Opinion
Plаintiffs Carlos and Resurreccion Cansino appeal from a judgment of dismissal sustaining defendant’s demurrer to a second amended complaint without leave to amend. Because plaintiffs’ complaint fails for lack of specificity, and because the trial court did not abuse its discretion in denying leave to amend the complaint, we will affirm the trial court’s judgment.
In 2000, plaintiffs obtained a $280,000 mortgage loan from National City Mortgage Company doing business as Accubanc Mortgage. The record does not reveal whether the loan was for the purchasе or a refinance of their Milpitas home. The $280,000 adjustable rate note provided for a five-year fixed interest rate of 8 percent followed by a variable interest rate never to exceed 13 percent. Plaintiffs refinanced in 2002 with another adjustable rate loan from National City Mortgage Company, borrowing $386,000 against their property. The 2002 loan fixed interest at 4.875 percent for three years followed by a variable rate not to exceed 10.875 percent. Plaintiffs again refinanced in August 2005, borrowing more money against the property ($496,000) using a nеw lender, America’s Wholesale Lender. The loan document stated that the borrower “will pay interest at a yearly rate of 1.000 %,” and that “[t]he interest rate I will pay may change.” It also stated that minimum monthly payments for the initial five years would result in negative amortization if the minimum payment was insufficient to cover the interest due. The interest rate on the 2005 loan was capped at 9.95 percent.
In approximately July 2005 in connection with the August 2005 loan, a loan broker and an appraiser working for America’s Wholesale Lender appraised plaintiffs’ home at a fair market value of $620,000. Based on that appraisal and other representations by lending personnel, plaintiffs elected to refinance their home with a $496,000 adjustable rate mortgage. Lending personnel told plaintiffs their home would appreciate and they would be able to sell or refinance the home at a later date before having to make higher monthly loan payments or pay an increased principal of $620,000 which would result from negative amortization.
In 2010, plaintiffs discovered that their home was valued between $350,000 and $400,000. Soon thereafter they stopped making payments on the 2005 loan and sought a loan modification. As of the filing of the second amended complaint (Mar. 2012) the monthly payments were approximately $1,960, the balance due on the loan was approximately $626,000, and the fair market value of the home was approximately $350,000.
II. TRIAL COURT PROCEEDINGS
In October 2011, plaintiffs filed a first amended complaint against Bank of America, CTC Foreclosure Services Corp., and Mortgage Electronic Registration System, Inc., for damages and specific performancе arising out
Plaintiffs filed a second amended complaint against defendants realleging fraud and UCL violations. 2 In their first cause of action, titled “Negative Fraud, Actual Fraud, and Deceit Vitiating Loan and Deed of Trust As Against All Defendants,” plaintiffs alleged that “Defendants’ lending personnel” made two false representations to plaintiffs during their 2005 refinancing process: (1) “The current market vаlue of the real property was $620,000 and appreciating,” and (2) “By refinancing with the ARM loan being offered to plaintiffs, plaintiffs could bring the early monthly payments down, obtain several years of appreciation to the value of the home, and sell or refinance the home at an appreciated value before having to pay the then due principal of $620,000 and before having to pay the much higher monthly payments.” The second amended complaint further alleged that defendants knew plaintiffs were unaware of the speculative and/or false nature of the two representations, and that the speculative and/or false nature of the representations could not be discovered by plaintiffs’ diligent attention.
Plaintiffs alleged that they acted in reasonable reliance on the “presumed truth of the representations,” were justified in doing so, and were damaged as a result of that reliance. Plaintiffs alleged that defendant’s lending personnel had an affirmative duty to disclose these matters to plaintiffs, who were unsophisticated borrowers, and that defendants were “charged with knowledge of the speculative nature of the existing and future values of the real property
[sic]
were the direct result of an artificial market created by the financial institutions in creating and marketing the GSEs and Tranches as
In their second cause of action for violation of the UCL against Bank of America only, plaintiffs alleged that the misrepresentations set forth in their fraud cause of action, as well as the terms of the August 2005 loan, constituted unfair, deceptive, false and misleading business practices. Plaintiffs alleged money damages as a result of defendant’s unfair business practices, including “drastically increasing negative equity as a result of defendants’ loan package financing” and the difference between the ultimate principal amount of $620,000 and the currеnt $350,000 fair market value of their home. Plaintiffs further alleged that they discovered their UCL claim within the last four years, with “reasonable diligence of an ordinary borrower of little sophistication . . . .”
Defendants demurred to the second amended complaint arguing that the cause of action for fraud was time-barred, fraud was not pleaded sufficiently or with particularity, and plaintiffs failed to allege actionable misrepresentation. As to the UCL claim, defendants alleged that it was time-barred, failed for lack of standing, and failed because the underlying fraud violаtion was inadequately pleaded.
