Opinion
B305860 B309859 B312301 B314079
01-26-2024
SHU PING CHAN et al., Plaintiffs and Appellants, v. SELENE FINANCE LP et al., Defendants and Appellants.
Donna Bader for Plaintiffs and Appellants. Manatt, Phelps & Phillips, Benjamin G. Shatz; Maynard Cooper &Gale, Judy M. Lam, for Defendants and Appellants.
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County, No. BC629429, Lia R. Martin, Judge. Reversed in part and affirmed in part.
Donna Bader for Plaintiffs and Appellants.
Manatt, Phelps & Phillips, Benjamin G. Shatz; Maynard Cooper &Gale, Judy M. Lam, for Defendants and Appellants.
MORI, J.
A jury awarded plaintiff Shu Ping Chan damages in the amount of $617,600 on causes of action alleging that Selene Finance, LP (Selene) and DLJ Mortgage Capital, Inc. (DLJ Mortgage) (collectively, defendants) (1) violated California's Homeowners Bill of Rights (HBOR) (Civ. Code, § 2920.5 et seq.), and (2) acted negligently in connection with an application for a home loan modification. Defendants appeal from the judgment, arguing they did not owe Shu a common law duty of care in reviewing her loan modification application and Shu failed to prove an HBOR violation. Shu also appeals, contending that the trial court erred by refusing to award damages for emotional distress caused by the loss of her home in foreclosure, treble damages under HBOR, costs, and prejudgment interest.
The original and amended complaints in this action name both Shu Ping Chan and Yok Pung Chan as plaintiffs. Yok died in July 2017, and judgment was entered in favor of Shu alone. For ease of reference, and meaning no disrespect, we adopt the practice in the parties' briefs of referring to Shu Ping Chan, Yok Pung Chan, and Jack Chen by their first names.
The jury also found in favor of defendants on their cross-complaint against Shu and Yok for breach of a 2012 settlement agreement but awarded defendants no damages, and the jury rejected defendants' cause of action alleging that Shu's son, Jack Chen, interfered with that contract. Defendants appeal the failure to award at least nominal damages on their breach of contract claim, as well as the award of $73,490 in attorney fees to Shu as the prevailing party on the cross-complaint.
We agree with defendants that the jury's verdict in favor of Shu on her negligence claim is barred by our Supreme Court's decision in Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905 (Sheen). We also conclude the judgment in Shu's favor on her HBOR cause of action must be reversed. As we reverse the damage award in Shu's favor, we affirm the trial court's orders denying her motions for attorney fees under HBOR, treble damages under HBOR, emotional distress damages, and prejudgment interest and costs. We affirm the judgment awarding defendants no damages on their cross-complaint, finding no ground to depart from the rule that the failure to award nominal damages is not a sufficient basis for reversal. Consistent with that determination, we also affirm the award of attorney fees to Shu as prevailing party on the cross-complaint.
FACTUAL AND PROCEDURAL BACKGROUND
The disputes between the parties have spawned multiple lawsuits as well as three separate bankruptcy proceedings. We limit our discussion of the facts to those that are directly relevant to our disposition of these appeals.
A. The Parties and Property at Issue
In October 1997, Shu purchased a home in Temple City that is the subject of this dispute. On October 27, 1997, Shu took title to the house as "Shu Ping Chan, a single woman." She financed the purchase by borrowing $80,000, secured by a deed of trust with World Savings &Loan Association. The deed of trust identifies her as "Shu Ping Chan, an unmarried woman."
Shu used the house as security for additional loans. In August 2000, as "Shu Ping Chan, an unmarried person," she obtained a revolving line of credit in the amount of $100,000 from Bank of America in exchange for a second trust deed on the property.
In May 2001, Shu entered into the transaction at issue: she refinanced her existing loans by borrowing $238,500 from Washington Mutual Bank, secured by a first deed of trust in which she is identified as "Shu Ping Chan[,] a single woman." The new note was to mature on June 1, 2031, and called for monthly payments of $1,131.77. The amount Shu borrowed enabled her to pay off her existing first and second liens with World Savings and Bank of America; she also received just under $51,000 in cash. In October of that year, Shu gave a second trust deed to East West Bank to secure a $30,100 line of credit.
Shu testified that she borrowed money "to engage in real estate business," but that business was not successful. As her son Jack testified, Shu "always had financial difficulties before 2007 because she was in real estate business." By March 2004, Shu was in default on the Washington Mutual note. In order to meet her existing obligations, Shu pledged the house as security for additional loans in October 2005 and February 2007. Each of these additional loans was identified, like the Washington Mutual and East West Bank loans, as Shu's separate debt.
