Boschma v. Home Loan Center, Inc.
198 Cal. App. 4th 230
| Cal. Ct. App. | 2011Background
- Option ARM with teaser rate permits negative amortization for several years before reversion to amortizing payments.
- Plaintiffs Boschma and Robison entered into such loans with defendant Home Loan Center, Inc.; dispute centers on disclosure of negative amortization risks.
- Plaintiffs allege loan documents and program disclosures failed to clearly disclose that making scheduled payments would lead to negative amortization.
- Trial court sustained defendant’s demurrer to the second amended complaint; appellate court reverses, finding adequate fraud and UCL (section 17200) allegations.
- Court analyzes TILA context but ultimately reviews state-law fraud and UCL claims de novo based on the alleged omissions and misleading disclosures.
- Court notes the action involves named plaintiffs and potential class issues, though the current posture focuses on plaintiffs’ own claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs adequately pleaded concealment of material facts | Boschma/Robison allege hidden negative amortization risks | Defendant contends disclosures disclosed loan mechanics; no concealment | Yes; sufficient pleading of concealment at demurrer stage |
| Whether TILA compliance precludes state-law claims | TILA disclosures may not foreclose state-law fraud/UCL claims | Strict TILA compliance provides safe harbor; preemption possible | No complete safe harbor; TILA does not bar state-law actions at this stage |
| Whether plaintiffs pleaded a viable state-law fraud claim | Omissions/half-truths in disclosures deceived borrowers | Disclosures referenced; no concealment implied | Yes; fraud adequately pleaded given structure of disclosures and teaser-rate context |
| Whether plaintiffs pleaded a viable UCL unlawful/fraudulent claim | Disclosures/omissions violate public policy and statutes governing disclosures | Disclosures satisfy statutory requirements | Yes; unlawful and fraudulent prongs survive demurrer based on alleged omissions and misrepresentations |
| Whether plaintiffs had standing and alleged damages under UCL | Negative amortization/lost equity constitutes injury | Damages unclear; possible lack of cognizable injury | Yes; economic injury shown through negative amortization/lost equity at pleading stage |
Key Cases Cited
- Alliance Mortgage Co. v. Rothwell, 10 Cal.4th 1226 (Cal. 1995) (UCL fraud/unclear disclosures governing mortgage practices)
- Morgan v. AT&T Wireless Services, Inc., 177 Cal.App.4th 1235 (Cal. App. Dist. 4th 2009) (Fraudulent misrepresentation standard under UCL differs from common law fraud)
- Randi W. v. Muroc Joint Unified School Dist., 14 Cal.4th 1066 (Cal. 1997) (Duty to disclose; concealment elements under California law)
- Velazquez v. GMAC Mortgage Corp., 605 F.Supp.2d 1049 (C.D. Cal. 2008) (TILA disclosures and negative amortization in option ARMs; persuasive federal authority)
- Thompson v. 10,000 RV Sales, Inc., 130 Cal.App.4th 950 (Cal. App. 2005) (Fraud/advertising principles; deception through partial disclosures)