The trial court sustained defendants’ demurrer to the second amended complaint without leave to amend. The court concluded that plaintiffs failed to allege each element of fraud with the requisite specificity despite having been given the opportunity to amend. The court also found that the UCL claim was premised on the same alleged misrepresentations as pleaded in the fraud cause of action. Thus, the UCL claim also failed for lack of specificity.
Plaintiffs filed a timely notice of аppeal from the court’s order of dismissal entering judgment in favor of defendants.
A. Standard of Review
We review de novo the trial court’s order sustaining a demurrer.
(Moore v. Regents of University of California
(1990)
When the trial court sustains a demurrer without leave to amend, we review the determination that no amendment could cure the defect in the complaint for an abuse of discretion.
(Schifando, supra,
B. Dismissal of Defendants CTC Foreclosure Services Corporation and Mortgage Electronic Registration System, Inc.
Defendants CTC Foreclosure Services Corporation (CTC) and Mortgage Electronic Registration System, Inc. (MERS), argue that the demurrer was properly sustained against them because they are not implicated in the second amended complaint. CTC and MERS observe that plaintiffs’ complaint is directed at alleged misrepresentations madе by the loan originator, America’s Wholesale Lender, and that neither CTC nor MERS played a role in the origination of plaintiffs’ loan. We agree with CTC’s and MERS’s characterization of the second amended complaint, and we note that plaintiffs do not dispute the position of CTC and MERS in their reply brief. Even though CTC
C. Fraud
The elements of fraud are (1) misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance on the misrepresentation, (4) justifiable reliance on the misrepresentation, and (5) resulting damages.
(Lazar v. Superior Court
(1996)
1. The Future Appreciation Representation
Plaintiffs allege that, prior to their August 2005 loan refinancing, defendants’ “lending personnel” represented that plaintiffs’ property was appreciating and that plaintiffs could obtain several years of appreciation in their property so that they could sell or refinance before having to make higher monthly payments or pay a future accumulated principal of $620,000.
Defendants argue that the alleged representations regard the future of the real estate market. As such, they are forecasts of future events and not actionable misrepresentations. We agree. The law is well established that actionable misrepresentations must pertain to past or existing material facts.
(Gentry
v.
eBay, Inc.
(2002)
Plaintiffs contend that whether defendants’ representations regarding the future market value of their home constitute fact or opinion is a factual question that is not appropriate for resolution at the demurrer stage of proceedings. We agree with plaintiffs that the actionable nature of some statements may not readily be determined on demurrer.
(Furla v. Jon Douglas Co.
(1998)
Plaintiffs cite
Bily v. Arthur Young & Co.
(1992)
In
Finch
v.
McKee
(1936)
Like acts of nature and their consequences, the future state of a financial market is unknown. Any future market forecast must be regarded not as fact but as prediction or speculation.
(Gentry v. eBay, Inc., supra,
99
2. The Fair Market Appraisal Representations
Plaintiffs allege that a loan broker and an appraiser working for America’s Wholesale Lender appraised their residence in July 2005 to have a fair market value of $620,000, and that defendants’ lending personnel represented to plaintiffs that the market vаlue of the real property at that time was $620,000. These allegations are deficient under
Lazar
because they do not specify “ ‘ “how, when, where, to whom, and by what means the representations were tendered.” ’ [Citation.]”
(Lazar, supra,
Plaintiffs argue that they should be relieved of specifying the identity of the individuals making the representations because “as the borrowers, [plaintiffs] are always identified by their names in all relevant documents, however, those same documents indicate that [plaintiffs] were involved in transactions with corporations, institutions, and entities, but not with any particular individual acting on behalf of these entities.” Based on the facts alleged in the second amended complaint, the relevant document would appear to be the appraisal; plaintiffs could have but did not provide the trial court with this document, or with any documents supporting the alleged misrepresentations of the value оf the home in July 2005. (Cf.
West v. JPMorgan Chase, N.A.
(2013)
The second amended complaint also fails to allege how the July 2005 appraisal was a misrepresentation of the current market value of the property. Plaintiffs allege that the home was valued between $350,000 and $400,000 in 2010, but that allegation does not support plaintiffs’ claim that the 2005
Finally, the allegations in the second amendment complaint fail to state a claim for fraudulent concealment, since the requirement that “[fjraud must be pleaded with specificity . . .” applies equally to a cause of action for fraud and deceit based on concealment.
(Boschma, supra,
3. Statute of Limitations
The statute of limitations for fraud is three years. (Code Civ. Proc., § 338, subd. (d).) Although a cause of action generally accrues, triggering the statute of limitations, when it “ ‘is complete with all of its elements,’ ” accrual is postponed until а plaintiff discovers, or has reason to discover, the cause of action.
(Fox, supra,
Because the discovery rule operates as an exception to the statute of limitations, “if an action is brought more than three years after commission of the fraud, plaintiff has the burden of pleading and proving that he did not make the discovery until within three years prior to the filing of his complaint.”
(Hobart v. Hobart Estate Co.
