A California appellate court recently held, among other things, that borrower plaintiffs may not sustain a claim for fraudulent misrepresentation against a lender based solely on an allegation that the lender "falsely determined"that plaintiffs qualified for a loan. The court based its decision on its holding that a representation that a borrower qualifies for a loan is not the same as a representation that a borrower can afford a loan, and that the plaintiffs' allegations ignored "the nature of the lender-borrower relationship."
A copy of the opinion is available at: http://www.courtinfo.ca.gov/opinions/documents/A125212.PDF
Plaintiffs borrowed money from a commercial mortgage lender to refinance certain real property. At closing, plaintiffs signed a loan application wherein their stated total income was substantially greater than the actual income information they had provided to the lender. A home equity line of credit was also extended to plaintiffs as part of the refinance transaction. Plaintiffs defaulted on the payments, the lender moved to foreclose and the plaintiffs filed this action, asserting, among other things, fraudulent misrepresentation or fraudulent concealment. The trial court sustained defendants' demurrer for failure to state a cause of action without leave to amend, and this appeal followed.
On appeal, the court addressed only four of the plaintiffs' thirteen original counts, holding that all other claims were deemed abandoned for failure to mention them in plaintiffs' filings. As to the remaining four counts, the appellate court held that plaintiffs could not amend their complaint to state a cause of action for: (1) fraudulent misrepresentation or fraudulent concealment; (2) voiding and canceling the deed; (3) violation of Civil Code Section 2923.5; or (4) voiding the notice of default and notice of trustee's sale.
As to plaintiffs' fraudulent misrepresentation count, based on allegations that defendants falsely represented that plaintiffs could afford the payments in the loan documents, the court held that there is a distinction between (1) representing that a borrower qualifies for a loan and (2) representing that a borrower can afford a loan. The court ultimately ruled that plaintiffs "could not rely upon [lender's] knowingly false determination that they qualified for the loans as a determination by [the lender] that they could afford the loans," noting specifically that "a lender owes no duty of care to the [borrowers] in approving their loan" and "a commercial lender pursues its own economic interests in lending money." The court also held that plaintiffs' claim for fraudulent concealment failed and could not be amended because plaintiffs "failed to sufficiently allege a fiduciary duty" by the lender to disclose any allegedly concealed fact.
The court also held that plaintiffs could not amend their complaint to state a cause of action under California Civil Code Section 2923.5, because they failed to allege that they suffered any prejudice as a result of any deficiency in the beneficiary declaration.
Finally, the court held that plaintiffs could not amend their complaint to state a cause of action to void and cancel the deed of trust or to void and cancel the notice of default and notice of trustee's sale because they failed to sufficiently allege that the deed was void for fraud in the execution in that the borrowers failed to demonstrate any special circumstance that would establish a fiduciary duty by the lender in its dealings with plaintiffs.
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