Gabali bought property in 2006. IndyMac was the
servicer. OneWest eventually purchased
the note after IndyMac failed. Gabali
began to experience financial difficulties in 2009, due to a reduction in salary
and an increase in her mortgage payments from $3,845.68 to $6,900.00 per month.
She tried to get a loan modification
from OneWest, but IndyMac denied the modification because she’d been able to
continue making payments. OneWest allegedly indicated that it either never
reviewed her loan or didn’t receive any documents from her. Gabali called
OneWest but was told that OneWest couldn’t help because she wasn’t in default;
a representative allegedly told her that she had to fall behind in her payments
before OneWest would review her case.
So she did. OneWest charged her a late fee for each month
and reported her to credit agencies, harming her credit and her ability to
refinance with another lender. OneWest then sent her letters identifying
mitigation options, including repayment, loan modification, pre-foreclosure
sale, and deed in lieu of foreclosure.
Letters also invited her to contact OneWest’s partner, Hope Now’s
Project Lifeline, and to explore eligibility for the Home Affordable
Modification Program (HAMP).
OneWest recorded a notice of default in December 2009 and a
notice of trustee’s sale in March 2010.
In April, Gabali received a forbearance plan requiring her to make
installment payments to cure the default. She sued, attempting to represent nationwide
classes for violations of the UCL and FAL, along with unjust enrichment.
OneWest argued that she failed to plead her claims with
particularity; the court disagreed. She
provided specific allegations, including documentation (though presumably
documents aren’t actually required at the pleading stage). OneWest’s objection that she didn’t identify
the names of the individuals to whom she spoke was insufficient; that could be
determined in discovery.
OneWest argued that Gabali failed to state a claim for
violation of the FAL because there wasn’t “advertising.” But the FAL “can potentially apply to a wide
universe of statements,” including statements made to individuals about their
loans. Advertising wasn’t merely “widespread
promotional activities directed to the public at large,” a definition taken
from insurance disputes about “advertising injury” coverage. By alleging that
OneWest had a common practice of denying loan modification requests without
regard to hardship, and of commonly telling borrowers that they couldn’t get a
modification without defaulting, plus that OneWest sent out standard form
letters that falsely stated HAMP’s requirements, Gabali alleged conduct that
could fall under the FAL.
She also alleged misleadingness as to the availability and
requirements of loan modification programs. OneWest argued that nothing it said
was false, but only truth or statements of law.
Nothing about the alleged statements suggested that they were
recitations of law, and true statements can be misleading.
OneWest then challenged Gabali’s standing, arguing that she
couldn’t show a causal relationship between the alleged misrepresentations and
her eventual default. The court
disagreed, because Gabali specifically alleged that she relied on a letter and
statements by OneWest’s representatives when she defaulted, and continued to
rely on additional misrepresentations.
Naturally, the UCL claims also survived. The properly alleged FAL violations satisfied
the “unlawful” prong. However, she
couldn’t rely on a violation of California’s Rosenthal Fair Debt Collections
Practices Act to show unlawfulness, since a loan servicer wasn’t a debt
collector under that law. She adequately
alleged “unfairness,” which in a consumer action requires alleging that “the
consumer injury is substantial, is not outweighed by any countervailing benefit
to consumers or to competition, and is not an injury the consumers themselves
could reasonably have avoided.” Gabali’s injuries were late fees and expenses,
negative actions against property, and negative actions against credit. There were
no countervailing policies or other consumer benefits which outweigh these
injuries. In addition, under the facts as alleged, she could not have avoided
the injury since there appeared no other way to qualify for a loan modification
than to voluntarily default.
Gabali’s separate claim for unjust enrichment was dismissed
as not constituting an independent cause of action.
OneWest argued that the claims were preempted by the Home
Owners' Loan Act (HOLA), which preempts state laws governing servicing and
disclosure. HOLA’s implementing
regulations list broad categories of state laws that are expressly preempted,
including laws governing adjustments to loans, loan-related fees, and
disclosure and advertising laws.
However, laws that only incidentally affect lending operations of
federal savings associations are not preempted.
Here, the UCL and FAL are laws of general applicability, but may be
preempted on a case by case basis—for example where used to challenge a pending
or completed foreclosure. Alleged
misrepresentations about inadequate disclosure of fees, interests rates, or
other loan terms directly affect lending and are preempted, whereas common-law
type allegations that rely on the general duty not to misrepresent material
facts are not preempted.
Here, the court could read Gabali’s allegations two ways,
one preempted and one not. If she
alleged that OneWest was required to offer a loan modification or required to
make disclosures to her, that was preempted. However, if she alleged only a
general duty to not engage in fraud during business dealings, that only
incidentally affects lending and was not preempted. At this stage in the case, the
court found the FAL/UCL claims not preempted to the extent they relied on
general allegations of misrepresentation.
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