Valencia v. Nationstar Mortgage LLC

Background

Lilia Valencia and Lilia Chavez sued Nationstar Mortgage LLC, U.S. Bancorp, Clear Recon Corporation, and Doe defendants. The plaintiffs asserted five claims: violation of California Civil Code § 2923.6, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, wrongful foreclosure, and unfair business practices under California Business and Professions Code § 17200.

According to the complaint, Chavez had been helping Valencia submit mortgage loss-mitigation applications to Nationstar. After the plaintiffs submitted another application in November 2024, Nationstar agents allegedly told Chavez that the application remained under review, that the January 8, 2025 foreclosure sale would be postponed, and that an appeal would be available if the application were denied. The plaintiffs alleged that Nationstar later denied the application and that the property was sold on January 8, 2025. The trustee’s deed was recorded on January 31, 2025, and the plaintiffs alleged that they faced eviction.

Nationstar moved under Rule 12(b)(6), which allows dismissal when a complaint does not allege enough facts to state a legally sufficient claim. Nationstar challenged only the third claim, for negligent misrepresentation.

Negligent-Misrepresentation Claim

Under California law, negligent misrepresentation requires a plaintiff to allege: (1) a misrepresentation of a past or existing material fact; (2) no reasonable ground for believing the statement was true; (3) an intent to induce reliance; (4) justifiable reliance; and (5) resulting damage.

The court assumed, for purposes of the motion, that the alleged statements satisfied the first element. It concluded, however, that the plaintiffs had not alleged facts supporting a plausible inference that the Nationstar agents lacked reasonable grounds to believe their statements were true or intended to induce the plaintiffs’ reliance. The court found that the plaintiffs had adequately alleged reliance on statements about the application’s status and the timing of the foreclosure sale.

The court also found that references to an “implied agreement” confused the nature of the claim. Those allegations suggested a contract theory rather than a tort claim for negligent misrepresentation, although the plaintiffs stated in their opposition that they were not relying on contract theories.

Duty of Care

Nationstar separately argued that it owed no duty of care to the plaintiffs. The court found that California law was not entirely clear about whether, and under what circumstances, a lender may be liable for negligent misrepresentation. The court rejected Nationstar’s argument that it could not owe a duty not to make material misrepresentations about the plaintiffs’ application or foreclosure sale. But because the plaintiffs had not adequately alleged the other elements of negligent misrepresentation, the court did not resolve the dispute over whether Nationstar owed them a duty in these circumstances.

Disposition

The court granted Nationstar’s partial motion to dismiss the third claim for negligent misrepresentation. The court granted the plaintiffs leave to amend that claim and ordered them to file an amended complaint by June 11, 2025. The order addressed only the claim challenged by Nationstar.