using the then-current interest rate . . . minus 5.000 percentage points. The result of this calculation is called the "Minimum Payment Rate.' . . . Since the Minimum Payment Rate is less than the interest rate applied to my unpaid principal balance, the Minimum Payment will be insufficient to pay the interest portion of my monthly payment and no portion is applied to the Principal. When I make a Minimum Payment, which is based on the Minimum Payment Rate that is less than the rate of the interest due, the unpaid interest is added to the Principal amount. This is known as 'deferred interest' or 'negative amortization.' [¶] (ii) If the unpaid Principal balance reaches the Maximum Negative Amortization Cap prior to the Recast Date, my new Minimum Payment will be the amount that would pay only the interest portion of the monthly payment based upon the then-current interest rate . . . . [¶] (iii) After the Recast Date and for the remainder of the loan term, the Minimum Payment will be the monthly payment amount necessary to pay the loan off, in full, at the Maturity Date in substantially equal payments based on the then-current interest rate . . . . [¶] . . . [¶] (E) Additions to My Unpaid Principal [¶] For each month that my monthly payment is less than the interest portion, the Note Holder will subtract the amount of my monthly payment from the amount of the interest due and will add the differen to my unpaid Principal . . . . [¶] (F) . . . .
"7. BORROWER'S FAILURE TO PAY AS REQUIRED [¶] (A) . . . (B) Default [¶] If I do not pay the full amount of each Minimum Payment on the date that it is due, I will be in default. [¶] (C) Notice of Default [¶] If I am in default, the Note Holder may send me a written notice telling me that if I do not pay the Minimum Payment by a certain date, the Note Holder may require me to pay immediately the full amount of Principal that has not been paid and all the interest that I owe. . . ."
Between May 2007 and November 2011, plaintiff made monthly minimum payments of $2,602.70 and deferred interest was added to the principal balance. Plaintiff did not make any payments after November 2011. The principal balance as of that time was $743,102.07 and no additional unpaid interest was added to that balance. Rather, the nonpayments were deemed a default under the loan agreement.
The principal cap of 115 percent of $648,000 was $745,200.
Plaintiff's property was sold at a foreclosure sale in March 2016 for $918,100. A payoff detail reflects the total amount owing as $906,020.99, consisting of $742,568.72 in principal, $120,243.27 in interest, and approximately $43,000 in other expenses. At the close of escrow, plaintiff received the balance of the sale proceeds, $10,397.01.
Plaintiff's complaint alleges she was wrongly deprived of approximately $120,000 retained as interest by defendants from the proceeds of the foreclosure sale. In granting defendants' motion for summary judgement, the court found that "there is no actual controversy regarding the language in the note," that defendants had not made any misleading statements in the payoff quotes, and that plaintiff cannot establish any of the elements of her conversion claim. Plaintiff timely filed a notice of appeal.
Discussion
Plaintiff contends defendants were not entitled to summary judgment because a controversy exists as to the interpretation of the loan documents. She argues that even if the court would ultimately rule in defendants' favor on the merits of the controversy, summary judgment was improper so long as she has established the existence of a controversy.
"Summary judgment procedure includes declaratory relief actions ' "in a proper case." ' [Citations.] ' " '[T]he propriety of the application of [summary judgment to] declaratory relief lies in the trial court's function to render such a judgment when only legal issues are presented for its determination.' " [Citations.]' [Citation.] When summary judgment is appropriate, the court should decree only that plaintiffs are not entitled to the declarations in their favor. [Citations.] Thus, in a declaratory relief action, the defendant's burden is to establish the plaintiff is not entitled to a declaration in its favor. It may do this by establishing (1) the sought-after declaration is legally incorrect; (2) undisputed facts do not support the premise for the sought-after declaration; or (3) the issue is otherwise not one that is appropriate for declaratory relief." (Gafcon, Inc. v. Ponsor & Assocs. (2002) 98 Cal.App.4th 1388, 1401-1402.)
The trial court here correctly determined that the terms of the note are not "reasonably susceptible" to the interpretation proffered by plaintiff. Accordingly, defendants established that plaintiff was not entitled to a declaration in her favor.
Plaintiff asserts that under Section 3(E) of the note, each month that her payments were less than the interest portion of the loan, the note holder was required to add the difference to the unpaid principal. She argues that this is true whether she made the minimum payment or no payment at all. She asserts that "[t]here is no scenario under which interest can accumulate on the loan and not be added to the principal. . . . [¶] Although interest is mentioned in other provisions of the note, no provision of the note provides that interest will accumulate anywhere except on the unpaid principal." And once the principal balance reaches the cap, her contention is essentially that the note holder is no longer able to collect any interest. Thus, she asserts, a controversy exists as to whether defendants were allowed to withhold approximately $120,000 in interest from the surplus proceeds of the sale of the property.
