Bundick v. Penny Mac Loan Services CA3

Filed 6/7/21 Bundick v. Penny Mac Loan Services CA3

NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Sacramento)
----

RUSSELL A. BUNDICK, C079577

Plaintiff and Appellant, (Super. Ct. No.
34201300146654CUORGDS)
v.

PENNY MAC LOAN SERVICES LLC,

Defendant and Respondent.

Plaintiff filed this action after losing his home to foreclosure. Plaintiff took out a
first and second deed of trust to finance the purchase of real property. He subsequently
refinanced, consolidating the debt into a single loan, and then he refinanced again.
Eventually, servicing of plaintiff’s loan was transferred to defendant Penny Mac Loan
Services LLC (Penny Mac). Plaintiff fell two months behind on his loan. Plaintiff
alleged that Penny Mac refused to accept his payments to make the loan current.

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Thereafter, he submitted a loan modification application, which was denied. He
subsequently submitted another loan modification application. Although plaintiff never
alleged Penny Mac agreed to consider his second loan modification application, he
alleged this second request remained pending when his home was sold at a trustee’s
foreclosure sale to former codefendant DEG Equities, LLC (DEG). Plaintiff commenced
this action and subsequently filed first and second amended complaints. Plaintiff asserted
causes of action premised on wrongful foreclosure, negligence, and breach of the implied
covenant of good faith and fair dealing. The trial court sustained Penny Mac’s demurrers
to the original complaint, the first amended complaint, and the second amended
complaint. Plaintiff filed a third amended complaint asserting a single cause of action
against Penny Mac premised on its alleged breach of the implied covenant of good faith
and fair dealing. The trial court sustained Penny Mac’s demurrer, this time without leave
to amend.
In his appellate briefing, plaintiff asserts that: (1) he sufficiently pleaded a cause
of action for wrongful foreclosure in his first amended complaint; (2) he sufficiently
pleaded a cause of action premised on negligence in his first amended complaint; (3) he
sufficiently pleaded the cause of action in his third amended complaint premised on
Penny Mac’s alleged breach of the implied covenant of good faith and fair dealing; and
(4) if he cannot state a cause of action based on breach of the implied covenant of good
faith and fair dealing, he should be granted leave to amend to assert a cause of action for
intentional interference with contract.
We affirm.

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 FACTUAL AND PROCEDURAL BACKGROUND1
In July 2001, plaintiff purchased real property in Elk Grove which served as his
primary residence. He took out a first and second deed of trust to finance the property.
Approximately one year later, plaintiff refinanced, consolidating the debt into a single
loan, and he refinanced again in 2006.
On June 15, 2010, Penny Mac issued a letter to plaintiff informing him that his
loan had been transferred to Penny Mac. Plaintiff alleged that he continued to make
monthly payments to the former loan servicer through October 10, 2010. The third
amended complaint does not explain why he continued to make payments to the former
loan servicer after Penny Mac’s June 15, 2010, letter.2 Plaintiff alleged that, in a letter
dated July 9, 2010, Penny Mac stated he was delinquent in the amount of $6,439, which
amounted to two months plus fees. Plaintiff alleged “[o]n information and belief, [he]
was not delinquent as stated in said July 9, 2010 letter.” On or about October 2010,
Penny Mac threatened to foreclose. Plaintiff alleged that after receiving a demand for

1 The factual allegations are taken from the third amended complaint, which is the
operative complaint.
2 In his original complaint, plaintiff did not mention the letter dated June 15, 2010. He
alleged the loan servicing was transferred to Penny Mac in “early 2010” and that “[he]
was never notified of this fact by [the former loan servicer] and therefore continued to
make his $2,300 per month mortgage payment to them until October, 2010, at which
point he learned that Penny Mac was initiating foreclosure proceedings in that they had
not been paid since taking over the servicing of his mortgage.” The letter was one of the
subjects of Penny Mac’s request for judicial notice in support of its demurrer to the third
amended complaint. The first two paragraphs of the letter read: “Congratulations! [¶]
Your home loan has been transferred to PennyMac Loan Services, LLC (PennyMac).
This letter serves as your official notification of the transfer, which is effective July 1,
2010 as well as welcome to the PennyMac family.” The penultimate paragraph
references “a quick start guide” included with the letter that outlines the next steps
plaintiff should take. In large bold print, the first item on the quick start guide reads:
“Start sending your loan payments to PennyMac” and provides the address.

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payment of $14,000, which he did not owe, he paid Penny Mac $14,050. He alleged the
payment later appeared in the December 2010 statement, showing his account current.
Subsequently, plaintiff’s mother needed financial help and plaintiff provided assistance.
As a result of using money to help his mother, plaintiff fell two months behind in his
payments to Penny Mac. According to plaintiff, “by November 19, 2011, he had saved
enough to catch up those two past due months and called Penny Mac to make the
payment . . . .” Plaintiff alleged that, during the phone call, an unnamed person told him:
“they would not accept his payment and that ‘we don’t want your money, we want your
house, we will stop taking your payments and after you fall far enough behind we will
foreclose on your home.’ ” Plaintiff did not allege he sent Penny Mac these payments.
Plaintiff alleged he submitted a Home Affordable Modification Program (HAMP)
modification request to Penny Mac in January 2012, which was denied on an unspecified
date.3 A notice of default was recorded on May 11, 2012. Plaintiff did not allege he
attempted to cure the default by paying or attempting to pay all of his past due payments.
Plaintiff alleged that in July 2012, he learned he could resubmit a loan
modification request under the new HAMP Tier II program and he submitted an
application that month. Plaintiff did not allege that he learned about the HAMP II
program from Penny Mac. Nor did he allege Penny Mac accepted and agreed to consider
this second application for loan modification. According to plaintiff, his “request” was
still “pending” when his property was sold at a trustee’s foreclosure sale on November

3 “ ‘[T]he United States Department of the Treasury implemented [HAMP] to help
homeowners avoid foreclosure during the housing market crisis of 2008. “The goal of
HAMP is to provide relief to borrowers who have defaulted on their mortgage payments
or who are likely to default by reducing mortgage payments to sustainable levels, without
discharging any of the underlying debt.” ’ ” (Lueras v. BAC Home Loans Servicing, LP
(2013) 221 Cal.App.4th 49, 56, fn. 1 (Lueras).)

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28, 2012. He alleged he was never notified the second loan modification application had
been denied.
Plaintiff commenced this action against Penny Mac, among others. In the first
cause of action, for breach of the implied covenant of good faith and fair dealing, plaintiff
asserted that he and Penny Mac were in privity of contract and owed each other an
obligation of good faith and fair dealing. Plaintiff asserted that Penny Mac breached that
obligation by “mishandling” his HAMP Tier II loan modification application, delaying
action on his request, proceeding with the foreclosure sale without resolving this second
loan modification request, failing to give him notice of the sale, and improperly
foreclosing during the pendency of his second loan modification request.
In the second cause of action, plaintiff asserted that Penny Mac caused an illegal
foreclosure of his real property in violation of Civil Code section 2923.6.
Penny Mac filed a demurrer to the complaint. In opposition to the demurrer,
plaintiff’s attorney stated that, after reviewing the demurrer, counsel “has determined that
the best course of action to take on behalf of Plaintiff is to voluntarily amend the existing
Complaint. This will allow . . . the restatement of Plaintiff’s complaints against Penny
Mac taking into consideration the points raised in their current demurrer.”4 Plaintiff
stated his intention to file a first amended complaint prior to the hearing on Penny Mac’s
demurrer.
Plaintiff filed a first amended complaint on March 13, 2014, four calendar days
before the hearing date on Penny Mac’s demurrer. In the first cause of action, plaintiff
reasserted the cause of action for breach of the implied covenant of good faith and fair

4 Penny Mac had pointed out that the provisions of Civil Code section 2923.6 that would
have supported plaintiff’s cause of action for wrongful foreclosure were not in effect at
the relevant times. (See Civ. Code, § 2923.6, as amended by Stats. 2012, ch. 87, § 7.)
Faced with this reality, plaintiff abandoned this statutory cause of action in later
amendments.

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dealing. In the second cause of action, plaintiff asserted that Penny Mac breached its
duty pursuant to relevant banking regulations to administer and consider plaintiff’s loan
modification request “and deny it properly” prior to proceeding to finalize foreclosure by
purposefully completing an “invalid and wrongful foreclosure of the Deed of Trust
during the pendency of the loan modification request.” Plaintiff did not cite any specific
banking regulations. Plaintiff further asserted that the foreclosure was wrongful “as a
result of [Penny Mac’s] refusal to allow Plaintiff to reinstate his two month delinquent
real estate loan and as a result of its failure to properly process and consider his loan
modification request prior to foreclosing including but not limited to [its] failure to give
notice of their intention to proceed with their foreclosure sale despite the pendency of the
loan modification request or give notice of the intended sale date.” In a third cause of
action, sounding in negligence, plaintiff asserted that Penny Mac had a duty to exercise
due care in servicing the loan, in “its reinstating of his delinquent real estate,” in
processing plaintiff’s loan modification request, and in handling the foreclosure of
plaintiff’s property. Plaintiff asserted that Penny Mac breached its duty by refusing to
reinstate plaintiff’s delinquent loan, in negligently processing plaintiff’s loan
modification application, and in completing the foreclosure sale during the pendency of
plaintiff’s loan modification request.
In a tentative ruling, the trial court characterized Penny Mac’s demurrer to the
original complaint as unopposed and sustained the demurrer. The trial court noted that
plaintiff filed what plaintiff called an opposition to the demurrer, but, according to the
court, plaintiff’s opposition “did not respond to the substance of the demurrer, which is
construed as plaintiff’s concession of the merits of [Penny Mac’s] demurrer.” The trial
court stated: “Since this is the first challenge to the complaint, leave to amend is
granted.” The court did not state any limitation to amendments. The trial court affirmed
the tentative ruling.

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 Thereafter, Penny Mac filed a demurrer to plaintiff’s first amended complaint. In
a tentative ruling, which the court later confirmed after a hearing, the trial court sustained
the demurrer. The court noted that the allegations asserted against Penny Mac in the first
amended complaint were “almost identical to those in the original complaint.”
The trial court rejected Penny Mac’s contention that, because DEG prevailed in its
unlawful detainer action against plaintiff, his claims challenging the validity of the sale of
his home were barred. The trial court concluded: “Because it is unclear whether
PennyMac even argues that res judicata and collateral estoppel dispose of an entire cause
of action, the court will not sustain any demurrer based on those doctrines.”
However, the trial court sustained the demurrer as to the first cause of action, for
breach of the implied covenant of good faith and fair dealing. The court concluded that
plaintiff’s allegations were insufficient to state a cause of action because he failed to
allege any facts establishing the existence of a contractual relationship between plaintiff
and Penny Mac upon which the cause of action could be based. The court granted leave
to amend because plaintiff asserted he could remedy the defect by alleging an implied
contractual relationship.
The court sustained the demurrer to the second cause of action for wrongful
foreclosure. The court stated: “When the court granted [plaintiff] leave to amend the
complaint, it did not grant leave to add new causes of action, including the second cause
of action for wrongful disclosure. If [plaintiff] wishes to add this or any other new cause
of action, he must do so after obtaining leave to amend pursuant to CRC 3.1324.
Because [plaintiff] did not move for or obtain leave of court to add his second cause of
action to the [first amended complaint], this cause of action is not properly before the
court.” Later in the minute order, the court stated: “[Plaintiff] may file and serve an
SAC in an effort to remedy the defects in his first cause of action for breach of the
implied covenant of good faith and fair dealing. [Plaintiff] may not add new causes of