Although Shu did not acknowledge her marriage in loan documentation, she has identified a husband, Yok, in this litigation. In April 2007, Yok suffered a stroke that left him in need of full-time care. Shu became Yok's caregiver.
In 2008, Washington Mutual assigned its rights under the deed of trust to DLJ Mortgage. By April 2008, Shu's senior loan was again in default, and a notice to that effect was recorded. On June 12, 2008, Shu entered into a written "Forbearance Agreement" with Select Portfolio Servicing Inc. (Select), which was the loan servicing company for her first trust deed at that time. Select agreed not to pursue foreclosure in exchange for Shu curing her default by making payments under the terms of the Forbearance Agreement. The agreement further provided that in the event Shu failed to make the required payments, Select "shall be entitled to proceed immediately" to foreclosure. Shu made the first four payments under the agreement but stopped making payments in October 2008. After that, Shu never made another payment on her home loan.
In April 2009, Shu executed and recorded a quitclaim deed conveying her interest in the house to Yok. Shu testified the transfer was part of a plan to qualify for a "reverse mortgage." Yok, but not Shu, was at least 62 years old, the minimum age to qualify for a federally-insured reverse mortgage. Yok did not obtain a reverse mortgage, and the property was never reconveyed to Shu.
B. Shu Receives a Discharge in Bankruptcy
On December 9, 2009, Select recorded a new notice of default and election to sell under the first deed of trust, stating that the amount of the default was $36,773.19. Shu responded five days later by filing a Chapter 7 bankruptcy petition, staying any foreclosure of the house. In her schedules accompanying the petition, Shu represented under penalty of perjury that the home was Yok's separate property but that all four liens on the property were her sole responsibility. In December 2010, the bankruptcy court granted Shu a discharge of her debts, including the loan from DLJ Mortgage. Shu's bankruptcy case was closed on June 30, 2011.
The effect of Shu's bankruptcy discharge was to eliminate her personal liability on the loans secured by the house, leaving in place the liens themselves. Thus, Shu's creditors could no longer look to Shu for repayment, but they retained the right to foreclose on the home to recover the amounts loaned to Shu. (Johnson v. Home State Bank (1991) 501 U.S. 78, 82-83.) DLJ Mortgage sought to do just that, and on August 4, 2011, Select recorded another notice of default and election to sell the home. The amount of the default was $77,039.14 at the time the second notice of default was recorded.
C. The First Lawsuit and 2012 Settlement Agreement
In November 2011, Shu filed suit against DLJ Mortgage, Select, Selene (which had just succeeded Select as the loan servicer), and Quality Loan Service Corp. (Quality), the successor trustee under the first deed of trust. Shu's complaint alleged she was the owner of the property and asserted a claim for breach of contract for imposing a "surcharge" on Shu's loan payments, and a claim for negligence based on defendants' failure to report the correct sum owed on the home loan. Shu also requested an injunction to prevent a scheduled foreclosure sale from going forward. The trial court granted a restraining order to stay the foreclosure sale. However, the defendants then prevailed on a motion to dissolve the restraining order, and the foreclosure sale was rescheduled.
In October 2012, Shu and Yok entered into a written settlement agreement with Selene, Select, and DLJ Mortgage. The settlement agreement gave Shu and Yok until January 31, 2013, to sell the home and pay off the loan to DLJ Mortgage. If it was not sold by then, defendants could "immediately continue with the foreclosure." In exchange, Shu and Yok released all claims against Selene, Select, and DLJ Mortgage existing as of the date of settlement.
After signing the settlement agreement, Yok listed the house for sale. The listing agreement was signed by Yok alone. Consistent with the 2009 quitclaim deed from Shu to Yok, as well as Shu's representation in her Chapter 7 bankruptcy, Yok warranted that he was "the owner of the [p]roperty," "no other persons or entities ha[d] title to the [p]roperty," and he had authority to enter into the listing agreement and sell the property. Ultimately, the house was not sold, and the home loan was not satisfied by the January 31, 2013, deadline set out in the settlement agreement.
D. Yok's Bankruptcies
While Shu's 2011 lawsuit was pending, Yok filed a Chapter 7 bankruptcy petition on March 30, 2012. Although the petition was prepared by an attorney, Yok appeared in propria persona for financial reasons. In his petition, Yok stated he was exempt from the requirement that he participate in prefiling credit counseling by reason of "mental illness or mental deficiency so as to be incapable of realizing and making rational decisions with respect to financial responsibilities." In his accompanying schedules, Yok listed the house as a community asset. The bankruptcy court granted Yok's discharge on September 5, 2012, and closed the case on November 29, 2012.
