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DERRICK HOGANS
9107 s. La Salle Ave
Los Angeles, CA. 90047
(214) 374-1476
Plaintiff in Pro Per

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SUPERIOR COURT OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

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DERRICK HOGANS,

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PLAINTIFF,
Vs.

)
)
)
)
)
)
)

Case No: BC534169

Honorable:
PLAINTIFFS OPPOSITION TO
DEFENDANTS DEMURRER TO
COMPLAINT

CHILDRENS
INSTITUTE;
JESSICA
JOHNSON;
JUDY
GUZMAN;
RAUL )
) Time: 8:30 a.m.
FONSECA and DOES 1-20,
) Date:
) Dept.:
DEFENDANTS.
)

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Plaintiff hereby submits his Opposition to Defendants Barclays Capital Real Estate, Inc

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d/b/a HomeEq Servicing and U.S. Bank National Association as Trustee under Pooling and

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Servicing Agreement dated as of May 1, 2007 MASTR Asset Backed Securities Trust 2007HE1 Mortgage Pass-Through Certificates Series 2007-HE1s Demurrer as follows:

PLAINTIFFS
OPPOSITION TO U.S.

BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT

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TABLE OF CONTENTS
1
2

I.

INTRODUCTION . . .

II.

STATEMENT OF FACTS. . .

III.

ARGUMENT. . .

.5

3
4
5
6
7

A.

OF ACTION . . .

...8

PLAINTIFF HAS ADEQUATELY PLEAD EACH AND EVERY CAUSE

1.
and

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.6

. . .8

Plaintiff Has Stated Causes of Action for Negligence, Fraud

Breach of the Implied Covenant of Good Faith and Fair Dealing

against

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12

Defendants. . .

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.8

2.
Plaintiff Properly Alleged Causes of Action Based on
Defendants

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15

Violations of California Civil Code 2923.5 . . .

16

3.

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. .10

Plaintiff Has Properly Alleged Causes of Action Based on

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Defendants Violations of California Civil Code 2923.6. . .

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4.

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California Business and Professions Code Section 17500 and 17200.

. . . 13

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. .11

Plaintiff Has Properly Alleged Causes of Action Pursuant to

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5.

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Based on the Invalidity of the Foreclosure Sale. . .

. . .17

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6.

. ..18

25 IV.

Plaintiff Has Properly Alleged a Cause of Action for Quiet Title

The Tender Rule Does Not Apply Here. . .

CONCLUSION . . .

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PLAINTIFFS OPPOSITION TO U.S. BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT
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TABLE OF AUTHORITIES
1
2
3

Cases
Bank of California v. Connolly (1973) 36 Cal. App. 3d 350, 111 Cal. Rptr. 468 .... . .. 9

th
4 Bank of the West v. Superior Court (1992) 2 Cal.4 1254, 1267 ............... 14

5 Brewer v. IndyMac, 609 F. Supp. 2d 1104 (E.D. Cal. 2009) .............. 19

6 Commonwealth v. Fremont Investment & Loan (2008) 452 Mass. 733
7

(2008)

....

8
9

14,16,17

Connors v. Home Loan Corp., 2009 WL 1615989 (S.D.Cal.,2009)

...

10 ............................................................
11 . 13
12 Daugherty v. American Honda Motor Co., Inc. (2006) 144 Cal. App. 4th 824, 837
13
14
15

(2006)..
Davis

14

v.

Kahn (1970) 7 Cal. App. 3d 868, 86 Cal. Rptr. 872

...

16 ............................................................
17 .. 9
18 Doctors' Co. v. Superior Court (1989) 49 Cal.3d 39, 44, 260 Cal. Rptr. 183, 775 P.2d 508
19
20
21
22

...

Farner v. Countrywide Home Loans, 2009 WL 189025 (S.D.Cal., 2009) ...

............................................................

23 . 13
24 In re Countrywide Financial Corporation, 601 F. Supp. 2d 1201, 1220 (S.D. Cal.
25
26
27
28

2009)
Knight

....
v.

Cook

(1963)

212

17
Cal.

App.

2d

613,

28

Cal.

Rptr.