7
action until such time as the court grants a proper motion for leave to amend pursuant to
CRC 3.1324.”
The trial court sustained the demurrer as to the third cause of action, sounding in
negligence, without leave to amend. The court noted that loan servicers generally do not
owe borrowers a duty of care that could support a negligence cause of action. The court
further stated that, while such a duty of care could arise, plaintiff did not allege that
Penny Mac went beyond its traditional role as a loan servicer, and he did not contend that
he could allege such facts.
Plaintiff filed a second amended complaint containing a single cause of action for
breach of the implied covenant of good faith and fair dealing. Prior to doing so, he did
not seek leave to add a cause of action for wrongful foreclosure; nor did he argue he
should have been allowed to do so without leave of the court prior to the date scheduled
for the hearing on the first demurrer.
In the second amended complaint, plaintiff alleged that he and Penny Mac
commenced a course of conduct “which resulted in an implied contract between them
whereby [Penny Mac] took over mortgage loan servicing and loan modification
processing of Plaintiff’s home loan from American Home Mortgage Servicing, Inc. and
Plaintiff began intrusting [Penny Mac] with his home loan payments and the processing
of his loan modification requests.” Plaintiff asserted that he and Penny Mac were in
privity of contract, and therefore had an ongoing implied obligation of good faith and fair
dealing to each other. Plaintiff asserted that Penny Mac breached that implied obligation
“as a result of their refusal to accept his reinstatement payment and their purposeful
mishandling of his HAMP Tier II loan modification request including, but not limited to:
delaying action on his loan modification request, proceeding with their foreclosure sale
without first denying his loan modification, failing to give him proper notice of the
Notice of Trustee’s Sale and as a result of their invalid and wrongful foreclosure of the
Deed of Trust during the pendency of his loan modification in violation of law.”

8
 Again, Penny Mac filed a demurrer. Penny Mac asserted there was no contractual
relationship between it and plaintiff because the only contract involved was the loan
agreement, to which Penny Mac was not a party. Because there was no contractual
relationship, plaintiff could not assert a cause of action premised on breach of the implied
covenant of good faith and fair dealing. Penny Mac further asserted that there were no
facts to support the existence of an implied contract. Further, Penny Mac asserted that
plaintiff failed to allege facts to show the existence of any breach. Penny Mac asserted
that it was under no legal or contractual duty to modify plaintiff’s loan, and that plaintiff
lacked standing to allege noncompliance with HAMP guidelines. Penny Mac also
emphasized that plaintiff had filed three bankruptcy petitions in an effort to undo the
foreclosure sale, and that DEG, the entity that purchased the home at foreclosure,
obtained an unlawful detainer judgment against plaintiff which, according to Penny Mac,
collaterally estopped plaintiff from asserting his claims.
In a tentative ruling, the trial court sustained Penny Mac’s demurrer without leave
to amend. The trial court concluded that plaintiff failed to adequately plead the existence
of an implied contract, and therefore failed to plead a sufficient contractual basis for the
remaining cause of action. The trial court stated that plaintiff “has pled only that
PennyMac serviced his loan pursuant to the servicing agreement between PennyMac and
[plaintiff’s] lender. [Plaintiff] alleges no facts indicating that he provided any
consideration to PennyMac or that PennyMac benefited from [plaintiff’s] actions.
Moreover, courts have held that a servicing agreement between a mortgage beneficiary
and a servicer is not a contract to which the borrower is a party.” Based on this
reasoning, the trial court concluded that plaintiff failed to adequately plead the existence
of an implied contract, and thus the cause of action failed.
The trial court also noted that plaintiff sought a judgment ordering Penny Mac to
repurchase the subject property, return title to plaintiff, and reinstate and modify his loan.
The court stated that the tender rule required as a precondition to challenging a

9
nonjudicial foreclosure sale that the borrower make a valid and viable tender of payment,
and the absence of an allegation of ability to tender is fatal to a cause of action seeking to
challenge or prevent a nonjudicial foreclosure sale. Additionally, to effect rescission or
cancellation, tender was required. The court stated that plaintiff’s failure to allege that he
tendered the debt also rendered plaintiff’s cause of action fatally deficient. The court
stated that plaintiff failed to demonstrate the likelihood that he could amend the
complaint to cure the defects, and, accordingly, the trial court in the tentative ruling
sustained the demurrer without leave to amend.
After the tentative ruling, the matter was argued and submitted and the trial court
affirmed its tentative ruling. However, it modified that ruling to again grant leave to
amend.
Plaintiff filed his third amended complaint which, like the second amended
complaint, asserted a single cause of action for breach of the implied covenant of good
faith and fair dealing. In addition to reasserting the factual basis for his claims, plaintiff
asserted that the “contract on which this cause of action . . . is based [is] the direct written
Note and Deed of Trust which as alleged herein was transferred to Penny Mac Trust and
then to Penny Mac or in the alternative Penny Mac was acting as the agent of Penny Mac
Trust with regards to the acts stated herein.” Plaintiff further asserted that Penny Mac
breached the implied covenant of good faith and fair dealing when it refused to allow
plaintiff to cure his two-month arrearage, and when it proceeded to foreclose despite
plaintiff’s willingness to cure the arrearage and despite the fact that his loan modification
application remained pending. Plaintiff further asserted that Penny Mac failed to credit
payments, failed to accept cure payments, and failed to modify the loan in good faith.
Plaintiff asserted that, while generally a party to a contract must perform or make an offer
of performance to hold the other party liable for a breach, no tender is required if it would
be futile. Plaintiff also repeated the allegations set forth in the second amended

10
complaint concerning Penny Mac’s alleged purposeful mishandling of plaintiff’s HAMP
Tier II loan modification application.
Penny Mac once again demurred.5 Penny Mac asserted that, rather than attempt to
set forth facts sufficient to establish the existence of an implied contract, plaintiff
“reverses course from his prior pleadings and representations, abandoning his implied
contract allegations in favor of re-asserting his previously-dismissed contention that this
mortgage servicer PennyMac breached his written loan contract (i.e. his promissory note
and Deed of Trust) by wrongfully refusing his attempt to reinstate the loan following his
conceded default, and later by foreclosing on the subject property.”
Penny Mac asserted that plaintiff’s cause of action remained deficient because:
(1) Penny Mac was not a party to the mortgage loan agreement, but instead merely
serviced the loan; (2) a servicing agreement between a mortgage beneficiary and a loan
servicer is not a contract to which a borrower is a party upon which contract-based claims
may be premised; (3) plaintiff’s efforts to recharacterize his cause of action as one for
breach of a written contract violated the trial court’s prior orders, contradicted his own
concession that there was no written contract between the parties, and gave rise to a
“ ‘sham pleading’ ”; (4) plaintiff’s contention that Penny Mac could be held liable as an
agent for the nonparty beneficiary was belied by case law holding that an agent cannot be
liable for breach of a duty flowing from a contract to which the agent is not a party; and

5 As it did with each of its demurrers, Penny Mac filed a request for judicial notice. The
items that were the subject of the request for judicial notice in connection with the third
amended complaint included the July 21, 2006, deed of trust; a March 2012 assignment
of the deed of trust; a June 2010 letter from Penny Mac to plaintiff notifying plaintiff the
loan had been transferred to Penny Mac; the notice of default and election to sell under
deed of trust; a substitution of trustee; a notice of trustee’s sale; a trustee’s deed upon
sale; a home affordable modification agreement; dockets for three bankruptcy petitions
filed by plaintiff; the complaint in DEG’s unlawful detainer action against plaintiff;
judgment in that action; and prior filings in this case. The trial court granted Penny
Mac’s latest request for judicial notice as unopposed.

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(5) the trial court already dismissed plaintiff’s wrongful foreclosure claim which was
based on “ ‘dual tracking,’ ” and, in any event, the statute on which the claim was
premised was not effective in November 2012, when the foreclosure sale took place.
Penny Mac reiterated its position that there was no contract between the parties to support
a cause of action premised on breach of the implied covenant of good faith and fair
dealing. Penny Mac also asserted that, not only did plaintiff fail to specifically identify a
contract term that it breached, but plaintiff conceded his own nonperformance both by
becoming delinquent by two payments and by making payments to the former servicer
rather than to Penny Mac after Penny Mac became the loan servicer. Additionally, Penny
Mac again asserted that, while plaintiff contended that it violated HAMP guidelines,
plaintiff was not a party to any HAMP contract and he was not an intended beneficiary
thereto.
In a tentative ruling, the trial court sustained Penny Mac’s demurrer to the third
amended complaint, without leave to amend. The court stated that plaintiff’s new
allegation that Penny Mac became the holder of the note rather than merely the loan
servicer “constitutes a sham pleading in light of numerous repeated judicial admissions in
plaintiff’s own pleadings and filings.” The court recited that plaintiff in the original
complaint, the first amended complaint, and the second amended complaint identified
Penny Mac as the loan servicer. The court also emphasized that, in opposition to Penny
Mac’s demurrers to the first and second amended complaints, plaintiff admitted that there
was no written contract between the parties. Therefore, the trial court stated that
“plaintiff cannot at this late stage of the pleadings ignore his multiple admissions that
PennyMac was merely a loan servicer and had no written contract with plaintiff in an
attempt to cure the defects in his complaint based on an allegation that PennyMac was the
owner of the loan and thus, had a contract with plaintiff.” As a result, the court stated
that the third amended complaint failed to adequately plead the existence of any contract
upon which a claim for breach of the implied covenant of good faith and fair dealing

12
could be premised. The court noted that plaintiff had attempted to plead his claims four
times, and concluded that plaintiff had no “reasonable probability” of curing the defects
in his pleadings. Accordingly, the trial court sustained the demurrer without leave to
amend. Thereafter, the trial court adopted the tentative ruling and entered a judgment of
dismissal.
DISCUSSION

I. Standard of Review and
Law Pertaining to Amending Defective Complaints
A demurrer tests the sufficiency of the complaint as a matter of law, and it raises
only questions of law. (Code Civ. Proc., § 589, subd. (a).)6 “[I]n passing upon the
question of the sufficiency or insufficiency of a complaint to state a cause of action, it is
wholly beyond the scope of the inquiry to ascertain whether the facts stated are true or
untrue. That is always the ultimate question to be determined by the evidence upon a
trial of the questions of fact. Obviously, the complaint, when appropriately challenged,
whether for want of sufficient facts or for an insufficient or inartificial statement of the
facts, must stand or fall by its own force.” (Colm v. Francis (1916) 30 Cal.App. 742,
752.) “We review a trial court’s decision to sustain a demurrer for an abuse of
discretion.” (Zipperer v. County of Santa Clara (2005) 133 Cal.App.4th 1014, 1019
(Zipperer).) “In reviewing an order sustaining a demurrer, we examine the operative
complaint de novo to determine whether it alleges facts sufficient to state a cause of
action under any legal theory. [Citation.] Where the demurrer was sustained without
leave to amend, we consider whether the plaintiff could cure the defect by an amendment.
The plaintiff bears the burden of proving an amendment could cure the defect.” (T.H. v.
Novartis Pharmaceuticals Corp. (2017) 4 Cal.5th 145, 162 (T.H.); accord Vanacore &
Associates, Inc. v. Rosenfeld (2016) 246 Cal.App.4th 438, 454 (Vanacore).) “ ‘ “To