On January 30, 2013-one day before the deadline to sell the house per the 2012 settlement agreement-Yok, now represented by counsel, filed another petition for relief, this time under Chapter 11 of the bankruptcy code. As with his prior petition, Yok stated he was exempt from prefiling credit counseling due to suffering from "mental illness or mental deficiency." Yok's accompanying schedules differed from those filed the previous year: This time, Yok identified the house as his sole property in "fee simple," while the DLJ Mortgage lien was listed as Shu's sole responsibility.
Within months of filing his petition, Yok stipulated, through counsel, that he would not receive a discharge because he had received a discharge less than a year before filing his second petition. In April 2015, after the holder of the second deed of trust was granted relief from the automatic stay in bankruptcy, DLJ Mortgage filed its own motion to lift the automatic stay. DLJ Mortgage's motion was granted and a written order entered on August 19, 2015. As part of that order, the court made a finding that Yok's 2013 bankruptcy petition "was part of a scheme to hinder, delay or defraud creditors that involved . . . ¶ [t]he transfer of all or part ownership of, or other interest in, the Property without the consent of the secured creditor or court approval; and/or ¶ [m]ultiple bankruptcy cases affecting the Property." Consistent with Yok's claimed mental incapacity, the court "[did] not make . . . ¶ a finding that the Debtor was involved in this scheme." The bankruptcy court closed Yok's second bankruptcy case on October 13, 2016.
E. Shu's First Loan Modification Application
On July 28, 2015, while DLJ Mortgage's motion for relief from the automatic stay in Yok's second bankruptcy was pending (but before it was granted), Shu (assisted by Jack) submitted a written application for a loan modification to Selene. The application is in Shu's name only. In support of Shu's application, Jack submitted copies of her three most recent bank statements, three monthly pay stubs, Shu's 2014 income tax return, written verification that she occupied the house as her principal residence, and a letter from Yok's physician dated September 30, 2014, stating that Yok "is diagnosed with significant Dementia and is unable to reason or make decisions for himself." In addition, Shu submitted a "hardship letter" explaining that she "had to quit working to take care of [Yok] full time" after he suffered "a large intracerebral hemorrhage in 2009 which essentially paralyzed the right side of his body." Nonetheless, Shu assured Selene, "We will be able to start making payments again soon."
On September 11, 2015-after the bankruptcy court had lifted the automatic stay-Selene sent a letter to Shu's counsel, informing him the loan modification application was denied because of "excessive obligations in relation to [Shu's] income." In the letter, Selene offered Shu the option to execute a deed in lieu of foreclosure or to complete a "short sale" of the house. Selene also informed Shu of her right to appeal the decision denying her request for a modification. Apparently, no appeal was filed and Shu did not elect either of the alternatives offered by Selene.
F. The 2015 Lawsuit and Second Modification Request
Within days of Selene denying Shu's loan modification application, Shu and Yok filed suit against Selene, DLJ Mortgage and Quality. Their complaint alleged violations of California's Homeowners Bill of Rights (HBOR), including claims the defendants (1) had not responded to a written request for information, (2) had not provided a written response to Shu's application for a loan modification, (3) were "dual-tracking" (i.e., proceeding with foreclosure while an application for a loan modification was pending), and (4) failed to provide a "single point of contact" to communicate with Shu regarding her application for a loan modification. At trial, Shu testified the 2015 lawsuit was based, in part, on her assertion she "didn't receive their refusal letter" denying the 2015 loan modification application. Shu and Yok requested relief that included an injunction preventing foreclosure on the home.
The trial court entered a temporary restraining order preventing a foreclosure sale pending determination of the lawsuit. In April 2016, the trial court sustained Selene's demurrer to Shu's and Yok's complaint without leave to amend. The court vacated the restraining order, and on May 4, 2016, Quality recorded a notice of a trustee's sale of the home to take place on May 26, 2016. Shu and Yok filed a motion for reconsideration of the order sustaining Selene's demurrer and set the motion for hearing on May 31, 2016.
On May 13, 2016, Shu submitted a second application to Selene for a loan modification. The application was sent by email from Shu's son, Jack, with a cover letter substantially identical to that accompanying the previous year's application. As she had done the year before, Shu stated, "If we can have a loan modification that involves payments of 32% of our income, we know we can make it." Selene responded the next business day, asking Jack to resubmit the documents supporting the application in .pdf format. Jack complied by email later that day. Two days later, on May 18, Selene's counsel informed counsel for Shu and Yok in a letter sent by e-mail and facsimile that the modification application "does not indicate a material change in financial circumstances which would require reconsideration by my client" of the prior denial. The letter stated the May 26 foreclosure sale would "proceed as scheduled."
