Chu v. Fay Servicing, LLC

Background

Stephanie Chu moved for permission to file a proposed Third Amended Complaint. The proposed complaint asserted four claims: a violation of the Truth in Lending Act (TILA), negligence, breach of contract, and violation of California Business and Professions Code section 17200, commonly called the Unfair Competition Law (UCL). The UCL claim was based on the alleged TILA violation and an alleged wrongful foreclosure involving property-tax payments.

The court had previously ruled that Chu’s earlier TILA and related UCL claims were likely barred by TILA’s one-year statute of limitations. The earlier complaint alleged that the loan transfer occurred on November 17, 2015, more than four years before the lawsuit was filed, and did not provide supporting facts for extending the deadline. The court also stated that judicially noticeable records showed Chu knew Wilmington was the secured creditor and beneficiary by the time of her 2018 bankruptcy proceedings.

Reasons for Denying Amendment

TILA and UCL claims

The proposed TILA claim was identical to the TILA claim in the Second Amended Complaint. Because the proposed UCL claim relied in part on that same TILA theory, the court concluded that amendment would be futile as to both claims. The court also noted its earlier finding that Chu had settled prior litigation concerning the loan and had released claims that were or could have been raised in, or related to, that litigation.

Negligence claim

Chu alleged that the defendants negligently failed to maintain accurate loan records, process trial-modification payments, and refrain from unlawful action against her or her property. The court characterized this as a wrongful-foreclosure theory and found it not legally viable. It relied on its earlier dismissal of Chu’s wrongful-foreclosure and related foreclosure-statute claims. It also applied the general California rule that a financial institution ordinarily owes no duty of care to a borrower when acting within its conventional role as a lender. Chu did not allege a special relationship that would create a different duty.

Breach-of-contract claim

Chu alleged that Fay Servicing stopped accepting payments in 2019, causing her to default, and then recorded a notice of default without resolving why payments had not been received. The court found that these allegations described the ordinary course of a nonjudicial foreclosure rather than a breach of contract. Chu identified no specific contract provision that had been breached. The court stated that the note and deed of trust permitted the complained-of conduct, including refusing payments insufficient to bring the loan current and recording a notice of default after missed payments.

The court also referred to its earlier finding that the defendants had complied with the notice-of-default requirements, offered Chu a loan modification, and worked with her to avoid foreclosure. The proposed complaint attached reinstatement forms that gave Chu additional opportunities to reinstate the loan and avoid foreclosure.

UCL claim based on property taxes

Chu alleged that the defendants wrongfully pursued foreclosure by claiming they had advanced property taxes even though she had paid the taxes directly to the assessor. The court found that the notice of default stated Chu was in default for unpaid principal, interest, impounds, late charges, and advances and costs. It further found that the deed of trust allowed the lender to advance property taxes and treat those advances as additional debt. The court therefore concluded that this UCL theory also lacked merit and that amendment would be futile.

Disposition

The court held that the proposed fourth version of Chu’s complaint would be subject to dismissal. It denied the motion for leave to amend and dismissed the action. The clerk was ordered to close the file, and the order terminated Docket No. 55.