273

..................................................................................................................................................
.. 9
Landmark National Bank v. Kesler, 40 Kan. App. 2d 325 (2008) ............... 18

nt Homes, Inc. (1984) 159 Cal. App. 3d 509, 530 ...... 15

Motors, Inc. v.
Times-Mirror
Co. (1980) 102 Cal. Rickless v. Temple (1970) 4 Cal. App. 3d 869, 84 Cal. Rptr. 828 ...
App. 3d 735, 740
............................................................
.............................................................
. 15
.. 9
Mox
Incorporated v. Saunders v. Superior Court (1994) 27 Cal. App. 4th 832, 838-39 ............... 14
Woods (1927) 202
Cal. 675, 677-678, State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal. App. 4th 1093,
262 P. 302 ......................................................
1104 .... 15
. 9
People

v.

Casa
Blanca
Convalesce

PLAINTIFFS OPPOSITION TO U.S. BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT
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Statutes
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California

Business

and

Professions

Code

Section

.. 13, 14, 15, 16, 17

17200 ... California Civil Code Section 2923.5 ...

. 10, 11, 13, 17

California Civil Code Section 2923.6 ...

. 11, 12, 13, 17

5 SB 1137 ...

... 11, 12, 13

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MEMORANDUM OF POINTS AND AUTHORITIES

1 I.
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INTRODUCTION
In a classic take-the-money-and-run scheme, Defendants, individually and

collectively, caused Plaintiff (Plaintiff) to suffer damages as a result of being oversold a no

money down, adjustable rate, subprime loan which they knew or reasonably should have

6 known he likely
7 could not repay. After falsely representing to Plaintiff that he could refinance the loan in six
8 months to obtain one with more favorable terms, Defendants then immediately sold and
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resold the loan in a whirlwind scheme of financial transactions that not only prevented
Plaintiff from being able to refinance the loan, but from even being able to reasonably

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ascertain with whom he was supposed to be dealing with. Inevitably and predictably,
Plaintiff lost his home through

14 non-judicial foreclosure.
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As a consequence of the wrongful conduct and predatory lending practices of the

16 Defendants, individually and acting in concert, Plaintiff was deprived of his ability to
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purchase a home that he could afford and obtain a loan that he could repay, in the process
ruining his credit standing by way of a non-judicial foreclosure which will take him years to
repair, thereby

21 effectively preventing Plaintiff from being able to purchase a home of his own for the
22 foreseeable future.
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The means and mechanism by which this result was accomplished by the various

24 Defendants proceeded by way of a complicated scheme involving fraud, misrepresentation,

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civil conspiracy, and breaches of the general negligence duties of due care and due diligence,
the fiduciary duty of trust and confidence existing between financial institutions and their
customers, the duties of good faith and fair dealing that underlie all contractual relationships
in the State of California, as well as violation of a number of statutory and regulatory duties
imposed by the California Civil and Business & Professions Codes.

PLAINTIFFS OPPOSITION TO U.S. BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT
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While the schemes of the Defendants, derived solely for their own financial benefit, were
1 convoluted and complicated, the gravamen of Plaintiffs Complaint is simple. He contends
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that he was induced by the machinations and manipulation by Defendants to take out a no
money down, adjustable rate subprime home loan which they knew or reasonably should
have known, by exercising due diligence, he likely could not repay. When the inevitable and

6 predictable
7 result of that overreaching, unscrupulous conduct then came to pass, Defendants refused to
8 deal with him fairly and in good faith, and, in the process, trampled upon a litany of duties
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imposed by statute, regulation, and well-established case law.

II.

STATEMENT OF FACTS

11
In and before 2007, Defendant Lime Financial Services, Ltd. (LIME), a subsidiary

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of Defendant Credit Suisse (CS), engaged in a business practice of marketing predatory,

14 high interest, subprime adjustable rate (ARM) home loans targeted at less affluent
15 potential
16 homebuyers who historically had been shunned by conventional lenders. The business plan of
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LIME/CS was to quickly bundle the loans in pools and unload them to investors on
international

21 securities markets as high interest, mortgage-backed securities. To put this scheme into
22 effect,
23 LIME/CS cultivated a cadre of mortgage brokers with established ties in minority and lower
24 income communities. Among them were LEGEND MORTGAGE CORPORATION and its
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agents/brokers (LEGEND). LIME/CS also developed relationships with banks and loan
servicers who would bundle the loans into mortgage-backed securities so that the loans would
be
impossible to trace and, thus, allegedly limit liability once the loans became toxic which was
inevitable.