On May 24, 2016, Shu and Yok filed an ex parte application for a restraining order to block the foreclosure sale pending the hearing on their motion for reconsideration. The court entered a restraining order effective until May 31, the date of the hearing on the motion to reconsider. In the meantime, in response to daily telephone calls from Jack, Selene sent Shu and Yok's counsel a second letter dated May 26, 2016, denying the modification application on the ground the "[b]orrower failed to return completed Financial Workout Package and Supporting Documentation." Selene later testified this referred to the fact that Yok, the homeowner of record, was not named in the application and the tax returns submitted in support of the application were unsigned copies labeled "do not file." Selene insisted, however, that its representatives had evaluated the application as though it were complete and determined the stated income was insufficient to pay the regular, monthly loan payment and the accumulated arrearages in unpaid installments, property taxes, insurance, and other expenses, along with Shu and Yok's other monthly expenses.
As of May 25, 2016, the outstanding balance on the loan, including unpaid interest, taxes, insurance and other charges, was $374,281.56.
On May 31, 2016, the trial court denied the motion to reconsider its order sustaining Selene's demurrer and vacated the restraining order. Quality, in its role as trustee, held the foreclosure sale on June 1, 2016. Union Development, LLC (Union) purchased the home for $790,000, and a trustee's deed from Quality to Union was recorded on June 15, 2016. Following the sale, Shu and Yok refused to vacate the house, resulting in an action by Union to evict them. Although Union prevailed in that action, Shu did not move out until 2018 when Union obtained an eviction order.
G. The Instant Action
Shu and Yok commenced the present action on August 3, 2016, two months after the foreclosure sale. Their original complaint included claims against Selene, Quality, Union, and DLJ Mortgage for violations of HBOR, negligent misrepresentation, and violations of Business and Professions Code section 17200. The complaint also included negligence claims against Selene for its review of the May 2016 application for a loan modification, and against all defendants for wrongful foreclosure and quiet title. In 2018, Shu was granted leave to file an amended complaint to clarify the scope of relief sought against Selene, Quality, and DLJ Mortgage for violations of HBOR that apply to "small servicers,"-that is, loan servicers who conduct fewer than 175 foreclosures annually on residential properties in California.
Selene and DLJ Mortgage cross-complained against Shu, Yok, and Jack, alleging breach of the 2012 settlement agreement, inducing breach of contract, interference with contract, intentional fraud, and negligent misrepresentation.
The issues were substantially narrowed by the time the case went to trial. Quality successfully moved for summary judgment of all claims against it. Shu and Yok dismissed their wrongful foreclosure and quiet title claims against Union, their cause of action under Business and Professions Code section 17200, and their cause of action for negligent misrepresentation. Selene and DLJ Mortgage, in turn, dismissed their causes of action for negligent misrepresentation and fraud. The only claims that went to trial were claims against Selene and DLJ Mortgage for negligence and HBOR violations, and defendants' cross-claims for breach of contract against Shu and Yok, and for inducing breach of contract and interference with contract against Jack.
Trial began in June 2019. Before the case was submitted to the jury, the court ruled that Shu could not recover emotional distress damages. At the conclusion of trial, the jury completed separate special verdict forms on Shu's claims against Selene and DLJ Mortgage. On the cause of action for common law negligence, the jury found in favor of Shu against Selene and DLJ Mortgage, awarding $400,000 in damages for "future economic loss" "combined between DLJ &Selene." On Shu's HBOR claim, the jury awarded Shu damages of $217,600 for "[p]ast economic loss," also to be "[c]ombined between DLJ &Selene." The jury also returned special verdicts on defendants' cross-complaint. The jury found Jack did not induce Shu and Yok to breach the 2012 settlement agreement and did not intentionally interfere with their performance of that agreement. On defendants' claim for breach of contract, the jury found that Shu and Yok "fail[ed] to do something that the contract required them to do" causing harm to Selene and DLJ Mortgage, but awarded no damages.
The trial court denied Shu's application for treble damages pursuant to Civil Code section 2914.19, expressing doubt that Shu was a "borrower" within the meaning Civil Code section 2920.5, subdivision (c)(1). The court also declined to add costs, prejudgment interest, and additional attorney fees to the judgment in favor of Shu.
Selene and DLJ Mortgage filed notices of appeal from the judgment and the order awarding attorney fees. Shu has appealed from the portion of the judgment declining to award damages for emotional distress and treble damages. Shu filed a separate appeal (B312301) from the trial court's order denying prejudgment interest and costs. This opinion resolves all parties' appeals.
DISCUSSION
We begin by addressing the appeal filed by Selene and DLJ Mortgage from the judgment in favor of Shu on the negligence and HBOR causes of action.
A. Standard of Review
We review legal issues, including the applicability and interpretation of statutes and the availability of statutory remedies, de novo. (People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 432.)