6 Further undesignated statutory references are to the Code of Civil Procedure.

13
satisfy that burden on appeal, a plaintiff ‘must show in what manner he can amend his
complaint and how that amendment will change the legal effect of his pleading.’
[Citation.] The assertion of an abstract right to amend does not satisfy this burden.”
[Citation.] The plaintiff must clearly and specifically state “the legal basis for
amendment, i.e., the elements of the cause of action,” as well as the “factual allegations
that sufficiently state all required elements of that cause of action.” ’ ” (Vanacore, at
p. 454, italics added; accord, Casiopea Bovet, LLC v. Chiang, (2017) 12 Cal.App.5th 656,
664 (Casiopea); People ex rel. Brown v. Powerex (2007) 153 Cal.App.4th 93, 112
(Brown) [appellant has a “duty to spell out in his brief the specific proposed amendments
on appeal”].)
II. Wrongful Foreclosure
A. Plaintiff’s Contentions
Plaintiff asserts that the trial court erred in sustaining the demurrer to the first
amended complaint without leave to amend as to the cause of action for wrongful
foreclosure on the ground that plaintiff failed to seek leave to amend his complaint to add
such a cause of action. Plaintiff asserts that he filed his first amended complaint adding
such a cause of action as a matter of right pursuant to section 472. Plaintiff emphasizes
that he submitted his first amended complaint prior to the trial court’s ruling on Penny
Mac’s demurrer to the original complaint, substituting the wrongful foreclosure cause of
action for the cause of action premised on Civil Code section 2923.6. Plaintiff maintains
that, contrary to the trial court’s ruling, he was not required to seek leave to amend his
original complaint to add this cause of action because, pursuant to the version of section
472 in effect at the time, he could amend his complaint once as a matter of right prior to
the hearing on the pending demurrer. Additionally, plaintiff emphasizes that the theories
underlying the statutory cause of action in the original complaint and the wrongful
foreclosure cause of action in the first amended complaint were nearly identical. Plaintiff
asserts that his cause of action is premised on the factual allegations that Penny Mac is

14
subject to unspecified federal banking regulations which required it to administer and
consider his second loan modification application and act on it before proceeding to
foreclosure and that the foreclosure was wrongful because Penny Mac: (1) breached its
duty by completing the foreclosure while his application remained pending; (2) refused to
allow him to make two past-due payments and reinstate his loan; and (3) failed to inform
plaintiff of its intent to proceed with foreclosure and also failed to provide notice of the
sale date.
B. Filing of First Amended Complaint as of Right
The version of section 472 in effect at all relevant times here provides: “Any
pleading may be amended once by the party of course, and without costs, at any time
before the answer or demurrer is filed, or after demurrer and before the trial of the issue
of law thereon, by filing the same as amended and serving a copy on the adverse
party . . . .” (Former § 472, italics added.) Plaintiff filed his first amended complaint
four calendar days before the hearing on Penny Mac’s demurrer. Thus, he filed the first
amended complaint “before the trial of the issue of law” on that demurrer and
consequently, the first amended complaint was filed as of right under the version of
section 472 in effect at the time. Therefore, we agree with plaintiff that the trial court
erroneously sustained the demurrer without leave to amend as to the wrongful foreclosure
cause of action on the ground that the cause of action was not properly before the court
since the court had not granted plaintiff leave to amend his complaint to add new causes
of action.
Accordingly, we will proceed to examine whether the wrongful foreclosure action
was sufficiently pled in the amended complaint, and, if not, whether plaintiff should be
allowed to amend and whether he has demonstrated he could cure any defects if granted
leave to amend. While the trial court did not reach these arguments, “[a] judgment of
dismissal after a demurrer has been sustained without leave to amend will be affirmed if

15
proper on any grounds stated in the demurrer, whether or not the court acted on that
ground.” (Carman v. Alvord (1982) 31 Cal.3d 318, 324.)
C. Sufficiency of Pleading for Wrongful Foreclosure
“A wrongful foreclosure is a common law tort claim. It is an equitable action to
set aside a foreclosure sale, or an action for damages resulting from the sale, on the basis
that the foreclosure was improper.” (Sciarratta v. U.S. Bank National Assn. (2016) 247
Cal.App.4th 552, 561 (Sciarratta), citing Miles v. Deutsche Bank National Trust Co.
(2015) 236 Cal.App.4th 394, 408-409 (Miles).) “The elements of the tort of wrongful
foreclosure are: ‘ “(1) the trustee or mortgagee caused an illegal, fraudulent, or willfully
oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust;
(2) the party attacking the sale (usually but not always the trustor or mortgagor) was
prejudiced or harmed; and (3) in cases where the trustor or mortgagor challenges the sale,
the trustor or mortgagor tendered the amount of the secured indebtedness or was excused
from tendering” ’; and (4) ‘ “no breach of condition or failure of performance existed on
the mortgagor’s or trustor’s part which would have authorized the foreclosure or exercise
of the power of sale.” ’ ” (Majd v. Bank of America, N.A. (2015) 243 Cal.App.4th 1293,
1306-1307 (Majd), quoting Miles, at p. 408.) “Expanding on the fourth element, . . . ‘the
foreclosure must have been entirely unauthorized on the facts of the case.’ ” (Majd, at
p. 1307, quoting Miles, at p. 409, italics added.)
As plaintiff emphasizes, in the wrongful foreclosure cause of action in his first
amended complaint, he pled: Penny Mac was subject to banking regulations; those
banking regulations obligated Penny Mac to administer and consider plaintiff’s loan
modification application and act on it before foreclosing; Penny Mac breached its duty by
completing the foreclosure sale while plaintiff’s loan modification application remained
pending; Penny Mac wrongfully refused to allow plaintiff to reinstate his loan by making
two past-due payments; and Penny Mac wrongfully failed to inform plaintiff of its intent
to proceed with foreclosure and to give him notice of the intended sale date.

16
 With regard to the regulations alleged to be at issue, plaintiff asserts that Penny
Mac improperly engaged in “dual tracking” in purported violation of the HAMP
guidelines. “Dual tracking” refers to where a bank, lender, or similar institution
“initiate[s] a loan modification review while simultaneously proceeding with
foreclosure . . . .” (Majd, supra, 243 Cal.App.4th at p. 1302.) Discussing those HAMP
guidelines, the Majd court stated: “[I]n 2010 the United States Department of the
Treasury promulgated HAMP supplemental directive 10-02, which states, ‘A servicer
may not refer any loan to foreclosure or conduct a scheduled foreclosure sale unless and
until at least one of the following circumstances exists: [¶] The borrower is evaluated
for HAMP and is determined to be ineligible for the program.’ [Citation.] HAMP
Supplemental Directive 10-02 also provides a 30-day foreclosure moratorium following
denial of a modification to permit borrowers to respond to the denial. ‘The servicer may
not conduct a foreclosure sale within the 30 calendar days after the date of a ‘Non-
Approval Notice’ or any longer period required to review supplemental material provided
by the borrower in response to a Non-Approval Notice unless the reason for the non-
approval is’ based on factors not pertinent here. [Citation.] In other words, the servicer
cannot foreclose until at least 30 days after the loan modification review is completed.”
(Majd, at p. 1302, italics added.)
In Majd, the court concluded that the plaintiff’s “theory of liability—that
foreclosure was improper during the modification review process—is a viable theory on
which to base causes of action for . . . wrongful foreclosure . . . .” (Majd, supra, 243
Cal.App.4th at p. 1300.) Discussing the plaintiff’s wrongful foreclosure cause of action,
the Majd court listed the elements of such a cause of action set forth ante, and then stated:
“Tracking these elements, plaintiff alleged the foreclosure was in breach of Bank of
America’s legal obligations and that his modification was denied on a false claim that he
failed to produce all required documentation. As we explained above, plaintiff alleged
prejudice in that he may have been able to avoid the foreclosure had Bank of America

17
completed the modification review process in good faith. Plaintiff was excused from
tendering. And, under the facts as alleged, foreclosure was not authorized.” (Id. at
p. 1307.)
Here, with regard to the first element, plaintiff was required to allege that Penny
Mac “caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant
to a power of sale in a mortgage or deed of trust . . . .” (Sciarratta, supra, 247
Cal.App.4th at p. 561-562.) As in Majd, plaintiff here alleges “the foreclosure was in
breach of [Penny Mac’s] legal obligations” under the HAMP guidelines prohibiting
foreclosure while a HAMP modification is pending. (Majd, supra, 243 Cal.App.4th at
p. 1307.)
But, as noted ante, the Treasury Guidelines specify that a servicer may refer a loan
to foreclosure or conduct a scheduled foreclosure sale after the borrower is evaluated for
HAMP and is determined to be ineligible for the program. Based on Plaintiff’s
complaint, he was rejected for HAMP in connection with his first modification
application. Plaintiff cites no HAMP rules that precludes foreclosure during a second or
subsequent request for modification under HAMP.
Moreover, plaintiff alleged no facts establishing that Penny Mac actually initiated
a second loan modification review. He alleged only the following: “A complete HAMP
Tier II loan modification request was still pending, had never been denied in writing or
otherwise and Plaintiff was continuing to have periodic contact with PennyMac, by and
through his representative, regarding the loan modification all the way up to and after the
illegal trustee’s sale as he continue[d] his efforts to have this illegal trustee’s sale set
aside voluntarily.” Conspicuously absent from the complaint is any allegation that, after
he requested review, Penny Mac agreed to consider his second application, was
considering it, or was otherwise obligated to consider it. “Dual tracking” occurs when a
bank, lender, or similar institution “initiate[s] a loan modification review while
simultaneously proceeding with foreclosure . . . .” (Majd, supra, 243 Cal.App.4th at

18
p. 1302, italics added.) Plaintiff alleged insufficient facts to support the claim Penny Mac
violated unspecified regulations related to HAMP.
Remaining is plaintiff’s claim pertaining to the alleged November 2011 phone call
in which Penny Mac refused to allow him to cure his two-month delinquency. Plaintiff
does not allege how much was owing when the notice of default was filed in May 2012.
“ ‘ “A plaintiff in a suit for wrongful foreclosure has generally been required to
demonstrate the alleged imperfection in the foreclosure process was prejudicial to the
plaintiff’s interests.” ’ . . . ‘ “Prejudice is not presumed from ‘mere irregularities’ in the
process.” ’ ” (Kalnoki v. First American Trustee Servicing Solutions, LLC (2017) 8
Cal.App.5th 23, 48.) As Penny Mac asserts, plaintiff has failed to allege that “ ‘ “no
breach of condition or failure of performance existed on [plaintiff’s] part which would
have authorized the foreclosure or exercise of the power of sale.” ’ ” (Majd, supra, 243
Cal.App.4th at p. 1307, quoting Miles, supra, 236 Cal.App.4th at p. 408.) Nor has
plaintiff sufficiently alleged facts establishing that the foreclosure was “ ‘entirely
unauthorized on the facts of the case.’ ” (Majd, at p. 1307, quoting Miles, at p. 409.)
In his reply brief, plaintiff asserts that Penny Mac’s alleged “refusal to accept
[plaintiff’s] offer to cure his default in November 2011” by tendering his two past-due
payments “prejudiced [plaintiff] at that very moment.” However, even accepting
plaintiff’s allegations as true at this stage, and even accepting the implication that Penny
Mac’s refusal occurring six months before the notice of default was filed is connected to
the foreclosure which took place a full year after the refusal, the allegations still do not
establish or allege that “ ‘ “no breach of condition or failure of performance existed on
[plaintiff’s] part which would have authorized the foreclosure or exercise of the power of
sale” ’ ” (Majd, supra, 243 Cal.App.4th at p. 1307, quoting Miles, supra, 236
Cal.App.4th at p. 408), or that Penny Mac’s foreclosure was “ ‘entirely unauthorized on

19
the facts of the case.’ ”7 (Majd, at p. 1307, quoting Miles, at p. 409.) Plaintiff was
obligated to make payments and nothing in his complaint alleges he did or actually
attempted to do so.
As for his other theory concerning conduct prohibited by HAMP regulations,
addressed to foreclosure occurring while plaintiff was still being reviewed for a loan
modification, for the same reasons stated ante, we conclude that this allegation is
inadequate to sufficiently allege prejudice. Additionally, plaintiff’s claim concerning
lack of notice of the sale date also fails to sufficiently allege prejudice.
Accordingly, we conclude that plaintiff failed to sufficiently state a wrongful
foreclosure cause of action.