In

responded to solicitations by LEGEND to engage its

early

services to procure a home loan in connection with his interest in a property located at 5148

January

7th

2007,

Avenue, Los Angeles, California 90043 (the Subject Property). LEGEND directed him to

Plaintiff
PLAINTIFFS OPPOSITION TO U.S. BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT
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sign a mortgage application that it submitted to LIME on January 5, 2007. What LEGEND
1 proposed was no money down, 100% financing consisting of an 80% first Trust
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Deed/Mortgage
and a piggybacked 20% second Trust Deed/Mortgage. While the sale and loan application
were

6 pending, LEGEND made material misrepresentations and omitted material facts from its
7 sales
8 pitch. Among other things, Plaintiff was not told that taking out a 100% loan with a three
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year
pre-payment penalty would prevent him from refinancing his loan during that period unless

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there was a substantial increase in the market value of the property. To the contrary,
LEGEND

14 told him that he could refinance the property at a lower fixed rate within six months after the
15 loan papers were signed, that the prepayment penalty would not be a problem, and that this
16 would avoid the rate adjustment after two years and result in much lower interest on the
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loans.

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After six months, Plaintiff asked LEGEND about refinancing. He was then told

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that LIME was out of business. He explored options with other lenders, but then learned

21 that the 80% first and 20% second precluded his ability to refinance, particularly in light
22 of the
23 prepayment penalties in effect for the first three years of the loans. He thus was trapped into
24 two high-interest rate loans that could not be refinanced as promised, and found himself
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unable to afford his monthly payments with the result that he lost his home at a non-judicial
foreclosure when the Defendants refused to work with him in a good faith attempt to modify
the loans.
In accordance with the overall scheme, the moving Defendants, BARCLAYS
CAPITAL REAL ESTATE, INC. (BARCLAYS) dba HOMEQ SERVICING (HOMEQ)

and U.S.

Defendants), became,

BANK, N.A

respectively, the servicing agent for the loans and the Trustee of them as part of Pooling and

(U.S.

Servicing Agreement Dated May 1, 2007, MASTR Asset Backed Securities Trust 2007-HE1

BANK)

Mortgage Pass Through Certificates Series 2007-HE-1. It is presently unknown to Plaintiff

(collectively

whether the non-judicial foreclosure upon his home was prosecuted by HOMEQ or

referred to

U.S.BANK.

herein as
PLAINTIFFS OPPOSITION TO U.S. BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT
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In Defendants Demurrer, it attempts to establish that its foreclosure of the Subject

1 Property was proper. However, at the very least, Defendants own documents establish that
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there is a triable issue of fact as to whether it had the right to foreclose on the Subject
Property.
Specifically, Defendants Request for Judicial Notice fails to attach a copy of the actual

6 Note.
7 Instead, Defendants request judicial notice of the Deed of Trust and an Interest Only Period
8 Fixed/Adjustable Rate Rider, both of which reference a separate Note, the original of which
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apparently has not been assigned to and is not in the possession of Defendants. Accordingly,
the foreclosure of the Subject Property was improper and in violation of applicable law.

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Defendant U.S. BANK ultimately purchased the Property for $268,000. Meanwhile,

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Defendants made a substantial amount of money as a result of the above scheme and Plaintiff

14 lost his entire investment in the property. Moreover, as a result of his damaged credit, Plaintiff
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16 will not be able to purchase another home for a very long time. Through this action, Plaintiff,
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on
behalf of himself and the public at large, seeks to hold every member of the scheme liable for
their conduct which has wreaked havoc on the United States economy in the last two years.

21 III.

ARGUMENT

22

A.

23

OF ACTION

24

PLAINTIFF HAS ADEQUATELY PLEAD EACH AND EVERY CAUSE

1.
Plaintiff Has Stated Causes of Action for Relief for Negligence,
Fraud

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and Breach of the Implied Covenant of Good Faith and Fair Dealing
against

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Defendants

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With regard to Plaintiffs causes of action for negligence, fraud and breach of the
implied

covenant of

Defendants essentially argue that they cannot be held

good faith

liable for any acts of the other Defendants because they had no direct contact with Plaintiff.

and fair

However, Defendants argument ignores the allegations of Plaintiffs complaint and governing

dealing,
PLAINTIFFS OPPOSITION TO U.S. BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT
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law regarding civil conspiracy and joint ventures. Specifically, in paragraph 12, Plaintiff alleges
1 that
2

Each of the Defendants named herein are believed to, and are alleged to have
been acting in concert with, as employee, agent, co-conspirator or member of a
joint venture of, each of the other Defendants, and are therefore alleged to be
jointly and severally liable for the claims set forth herein, except as otherwise
alleged.