We review the jury's verdict by determining whether it is supported by substantial evidence. "'We may not substitute our view of the correct findings for those of the trial court [or jury]; rather, we must accept any reasonable interpretation of the evidence which supports the [factfinder's] decision.'" (McRae v. Department of Corrections &Rehabilitation (2006) 142 Cal.App.4th 377, 389.)
B. The Homeowner Bill of Rights (HBOR)
California's Homeowner Bill of Rights (HBOR, Civ. Code §§ 2920.5, 2923.4-2923.7, 2924, 2924.9-2924.12, 2924.15, 2924.17-2924.20) became effective on January 1, 2013. At the time HBOR was enacted, California was "still reeling from the economic impacts of a wave of residential property foreclosures that began in 2007." (Stats. 2012, ch. 87, § 1(a).) HBOR was intended "to ensure that, as part of the nonjudicial foreclosure process, borrowers are considered for, and have a meaningful opportunity to obtain, available loss mitigation options, if any, offered by or through the borrower's mortgage servicer, such as loan modifications or other alternatives to foreclosure." (§ 2923.4, subd. (a).) In particular, HBOR was aimed at curbing an abusive practice commonly known as dual-tracking, whereby financial institutions continue to pursue foreclosure while evaluating a borrower's loan modification application. (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 904.) Other provisions of the statutory scheme require the loan servicer to inform the debtor of foreclosure alternatives prior to recording a notice of default (§ 2923.55, subd. (b)(2)), to designate a "single point of contact" to communicate with the borrower throughout the foreclosure or modification process (§ 2923.7), and to inform applicants whose modification applications are denied of the reasons for the denial (§ 2923.6, subd. (f)) and their right to appeal the denial (§ 2923.6, subd. (d)).
Many of the statutes comprising HBOR were allowed to "sunset" on January 1, 2018, and were subsequently re-enacted in substantially similar form. (See Morris v. JPMorgan Chase Bank, N.A. (2022) 78 Cal.App.5th 279, 306-309.) Unless otherwise indicated, all subsequent statutory references are to the version of the Civil Code in effect June 1, 2016, the date of the foreclosure sale of the Chan residence.
Most of the foregoing requirements apply to "large servicers," that is, to loan servicers who conduct more than 175 foreclosures in California on an annual basis. As we have mentioned, however, the trial court determined that Selene is a "small servicer," meaning it is exempt from all of the above provisions save the prohibition on dual-tracking. (See §§ 2923.55, subd. (g) [exempting small servicers from informing defaulting borrowers of foreclosure prevention alternatives before recording a notice of default]; 2923.6, subd. (i) [exempting small servicers from having to specify reasons for denying a modification application and affording rights of appeal from a denial]; 2923.7, subd. (g)(1) [exempting small servicers from the single point of contact requirement].) For purposes of this action, Selene's duties under HBOR are set out in their entirety in subdivision (a)(1) of section 2924.18, which reads as follows:
"If a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower's mortgage servicer, a mortgage servicer, trustee, mortgagee, beneficiary, or authorized agent shall not record a notice of default, notice of sale, or conduct a trustee's sale while the complete first lien loan modification application is pending, and until the borrower has been provided with a written determination by the mortgage servicer regarding that borrower's eligibility for the requested loan modification."
Although small servicers are exempt from many of HBOR's reforms, the penalties for violating the applicable provisions are the same for large and small servicers. Section 2924.19, subdivision (b), as applied to small servicers, reads in pertinent part:
"After a trustee's deed upon sale has been recorded, a mortgage servicer, mortgagee, beneficiary, or authorized agent shall be liable to a borrower for actual economic damages pursuant to Section 3281, resulting from a material violation of . . . [Section] 2924.18 by that mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent where the violation was not corrected and remedied prior to the recordation of the trustee's deed upon sale. If the court finds that the material violation was intentional or reckless, or resulted from willful misconduct by a mortgage servicer, mortgagee, beneficiary, or authorized agent, the court may award the borrower the greater of treble actual damages or statutory damages of fifty thousand dollars ($50,000)."
A final important point is that HBOR "only provides procedural protections to foster alternatives to foreclosure; it does not entitle a borrower to a loan modification." (Penermon v. Wells Fargo Bank, N.A. (N.D.Cal. 2014) 47 F.Supp.3d 982, 993.) Thus, "section 2923.6 does not grant a right to a loan modification" (Intengan v. BAC Home Loans Servicing LP (2013) 214 Cal.App.4th 1047, 1056); correspondingly, "there is no 'duty' under . . . section 2923.6 to agree to a loan modification." (Hamilton v. Greenwich Investors XXVI, LLC (2011) 195 Cal.App.4th 1602, 1617.)