D. Leave to Amend
In his original briefing, plaintiff asserted that he could cure any defect in the
pleading through amendment and emphasized that the trial court dismissed the cause of
action on flawed procedural grounds. After we granted defendant’s motion to file
supplemental briefing to address Sheen v. Wells Fargo Bank, N.A., (2019) 38 Cal.App.5th
346, review granted, Nov. 13, 2019, S258019, and Weimer v. Nationstar Mortgage, LLC
(2020) 47 Cal.App.5th 341, 358 (Weimer), review granted, July 22, 2020, S262024,

7 We also note here that plaintiff does not assert in his complaint that he took any steps
to attempt to cure his default or bring his loan current other than speaking with the one
person in November 2011 who told him “ ‘we don’t want your money . . . .’ ” Plaintiff
did not allege that he actually submitted or attempted to submit payment in another
manner or that he attempted to speak with someone else at Penny Mac. Nor does he
allege he tried to cure his default after the notice of default was recorded on May 11,
2012, even though the notice of default is required to inform a borrower about the right
of reinstatement with the following language: “[Y]ou may have the legal right to bring
your account in good standing by paying all of your past due payments plus permitted
costs and expenses within the time permitted by law for reinstatement of your account . .
.” (Civ. Code, § 2924c, subd. (b)(1).) Plaintiff did not allege the notice of default did not
include this mandatory language.

20
plaintiff filed a response in which he further asserted he can cure by additional
amendments.
“We . . . review a trial court’s denial of leave to amend for an abuse of discretion.
[Citation.] ‘As a general rule, if there is a reasonable possibility the defect in the
complaint could be cured by amendment, it is an abuse of discretion to sustain a demurrer
without leave to amend.’ [Citations.] ‘Nevertheless, where the nature of the plaintiff’s
claim is clear, and under substantive law no liability exists, a court should deny leave to
amend because no amendment could change the result.’ ” (Zipperer, supra, 133
Cal.App.4th at p. 1020.)
First, we note that the trial court did not flatly prohibit plaintiff from amending to
add a wrongful foreclosure cause of action. True, it erroneously ruled plaintiff had to
seek leave to so amend, but it did not prohibit him from seeking leave to do so. Plaintiff
never did, even though he filed two subsequent amended complaints. “ ‘When a
demurrer is sustained with leave to amend, and the plaintiff chooses not to amend but to
stand on the complaint, an appeal from the ensuing dismissal order may challenge the
validity of the intermediate ruling sustaining the demurrer.’ ” (Lee v. Hanley (2015) 61
Cal.4th 1225, 1232, italics added.) The same rule should apply here, where seeking
amendment was not foreclosed and the court expressly raised the possibility of
amendment pursuant to California Rules of Court, rule 3.1324, but plaintiff did not
attempt to amend. Plaintiff here must “stand on the complaint” and cannot ask an
appellate court to allow amendments it could have requested of the trial court. (Reynolds
v. Bement (2005) 36 Cal.4th 1075, 1091 (Reynolds) [“ ‘It is the rule that when a plaintiff
is given the opportunity to amend his complaint and elects not to do so, strict construction
of the complaint is required and it must be presumed that the plaintiff has stated as strong
a case as he can’ ”]; Alfaro v. Community Housing Improvement System & Planning
Assn., Inc. (2009) 171 Cal.App.4th 1356, 1372 (Alfaro) [“When plaintiffs decline an

21
invitation to amend a cause of action, on appeal we assume that the complaint contains
their strongest statement of that cause of action”].)
Second, even if plaintiff would be entitled to offer amendments, he has failed to
make any showing that he has the ability to assert a meritorious wrongful foreclosure
cause of action. He did not offer anything in his original or supplemental briefing to
establish that Penny Mac actually accepted his second modification application for
review and initiated a second loan modification review. Nor has he offered any facts that
would establish “ ‘ “no breach of condition or failure of performance existed on
[plaintiff’s] part which would have authorized the foreclosure or exercise of the power of
sale.” ’ ” (Majd, supra, 243 Cal.App.4th at p. 1307, quoting Miles, supra, 236
Cal.App.4th at p. 408.)
As noted, plaintiff belatedly further sought leave to amend in his supplemental
briefing we ordered pursuant to Penny Mac’s request related to the negligence cause of
action. But even that request was inadequate. In responding to Penny Mac’s assertion in
its supplemental brief that plaintiff “does not allege that PennyMac agreed to undertake a
loan modification review for his benefit and in doing so mishandled his application,”
plaintiff asserted, as he did in the third amended complaint, that he learned in July 2012
that he could resubmit a loan modification request under HAMP Tier II and submitted a
new loan modification request on July 12. After having made multiple amendments in
the trial court, he said in his supplemental briefing: “If there is any doubt as alleged in
the briefs that it was [Penny Mac] who told him he could resubmit for a loan modification
that is easily curable by an amendment that he ‘learned’ of that from [Penny Mac].” But
this vague assertion falls far short of plaintiff’s obligation to “spell out in his
[supplemental] brief the specific proposed amendments” (Brown, supra, 153
Cal.App.4th at p. 112), and “specifically state” the “factual allegations” to support his
claim (Vanacore, supra, 246 Cal.App.4th at p. 454).

22
 Indeed, plaintiff did not assert in his supplemental briefing that Penny Mac
actually initiated a second modification review. He skirted this important fact again later
in his supplemental briefing, stating: “As alleged in the lawsuit the loan modification
application was solicited or accepted for review by the lender/servicer, it is a complete
application, has not been denied, and was still pending decision at the time of the
foreclosure sale. Any lack of clarity on these allegations with dates or exactly what was
submitted that make it a complete application, or the circumstance of the solicitation to
submit a modification application, that this Court might find is required to state a cause of
action the Complaint is amenable to so state.” (Italics added.) We find it misleading to
assert that the complaint alleged the “modification application was solicited or accepted
for review.” (Italics added.) It did not. Indeed, as we discuss post, in his original
briefing, plaintiff stated “Penny Mac seemingly agreed to review [plaintiff] for a loan
modification.” And the assertion in his supplemental briefing that plaintiff could make
things right by alleging whatever this court deems must be alleged turns the pleading
process on its head. It is plaintiff that must assert in his briefing the specific factual
allegations supporting his cause of action. (T.H., supra, 4 Cal.5th at p. 162; Vanacore,
supra, 246 Cal.App.4th at p. 454; Casiopea, supra, 12 Cal.App.5th at p. 664; Brown,
supra, 153 Cal.App.4th at p. 112 [vague claim that the court’s “concerns” “could be
‘address[ed]’ by an amendment . . . does not satisfy an appellant’s duty to spell out in his
brief the specific proposed amendments on appeal”].)
Finally, at oral argument, counsel for plaintiff conceded the wrongful foreclosure
cause of action was not adequately pled and amendments are required. Counsel
maintained that, based on documents his client had “submitted to Penny Mac,” he could
allege that plaintiff submitted the second modification application, that it was a complete
application, and that it was accepted for review by Penny Mac. It is not clear how
documents plaintiff submitted to Penny Mac would support an allegation that Penny Mac
actually accepted his second application for review. Nonetheless, even assuming these

23
belated, seemingly conclusory allegations are sufficient to establish Penny Mac accepted
his second modification for review and was purportedly reviewing it, they come far too
late. New issues cannot be raised for the first time in oral argument. (New Plumbing
Contractors, Inc. v. Nationwide Mutual Ins. Co. (1992) 7 Cal.App.4th 1088, 1098 [“new
issues cannot generally be raised for the first time in oral argument”].) Indeed, we
generally do not consider arguments made for the first time even in a reply brief, because
“ ‘[o]bvious considerations of fairness in argument demand that the appellant present all
of his [or her] points in the opening brief. To withhold a point until the closing brief
would deprive the respondent of his [or her] opportunity to answer it . . . . Hence the rule
is that points raised in the reply brief for the first time will not be considered, unless good
reason is shown for failure to present them before.’ ” (Reichardt v. Hoffman (1997) 52
Cal.App.4th 754, 764, quoting Neighbours v. Buzz Oates Enterprises (1990) 217
Cal.App.3d 325, 335, fn. 8.) Thus, where a plaintiff fails to show how the complaint can
be amended in their opening brief, we may properly regard any belated proposed
amendments as forfeited. (Allen v. City of Sacramento (2015) 234 Cal.App.4th 41, 52, 56
[rejecting points raised for the first time on appeal without good cause in reviewing trial
court’s ruling sustaining a demurrer without leave to amend].)
We do that here where at no time during the pendency of the appeal did plaintiff
seek leave to file a supplemental brief to state specific factual allegations he could make
if granted leave to amend and only made an insufficient attempt to do so in writing after
supplemental briefing was requested by Penny Mac on a different issue. Consequently,
we reject plaintiff’s belated claim that he could amend his complaint to allege that Penny
Mac actually accepted his second loan modification for review. Additionally, even at
oral argument, plaintiff did not offer any facts that would establish “ ‘ “no breach of
condition or failure of performance existed on [plaintiff’s] part which would have
authorized the foreclosure or exercise of the power of sale” ’ ” (Majd, supra, 243

24
Cal.App.4th at p. 1307, quoting Miles, supra, 236 Cal.App.4th at p. 408), yet another
shortcoming of his complaint.
We conclude that, even if plaintiff was not required to stand on the wrongful
foreclosure cause of action as set forth in the first amended complaint, he has not shown a
reasonable possibility he can cure the defects in his pleadings with amendment.
Accordingly, we conclude the demurrer was properly sustained without leave to amend
as to this cause of action.8
III. Negligence9
A. Plaintiff’s Contentions
Plaintiff asserts that the trial court erred in sustaining the demurrer to the first
amended complaint without leave to amend as to the cause of action sounding in
negligence. Plaintiff asserts that he alleged that Penny Mac assumed a duty of care to
him by: “(1) servicing the Subject Loan, (2) reinstating [plaintiff’s] delinquency, (3)
processing and considering his loan modification request, and (4) handling the
foreclosure.”10

B. Negligence Elements and the Allegations
in the First Amended Complaint

8 Given our conclusion, we need not address Penny Mac’s contention that the wrongful
foreclosure cause of action is barred by collateral estoppel based on DEG’s successful
unlawful detainer action against plaintiff.
9 We note, as emphasized by plaintiff, that while the negligence cause of action, like the
wrongful foreclosure cause of action, was newly asserted in the first amended complaint,
the trial court considered the merits of the demurrer relative to the negligence cause of
action while it declined to do so relative to the wrongful foreclosure cause of action.
10 In his appellate briefing, plaintiff stated the intent to confine his arguments to the first
three issues.