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5

With regard to civil conspiracy, the California Supreme Court has held that the

7 elements of an action for civil conspiracy are

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the formation and operation of the conspiracy and damage resulting to plaintiff
from an act or acts done in furtherance of the common design . . . [and that] [i]n
such an action the major significance of the conspiracy lies in the fact that it
renders each participant in the wrongful act responsible as a joint tortfeasor for all
damages ensuing from the wrong, irrespective of whether or not he was a direct
actor and regardless of the degree of his activity.

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10
11

12 Doctors' Co. v. Superior Court (1989) 49 Cal.3d 39, 44, 260 Cal. Rptr. 183, 775 P.2d
13

508 (citing Mox Incorporated v. Woods (1927) 202 Cal. 675, 677-678, 262 P. 302).

14

Additionally, a joint venture is an undertaking by two or more persons jointly to carry

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out a single business transaction for profit. Davis v. Kahn (1970) 7 Cal. App. 3d 868, 86
Cal. Rptr. 872. A joint venture exists where there is an agreement between the parties under

18 which they have a community or joint interest in a common business undertaking, an

19 understanding as to the sharing of profits and losses, and a right of joint control. Bank of
20 California v. Connolly (1973) 36 Cal. App. 3d 350, 111 Cal. Rptr. 468. Whether a joint
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venture exists is primarily a factual question to be determined by the trier of fact. Id.
Accordingly, the issue cannot be
adjudicated through this demurrer.
Moreover, members of a joint venture are liable for the torts committed in furtherance

25
26 of

27 the joint enterprise. See Knight v. Cook (1963) 212 Cal. App. 2d 613, 28 Cal. Rptr. 273
28 (holding
that where a joint venture exists, negligence of one joint venturer is imputable to others).

Thus,
where

joint venturer, acting within the scope of the joint venture, and in furtherance of its
one

PLAINTIFFS OPPOSITION TO U.S. BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT
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agreed purpose, is guilty of fraud in procuring benefits that are retained by the joint venturers, all
1 are liable for the fraud in compensatory damages under the principles of agency.
2

Rickless v. Temple (1970) 4 Cal. App. 3d 869, 84 Cal. Rptr. 828.

Here, Defendants are at the tail end of the joint venture/conspiracy. However,

4
5

Plaintiff has alleged that they have obtained the benefits of the joint venture/conspiracy and

6 directly participated. Therefore, they are not immune from liability. See Brewer v.
7 IndyMac Bank, 609 F. Supp. 2d 1104 (E.D. Cal. 2009) (holding that borrowers stated
8 claim against lender breach of fiduciary duty and fraud). Consequently, Plaintiffs common
9

law claims for relief against Defendants are proper and should not be dismissed.

10

2.

Plaintiff Has Properly Alleged Causes of Action Based on

11
Defendants Violations of California Civil Code Sections 2923.5

12

Defendants concede that Plaintiff was not given the 30 day notice as required by

13

14 Section 2923.5(a). However, Plaintiff argues that said provision does not apply and that
15 Section 2923.5(c) applies instead. However, assuming, arguendo, that Defendants are
16 correct in their analysis regarding which provision of Section 2923.5 applies to this matter,
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the matter is irrelevant because Plaintiff has alleged claims for relief under Section 2923.5(c)
as well.
Section 2923.5(c) provides, in pertinent part, that:
(c) If a mortgagee, trustee, beneficiary, or authorized agent had already filed the
notice of default prior to the enactment of this section and did not subsequently
file a notice of rescission, then the mortgagee, trustee, beneficiary, or authorized
agent shall, as part of the notice of sale filed pursuant to Section 2924f, include a
declaration that either:
(1) States that the borrower was contacted to assess the borrower's financial
situation and to explore options for the borrower to avoid foreclosure.
(2) Lists the efforts made, if any, to contact the borrower in the event no contact
was made.
Defendants seem to argue that the above statute only requires that a declaration be filed and that

PLAINTIFFS OPPOSITION TO U.S. BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT
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the truth of the statements contained therein is irrelevant. Such interpretation is absurd.
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Here, Plaintiff has clearly alleged that Defendants did not comply with either
provision of Section 2923.5. That is, Defendants did not negotiate a loan modification in
good faith and did not assess Plaintiffs financial situation and explore options to avoid
disclosure. See

6 Plaintiffs Third Amended Complaint, at paragraph 37. Therefore, as all of Plaintiffs claims
7 for relief are based, in whole or in part, on Plaintiffs proper allegations of Defendants
8 violation of Section 2923.5, Defendants Motion to Dismiss must be denied in its entirety as
9 Plaintiff has
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properly alleged a violations of Section 2923.5. Alternatively, Plaintiff respectfully

requests leave of court to amend the complaint to further allege Defendants statutory
violations.