C. The Verdict on Plaintiffs' Common Law Negligence Claim Must be Reversed
1. Sheen Bars Plaintiffs' Negligence Claim
The jury awarded Shu $400,000 in "future damages" against defendants on her cause of action for common law negligence. Defendants argue this claim is not viable in light of our Supreme Court's decision in Sheen, supra, 12 Cal.5th 905. We agree.
In Sheen, a homeowner used his home as collateral for second and third loans from Wells Fargo Bank. Both loans later went into default. When the bank scheduled a foreclosure sale, the homeowner applied for modifications of the second and third loans. The bank did not respond to the applications and instead sent letters describing actions it might take because of the homeowner's continuing nonpayment. Eventually, Wells Fargo sold the second loan, and four years later, the owner of the debt foreclosed. The homeowner sued Wells Fargo, the new owner of the second loan, and the loan servicer. His claim against Wells Fargo was based on the bank's breach of a "duty of care to process, review and respond carefully and completely to the loan modification applications [the p]laintiff submitted." (Sheen, 12 Cal.5th at p. 915.) The bank demurred. The question presented was whether "a lender owe[s] the borrower a tort duty sounding in general negligence principles to (in plaintiff's words) 'process, review and respond carefully and completely to [a borrower's] loan modification application,' such that upon a breach of this duty the lender may be liable for the borrower's economic losses- i.e., pecuniary losses unaccompanied by property damage or personal injury." (Ibid.) The court held "that there is no such duty" and affirmed the judgment of dismissal. (Ibid.) Sheen expressly disapproved of Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941, the case on which the trial court relied in allowing Shu's negligence claim to go to the jury. (Sheen, 12 Cal.5th at p. 948, fn. 12.)
There were several bases for the Court's decision in Sheen. First, the Court reasoned it was better left to the Legislature to determine whether lenders can be liable for negligence claims by applicants for loan modifications. (Sheen, supra, 12 Cal.5th at p. 922). Second, the economic loss rule should apply to bar a claim for economic injury unaccompanied by property damage or physical injury. (Id. at p. 925). Third, the "special relationship" between a lender and borrower is not materially different than that in Biakanja v. Irving (1958) 49 Cal.2d 647, in which the Court barred tort claims for negligent performance of a contractual duty. (Sheen, supra, 12 Cal.5th at p. 936.)
The economic loss rule "is deceptively easy to state: In general, there is no recovery in tort for negligently inflicted 'purely economic losses,' meaning financial harm unaccompanied by physical or property damage." (Sheen, supra, 12 Cal.5th at p. 922.)
Here, Shu argues that her common law negligence claim remains viable after Sheen because she has no contractual relationship with Selene (a loan servicing company) and the economic loss rule is inapplicable. Sheen does not distinguish between a lender and a loan servicer, who serves as the lender's agent and acts as its intermediary with borrowers. We see nothing in Sheen that suggests its holding was limited to lenders who handle loan servicing in-house while those (like DLJ Mortgage) who rely on an agent to handle loan servicing may be vicariously liable for common law negligence. To the contrary, Sheen cited with approval decisions of other courts applying the economic loss rule to tort claims alleged against mortgage servicers. (Sheen, supra, 12 Cal.5th at pp. 925-927.) For these reasons, we decline in this case to limit Sheen to lenders who do not rely on agents for servicing a loan.
Shu does not dispute she has a contractual relationship with DLJ Mortgage.
2. The Jury Was Not Instructed on Negligence Per Se Under HBOR
Assuming Sheen precludes both defendants from being held liable for common law negligence, Shu contends the jury's award of damages can be affirmed under the doctrine of negligence per se. It is true Sheen addressed claims for common law negligence, leaving open the possibility of a claim for negligence per se based on statutory duties set forth in HBOR. (Sheen, supra, 12 Cal.5th at pp. 920 ["Plaintiff does not identify any statute or regulation that requires Wells Fargo to treat his modification applications with due care"], 921 ["He does not ground such a duty in the extensive body of state and federal legislation and regulations that address mortgage servicing . . . including the California Homeowner Bills of Rights"].) However, in this case, the record shows the jury was not given a negligence per se claim to decide.
Over defendants' objection, the trial court allowed plaintiffs' common law negligence claim to go to the jury, relying on Alvarez, supra, 228 Cal.App.4th 941. Alvarez was one of several cases disapproved in Sheen that had previously approved common law negligence claims against lenders and loan servicers. (Sheen, supra, 12 Cal.5th at p. 948 &fn. 12.) The appellate record confirms the jury received an instruction (CACI No. 400) on the elements of common law negligence. However, the jury did not receive the standard jury instruction on negligence per se (CACI No. 418), nor was any similar instruction read to the jury. The jury is charged with returning a verdict in accordance with the law on which it is instructed. (Null v. City of Los Angeles (1988) 206 Cal.App.3d 1528, 1534.) Indeed, "[w]e review the sufficiency of the evidence to support a verdict under the law stated in the instructions given, rather than under some other law on which the jury was not instructed." (Bullock v. Philip Morris USA, Inc. (2008) 159 Cal.App.4th 655, 674-675.) As a negligence per se instruction was not given, we can neither presume the jury found in Shu's favor on a theory of negligence per se nor affirm the negligence verdict on that ground.