25
 Plaintiff asserts that the first amended complaint alleged that Penny Mac “had a
duty to exercise due care by accepting his monthly payments and allowing him to cure
any arrearages to bring his loan current, and to act reasonably in the loan modification
process.” Plaintiff maintains that Penny Mac breached the duty it owed him by refusing
to allow him to reinstate his loan and when it foreclosed on the subject property while his
loan modification application remained under review.
To support a negligence cause of action, a plaintiff must plead that the defendant
owed the plaintiff a legal duty, the defendant breached the duty, and that the breach was a
proximate or legal cause of the plaintiff’s injuries. (Merrill v. Navegar, Inc. (2001) 26
Cal.4th 465, 477.) “We start by identifying the allegedly negligent conduct by [Penny
Mac] because our analysis is limited to ‘the specific action the plaintiff claims the
particular [defendant] had a duty to undertake in the particular case.’ ” (Lueras, supra,
221 Cal.App.4th at p. 62, quoting Vasquez v. Residential Investments, Inc. (2004) 118
Cal.App.4th 269, 280; accord, Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228
Cal.App.4th 941, 944 (Alvarez).)
Relevant to his negligence cause of action, plaintiff asserted in the first amended
complaint that, having previously depleted his savings when his mother needed financial
assistance, he fell two months behind on his mortgage payments. When he had saved up
enough money to pay the arrears, he contacted Penny Mac in November 2011, but was
told by an unnamed person “they would not accept his payment and that ‘we don’t want
your money, we want your house, we will stop taking your payments and after you fall
far enough behind we will foreclose on your home.’ ” This occurred before plaintiff
submitted any application for modification.
In December 2011, plaintiff “began the process of seeking a loan modification and
submitted a HAMP modification request in January 2012.” Plaintiff’s request was denied
on some unspecified date, and a notice of default was recorded in May 2012. Plaintiff

26
asserted no allegations attempting to establish that Penny Mac’s consideration of this loan
modification application was mishandled.
In July 2012, plaintiff learned that he could submit a HAMP Tier II loan
modification request, and, through a paralegal, he did so. He did not assert that he
learned about HAMP Tier II from Penny Mac. According to plaintiff, “A complete
HAMP Tier II loan modification request was still pending, had never been denied in
writing or otherwise and Plaintiff was continuing to have periodic contact with
PennyMac, by and through his representative, regarding the loan modification all the way
up to and after the illegal trustee’s sale as he continue[d] his efforts to have this illegal
trustee’s sale set aside voluntarily. At no time prior to Penny Mac’s sale of his house on
November 28, 2012 was Plaintiff . . . ever advised . . . that the open pending loan
modification had been denied.”
In the body of the negligence cause of action, plaintiff asserted that, “Penny Mac
had a duty to Plaintiff to exercise due care in its servicing of his real estate loan, in its
reinstating of his delinquent real estate; in its processing and consideration of his loan
modification request and in its handling of their foreclosure of his home loan.” Plaintiff
asserted that Penny Mac breached its duty “as a result of their refusal to reinstate his
delinquent real estate loan, their negligent processing of his loan modification application
and their completion of their invalid and wrongful foreclosure of the Deed of Trust
during the pendency of the loan modification request . . . .”
C. Analysis
1. Conventional Money Lending Role and Biakanja
“Whether a duty of care exists is a question of law to be determined on a case-by-
case basis.” (Lueras, supra, 221 Cal.App.4th at p. 62.) “[A]s a general rule, a financial
institution owes no duty of care to a borrower when the institution’s involvement in the
loan transaction does not exceed the scope of its conventional role as a mere lender of
money.” (Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089,

27
1096.) In those cases where the institution’s involvement may fall outside the “general
rule,” we engage in a balancing of factors set forth in Biakanja v. Irving (1958) 49 Cal.2d
647, 650 (Biakanja). (Nymark, at p. 1098.) Setting forth these Biakanja factors, this
court in Nymark stated: “the test for determining whether a financial institution owes a
duty of care to a borrower-client ‘ “involves the balancing of various factors, among
which are [1] the extent to which the transaction was intended to affect the plaintiff, [2]
the foreseeability of harm to him, [3] the degree of certainty that the plaintiff suffered
injury, [4] the closeness of the connection between the defendant’s conduct and the injury
suffered, [5] the moral blame attached to the defendant’s conduct, and [6] the policy of
preventing future harm.” ’ ” (Ibid.)
We have recognized that lenders have no duty to offer or approve a loan
modification. (Weimer, supra, 47 Cal.App.5th at p. 358; Rossetta v. CitiMortgage, Inc.
(2017) 18 Cal.App.5th 628, 637-638 (Rossetta).) “[A] loan modification is the
renegotiation of loan terms, which falls squarely within the scope of a lending
institution’s conventional role as a lender of money.” (Weimer, at p. 357, quoting
Lueras, supra, 221 Cal.App.4th at p. 67.)
However, several courts, including this one, have found a duty, after applying the
Biakanja factors, in situations where the lender or servicer voluntarily undertakes to
renegotiate a loan modification and breached the duty to exercise reasonable care in
processing the loan modification application. (Weimer, supra, 47 Cal.App.5th at p. 356;
Rossetta, supra, 18 Cal.App.5th at p. 640; accord Daniels v. Select Portfolio Servicing,
Inc. (2016) 246 Cal.App.4th 1150, 1180-1183 (Daniels); Alvarez, supra, 228 Cal.App.4th
at pp. 946, 949; Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 881
(Jolley).)
2. Plaintiff’s Loan Modification Claim
As noted, we must start our analysis by identifying Penny Mac’s allegedly
negligent conduct because our analysis is limited to the specific action the plaintiff claims

28
Penny Mac had a duty to undertake. (Lueras, supra, 221 Cal.App.4th at p. 62.) Without
clarity of the conduct upon which the alleged negligence is based, we have nothing to
plug into the Biakanja analysis. And that conduct must be beyond that which falls
squarely within the scope of a lending institution’s conventional role as a lender of
money.
Looking first to the alleged second modification application, we note that
receiving and considering loan modification applications is squarely within the
conventional role of a lender of money. While plaintiff’s allegations establish Penny
Mac received his second loan modification application, plaintiff alleged no facts
establishing any conduct in connection with the alleged modification application that
would bring Penny Mac’s conduct outside that conventional role. Indeed, as noted ante,
plaintiff alleged no facts prior to oral argument establishing that Penny Mac even agreed
to consider the application or engaged in processing it. Nor has plaintiff ever set forth
specific facts indicating Penny Mac somehow mishandled the application, gave erroneous
advice, or made misrepresentations in accepting the application or during its processing.
Plaintiff relies on Alvarez and its conclusion that a loan servicer assumes a duty of
care when it agrees to review an application for loan modification. Relevant to a duty of
care, the plaintiffs in Alvarez alleged “that defendants owed them a duty to exercise
reasonable care in the review of their loan modification applications once they had
agreed to consider them. The complaint allege[d] . . . that defendants ‘undertook to
review’ plaintiffs’ loans for potential modification under [HAMP] and that having done
so they owed plaintiffs the duty to exercise reasonable care in processing and reviewing
their applications for loan modifications in accordance with the federal HAMP
guidelines.” (Alvarez, supra, 228 Cal.App.4th at pp. 944-945, italics added.) The
Alvarez plaintiffs alleged their modification applications had been mishandled.
Specifically, the complaint alleged that an employee of defendants named in the
complaint informed plaintiff Alvarez his application for modification of the loan secured

29
by his primary residence had been rejected because his monthly gross income of
$2,554.75 was inadequate, whereas his paystubs showed that his monthly gross income
was $6,075. (Id. at p. 945.) Regarding a loan modification for one of Alvarez’s rental
properties, he was told that his application showed a $6,318.98 deficit in monthly
income, but he alleged there was no such deficit. (Ibid.) Regarding a loan on
modification for Alvarez’s second rental property, the complaint alleged defendants
falsely advised plaintiff that no documents had been submitted when plaintiff alleged
documents were sent to and received by defendants. (Ibid.) Plaintiffs further alleged that
after working with defendants for over two years to obtain a loan modification,
defendants advised plaintiff that De Haro, a second lien holder, prevented the
modification from taking place, which plaintiffs alleged was false. (Ibid.)
Given those specific allegations of mishandling, the Alvarez court weighed the
Biakanja factors, considered relevant case law and concluded: “Here, because
defendants allegedly agreed to consider modification of the plaintiffs’ loans, the Biakanja
factors clearly weigh in favor of a duty.” (Alvarez, supra, 228 Cal.App.4th at pp. 948-
949, italics added.)
No case has held a lender has a duty to offer or approve a loan modification
application which necessarily gives rise to a tort duty of care. “[We] have found a duty
after applying the Biakanja factors, when the lender or servicer has voluntarily
undertaken to renegotiate a loan modification but breached the duty to exercise
reasonable care in processing the loan modification application.” (Weimer, supra, 47
Cal.App.5th at p. 356, italics added, [residential loan]; Rossetta, supra, 18 Cal.App.5th at
p. 640 [residential loan]; see also Daniels, supra, 246 Cal.App.4th at pp. 1180-1183
[residential loan]; Alvarez, supra, 228 Cal.App.4th at pp. 946, 949, [residential loan];
Jolley, supra, 213 Cal.App.4th at p. 881 [construction loan].) We observed that whether
a lender assumes a duty by considering a loan modification application presents a more
nuanced question. At what point may it be said that “a borrower and lender enter into a

30
new phase of their relationship when they voluntarily undertake to renegotiate a loan, one
in which the lender usually has greater bargaining power and fewer incentives to exercise
care.” (Rossetta, at p. 640, citing Alvarez, at p. 949.)
Conspicuously missing from plaintiff’s complaint is any allegation of conduct
which would establish that Penny Mac agreed to consider plaintiff’s second loan
modification application. As noted, plaintiff merely alleged that, after he submitted his
second loan modification application, he “was continuing to have periodic contact with
PennyMac, by and through his representative, regarding the loan modification . . . .”
Plaintiff recognized this deficiency in his original briefing on appeal, stating that “when
Penny Mac seemingly agreed to review [plaintiff] for a loan modification, it never
actually completed the task, choosing instead to follow its original intended course of
taking [plaintiff’s] home away from him.” (Italics added.) There is simply no allegation
of conduct by which Penny Mac could be deemed to have voluntarily undertaken to
negotiate a loan modification the second time. Indeed, there is no allegation that Penny
Mac even represented to plaintiff that it was considering his second loan modification
application. At oral argument, counsel belatedly represented that such an allegation can
be made, but even then counsel’s statement fell short the requirement to “spell out” “the
specific proposed amendments” (Brown, supra, 153 Cal.App.4th at p. 112) and
“specifically state” the “factual allegations” to support his claim (Vanacore, supra, 246
Cal.App.4th at p. 454). And, as we have already concluded, even those conclusory
allegations are untimely.
Moreover, plaintiff has never made any allegation that Penny Mac engaged in
conduct relative to the alleged second modification request beyond the role of a
conventional lender. Plaintiff has asserted no specific facts establishing that Penny Mac
affirmatively mishandled the application or made any representations to plaintiff about
the viability of his application. (Cf. Weimer, supra, 47 Cal.App.5th at pp. 359, 361
[complaint alleged loan servicers reached out to plaintiff to inform him they would