14

3.

15

Defendants Violations of California Civil Code Sections 2923.6

16

With regard to Section 2923.6, Defendants amazingly argue that it is settled law that

17
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Plaintiff Has Properly Alleged Causes of Action Based on

no duties are owed, and no private cause of action is allowed, in connection with Sections
2923.5 and 2923.6 even though there is no appellate case on point. Needless to say, none of

19
20

the cases cited by Defendants is binding authority on this court.

21

Section 2923.6 was specifically created to address the foreclosure crisis and

22 help borrowers. As noted in Sections 1 and 10 of the Legislative Intent behind the
23 Statute,
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SECTION 1. The Legislature finds and declares all of the following:

(a) California is facing an unprecedented threat to its state economy and local
economies because of skyrocketing residential property foreclosure rates in
California
(g) This act is necessary to avoid unnecessary foreclosures of residential
properties and thereby provide stability to Californias statewide and regional
economies and housing market by requiring early contact and communications
between mortgagees, beneficiaries, or authorized agents and specified borrowers
to explore options that could avoid foreclosure and by facilitating the
modification or restructuring of loans in appropriate circumstances.

10. (a) This act is an urgency statute necessary for the immediate
SEC
TIO PLAINTIFFS OPPOSITION TO U.S. BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT
N
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preservation of the public peace, health, or safety within the meaning of Article
IV of the Constitution and shall go into immediate effect. The facts constituting
the necessity are:

1
2

In order to stabilize and protect the state and local economies and housing
market at the earliest possible time, it is necessary for this act to take effect
immediately. SB 1137.

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5

The forgoing clearly illustrates that the California Legislature was specifically looking to

6 curb foreclosures and provide modifications to homeowners in their statement of intent.

As for duties arising from the statute, Section 2923.6(a) specifically references a

8 new duty owed to all parties in the loan pool:

9

(a) The Legislature finds and declares that any duty servicers may have to
maximize net present value under their pooling and servicing agreements is owed
to all parties in a loan pool, not to any particular parties,.

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Consequently, Section 2923.6, which was in effect at the time of the foreclosure at issue,
provides that servicing agents for loan pools owe a duty to all parties in the pool so that a

14 workout or modification is in the best interests of the parties if the loan is in default or default
15 is reasonably foreseeable, and the recovery on the workout exceeds the anticipated recovery
16 through a foreclosure based on the current value of the property.
17
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19
20

Thus, California Civil Code 2923.6(a) specifically creates a new duty not previously
addressed in pooling and servicing agreements. It states that such a duty not only applies to
the particular parties of the loan pool, but to all parties. Therefore, under the text of the

21 statute, if a duty exists in the pooling and servicing agreement to maximize net present value
22 between particular parties of that pool then those same duties extend to all parties in the
23 pool.
24
25
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27
28

Defendants attempt to mislead the Court in stated that Federal Courts throughout
California have held that nothing in 2923.6 imposes a duty on servicers of loans to modify
the
terms of the loans or creates a private right of action for borrowers. Defendants Demurrer at

4:9-11. Indeed, this is not the case. Defendants cite to only two California cases,

Farner v.

PLAINTIFFS OPPOSITION TO U.S. BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT
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Countrywide Home Loans, 2009 WL 189025 (S.D.Cal., 2009), and Connors v. Home
Loan

2 Corp., 2009 WL 1615989 (S.D.Cal.,2009)(Connors), both from San Diego

3 County. Of course, these are Federal District Court cases, which are not binding upon
4 this court.
5
6
7
8
9

Moreover, the reasoning of the cases, Connors in particular, suffers from a serious
flaw. Both Farner and Connors conclude that section 2923.6 does not create a private
right of action for borrowers. The Connors court goes on to conclude that the Legislature
did not intend to