D. Shu Has Not Presented Substantial Evidence of a Material HBOR Violation
Defendants filed a motion in limine to exclude any reference to HBOR statutes applicable to so-called "large servicers," who perform more than 175 foreclosures per year in California. The trial court requested separate briefing on the issue. After hearing the matter, the court entered an order finding several provisions in HBOR (§§ 2923.6, 2923.7, 2924.10) were inapplicable to Selene and DLJ.
At trial, plaintiffs argued defendants violated section 2924.18, subdivision (a)(1), which at the time of trial provided, "If a borrower submits a complete application for a first lien loan modification . . . at least five business days before a scheduled foreclosure sale, a mortgage servicer, . . . or authorized agent shall not record a notice of default, notice of sale, or conduct a trustee's sale while the complete first lien loan modification application is pending, and until the borrower has been provided with a written determination by the mortgage servicer regarding that borrower's eligibility for the requested loan modification." The jury was provided this language as part of its instructions. An abbreviated form of that language also appeared in the special verdict forms on which the jurors found Selene and DLJ Mortgage had violated "Civil Code Section 2924.18, subsection A, subsection 1."
Defendants proffer several arguments as to why the portion of the judgment holding them liable for a violation of section 2924.18 is erroneous and must be reversed. They first argue that Shu lacked standing because she was not a "borrower" as that term is used in section 2924.18. They also urge us to invoke the doctrine of judicial estoppel to bar Shu from contending she owned the property at the time she applied for the May 2016 loan modification, as she had previously informed the bankruptcy court the home was Yok's separate property.
We need not address the issues of Shu's standing or judicial estoppel. Instead, we agree with defendants that the jury's verdict awarding her damages on her HBOR claim must be reversed because there is insufficient evidence Shu was injured as a result of a "material violation" of section 2924.18.
At trial, Shu argued that defendants violated section 2924.18 in three respects. First, Shu argued defendants "engaged in 'dual tracking' as they reviewed [her] application at the same time they were proceeding with the foreclosure process." The record shows otherwise. Quality (not Selene) recorded a notice of foreclosure sale on May 4, 2016, nine days before Jack first attempted to send Shu's second modification application. Selene reviewed the application and denied it in a letter sent to Shu's counsel by facsimile and e-mail on May 18, 2016. The letter, which Shu admittedly received, explained that the application did "not indicate a material change in financial circumstances which would require reconsideration" of the decision denying Shu's prior application. The foreclosure sale took place on June 1, 2016, after Selene denied Shu's application. Neither defendant recorded a notice of default or a notice of sale, or conducted a foreclosure sale, between May 13 and May 18, 2016. Thus, there was no dual-tracking violation of section 2914.18, subdivision (a)(1).
Shu's second argument was that defendants "failed to advise Shu and Chen about her alternatives or appeal rights." This argument is inconsistent with the actual duties HBOR imposes on small servicers. The relevant HBOR provisions requiring notice to an applicant of rights to appeal (§ 2923.6, subd. (d)), alternatives to modification for which an applicant may qualify (§ 2923.6, subd. (f)(5)), and documents missing from an application deemed incomplete (§ 2923.7, subd. (b)(2)), are inapplicable to small servicers. (See §§ 2923.6, subd. (i); 2923.7, subd. (g)(1).) The trial court held as much in its order of April 2, 2019, which plaintiffs have not challenged on appeal. The jury was not instructed on the duties owed by "large servicers" under these statutes, and section 2924.18 includes no requirement that small servicers inform applicants about "alternatives or appeal rights."
Shu's third argument was that defendants "failed to conduct a meaningful and reasonable review" of her application. In support, Shu points to Selene's May 26, 2016, letter informing Shu that her application was incomplete. This argument is unavailing for several reasons. First, a letter indicating that Shu's application was reviewed again for completeness does not show a failure by defendants to conduct a meaningful review prior to denying Shu's application on May 18, 2016. Second, as a small servicer Selene was not required to inform Shu of omissions in her application or to afford her time to correct omissions so that it could conduct a more substantial review. Third, under the plain language of section 2924.18, subdivision (a)(1), only a "complete application" invokes the prohibition on dual tracking; thus, Selene was not obliged to stop the scheduled foreclosure sale upon receipt of an incomplete application. Otherwise, an unscrupulous borrower could repeatedly submit incomplete applications to forestall foreclosure. It is undisputed the information missing from Shu's application included signed income tax returns and a modification application from Yok, the record owner of the home.
