Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—S.D. Cal.: Mortgage holder unable to state claim against CitiMortgage, (Nov 12, 2013)

By Jody Coultas, J.D.

Mortgage holders, pursuing California Unfair Competition Law (UCL) claims against CitiMortgage, Inc., failed to state a claim under the unlawful, unfair, or fraudulent prongs of the UCL, according to the federal district court in San Diego (Reade v. CitiMortgage, Inc., November 7, 2013, Lorenz, M.).

The mortgage holders executed a promissory note secured by a Deed of Trust to refinance real property. The loan was allegedly sold to a currently unidentified third party. The unknown entity was not CitiMortgage because the original lender never sold, transferred, or assigned the Deed of Trust to CitiMortgage. CitiMortgage also allegedly failed to follow basic legal requirements for the transfer of a negotiable instrument to the Trust. After the mortgage holders defaulted, they filed the UCL claim against CitiMortgage, alleging that their loan was never properly assigned, thereby leaving CitiMortgage with no authority to collect payment, declare a default, or schedule and conduct a sale of the property.

The mortgage holders had standing to pursue the UCL claims, according to the court. A person who has suffered injury in fact and has lost money or property as a result of the unfair competition has standing to bring a UCL claim. CitiMortgage argued that the mortgage holders did not have standing to bring a UCL claim because their “own default on their mortgage loan precipitated the commencement of nonjudicial foreclosure … [and] the property has not even been sold at a foreclosure sale yet.” However, the mortgage holders alleged damages resulting from the unlawful collection of payments. The alleged injuries were monetary and may also result in the loss of their property. The injuries were also causally connected to the allegedly unfair conduct.

The mortgage holders were unable to state a claim under any of the three prongs of the UCL, according to the court. The UCL prohibits unlawful, unfair, and fraudulent business acts. The mortgage holders failed to state a UCL claim under the unlawful prong because they failed to state a Fair Debt Collection Practices Act claim. With respect to the unfairness prong, the mortgage holders did not adequately tie their allegation to any specific constitutional, statutory, or regulatory provisions or any particular public policy. The conclusory statement that CitiMortgage engaged in “unfair debt collection practices” was insufficient to state a claim under the UCL’s unfairness prong. The mortgage holders argued that they satisfied the fraudulent prong by alleging that CitiMortgage collected on a debt it has no right to and that this act was extremely likely to deceive. This conclusory statement did not meet the heightened requirements for pleading a cause of action under the fraudulent prong of the UCL, the court held.

The case is No. 13cv404 L (WVG).

Attorneys: Joseph La Costa (The Law Offices of Joseph La Costa) for Dan V. Reade. Stephanie Ann Chambers (Locke Lord LLP) for CitiMortgage, Inc.

Companies: CitiMortgage, Inc.

Cases: StateUnfairTradePractices CaliforniaNews