Filed 12/4/13 Serratos v. Countrywide Home Loans CA2/6

               NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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           IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                  SECOND APPELLATE DISTRICT

                                                DIVISION SIX


JUAN SERRATOS et al.,                                                         2d Civil No. B236996
                                                                          (Super. Ct. Nos. CIV 245197 &
     Plaintiffs and Appellants,                                                56-2009-00361735)
                                                                                 (Ventura County)
v.

COUNTRYWIDE HOME LOANS et al.,

     Defendants and Respondents.




                   Here a simple refinance of a residential mortgage turned into a
complex problem. The facts involve, among other things, the borrowers'
unsuccessful attempt to rescind the loan transaction, a title insurer's failure to
disclose a recorded trust deed, the loss of funds deposited in escrow when regulators
seized the escrow company, the borrowers' lawsuit resulting in a settlement
requiring lender to make a new loan, a mistaken attempt at foreclosure, and the
instant lawsuit where borrowers seek cancellation of the lender's notes and trust
deeds and quiet title based on the settlement agreement.
                   The court entered judgment for defendant lender. The court found the
lender substantially performed the terms of the settlement. Lender offered to
modify an existing loan on the same terms as the new loan contemplated in the
agreement. We affirm.
                                         FACTS
                 Juan and Rosa Serratos (the Serratos), own a home in Port Hueneme.
They refinanced their home loan a number of times.
                 In March 2006, Citi Mortgage (Citi) held a first trust deed on the
Serratos' home in the amount of $308,000. In that month, the Serratos obtained a
home equity line of credit (HELOC) from Citi in the amount of $150,000. The Citi
HELOC was secured by a second deed of trust.
                 The Serratos wanted to refinance the first trust deed. They did not,
however, want to refinance the Citi HELOC because it was being utilized by family
members. A loan broker, 1st Mortgage, contacted the Serratos. 1st Mortgage had a
broker agreement with Countrywide Home Loans, Inc. The agreement stated that
the parties were independent of each other and that neither was a partner, joint
venture, agent or employee of the other.
                 The Serratos applied for a loan through 1st Mortgage. They disclosed
the Citi HELOC. But through no fault of the Serratos, the Citi HELOC was not
disclosed on the loan application.
                 1st Mortgage submitted the Serratos' loan application to Countrywide.
Countrywide approved two loans: one for $432,000 (Loan 33) and another $54,000
HELOC (Loan 25) for a total of $486,000. After paying off Citi's first trust deed
and costs, the loans would yield approximately $167,000 in cash to the Serratos.
Countrywide believed its loans would be secured by first and second trust deeds.
Countrywide was unaware of the Citi HELOC, and its title insurer failed to disclose
it in its title report.
                 Escrow closed and paid off the Citi first trust deed. But because
Countrywide's title insurer did not report the $150,000 Citi HELOC, it was not paid.
The Citi HELOC moved into first position with Countrywide's trust deeds in second
and third positions.


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              After escrow closed, the Serratos unsuccessfully attempted to rescind
the transaction. The $167,000 cash the Serratos were to receive from the
transaction remained in escrow.
              Countrywide sold the loans to the Bank of New York (BONY)
Eventually, it repurchased Loan 33, but BONY still owns Loan 25. Bank of
America services Loan 25 under a pooling service agreement.
              In December 2006, the Serratos sued Countrywide and others seeking
rescission and damages. The Serratos and Countrywide agreed to settle in
September 2006. At the time of the settlement, Countrywide was aware of the Citi
HELOC.
              The settlement agreement provides in part:
              Countrywide will make a new first position loan to the Serratos in the
amount of $308,850.82 secured by the Serratos' primary residence. The new loan
will bear a rate of 5.5 percent due and payable in 30 years. The Serratos agree to
cooperate fully in the origination and underwriting of the new loan.
              On or before the close of escrow on the new loan, Countrywide shall
deliver to escrow full reconveyances of the deeds of trust securing Loans 25 and 33.
              Countrywide releases the Serratos from all claims for "interest, cost of
loans or any other charge" in connection with Loans 25 and 33. The Serratos
agreed to authorize escrow to return the $167,000 to Countrywide.
              Eventually, regulators seized the escrow company, and Countrywide
never recovered its money. Countrywide does not dispute that it must absorb the
loss.
              Under the settlement agreement the Serratos were not making
payments on Countrywide Loans 25 and 33. Countrywide mistakenly began
foreclosure proceedings. The foreclosure proceedings prompted the Serratos to
bring the instant lawsuit. Their complaint asserted four causes of action, all related
to Loans 25 and 33: cancellation of promissory notes, cancellation of deeds of trust,