31
process loan modification application submitted to a prior lender; multiple specific acts of
mishandling alleged, requiring multiple resubmissions of the modification application;
one loan servicer told plaintiff he would be approved for the modification and the
succeeding servicer told plaintiff he qualified for a HAMP loan when he clearly did not];
Rossetta, supra, 18 Cal.App.5th at pp. 641, 643 [complaint alleged multiple specific acts
of mishandling, requiring multiple resubmissions of the modification application; lender
made misstatements about the status of the application; lender told plaintiff it would not
consider loan modification application until plaintiff was three months behind in her
mortgage payments, thereby making default a condition of being considered for a loan
modification; lender denied the application for bogus reasons].) Here, there is only a bare
allegation that Penny Mac breached its duty by its “negligent processing of his loan
modification application.”
In light of our conclusion that plaintiff failed to allege facts establishing that
defendant agreed to consider his second loan modification application at any time prior to
oral argument and further failed to allege any conduct that would be outside the role of a
conventional lender, we need not engage in a Biakanja analysis as to plaintiff’s loan
modification claim. Indeed, as noted, we have no specific conduct to plug into a
Biakanja analysis and as a result there are no facts relative to the second modification
application that would move Penny Mac’s relationship with plaintiff into the realm of tort
liability for economic losses. (Cf. Weimer, supra, 47 Cal.App.5th at pp. 355, 360-366
[existence of special relationship determined by applying loan servicers’ alleged conduct
to the Biakanja factors].)
3. Plaintiff’s Refusal to Accept Payment Claim
a. Conduct Outside the Conventional Role of a Lender
We next consider plaintiffs claim that, in November 2011, two months before he
submitted his first loan modification application, six months before the notice of default
was recorded, and a year before the foreclosure, Penny Mac refused to accept two

32
months’ worth of payments that would have made plaintiff’s loan current. This claim is
based on the alleged conversation with an unnamed person at Penny Mac who he asserts
told him “ ‘we don’t want your money, we want your house, we will stop taking your
payments and after you fall far enough behind we will foreclose on your home.’ ”
Under the deed of trust, a lender could refuse partial payments or payments
insufficient to bring the loan current. The deed of trust states: “Lender may return any
payment or partial payment if the payment or partial payments are insufficient to bring
the loan current.” But we find nothing in the deed of trust to suggest Penny Mac could
refuse payments that would cure the default.11 Plaintiff alleged in November 2011, he
had saved enough money “to catch up those two past due months.” Reading the
allegations liberally, as we must (Longshore v. County of Ventura (1979) 25 Cal.3d 14,
22), plaintiff’s allegation establishes the payments he proposed would have been
sufficient “to bring the loan current.” Failing to take payments that would make the loan
current, based on the deed of trust, would have been outside Penny Mac’s conventional
role as a lender of money. In fulfilling that conventional role, lenders do not refuse pre-
notice-of-default payments that would make the loan current and then inform the
borrower its intent is to reject payments, wait the borrower out, and take the home from
the borrower. Indeed, counsel for Penny Mac conceded at oral argument that it is not
within the conventional role of money lenders to refuse payments. Although we have not
applied the Biakanja factors in a mortgage foreclosure case outside the context of loan
modification processing, we will proceed to consider the Biakanja factors as to this
claim.

11 We also note that under Civil Code section 2924c, subdivision (a)(1), after a notice of
default, Penny Mac would have been obligated to receive payments that would make the
loan current.

33
 b. The Extent to Which Transaction Was Intended to Affect Plaintiff
As we see it, the “transaction” at issue is the ongoing loan agreement in the note
and deed of trust. Plaintiff would be positively affected by being permitted to make his
loan current, and Penny Mac’s receipt of payments made on plaintiff’s loan would benefit
the loan owner. Thus, as a general matter, the first factor—the extent to which the
transaction was intended to affect the plaintiff—would not seem to favor plaintiff over
the lender.
c. The Foreseeability of Harm to Plaintiff
It would be foreseeable that plaintiff would suffer harm as a result of Penny Mac
refusing to accept two past-due payments on his account, as he would therefore remain in
default. However, it was not foreseeable that plaintiff would stop making the payments
he was obligated to make and that Penny Mac was obligated to accept. This factor does
not favor a finding of duty of care.
d. The Degree of Certainty Plaintiff Suffered Injury
Plaintiff asserts he was injured by the foreclosure on his home. In considering this
Biakanja factor, we are not required to consider whether injury can be proven. (Weimer,
supra, 47 Cal.App.5th at p. 361.) And for purposes of determining whether facts
supporting a duty have been stated in the complaint, we need only determine whether the
facts alleged establish that some injury is certain. (Ibid.) We conclude that plaintiff’s
allegations adequately establish certainty of injury at this stage of the proceedings and
this factor cuts in favor of finding a duty of care.

e. The Closeness of the Connection Between Defendants’ Conduct and
Injury
We see no connection between Penny Mac’s alleged conduct and plaintiff’s injury.
A voice over the phone purportedly said, “we don’t want your money, we want your
house, we will stop taking your payments and after you fall far enough behind we will
foreclose on your home.” But plaintiff did not allege Penny Mac actually rejected

34
payments he tendered. For example, he did not allege he sent Penny Mac payments that
would cure the default and those payments were returned to him. In the context of this
case, we consider this factor to be important and it militates against the imposition of a
tort duty.
f. The Moral Blame Attached to Defendants’ Conduct
As alleged in the complaint, Penny Mac’s conduct would be morally
blameworthy. However, the allegations also indicate that plaintiff’s loan was past due.
He needed a loan modification to avoid default and foreclosure, which, originally, was
not a product of Penny Mac’s conduct. And plaintiff does not allege any fact that
prevented him from actually tendering payments, even after the November 2011 phone
call. Plaintiff would have a stronger case if he submitted payments to Penny Mac and
Penny Mac sent them back. Absent that, we consider this factor neutral.
g. Policy of Preventing Future Harm
Imposing liability for such statements made by a Penny Mac representative would
serve to prevent future harm to borrowers if lenders or loan servicers actually refuse to
accept payments. But we expect borrowers who have sufficient funds to cure a default
will tender the payment and not be deterred by a voice on the phone. We consider this
factor neutral as well.
h. Biakanja Balancing
On balance, we conclude the factors set forth in Biakanja, supra, 49 Cal.2d 647,
weigh against imposing a legal duty of care on Penny Mac in connection with plaintiff’s
negligence cause of action. Accordingly, the trial court properly sustained Penny Mac’s
demurrer as to that cause of action.
D. Leave to Amend
Plaintiff emphasizes that the trial court considered the negligence cause of action
for the first time in considering the demurrer to the first amended complaint, and he
asserts he never had the opportunity to amend this cause of action. In actuality, he did

35
have an opportunity to amend; like with his wrongful foreclosure claim, he just chose not
to try. Because plaintiff chose to stand on the allegations concerning this cause of action
in the first amended complaint without seeking to amend them in the trial court, we
assume plaintiff stated the strongest case he could. (Reynolds, supra, 36 Cal.4th at
p. 1091; Alfaro, supra, 171 Cal.App.4th at p. 1372.) We are not required to consider
proposed amendments plaintiff could have made in the trial court.
Plaintiff, nevertheless, asserted in his appellate briefing that he could “certainly”
amend his pleading to state a cause of action sounding in negligence as to his loan
modification claim. He stated in his appellate briefing that he could address the Biakanja
factors and the allegations relevant to each. He further asserted that he could add
additional specific allegations “regarding the loan modification process and the manner in
which Penny Mac handled that process.”
Assuming plaintiff’s ability to amend at this stage is not foreclosed by his failure
to seek leave to amend in the trial court, we conclude that plaintiff has failed to show
there is a reasonable possibility he could cure the defects in his complaint by amendment.
Making a conclusory representation, as plaintiff did in his original briefing, that he could
amend the complaint to cure the defects by addressing the Biakanja factors, by
addressing allegations relevant to each factor, and by adding additional factual allegations
is insufficient to establish that the complaint’s defects could be cured. As noted, a party
seeking to amend must set forth precisely what allegations are to be added. (Casiopea,
supra, 12 Cal.App.5th at p. 664; Vanacore, supra, 246 Cal.App.4th at p. 454; Brown,
supra, 153 Cal.App.4th at p. 112.)
Plaintiff’s belatedly proposed amendment set forth in his supplemental briefing is
not helpful either. Discussing the term “mishandling,” used in the complaint, plaintiff

36
states that in the context of a loan modification, that is a “broad” term.12 According to
plaintiff, “mishandling” “can include delaying to act on a loan modification and certainly
can include as alleged foreclosing while a modification application is pending as alleged
in the Complaint.” But plaintiff did not allege specific facts in his supplemental briefing
that would support a claim that Penny Mac’s conduct was outside the scope of a lending
institution’s conventional role as a lender of money; nor has he asserted facts to plug into
the Biakanja analysis as to either claim supporting his negligence cause of action.
Indeed, as noted, regarding his loan modification claim, he has not alleged facts
establishing there was anything improper about foreclosing during the pendency of a
second modification request.13

12 In first amended complaint, plaintiff alleged “purposeful mishandling” in his first
cause of action for breach of the covenant of good faith and fair dealing and incorporated
that allegation by reference in his negligence cause of action.
13 Penny Mac argued in its supplemental briefing that plaintiff’s theory suggests anytime
there is a loan modification, a foreclosure cannot take place. In responding to this
argument, plaintiff notes in his supplemental briefing that “HBOR addresses this in that a
second application requires a material change to invoke the prohibition of a foreclosure
while a modification application is pending.” He requests leave to amend “to allege that
the alleged second modification application had a material change in that the Appellant’s
income was materially different from the first application.” Plaintiff is correct on this
point as to HBOR, but it does not help him. The Legislature prohibited dual tracking
only as to initial modification applications in HBOR, but allowed for an exception in
Civil Code section 2923.6, subdivision (g), which provides: “In order to minimize the
risk of borrowers submitting multiple applications for first lien loan modifications for the
purpose of delay, the mortgage servicer shall not be obligated to evaluate applications
from borrowers who have been evaluated or afforded a fair opportunity to be evaluated
consistent with the requirements of this section, unless there has been a material change
in the borrower's financial circumstances since the date of the borrower's previous
application and that change is documented by the borrower and submitted to the
mortgage servicer.” (Italics added.) As we have noted, and as plaintiff acknowledged in
the trial court, HBOR is not applicable here because it became effective after Penny
Mac’s alleged conduct. And, as we noted ante, plaintiff cites no HAMP rules that
precludes foreclosure during a second or subsequent request for a HAMP modification.

37
 IV. Breach of the Implied Covenant of Good Faith and Fair Dealing
A. The Implied Covenant of Good Faith and Fair Dealing
“There is an implied covenant of good faith and fair dealing in every contract that
neither party will do anything which will injure the right of the other to receive the
benefits of the agreement.” (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d
654, 658, quoting Brown v. Superior Court (1949) 34 Cal.2d 559, 564.) However, “[t]he
implied covenant of good faith and fair dealing rests upon the existence of some specific
contractual obligation.” (Racine & Laramie, Ltd. v. Department of Parks & Recreation
(1992) 11 Cal.App.4th 1026, 1031, italics added.) “Generally, ‘[t]here is no obligation to
deal fairly or in good faith absent an existing contract. [Citations.] If there exists a
contractual relationship between the parties . . . the implied covenant is limited to
assuring compliance with the express terms of the contract, and cannot be extended to
create obligations not contemplated in the contract.’ ” (Golden Eagle Land Investment,
L.P. v. Rancho Santa Fe Assn. (2018) 19 Cal.App.5th 399, 426, quoting Racine &
Laramie, Ltd., at p. 1032; accord Santiago v. Employee Benefits Services (1985) 168
Cal.App.3d 898, 905 [absent a contractual relationship, respondents could not be found to
have breached the implied covenant of good faith and fair dealing].) “The covenant of
good faith is read into contracts in order to protect the express covenants or promises of
the contract, not to protect some general public policy interest not directly tied to the
contract’s purposes.” (Foley v. Interactive Data Corp. (1988) 47 Cal. 3d 654, 690.)