(1945)
These allegations are insufficient to establish the timeliness of plaintiffs’ fraud claim. As we have already explained, plaintiffs’ realization that their home, in 2010, was worth “$350,000 to $400,000” does not explain how plaintiffs made the discovery or how it demonstrates that the 2005 appraisal was a misrepresentation. “[S]ometime in 2010” also is vague. Without knowing the specifics of plaintiffs’ discovery, the trial court could not determine when plaintiffs had actual or presumptive knowledge of the alleged misrepresentations and whether plaintiffs should have made the discovery sooner.
On appeal, plaintiffs argue that “discovery of the falsity of [defendants’] statements could not readily be identified until a significant amount of time had passed.” They also argue that they had “no reason to question the value of their home until the time came to make a decision regarding refinancing.” In the same vein, they contend that defendants concealed the fraud which “could not be discoverеd until after the statute of limitations had run.” These conclusory arguments miss the point. The basis of the discovery must be pleaded with specificity, and the second amended complaint falls short of this pleading requirement.
D. The UCL Claim
California’s UCL prohibits “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” (Bus. & Prof. Code, § 17200.) “ ‘ “Because . . . section 17200 is written in the disjunctive, it establishes three varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent. ‘In other words, a practice is prohibited as “unfair” оr “deceptive” even if not “unlawful” and vice versa.’ ” ’ ”
(Puentes v. Wells Fargo Home Mortgage, Inc.
(2008)
Plaintiffs’ second amended complaint alleges that Bank of America violated the UCL in three ways. In paragraph 29, they allege that the two misrepresentations constitute an unlawful business practice. We agreе with the trial court that this allegation fails to state a claim for relief due to lack of specificity, in the same way plaintiffs’ fraud claim based on the same misrepresentations is deficient. (See
Krantz v. BT Visual Images
(2001)
In paragraph 30, plaintiffs allege that “Defendant financial institutions” violated the UCL by “colluding” with others in the housing industry to inflate the value of real estate “to entice plaintiffs and others into ‘top loaded’ or ‘leveraged’ homes,” and then later refusing to refinance based on the true value of the homes. While we are required to assume the truth of proрerly pleaded facts at the demurrer stage, we reject the allegation that plaintiffs were “enticefd]” into a “ ‘top loaded’ ” or “ ‘leveraged’ house” by collusion as described in paragraph 30. This allegation is inconsistent with the loan documents judicially noticed by the trial court showing plaintiffs’ borrowing history.
{Evans, supra,
Plaintiffs also allege in paragraph 30 that “Defendant financial institutions” “erroneously misstate on the face of the loan document that borrowers (plaintiffs) will only pay a yearly rate of 1%, and other such similar language.” The second amended complaint demonstrates that plaintiffs were aware of the negative amortization terms of the loan,
4
but they accepted these terms in reliance on representations that their home was valued at $620,000 and would continue to appreciate. Plaintiffs argue on appeal that their injury
The facts here are notably different from the facts in
Boschma, supra,
The statute of limitations for a UCL violation is four years. (Bus. & Prof. Code, § 17208.) Plaintiffs failed to plead facts to invoke the discovery rule to establish the timeliness of their claim because thеy have not alleged when they discovered that they were paying an interest rate other than one percent per annum. (Hobart, supra, 26 Cal.2d at p. 443.) Like the fraud claim, the UCL claim fails as untimely given the statute of limitations.
Arguing for the first time on appeal that the UCL claim is for unlawful business practices, plaintiffs list a host of state and federal laws which Bank of America allegedly violated. But plaintiffs failed to identify these laws in the second amended complaint, and failed to show on appeal how the second amended complaint could be amended to state actionable claims under these statutes.
E. Leave to Amend
Although plaintiffs contend that any deficiencies in the second amended complaint could readily be addressed by the filing of a third amended complaint, they have failed to establish abuse of discretion by the trial court, or otherwise provide this court with any basis to allow amendment. Plaintiffs have the burden to prove that an amendment would cure any defect
(Schifando, supra,
The judgment is affirmed.
Bamattre-Manoukian, Acting P. J., and Márquez, J., concurred.
Notes
We draw our facts from the properly pleaded allegations in the second amended complaint and the deeds of trust judicially noticed by the trial court.
The second amended complaint alleged a third cause of action labeled “Plaintiff as Third Party Beneficiary Against Defendant Bank of America.” The trial court struck this claim as exceeding the scope of permissible amendment. Plaintiffs do not challenge that ruling on appeal.
The trial court denied plaintiffs’ request for judicial notice of the facts alleged in paragraph 11 of the second amended complaint, and it granted defendants’ motion to strike paragraphs 8 through 11 as irrelevant. On appeal, plaintiffs do not challenge either ruling. We therefore do not consider the stricken paragraphs in our review.
Plaintiffs’ knowledge of negative amortization and its consequences is established through paragraph 16(b), where plaintiffs allege defendants told them in 2005 that they could sell or refinance an appreciated home before having to pay what would grow to a $620,000 principal.