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quiet title and the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act).
The Serratos later dismissed the cause of action relating to the Rosenthal Act.
              The gravamen of the complaint is that Countrywide breached the
settlement agreement by failing to make a new loan, failing to reconvey Loans 25
and 33, and by initiating foreclosure proceedings.
              Countrywide defended by asserting that: it will reconvey the deed of
trust securing Loan 33, the $54,000 HELOC, so that it no longer encumbers the
property; it requested Citi to voluntarily subordinate its HELOC to Loan 25, but Citi
has refused; Countrywide has offered to leave Loan 25 in its second position, but
modify it to the same terms as described in the settlement agreement for the first
position loan; Countrywide's claim against its title insurer will not be ripe unless
and until the Citi HELOC is foreclosed; reconveyance of Loan 25 will defeat any
claim it may have against its title insurer; and modification of Loan 25 to the same
terms as the new loan provided in the settlement agreement will substantially
comply with the agreement.
              After trial by the court, the court made the following findings:
Countrywide admitted its foreclosure attempt was in error; the Serratos have not
been required to make payments on Loans 25 and 33 since September 2007,
approximately four years, nor has interest on the loans accrued. Citi is not willing
to subordinate its HELOC to Countrywide's loan. Countrywide is not required to
purchase Citi's HELOC. The Citi HELOC remains in first position. By modifying
the existing loan instead of paying off the Citi HELOC, Countrywide's claim
against its title insurer is preserved. Countrywide is responsible for making the
purchaser of the $432,000 note whole. The parties agree there is no dispute
regarding the $54,000 note and trust deed. It will be reconveyed and no longer
encumber the property. "Both parties agree that there is no economic difference to
the [Serratos] whether there is a new loan of $308,000 or a modified note of
$308,000 as long as the terms are the same."



                                           4
              The trial court concluded that Countrywide substantially complied
with the settlement agreement. The trial court gave judgment to Countrywide on all
causes of action.
              Countrywide moved to enforce the settlement agreement. The trial
court granted the motion. It ordered the Serratos to sign a loan modification
containing the same terms as the loan described in the settlement agreement.
                                   DISCUSSION
                                          I.
              The Serratos contend they were released from any obligation under
Loan 25.
              The Serratos rely on the portion of the settlement agreement releasing
them from any and all claims for "interest, cost of loans, or any other charges" in
connection with Loan 25. It is true the agreement releases the Serratos from the
obligation to pay interest costs and charges. But the provision does not release the
Serratos from payment of the principal.
              In fact, paragraph 2.1.7 of the settlement agreement provides: "On or
before the close of a new loan, Countrywide shall deliver to the escrow holder for
the new loan full reconveyances of the deeds of trust securing [Loans 25 and 33] in
a form that can be recorded with the County Recorder's Office, sufficient to remove
the deeds of trust securing [Loans 25 and 33] as encumbrances on the Serratos'
property."
              The only reasonable interpretation of the paragraph is that
Countrywide may leave Loans 25 and 33 in place until close of escrow on the new
loan contemplated by the agreement.
              The Serratos argue that cancellation and reconveyance of Loans 25
and 33 are material terms of the agreement. But Countrywide is not obligated to
cancel and reconvey until close of escrow on the new loan.




                                          5
              The Serratos argue that the trial court revived Loans 25 and 33. But
the loans were never terminated. The principal remains until Countrywide
reconveys them, not later than the close of escrow on the new loan.
                                          II.
              The Serratos contend the trial court erred in applying the doctrine of
substantial performance.
              A party who has substantially performed a contract may enforce it,
even though the performance has not precisely met the terms of the contract. (See
Cline v. Yamaga (1979) 97 Cal.App.3d 239, 247.) The question is whether the
promissee has substantially realized the contemplated benefit from the contract.
(Ibid.) What constitutes substantial performance is a question of fact to be decided
by the trier of fact. (Id. at p. 248.) Here the trial court found that Countrywide
substantially performed the settlement agreement.
              The settlement agreement requires a "new loan" in the "first position."
The Serratos insist that their complaint is not that the loan Countrywide offered is in
the second position. Instead, their complaint is that the loan Countrywide offered is
not a "new loan," but a modified existing loan.
              The trial court found that the parties agree there is no economic
difference to the Serratos whether there is a new loan or modified loan, as long as
the terms are the same. The Serratos do not challenge this finding. They fail to
suggest how it could make the slightest difference to them whether the loan is new
or modified. In fact, a modified loan is a new loan secured by an existing trust
deed. Countrywide at the very least has substantially performed.
              It appears the Serratos believe they are entitled to hold their property
free and clear of all trust deeds except the Citi HELOC. In their view,
Countrywide, having done them the favor of paying off their first trust deed, should
simply go away. Nothing would justify that result.
              The Serratos' causes of action for quiet title and to cancel
Countrywide's notes and trust deeds are equitable in nature. (See Ebbert v.