Nor did plaintiff allege HAMP provides an exception similar to Civil Code section
2923.6, subdivision (g). And in any event, plaintiff has not set forth specific facts
showing a material change in his financial circumstances that took place at any point
before the foreclosure that he could assert in an amended complaint. (Casiopea, supra,
12 Cal.App.5th at p. 664; Vanacore, supra, 246 Cal.App.4th at p. 454; Brown, supra, 153
Cal.App.4th at p. 112.)

38
 B. Additional Background
In the original complaint, the first amended complaint, and the second amended
complaint, plaintiff identified Penny Mac as the loan servicer. Plaintiff alleged that loan
servicing was transferred to Penny Mac in early 2010. Plaintiff further alleged that
Quality Loan Service Corp., as acting or substituted trustee, processed the foreclosure
and conducted the trustee’s sale.
In the second amended complaint, plaintiff further alleged that the parties entered
into a course of conduct resulting in an implied contract “whereby [Penny Mac] took over
mortgage loan servicing and loan modification processing of Plaintiff’s home loan from
American Home Mortgage Servicing, Inc. . . .”
Moreover, as the trial court noted, in addition to the representations in plaintiff’s
successive complaints, in his oppositions to Penny Mac’s demurrers, plaintiff repeatedly
stated that he had no written contract with Penny Mac. Plaintiff stated in his opposition
to the demurrer to the first amended complaint, “it is admitted that there is no written
contract between these parties,” and asserted instead that an implied contract arose when
Penny Mac took over servicing his loan. Plaintiff asserted that the “relationship between
Plaintiff and . . . Penny Mac clearly involves an implied contract . . . .” Plaintiff asserted
that, “since the underlying contract is an implied contract, a question of fact exists as to
the exact terms of that implied contract.”
Similarly, in his opposition to the demurrer to his second amended complaint,
plaintiff stated that Penny Mac’s argument that there could be no cause of action for
breach of the implied covenant of good faith and fair dealing because there was no
written contact between the parties had no bearing on the issues before the court because
the second amended complaint “specifically states that the cause of action . . . is based on
the existence of an implied agreement that existed between the parties.” Plaintiff asserted
that Penny Mac “knowingly and willingly undertook an implied contractual relationship
with Plaintiff . . . .” Plaintiff asserted that an “implied contract has been in effect

39
between Plaintiff and Penny Mac ever since [Penny Mac] took over the servicing of his
home loan in July 2010.” He further asserted that the “relationship between Plaintiff and
. . . Penny Mac clearly involves an implied contract . . . .”
In the third amended complaint, plaintiff again identified Penny Mac as the loan
servicer. He asserted that, in June 2010, his “loan was transferred from Quick Loan
Funding to Penny Mac Mortgage Investment Trust Holdings 1, LLC (Penny Mac Trust).”
For the first time, however, plaintiff asserted that, as of June 15, 2010, when Penny Mac
sent him a letter informing him that the loan had been transferred to Penny Mac, “Penny
Mac was either the owner of the loan or acting as agent of Penny Mac Trust regarding the
loan.” Plaintiff asserted that the contract on which this cause of action was based “was
the direct written Note and Deed of Trust which as alleged herein was transferred to
Penny Mac Trust and then to Penny Mac or in the alternative Penny Mac was acting as
the agent of Penny Mac Trust with regards to the acts stated herein.”
C. The Sham Pleading Doctrine
“It is axiomatic that the function of a demurrer is to test the legal sufficiency of the
pleading by raising questions of law. [Citation.] It is also well established that, when
reviewing a judgment entered following the sustaining of a demurrer without leave to
amend, the appellate court must assume the truth of the factual allegations of the
complaint. [Citation.] However, an exception exists where a party files an amended
complaint and seeks to avoid the defects of a prior complaint either by omitting the facts
that rendered the complaint defective or by pleading facts inconsistent with the
allegations of prior pleadings. [Citations.] In these circumstances, the policy against
sham pleading permits the court to take judicial notice of the prior pleadings and requires
that the pleader explain the inconsistency. If [the pleader] fails to do so the court may
disregard the inconsistent allegations and read into the amended complaint the allegations
of the superseded complaint.” (Owens v. Kings Supermarket (1988) 198 Cal.App.3d 379,
383-384 (Owens).) Thus, “[u]nder the sham pleading doctrine, a pleader cannot

40
circumvent prior admissions by the easy device of amending a pleading without
explanation.” (Womack v. Lovell (2015) 237 Cal.App.4th 772, 787.)
“The sham pleading doctrine is not ‘ “intended to prevent honest complainants
from correcting erroneous allegations . . . or to prevent correction of ambiguous facts.” ’
[Citation.] Instead, it is intended to enable courts ‘ “to prevent an abuse of process.” ’ ”
(Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th 408, 426.) “[T]he trial court has every
right to guard against sham pleadings and to prevent abuse of the litigation process.”
(Sanai v. Saltz (2009) 170 Cal.App.4th 746, 768 (Sanai).) “For example, the trial court
has discretion to deny leave to amend when the proposed amendment omits or contradicts
harmful facts pleaded in a prior pleading unless a showing is made of mistake or other
sufficient excuse for changing the facts. Absent such a showing, the proposed pleading
may be treated as a sham.” (Ibid., citing Vallejo Development Co. v. Beck Development
Co. (1994) 24 Cal.App.4th 929, 946 (Vallejo Development Co.) & Amid v. Hawthorne
Community Medical Group, Inc. (1989) 212 Cal.App.3d 1383, 1390.)
If a trial court denies leave to amend based on application of the rule against sham
pleading, we review the denial of leave for abuse of discretion. (Vallejo Development
Co., supra, 24 Cal.App.4th at p. 946 [discussing sham pleading doctrine and concluding
that the trial court did not abuse its discretion in denying leave to file second amended
complaint]; accord, Berman v. Bromberg (1997) 56 Cal.App.4th 936, 951 (Berman) [trial
court erred and abused its discretion in applying the sham pleading rule].)
D. Plaintiff’s Contentions
Plaintiff asserts that the third amended complaint was not a sham pleading. He
asserts that, in prior iterations of the complaint, he did not state who the owner of his loan
was, and he did not allege that Penny Mac was not the owner of the loan. Plaintiff asserts
that it was only by the time he prepared his third amended complaint that he was in a
position to make allegations as to the ownership of the loan. He asserts that he did not
know all of the operative facts regarding the ownership of his loan until he retained new

41
counsel and filed the third amended complaint. Plaintiff asserts that he did not omit
harmful allegations from, or add contradictory allegations to, his third amended
complaint. Therefore, according to plaintiff, the sham pleading doctrine did not apply.
As for the representations made in opposition to two demurrers, plaintiff asserts that the
statement that there was no written contract between him and Penny Mac was not untrue
“from the point of view that Penny Mac and [plaintiff] never originated a contract as
between themselves. That does not, however, mean that Penny Mac could not be
assigned the Note and Deed of Trust to claim its beneficial interest.” Plaintiff also
asserts that, while the sham pleading doctrine applies to statements made in a complaint,
it does not apply to arguments set forth in opposition to a demurrer. According to
plaintiff, judicial estoppel would be the applicable doctrine to apply where a party has
taken inconsistent positions in judicial proceedings.
As to the merits, plaintiff asserts that his allegations were sufficient. He asserts
that, if Penny Mac was the owner of the loan, it would be subject to the loan agreement.
If Penny Mac was merely the servicer of the loan, based on language in the Deed of
Trust, it would retain mortgage loan servicing obligations to plaintiff. Thus, according to
plaintiff, when Penny Mac refused to accept plaintiff’s two past-due payments, and when
it told plaintiff that it would refuse to accept future payments and preferred a default so it
could foreclose, Penny Mac frustrated plaintiff’s ability to perform under the contract,
and therefore breached the implied covenant of good faith and fair dealing.
E. Analysis
1. Sham Pleading and the Existence of a Written Contract
Prior to the filing of the third amended complaint, plaintiff’s allegations against
Penny Mac in connection with his cause of action premised on breach of the implied
covenant of good faith and fair dealing were always based on an implied contract alleged
to exist between plaintiff and Penny Mac, the loan servicer. The trial court afforded
plaintiff several opportunities to cure the deficiencies in his pleadings concerning the

42
existence and nature of the contract. After repeatedly failing to plead a legally sufficient
cause of action premised on breach of the implied covenant of good faith and fair dealing
premised on the theory of an implied contract, in the third amended complaint, plaintiff
altered course and, for the first time, asserted that Penny Mac either owned the note and
deed of trust or acted as agent for the owner, and the cause of action was premised on the
existence of a written contract.
We conclude that, in his third amended complaint, plaintiff “plead[ed] facts
inconsistent with the allegations of prior pleadings” in order “to avoid the defects of
[several] prior complaint[s].” (Owens, supra, 198 Cal.App.3d at pp. 383-384.) We
further conclude that plaintiff failed to adequately explain the inconsistencies. (See ibid.)
The third amended complaint “contradicts harmful facts pleaded in . . . prior
pleading[s] . . . .” (Sanai, supra, 170 Cal.App.4th at p. 768.) In the first three pleadings,
plaintiff alleged that Penny Mac’s role was limited to that of loan servicer. While
plaintiff asserts that “he never alleged that Penny Mac was not the owner of his loan,”
this hypertechnical argument exalts form over substance. True, in plaintiff’s prior
pleadings, he never included the absurd and superfluous allegation: “Penny Mac was not
the owner of the loan.” However, he did identify Penny Mac’s alleged role and basis for
liability, which was as servicer of the loan, not owner of the loan. We conclude that the
trial court did not abuse its discretion in sustaining the demurrer without leave to amend
based on the sham pleading doctrine. (See generally Berman, supra, 56 Cal.App.4th at
p. 951; Vallejo Development Co., supra, 24 Cal.App.4th at p. 946.)
Furthermore, while not in the pleadings, plaintiff repeatedly admitted in his filings
in opposition to Penny Mac’s demurrers that there was no written contract between
plaintiff and Penny Mac and that the cause of action premised on breach of the implied
covenant of good faith and fair dealing was based on an alleged implied contract. Our
research has not yielded any published case in which the sham pleading doctrine has been
applied to a plaintiff’s filings in opposition to a demurrer. For obvious reasons, the sham

43
pleading doctrine would seem to be intended to apply to pleadings. We note that “[t]he
pleadings are the formal allegations by the parties of their respective claims and defenses,
for the judgment of the court” (§ 420), and that “[t]he pleadings allowed in civil actions
are complaints, demurrers, answers, and cross–complaints” (§ 422.10, italics added).
However, the rationale underlying the sham pleading doctrine would seem to apply:
avoiding the shortcomings of a prior filing—in this case papers in opposition to a
demurrer—by alleging facts inconsistent with those shortcomings in a subsequent
complaint.
Moreover, “[t]he allegations of the complaint must for the purposes of demurrer
be accepted as true unless they are contrary to facts of which a court may take judicial
notice.” (Alisal Sanitary Dist. v. Kennedy (1960) 180 Cal.App.2d 69, 73 (Alisal Sanitary
Dist.), italics added.) We may “take judicial notice of admissions in plaintiff’s
oppositions to the demurrer[s].” (Rodas v. Spiegel (2001) 87 Cal.App.4th 513, 518
(Rodas), citing Evid. Code, § 452, subd. (d).) “ ‘ “[T]he complaint should be read as
containing the judicially noticeable facts, ‘even when the pleading contains an express
allegation to the contrary.’ [Citation.] A plaintiff may not avoid a demurrer by pleading
facts or positions in an amended complaint that contradict the facts pleaded in the original
complaint or by suppressing facts which prove the pleaded facts false.” ’ ” (State of
California ex rel. Metz v. CCC Information Services, Inc. (2007) 149 Cal.App.4th 402,
412 (Metz), quoting McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457,
1491 (McKell), italics added.) “In determining the sufficiency of a complaint a court
should consider those facts of which it has judicial notice, even though they are not
pleaded.” (Arthur v. Oceanside-Carlsbad Junior College District (1963) 216 Cal.App.2d
656, 661.)
As stated ante, plaintiff admitted in more than one filing prior to the third
amended complaint that there was no written contract between him and Penny Mac. As
also stated ante, we may take judicial notice of plaintiff’s admissions in oppositions to