10 create such a private right because [a] statute creates a private right of action only if the
11 enacting body so intended. Connors, supra, 2009 WL 1615989 at *8. However, in this
12 context, such an assertion by the Connors court effectively results in judicial nullification.
13
14

As a private right of action is the only reasonable enforcement of the statute, it is

difficult to imagine that the California Legislature had not intended a private right of action

15
16
17

for
borrowers. Such a judicial proclamation, without clear legislative intent to support it, renders

18 the statute toothless. It cannot be what the legislature had intended. Indeed, it is not what the
19 legislative intent cited above indicates. The Legislature intended that requiring early contact
20 and communications between mortgagees, beneficiaries, or authorized agents and specified
21
22
23
24

borrowers to explore options that could avoid foreclosure and by facilitating the modification
or restructuring of loans in appropriate circumstances. SB 1137, Section 1, subd. (g). Thus,
a private right of action exists under Section 2923.6. Alternatively, as Plaintiffs claims for

25 relief are only based on violations of Sections 2923.5 and 2923.6 and are not direct actions
26 under either statute, the analysis is irrelevant. Accordingly, Plaintiffs allegations and claims
27 for relief based on Defendants violations of Sections 2923.5 and 2923.6 are proper.
28

4.

Plaintiff Has Properly Alleged Causes of Action Pursuant to

California Business and Professions Code Section 17200 and 17500

No California appellate case has addressed the application of California Business and

PLAINTIFFS OPPOSITION TO U.S. BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT
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Professions (B&P) Code Section 17200, et seq., to the business practices of subprime
1 mortgage lenders and servicers at issue here. However, in Commonwealth v. Fremont
2
3
4
5

Investment & Loan (2008) 452 Mass. 733 (2008) (Fremont), the Massachusetts
Supreme Court recently undertook a thorough and persuasive analysis of its consumer
protection statutes closely paralleling Californias Section 17200 in the context of a

6 mortgage lending scheme virtually identical to that involved here. B&P 17200 provides in
7 full as follows:
8

As used in this chapter, unfair competition shall mean and include any unlawful,
unfair or fraudulent business act or practice and unfair, deceptive untrue or
misleading advertising...

9
10

Bus. & Professions Code, 17200.

11

The California state courts have repeatedly held that all that is necessary to establish

12
13

a violation of B&P 17200 et seq., is to show that the defendant is a business engaged in

14 acts or practices that are unlawful, fraudulent or unfair. Thus, there are three varieties of
15 unfair
16 competition: practices which are unlawful, unfair or fraudulent.
17
18

Daugherty v.

American Honda Motor Co., Inc. (2006) 144 Cal. App. 4th 824, 837 (2006). The
unlawful practices prohibited by the statute are any practices forbidden by law, be it civil or

19
20
21

criminal, federal, state, or

municipal, statutory, regulatory, or court made. Saunders v. Superior Court (1994) 27

22 Cal. App. 4th 832, 838-39. It is not necessary that the predicate law provide for private civil
23 enforcement. Unfair, as used in the statute, simply means any practice whose harm to the
24 victim outweighs its benefits. Fraudulent, as used in the statute, does not refer to the
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common law tort of fraud but only requires a showing that members of the public are likely to
be deceived. Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1267.
Here, Defendants engaged in a complicated scheme designed purely for their own
financial benefit. As part of this scheme, and to induce Plaintiff to obtain the loans,
Defendants proceeded by way of fraud, deceit, misrepresentation, civil conspiracy, and

breaches of
the

PLAINTIFFS OPPOSITION TO U.S. BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT
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general negligence duties of due care and due diligence, the fiduciary duty of trust and
1 confidence existing between financial institutions and their customers, the duties of good
2
3
4
5

faith and fair dealing that underlie all business dealings in the State of California, as well as
violation of a number of statutory and duties imposed by the California Civil Code. Thus, by
design,

6 Defendants practices are highly likely to deceive.

The unfair prong of section 17200 intentionally provides courts with broad

8 discretion to prohibit new schemes to defraud. Motors, Inc. v. Times-Mirror Co.