Shu also asserts that Selene mailed the letter to her counsel at an incorrect address. This contention is not supported by the record: Selene's May 26 letter was sent to the address that Jack had told Selene was the correct address in a telephone conversation on May 16, 2016. It is also the same address used by Shu's counsel on an ex parte application filed in the trial court on May 24, 2016.
In sum, HBOR sets forth procedural requirements small servicers must follow prior to foreclosing on a property, but none of those requirements entitle a borrower to a loan modification. Section 2924.18, subdivision (a)(1), required defendants to provide a written response to a complete application for a loan modification before a foreclosure sale could take place. Defendants provided that written response on May 18, 2016, indicating based upon the information provided, there was no material change of circumstance to qualify Shu for a loan modification. The fact that defendants later stated the application was incomplete neither undid the May 18 rejection letter, nor did it give rise to notification of appellate rights inapplicable to small servicers. Regardless of whether the application was incomplete or whether defendants treated the application as complete and rejected it, there was no complete application pending on the date of the foreclosure sale and thus no dual-tracking violation. As there was not substantial evidence to support the jury's finding that defendants violated section 2924.18, subdivision (a)(1), this finding must be reversed.
E. Defendants Are Not Entitled to Reversal or Remand for Damages on the Cross-Complaint
Selene and DLJ Mortgage have separately appealed from the portion of the judgment awarding them no damages on their claims for breach of the settlement agreement. We conclude they have not shown that the failure to award damages was error.
Defendants assert that under the settlement agreement, the prevailing party in an action to "enforce" the agreement or "in connection with any dispute arising out of [the agreement] or the claims which are the subject of [the agreement]" may recover "damages, fees and other costs...." Defendants further argue that under Sweet v. Johnson (1959) 169 Cal.App.2d 630, 633, a judgment that fails to award nominal damages for breach of contract is reversible where a nominal damages award would entitle the plaintiff to recover costs.
Nowhere in their opening brief do defendants identify the breach of the settlement agreement that would support an award of nominal damages. In their reply brief, defendants state, "By suing Selene and DLJ after 2012, Shu breached the terms of the Settlement Agreement." We normally do not consider points raised for the first time in the reply brief. (Garcia v. McCutchen (1997) 16 Cal.4th 469, 482, fn. 10.) Even if we considered this assertion, defendants have not explained how Shu and Yok breached the 2012 settlement agreement by filing the 2015 or 2016 lawsuits. The settlement agreement was made in November 2012, and the Chans released claims in existence as of that date. Because the right to sue for violations of HBOR did not exist until it took effect in January 2013, HBOR claims were not released as part of the settlement agreement.
Because defendants have not sufficiently identified a breach of the settlement agreement entitling them to damages, we cannot assess whether or to what extent damages would be appropriate. Defendants have provided no reason to depart from what they acknowledge as "the general rule . . . that the failure to award nominal damages is not alone ground for reversal of a judgment or for a new trial." (Sweet v. Johnson, supra, 169 Cal.App.2d at p. 633.)
As defendants have not shown error in the jury's verdict, we have no reason to set aside the award of attorney's fees to Shu as the prevailing party on the cross-complaint. Code of Civil Procedure section 1033.5, subdivision (a)(10)(A), provides that contractual attorney fees are allowable as costs to the prevailing party. The definition of "prevailing party" includes "a defendant where neither plaintiff nor defendant obtains any relief, and a defendant as against those plaintiffs who do not recover any relief against that defendant." (Code of Civ. Proc., § 1032, subd. (a)(4).) Based on these statutes, Shu was the "prevailing party" on defendants' cross-complaint, and the award of attorney fees was proper.
F. Shu's Appeals are Moot
Shu has appealed from the trial court's orders refusing to award treble damages under section 2924.19, refusing to award Shu damages for her alleged emotional distress caused by the foreclosure sale, and refusing to award prejudgment interest and costs. Because we are reversing the judgment in Shu's favor on her negligence and HBOR claims, her appeal from these orders is moot.
DISPOSITION
The portion of the judgment awarding Shu damages for negligence and for violations of section 2924.18 is reversed. The portion of the judgment awarding defendants no damages on their cross-complaint, awarding Shu attorney fees on the cross-complaint, and denying Shu damages for emotional distress, treble damages, and costs and prejudgment interest is affirmed. All parties shall bear their own costs on appeal.
We concur: CURREY, P.J., ZUKIN, J.