## Facts

- Teodora Orcilla refinanced the Orcillas’ San Jose home in May 2006 with a $525,000 adjustable-rate loan originated by Quick Loan Funding, Inc.; the deed of trust named MERS as beneficiary.
- The loan’s initial interest rate was 8.99% (adjusting later) with an initial monthly payment of $4,220.49; Teodora alleged her monthly income at the time was under $3,000 and Virgilio had no earnings due to a medical condition.
- The Orcillas alleged English was their second language and that the transaction exploited their financial and language limitations.
- They alleged a loan agent advised Teodora not to include Virgilio on the loan application and falsely represented she could afford the payments despite her stated inability to do so.
- After default and attempted loan-modification discussions, the property was sold at a nonjudicial foreclosure sale in May 2010; Big Sur, Inc. purchased the property.
- Big Sur obtained an unlawful detainer judgment, and the Orcillas vacated the property.
- The Orcillas sued Big Sur and Bank of America, N.A., ReconTrust Company, N.A., and MERS seeking, among other relief, to set aside the trustee’s sale, assert wrongful foreclosure, and recover under Bus. & Prof. Code § 17200 based on alleged predatory and unlawful conduct.
- The trial court sustained demurrers to the second amended complaint largely without leave to amend and entered judgment for defendants.

## Issues

1. Whether allegations that the loan and later modification were unconscionable, combined with claimed irregularities in the foreclosure process, stated a cause of action for wrongful foreclosure and to set aside the trustee’s sale.
2. Whether the Orcillas adequately pleaded standing and an “unlawful” or “unfair” business practice under the Unfair Competition Law (Bus. & Prof. Code § 17200).
3. Whether fraud and breach of contract claims were pleaded with required specificity and causation.
4. Whether the prior unlawful detainer judgment barred a quiet title claim against the foreclosure-sale purchaser.
5. Whether denying leave to amend as to dismissed claims was an abuse of discretion.

## Decision

- The Court of Appeal affirmed in part and reversed in part the judgment after demurrers.
- It reversed the dismissal of the claims seeking to set aside the foreclosure sale / wrongful foreclosure, holding the pleadings were sufficient at the demurrer stage.
- It reversed the dismissal of the UCL cause of action, holding the Orcillas alleged standing and conduct that could qualify as “unlawful” or “unfair.”
- It affirmed dismissal of various other causes of action, including fraud and breach of contract, for failure to plead essential elements with required detail.
- It affirmed dismissal of quiet title against Big Sur as barred by the prior unlawful detainer judgment.
- It affirmed denial of leave to amend where plaintiffs did not show a reasonable possibility of curing defects in the dismissed claims.
- The case was remanded for further proceedings consistent with these rulings.

## Legal Principles

- On demurrer, courts accept well-pleaded facts as true and draw reasonable inferences in the plaintiff’s favor; a complaint survives if it states facts sufficient to constitute a cause of action.
- Allegations that a mortgage loan (and related modification) imposed payment obligations grossly exceeding the borrower’s ability to pay, particularly coupled with alleged borrower vulnerability, may support unconscionability-based theories sufficient to plead wrongful foreclosure and a basis to set aside a trustee’s sale.
- A UCL claim may proceed on “unlawful” and “unfair” prongs where plaintiffs allege enforcement of unconscionable agreements or comparable wrongful conduct, and standing is satisfied by alleging loss of money or property caused by the challenged practices.
- Fraud must be pleaded with particularity, including the identity of speakers, the content of misrepresentations, when and where they were made, reliance, and proximate causation; generalized accusations against multiple defendants are insufficient.
- Breach of contract requires identifying the specific contract, plaintiff performance or excuse, the specific breached provision, and facts showing causation and resulting damages.
- A prior unlawful detainer judgment can have preclusive effect on issues actually litigated, limiting later quiet title challenges against the purchaser based on the foreclosure and trustee’s deed.

## Conclusion

The Court of Appeal held that detailed allegations of an unaffordable, potentially unconscionable loan and related foreclosure misconduct were enough to proceed on wrongful-foreclosure and UCL theories, but it enforced strict pleading and preclusion limits by affirming dismissal of fraud and contract claims and quiet title against the foreclosure-sale purchaser.


Orcilla v. Big Sur, Inc., 244 Cal. App. 4th 982 (Cal. Ct. App. 2016)