                                           6
Mercantile Trust Co. (1931) 213 Cal. 496, 499.) In Ebbert, as here, plaintiff sought
cancellation of notes and trust deeds based on the beneficiary's failure to fully
perform a contract providing for the cancellation of the notes and trust deed in the
event of the beneficiary's failure to perform. Our Supreme Court held "[t]he notes
and deeds of trust should not be canceled unless defendants are reimbursed for the
reasonable value of the benefits already conferred by their part performance." (Id.
at p. 501.)
              Countrywide conferred benefits on the Serratos, including paying off
Citi's first trust deed in the amount of $307,000. It also relieved the Serratos of any
obligation to pay interest for approximately four years. In exercising its equitable
powers the trial court must balance the equities. (Lickiss v. Financial Industry
Regulatory Authority (2012) 208 Cal.App.4th 1125, 1133-1134.) As in Ebbert,
there is no justification for cancelling Countrywide's notes and trust deeds without
the Serratos' tender of the return of the benefits conferred on them by Countrywide,
including $307,000 plus interest for four years. There is no evidence the Serratos
made any such tender. The Serratos are certainly not entitled to hold their property
free and clear save only for the Citi HELOC.
              The Serratos argue that the settlement agreement contains no
provision requiring such a tender. But the requirement that the Serratos tender
repayment of the benefits received does not lie in contract. Instead, it is inherent in
the equitable relief the Serratos now seek.
                                          III.
              The Serratos contend the trial court violated the parol evidence rule by
materially altering the settlement agreement.
              The parol evidence rule prohibits the introduction of extrinsic
evidence to vary or add to the terms of an integrated written contract. (2 Witkin,
Cal. Evidence (5th ed. 2012) Documentary Evidence, § 60, p. 199.) An integrated
agreement is a writing constituting a final expression of one or more terms of the
agreement. (Id. at § 66, p. 206.)


                                           7
               Here the settlement agreement contains a clause stating that the
agreement constitutes the entire agreement and understanding between the parties.
Thus, it is a fully integrated agreement to which the parol evidence rule applies.
               But the trial court did not alter the terms of the settlement agreement.
Instead, the court determined that Countrywide substantially performed the terms of
the agreement as it was written. Determining that Countrywide has substantially
performed the agreement as it was written does not violate the parol evidence rule.
                                            IV.
               The Serratos contend the doctrine's of impossibility of performance
and frustration of purpose do not apply.
               Suffice it to say, the trial court did not apply those doctrines. It
decided the case on substantial performance.
                                             V.
               The Serratos contend that the court erred in ruling they lack standing
under the Pooling Service Agreement (PSA) for Loan 25.
               When Countrywide sold Loan 25 to BONY, it entered into a PSA.
Under the PSA Countrywide warranted to BONY, among other things, that the loan
was senior to all other loans, there were no defaults and that Countrywide was not
aware of any problems with the loan.
               But the Serratos were not parties to the PSA. It made no warranties to
them, and they had no standing to enforce it. Nevertheless, the Serratos claim the
PSA is relevant on a number of issues.
               First, the Serratos claim the PSA is relevant to determining the
equities under Lloyd v. Murphy (1944) 25 Cal.2d 48. Lloyd concerns the doctrine of
frustration of purpose. The court did not base its decision on frustration of purpose.
               Second, the Serratos argue the PSA is relevant to Countrywide's
assertion that its claim against its title insurer is not ripe unless the first trust deed
forecloses. The Serratos argue that because Loan 25 is not in the first position, as
warranted in the PSA, Countrywide will be required to repurchase the loan from


                                             8
BONY. But the Serratos point to no evidence that BONY has or ever will demand
that Countrywide repurchase the loan. Countrywide cannot base a claim against its
title insurer on speculation that at some time Countrywide may be required to
repurchase the loan.
              Third, the Serratos argue the PSA is relevant to "'reasonable
apprehension'" under Civil Code section 3412. That section provides: "A written
instrument, in respect to which there is a reasonable apprehension that if left
outstanding it may cause serious injury to a person against whom it is void or
voidable, may, upon his application, be so adjudged, and ordered to be delivered up
or canceled." The Serratos claim they have a reasonable apprehension that
collection activities will persist as long as Loan 25 remains on BONY's books. But
Loan 25 is not void or voidable, Countrywide admitted the collection efforts were a
mistake, and the collection efforts have stopped. The PSA is irrelevant.
                                          VI.
              The Serratos contend the trial court erred in admitting the testimony
of Robert Villegas and Sanford Shatz.
              Villegas was the person designated by Countrywide as the person
most knowledgeable about the loans. He testified that Countrywide could not
provide a new first trust deed, and admitted the foreclosure proceedings were a
mistake.
              The Serratos point out that Villegas testified that at the time of his
deposition, he had no personal knowledge of the loans or the settlement. But a
person most knowledgeable is not limited to testifying on personal knowledge in a
deposition. Instead, he may testify to the extent of information "reasonably
available to the deponent." (Code Civ. Proc., § 2025.230.)
              The Serratos argue that at trial Villegas offered new evidence that was
not disclosed in his deposition. The court overruled the Serratos' objection that it
was "trial by ambush." The Serratos fail to mention that the trial court offered them
additional time to respond.