Plaintiff's interpretation is unreasonable and without support. Such a construction has been soundly and repeatedly rejected by numerous federal district courts. (Farhat v. Wells Fargo Bank, N.A. (N.D. Cal. July 19, 2019, No. 18-cv-02273-HSG) 2019 U.S.Dist. Lexis 121018; Ramos v. Wells Fargo Bank, N.A. (N.D.Cal. June 19, 2018, No. 18-cv-00762-VKD) 2018 U.S.Dist. Lexis 103491; Razzak v. Wells Fargo Bank, N.A. (N.D.Cal. Mar. 28, 2018, No. 17-cv-04939-MMC) 2018 U.S. Dist. Lexis 52251; Velasquez v. Wells Fargo, N.A. (N.D.Cal. Aug. 1, 2017, No. 17-cv-03868-KAW) 2017 U.S.Dist. Lexis 120915; Diamos v. Fay Servicing, LLC (N.D.Cal. Dec. 14, 2016, No. 16-cv-05164-DMR) 2016 U.S.Dist. Lexis 173036 (Diamos); Nadaf-Rahrov v. Shellpoint Mortgage Servicing (N.D.Cal. Nov. 23, 2016, Nos. 16-cv-2112-RS, 16-cv-6323-RS) 2016 U.S. Dist. Lexis 162796.)
For example, in Diamos, supra, 2016 U.S.Dist. Lexis 173036, plaintiff argued that "[d]efendants' demand of $1,264,223.48 as the loan payoff amount exceeded the limit established by the deed of trust and promissory note, which was . . . 115% of the original principal balance or $931,500." (Id. at p. *6.) As in this case, plaintiff argued that, under the terms of the note, all unpaid interest must be added to the principal balance, which was subject to the 115% cap. "[A]ccording to plaintiff, adding the $251,329.16 in unpaid interest on the payoff statement to the $871,987.27 principal balance 'brings the total unpaid principal balance to $1,123,316.43,' which exceeds the allowable maximum." (Id. at p. *9.) The court observed that plaintiff's argument incorrectly "conflates the 'current loan balance' with the 'unpaid principal balance.' " (Id. at pp. *7-*8) The court held that terms nearly identical to the contractual provisions at issue in this case were "not reasonably capable of the construction offered by Plaintiff that all accrued interest becomes part of the principal balance of the loan." (Id. at pp. *9-*10, italics added.) The court explained, "section 3(E) provides for only one limited instance in which interest becomes capitalized into the unpaid principal balance: '[f]or each month that my monthly payment is less than the interest portion, the Note Holder will subtract the amount of my monthly payment from the amount of the interest portion and will add the difference to my unpaid Principal . . .' It does not state that interest accrued by any other means, including interest accrued due to the borrower's default, is added to the principal balance of the loan. When read together with the maximum principal provision, section 3(E) addresses months in which the minimum monthly payment does not cover the interest portion and provides that the difference between the interest due and the minimum payment must be added to the principal balance. In the event that the unpaid principal exceeds 115% of the original principal balance due to the situation addressed in section 3(E), the maximum principal provision states that Plaintiff must pay a new monthly payment 'in an amount that would be sufficient to repay [his] then unpaid Principal in full on the Maturity Date in substantially equal payments at the current interest rate.' In this way, the two provisions seek to prevent excessive negative amortization of the loan resulting from the borrower making only minimum payments." (Id. at p. *10.) The court rejected plaintiff's argument that the 115% cap on principal balance precluded the lender's ability to recover "interest accrued . . . due to the borrower's default." (Ibid.)
In Nadaf-Rahrov v. Shellpoint Mortgage Servicing, supra, 2016 U.S.Dist. Lexis 162796, at pages *4-*5, plaintiff asserted the same argument asserted by plaintiff in this case, i.e. that the lender's calculation of a total payoff amount violated the 115% cap placed on the amount of the principal balance. The federal district court described this argument correctly as "frivolous." The court explained, "[t]he original loan . . . allowed for 'negative amortization.' Plaintiffs were permitted to make monthly payments in an amount that was less than the accruing interest. If they did so, the accrued interest would be added to the principal balance of the loan—up to a total of [115% of the original loan]. Paying the lesser amount was not a breach of the loan agreement. Once the principal loan balance reached that threshold, however, plaintiffs were required to make monthly payments in an amount at least equal to the accruing interest, and the principal balance would not continue to grow. [¶] This does not mean, however, that if plaintiffs failed to make those ongoing interest payments—thereby breaching the loan agreement—they somehow would be relieved from the additional indebtedness, just because the principal loan amount was 'capped' at 115%. Rather, at that point, missed interest payments became part of the total amount owed (i.e. principal, interest, and any other charges allowed under the loan agreements, such as reimbursement for advances on taxes and insurance)." (Ibid.)
As in the above cases, the promissory note requires plaintiff to pay principal plus interest and any other charges allowed under the loan agreements and provides that "[i]nterest will be charged on unpaid Principal until the full amount has been paid." While the 115 percent cap limits the amount of unpaid interest that can be added to principal, it does not eliminate the obligation to pay interest on the outstanding loan balance. Interest accruing in excess of the amount that could be added to principal was properly included in the current loan balance.
As defendant argues, the full loan balance was properly recovered under section 7 following plaintiff's default. Contrary to plaintiff's argument, the trial court did not conclude that section 7 provided for the accrual of interest. Interest accrued under sections 1 and 2 and was recovered under section 7 following plaintiff's default. --------
Since plaintiff's interpretation of the terms of the promissory note is plainly incorrect, her claims for conversion and violation of the Rosenthal Act also fail. Defendants did not misstate the amount of the debt by including the approximately $120,000 in unpaid interest; nor did they convert that amount by retaining it as a portion of the proceeds from the foreclosure sale.
Accordingly, the court did not err in granting defendants' motion for summary judgment.
Disposition
The judgment is affirmed. Defendants shall recover their costs on appeal.
POLLAK, P. J. WE CONCUR: STREETER, J.
BROWN, J.