9
10

(1980) 102 Cal. App. 3d 735, 740. An unlawful business practice or act is unfair when it
offends an established

11
12
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public policy or when the practice is immoral, unethical, oppressive, unscrupulous or

substantially injurious to consumers. People v. Casa Blanca Convalescent Homes,

14 Inc. (1984) 159 Cal. App. 3d 509, 530. [T]he court must weigh the utility of the defendants
15 conduct
16 against the gravity of the harm to the alleged victim. State Farm Fire & Casualty Co.
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v.
Superior Court (1996) 45 Cal. App. 4th 1093, 1104. Defendants business acts and
practices, including: (1) inducing Plaintiff to obtain a risky no money down, high-interest

21 rate, subprime loan they knew or should have known that he could not afford; (2) fraudulently
22 misrepresenting to Plaintiff that he could refinance his loan within six months to secure a
23 lower interest rate and affordable monthly payment; and (3) immediately buying, selling and
24 reselling the loan in a
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whirlwind scheme of financial transactions offends established public policy and is immoral,
unethical, oppressive, unscrupulous and substantially injurious to consumers. Plaintiff has
properly alleged that Defendants engaged in deceptive, unfair and fraudulent conduct under
both the unlawful and unfairness prongs of B&P 17200.
Also, when B&P 17200 is applied to the complicated and convoluted subprime

mortgage

Plaintiff was victimized, precisely the same determination of

lending

unfairness reached by the Massachusetts Supreme Court in applying its own corollary to

scheme by

B&P

which
PLAINTIFFS OPPOSITION TO U.S. BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT
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 17200 to the nearly identical scheme at issue in Fremont, supra, should produce a parallel
1 conclusion here.
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3
4
5
6
7
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Beyond that, however, Plaintiff alleges a valid claim under the

unlawful prong of 17200 as well as the unfairness prong.

Because the Fremont facts are identical to the facts at hand, it is worth evaluating them
in detail:
Fremont is an industrial bank chartered by the State of California.
Between January, 2004, and March, 2007, Fremont originated 14,578 loans to
Massachusetts residents secured by mortgages on owner-occupied homes.
After funding the loan, Fremont generally sold it on the secondary market, which
largely insulated Fremont from losses arising from borrower default.
Fremont, supra, at pp. 735-736.
The Fremont court went on to hold that:

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In originating loans, Fremont did not interact directly with the borrowers;
rather, mortgage brokers acting as independent contractors would help a
borrower select a mortgage product, and communicate with a Fremont account
executive to request a selected product and provide the borrower's loan application
and credit report. If approved by Fremont's underwriting department, the loan
would proceed to closing and the broker would receive a broker's fee.
Fremont's subprime loan products offered a number of different features to
cater to borrowers with low income. A large majority of Fremont's subprime
loans were adjustable rate mortgage (ARM) loans, which bore a fixed interest rate
for the first two or three years, and then adjusted every six months to a
considerably higher variable rate for the remaining period of what was generally a
thirty year loan. Thus, borrowers monthly mortgage payments would start out
lower and then increase substantially after the introductory two -year or
three-year period. To determine loan qualification, Fremont generally required
that borrowers have a debt-to-income ratio of less than or equal to fifty per cent - that is, that the borrowers monthly debt obligations, including the applied for mortgage, not exceed one-half their income. However, in calculating
the debt-to-income ratio, Fremont considered only the monthly payment required
for the introductory rate period of the mortgage loan, not the payment that would
ultimately be required at the substantially higher "fully indexed" interest rate.
As an additional feature to attract subprime borrowers, who typically had little or
no savings, Fremont offered loans with no down payment. Instead of a down
payment, Fremont would finance the full value of the property, resulting in a "loanto-value ratio" approaching one hundred per cent. Most such financing was
accomplished through the provision of a first mortgage providing eighty per cent
financing and an additional "piggy-back loan" providing twenty per cent.

PLAINTIFFS OPPOSITION TO U.S. BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT
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Fremont, supra, at pp. 735-739.

1
2
3
4
5

Under Massachusetts G.L. c. 93A 2, the trial court found, and the Supreme Judicial
Court confirmed that the business practices at hand were indeed unfair. The court stated:
the record here suggests that Fremont made no effort to determine whether borrowers could
make the scheduled payments under the terms of the loan." Fremont, supra, at pp. 745-

6 746. Rather, as the judge determined, loans were made with the understanding that they
7 would have to be refinanced before the end of the introductory period. Thus, Fremonts
8 actions were
9

unreasonable, and unfair to the borrower

10

The same is true here. Defendants scheme was, not only unlawful; it was

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unreasonable and unfair. It is in violation of the law, the harm to Plaintiff outweighs any
benefit to

14 Defendants, and it was likely to deceive. Defendants argue that they are immune from liability
15 because they did not make the actual misrepresentations to Plaintiff. However, Defendants
16 cannot avoid liability under B&P 17200 because Plaintiff has properly alleged a scheme which
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includes not just the individual broker who made the representations but all of the entities that
aided and abetted, profited, benefited and participated in the joint venture and conspiracy. See
In re Countrywide Financial Corporation, 601 F. Supp. 2d 1201, 1220 (S.D. Cal.