                                           9
              The trial court did not err in admitting the evidence. But even if it did
err, that alone would not be grounds for reversal. The Serratos have the burden of
not only showing error, but prejudice arising from the error. (9 Witkin, Cal.
Procedure (5th ed. 2008) Appeal, § 417, p. 476.) The Serratos make no attempt to
show prejudice.
              Schatz is an attorney who was employed by Countrywide in its
litigation department. Shatz testified about the contents and legal effect of the PSA.
              Shatz testified it took him only two minutes to review the document.
He could not point to the place in the PSA where it said Countrywide had "full
delegable authority to modify Loan 25."
              But Shatz testified that he worked at Countrywide for a decade,
worked on many lawsuits that involved BONY as an investor, and has spoken with
the attorney who drafted the PSA. Under the circumstances, a reasonable trier of
fact could conclude Shatz needed only two minutes to review the document. That
Shatz could not at the moment he was testifying point to the place in a lengthy
document where a particular phrase is located is hardly fatal to his testimony.
              The Serratos fail to show error in admitting Shatz's testimony, and do
not even attempt to show prejudice.
                                          VII.
              The Serratos contend the trial court's ruling did not address judicial
estoppel.
              Judicial estoppel applies where the same party has taken two
positions; the party was successful in asserting the first position; the two positions
are totally inconsistent; and the first position was not taken as a result of ignorance,
fraud or mistake. (Kelsey v. Waste Management of Alameda County (1999) 76
Cal.App.4th 590, 598.) Judicial estoppel is an extraordinary remedy that should be
applied with caution. (Ibid.) It is an equitable doctrine, and even when all the
elements are present, its application is discretionary. (MW Erectors, Inc. v.
Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412, 422.)


                                           10
               The Serratos claim of judicial estoppel is based on Countrywide's
promise in the settlement agreement to write a new loan. The Serratos dismissed
their first lawsuit based on that promise. In the intervening years, Countrywide
continued to represent it would write a new loan. Countrywide even got a
continuance of the instant trial to allow it time to write the new loan.
               But Countrywide is not now, nor has it ever, denied that the
settlement agreement provides for a new loan. Its current position is that it can
substantially comply with the settlement agreement by modifying an existing loan
to the same terms as the proposed new loan. Those positions are not inconsistent.
Judicial estopped does not apply.
                                          VIII.
               The Serratos contend that Countrywide agreed to indemnify them for
wrongful collection efforts.
               The settlement agreement provides that Countrywide releases the
Serratos from any claims for interest, cost of loans or other charges in connection
with Loans 25 and 33.
               The settlement agreement also contains an indemnity provision as
follows: "Defendants and the Serratos warrant and represent to each other that they
are the sole and lawful owners of all right, title and interest in and to all Released
Matters and that each has not assigned or transferred or purported to assign or
transfer to any person or entity any released material or any part or portion of any
released material. Defendants and the Serratos shall each indemnify and hold the
other harmless from and against any claim, demand, damage, debt, liability,
account, cost, expense, lien, action or cause of action based on, in connection with,
or arising out of any such assignment or transfer or purported or claimed transfer or
assignment."
               The Serratos argue they are entitled to indemnity for the costs and
attorney fees incurred in obtaining an injunction to stop the foreclosure proceedings



                                           11
on Loan 25. They request that we remand the matter to determine damages caused
by Countrywide's collection efforts.
              But the Serratos' complaint alleges causes of action for quiet title and
to cancel notes and trust deeds. It does not allege a cause of action for breach of
contract or indemnity. Nor do the Serratos point to any evidence of the amount of
damages or even an offer of such evidence. Under the circumstances, the trial court
did not err in failing to award damages. There is no basis for a remand.
              The judgment is affirmed. Costs are awarded to respondents.
              NOT TO BE PUBLISHED.




                                          GILBERT, P. J.


We concur:



              YEGAN, J.



              PERREN, J.




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                              Rebecca S. Riley, Judge
                        Superior Court County of Ventura
                       ______________________________


              Donald M. Adams, Jr., and Glenn J. Campbell for Plaintiffs and
Appellants.
              Bryan Cave LLP, Christopher L. Dueringer and Christina Rea for
Defendants and Respondents.
