## Facts

- Homeowners Jose and Maria Espinoza obtained a residential loan secured by a deed of trust on their San Diego property.
- After experiencing financial hardship, they fell behind on payments and contacted Bank of America, N.A. for assistance.
- They alleged the bank made repeated assurances that it would work with them on a loan modification and that foreclosure would not proceed while their request was being evaluated.
- In reliance, they alleged they refrained from alternative options such as curing the default through other means, selling the property, or seeking bankruptcy protection.
- A Notice of Default and a Notice of Trustee’s Sale were recorded, and plaintiffs claimed foreclosure activity proceeded despite the bank’s assurances.
- Plaintiffs claimed harms including loss of equity, credit damage, emotional distress, and expenses incurred in attempting to avoid foreclosure.

## Issues

1. Whether a lender/servicer owes a borrower a duty of care in connection with loan-modification communications sufficient to support negligence.
2. Whether fraud and negligent misrepresentation were pled with the particularity required by Rule 9(b), including misrepresentation, justifiable reliance, and damages.
3. Whether plaintiffs stated claims for wrongful foreclosure and quiet title given admitted default and the tender requirement.
4. Whether plaintiffs stated a claim under California’s Unfair Competition Law (UCL) based on “unlawful,” “unfair,” or “fraudulent” practices tied to the modification/foreclosure process.

## Decision

- The court granted in part and denied in part the bank’s motion to dismiss under Rule 12(b)(6).
- Negligence theories premised on routine loan servicing and the bank’s alleged handling of modification requests were dismissed because the bank generally owed no tort duty beyond its conventional role.
- Wrongful foreclosure and quiet title were dismissed where plaintiffs did not sufficiently allege tender (or an applicable exception) and did not plead actionable defects in the foreclosure process.
- Fraud-based claims were dismissed to the extent they relied on conclusory allegations and failed Rule 9(b), but plaintiffs were permitted to amend where specific statements (who, what, when, where) could support misrepresentation and reliance.
- The UCL claim was dismissed insofar as it depended on legally deficient underlying claims, but plaintiffs were allowed limited amendment for UCL theories grounded in adequately pled misrepresentation or other unfair/fraudulent conduct.

## Legal Principles

- Under California law, a financial institution generally owes no duty of care to a borrower when acting only in the conventional role of lender/servicer; there is no general common-law duty to offer or approve a loan modification.
- Wrongful foreclosure claims typically require a completed foreclosure sale, material defects in the sale or statutory process, and resulting prejudice.
- Quiet title relief generally requires tender of the indebtedness or a recognized exception; a borrower in default cannot typically challenge foreclosure-related rights under a deed of trust without satisfying tender principles.
- Fraud and negligent misrepresentation require pleading a misrepresentation, knowledge (or lack of reasonable grounds), intent to induce reliance, justifiable reliance, and damages; Rule 9(b) requires particularized allegations of the circumstances of the fraud.
- The UCL prohibits “unlawful, unfair or fraudulent” business acts; a UCL claim may proceed under the unfair/fraudulent prongs based on sufficiently pled deceptive practices even if other theories fail, but it cannot rest on conclusory assertions or invalid predicate claims.

## Conclusion

The court treated the dispute as a pleading-stage challenge to foreclosure-related claims arising from modification discussions, rejecting broad negligence, contract, and foreclosure theories while permitting limited amendment to pursue narrowly defined misrepresentation allegations and a related UCL theory if supported by specific facts and reliance.


Espinoza v. Bank of Am., N.A., 823 F. Supp. 2d 1053 (S.D. Cal. 2011)