21 2009).
Thus, Defendants conduct constitutes a violation of B&P 17200 pursuant to the

22

23 unlawful, unfair, and fraudulent prongs, and they can be held liable for said conduct. Moreover,
24 as
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set forth above, the violations of Sections 2923.5 and 2923.6 also provide a basis for a claim for
relief based on violation of B&P 17200. Accordingly, Plaintiffs claim should not be
dismissed.
5.

Plaintiff Has Properly Alleged a Cause of Action for Quiet Title

Based on the Invalidity of the Foreclosure Sale

Plaintif

promissory

note

and

the

trust

deeds

were

separated

at

f has alleged

some point in Defendants unlawful scheme. While Plaintiff does not currently know who

that

held

the

original
PLAINTIFFS OPPOSITION TO U.S. BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT
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the respective documents when, Plaintiff alleges that he is informed and believes that the
1 prosecution of the foreclosure of the first trust deed was carried out without the original note.
2
3
4
5

Under the recent Kansas Supreme Court decision in Landmark National Bank v.
Kesler, 40 Kan.
App. 2d 325 (2008) (Landmark), the Court explained that in the event that a mortgage

6 loan
7 somehow separates interests of the note and the deed of trust, with the deed of trust lying with
8
9 some independent entity, the mortgage may become unenforceable. The Court went on to
10

state:

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The practical effect of splitting the deed of trust from the promissory note is to
make it impossible for the holder of the note to foreclose, unless the holder of the
deed of trust is the agent of the holder of the note. [Citation omitted.] Without the
agency relationship, the person holding only the note lacks the power to foreclose
in the event of default. The person holding only the deed of trust will never
experience default because only the holder of the note is entitled to payment of
the underlying obligation. [Citation omitted.] The mortgage loan becomes
ineffectual when the note holder did not also hold the deed of trust. Bellistri v.
Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623 (Mo. App. 2009).
Landmark, supra, 40 Kan. App. 2d 325 (2008) (internal quotation marks omitted.)
Thus, for there to be a valid assignment, there must be more than just assignment of the

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deed alone; the original promissory note must also be assigned. Because this is not the case
here, the foreclosure sale is invalid and, therefore, Plaintiffs quiet title cause of action is

22 proper and should not be dismissed.

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6.

The Tender Rule Does Not Apply Here

Defendants cite several cases for the proposition that Plaintiff is required to tender the
amount due on the loan that he allegedly had with Defendants. However, said cases are
distinguishable as Plaintiff is not a junior lienholder but rather the trustor. Moreover, in
Munger v. Moore (1970) 11 Cal. App. 3d 1, 7, the court held that that a trustee or
mortgagee may be liable to the trustor or mortgagor for damages sustained where there has
been an illegal, fraudulent or wilfully oppressive sale of property under a power of sale

contained in

or deed of trust. Similarly, Plaintiff alleges that the sale of his property was illegal and

a mortgage
PLAINTIFFS OPPOSITION TO U.S. BANK & BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT
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fraudulent. The court in Munger made no mention of any tender requirement for the borrower to
1 bring a claim against the trustor or mortgagor. As Munger is on point and Defendants cases
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3
4
5
6

are factually distinguishable, Munger governs this case. Therefore, the tender rule does not
apply.
IV.

CONCLUSION
For all of the foregoing reasons, Plaintiff respectfully requests that this Court

7 overrule Defendants Demurrer to Plaintiffs Third Amended Complaint in its entirety.

8 Alternatively, if the Court finds that one or more of Plaintiffs causes of action have
9
10

not been properly pled, Plaintiff respectfully requests leave of court to amend his
complaint.

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DATED: January 4, 2010

LAW OFFICES OF CAMERON H. TOTTEN

By:
Cameron H. Totten
Attorney for Plaintiff

PLAINTIFFS
OPPOSITION TO U.S.
BANK &

BARCLAYS DEMURRER TO 3RD AMENDED COMPLAINT

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