44
demurrers (Rodas, supra, 87 Cal.App.4th at p. 518), and “[t]he allegations of the
complaint must for the purposes of demurrer be accepted as true unless they are contrary
to facts of which a court may take judicial notice.” (Alisal Sanitary Dist., supra, 180
Cal.App.2d at p. 73, italics added.)
The allegations in plaintiff’s third amended complaint include the allegations that
his contractual relationship with Penny Mac was based on a written contract; that this
contractual relationship incorporated the implied covenant of good faith and fair dealing;
and that Penny Mac breached the implied covenant of good faith and fair dealing. These
allegations “are contrary to facts of which a court may take judicial notice” (Alisal
Sanitary Dist., supra, 180 Cal.App.2d at p. 73), specifically the admissions in plaintiff’s
oppositions to Penny Mac’s demurrers that plaintiff had “no written contract” with Penny
Mac, and that instead the cause of action was premised on an implied contract. Plaintiff
may not avoid Penny Mac’s demurrer by pleading facts or positions in his third amended
complaint “ ‘ “that contradict the facts pleaded in the original complaint or by
suppressing facts which prove the pleaded facts false.” ’ ” (Metz, supra, 149 Cal.App.4th
at p. 412; McKell, supra, 142 Cal.App.4th at p. 1491.)
We note that the basis for plaintiff’s new allegations in his third amended
complaint—that Penny Mac was either the owner of the loan or acting as agent for the
loan, and therefore the contractual relationship between plaintiff and Penny Mac was
based on the note and deed of trust—was, at least in part, a June 15, 2010, letter to
plaintiff “saying that ‘the home loan’ was transferred to Penny Mac itself.” (See fn. 2,
ante.) Obviously this letter to plaintiff dated June 15, 2010, constituted information
available to plaintiff before he commenced this action and at all times thereafter, which
contradicts the excuse that plaintiff did not have this information before he filed his third
amended complaint. Thus, plaintiff’s representation that, “in his previous versions of his
complaint, [plaintiff] was unable to allege anything as to the ownership of his loan” is, at
least in part, belied by the record.

45
 Plaintiff also relies on the fact that, prior to its opposition to the third amended
complaint, Penny Mac had not included the deed of trust with its requests for judicial
notice. Of course, as the mortgagor, plaintiff always had access to, and likely had, a copy
of the deed of trust, which is signed by plaintiff and notarized on July 21, 2006, and
recorded on July 27, 2006.14
Plaintiff seeks to persuade us that his allegations were not contradictory because
his representations that there was no written contract between him and Penny Mac “was
not untrue from the point of view that Penny Mac and [plaintiff] never originated a
contract as between themselves. That does not, however, mean that Penny Mac could not
be assigned the Note and Deed of Trust to claim its beneficial interest.” While this may
be true in a technical sense, it is also the case that plaintiff was not foreclosed from
advancing this allegation previously. However, he did not advance this theory until he
repeatedly failed to allege a legally sufficient basis for his now-abandoned position that
an implied contract existed between him and Penny Mac and he has offered no reason for
failing to do so.
Thus, we conclude that the trial court did not abuse its discretion in concluding
that plaintiff’s third amended complaint did indeed constitute a sham pleading. (See
generally Berman, supra, 56 Cal.App.4th at p. 951; Vallejo Development Co., supra, 24
Cal.App.4th at p. 946.)
2. Allegations Premised on an Implied Contract Between the Parties
Additionally, plaintiff continues to allege that Penny Mac was the loan servicer.
While we have not readily found California appellate cases directly on point, those

14 Penny Mac’s request for judicial notice included an assignment of the deed of trust
from MERS as nominee for Quick Loan Funding and its successors and assigns, to Penny
Mac Trust dated March 19, 2012. That document was recorded in the Recorder’s office
of Sacramento County on March 29, 2012, and was also accessible to plaintiff and his
attorneys before plaintiff commenced this action.

46
federal courts applying California law that have considered the issue have concluded that,
under California law, a loan servicer is not party to a deed of trust. (See, e.g., Conder v.
Home Savings of America (C.D.Cal. 2010) 680 F.Supp.2d 1168, 1174 [“The fact that [the
loan servicer] entered into a contract with [the mortgagee] to service Plaintiff’s loan does
not create contractual privity between [the servicer] and Plaintiff”]; Lomboy v. SCME
Mortg. Bankers (N.D.Cal. May 26, 2009, No. C-9-1160 SC) 2009 U.S. Dist. LEXIS
44158, at p. *14, 2009 WL 1457738, at *5 [“a loan servicer . . . is not a party to the Deed
of Trust itself”]; Connors v. Home Loan Corp. (S.D.Cal. May 9, 2009, Civ. No.
08cv1134) 2009 U.S. Dist. LEXIS 48638, at p. *17, 2009 WL 1615989, at p. *6
[“Plaintiff has failed to assert or differentiate the roles and functions of defendants ASC
and US Bank. . . . If ASC is a loan servicer, ASC is not a party to the Deed of Trust
itself”].)
We also reject plaintiff’s contention, whether in connection with his written
contract theory or implied contract theory, that Penny Mac would become a party to the
deed of trust based on language in that document which states: “The Note or a partial
interest in the Note (together with this Security Instrument) can be sold one or more times
without prior notice to Borrower. A sale might result in a change in the entity (known as
the ‘Loan Servicer’) that collects Periodic Payments due under the Note and this Security
Instrument and performs other mortgage loan servicing obligations under the Note, this
Security Instrument, and Applicable Law. There also might be one or more changes of
the Loan Servicer unrelated to a sale of the Note. If there is a change of the Loan
Servicer, Borrower will be given written notice of the change which will state the name
and address of the new Loan Servicer, the address to which payments should be made
and any other information RESPA requires in connection with a notice of transfer of
servicing. If the Note is sold and thereafter the Loan is serviced by a Loan Servicer other
than the purchaser of the Note, the mortgage loan servicing obligations to Borrower will
remain with the Loan Servicer or be transferred to a successor Loan Servicer and are not

47
assumed by the Note purchaser unless otherwise provided by the Note purchaser.” We
do not agree with plaintiff that the italicized provisions gave rise to a contractual
relationship between Penny Mac and plaintiff, where none existed before, pursuant to
which plaintiff can assert a cause of action premised on breach of the implied covenant of
good faith and fair dealing. This language merely describes what entity will be
performing the tasks of loan servicer under particular circumstances.
Thus, in addition to the sham pleading doctrine, in the absence of any legally
sufficient allegations to support plaintiff’s earlier contention that the implied covenant of
good faith and fair dealing arose from an implied contract between the parties, we agree
with the trial court that plaintiff’s allegations “lack[] the existence of any contract on
which the breach of the implied covenant claim could be based.” Accordingly, we
conclude that the trial court properly sustained Penny Mac’s demurrer to plaintiff’s third
amended complaint.15
V. Intentional Interference with Contract
Plaintiff’s final argument is that, assuming we conclude that the trial court
properly sustained Penny Mac’s demurrer as to the cause of action for breach of the
implied covenant of good faith and fair dealing because of the absence of contractual
privity, we should grant him leave to amend to assert a cause of action sounding in
intentional interference with contract. Plaintiff asserts that Penny Mac’s conduct in
refusing to allow plaintiff to make payments on the loan interfered with the contract
between him and the loan owner by refusing to allow him to perform. Additionally,
Penny Mac’s alleged statements that it did not intend to accept plaintiff’s payments and

15 In light of our determination, we need not address in further detail plaintiff’s
contentions asserting that the allegations in plaintiff’s third amended complaint were
legally sufficient. Nor need we address plaintiff’s contention that the trial court conflated
the sham pleading doctrine with the doctrine of judicial estoppel.

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that it instead intended to push plaintiff into default and then foreclose on his home
demonstrates an intent to interfere with the contract.16
“[O]nly ‘a stranger to [the] contract’ may be liable for interfering with it.” (Mintz
v. Blue Cross of California (2009) 172 Cal.App.4th 1594, 1603 (Mintz), citing Applied
Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 513, 507, 514
(Applied Equipment Corp.).) A claim for tortious interference “does not lie against a
party to the contract” (Applied Equipment Corp., at p. 514), or against the party’s agents
(Mintz, at pp. 1603-1607). “The tort duty not to interfere with the contract falls only on
strangers--interlopers who have no legitimate interest in the scope or course of the
contract’s performance.” (Applied Equipment Corp., at p. 514.) And critical here, an
agent cannot be liable for interfering with its principal’s contracts. (Mintz, at pp. 1603-
1607; accord, Shoemaker v. Myers (1990) 52 Cal.3d 1, 24-25 [“corporate agents and
employees acting for and on behalf of a corporation cannot be held liable for inducing a
breach of the corporation’s contract”].)
As the loan servicer, Penny Mac is no stranger to the contract represented by the
note and deed of trust. Under the deed of trust, the loan servicer manages the borrower’s
payment obligations and performs other administrative tasks on behalf of the lender.
Thus, even if plaintiff had properly alleged an act of intentional interference by Penny
Mac, Penny Mac cannot be held liable for this tort because, in its role as the loan servicer,
it was acting as the agent for the owner of the note and deed of trust. In performing this
role, Penny Mac cannot be held liable for intentionally interfering with its principal’s
contracts.

16 Because we proceed to reject on the merits plaintiff’s contention that he should be
granted leave to amend to assert a cause of action for intentional interference with
contract, we need not consider Penny Mac’s contention, raised in a footnote, that
plaintiff’s contention is barred as “untimely.”

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 Penny Mac relies on Doctors’ Co. v. Superior Court (1989) 49 Cal.3d 39 in
asserting that plaintiff cannot state a cause of action for intentional interference with
contract. Plaintiff emphasizes that the language from that case on which Penny Mac
relies states, “ ‘ “ordinarily corporate agents and employees acting for and on behalf of
the corporation cannot be held liable for inducing a breach of the corporation’s
contract . . . .” ’ ” (Id. at p. 45, italics added.) Plaintiff points out that agents may be
liable for intentional interference with contract where the agents are acting “ ‘as
individuals for their individual advantage.’ ” (Mintz, supra, 172 Cal.App.4th at p. 1605,
citing Applied Equipment Corp., supra, 7 Cal.4th at p. 512, fn. 4, & Doctors’ Co., at
p. 47.) Plaintiff asserts that the question as to whether Penny Mac was acting
individually for its individual advantage presents a question of fact not to be resolved at
this stage of the litigation. Indeed, plaintiff asserts that it can reasonably be inferred that
Penny Mac was acting individually for its own individual advantage because, in refusing
to accept the payments, it was acting against its principal’s best interests.
To dispose of plaintiff’s contentions in this regard, we turn to the relevant
discussion in Mintz. (Mintz, supra, 172 Cal.App.4th 1594.) In that case, like here, the
plaintiff asserted that the defendant “was ‘acting for its own financial advantage’ when it
denied coverage . . . and that the ‘agent’s immunity rule’ does not apply when the agents
are acting ‘as individuals for their individual advantage.’ ” (Id. at p. 1605.) The court
explained:
“First, the ‘agent’s immunity rule’ has no direct applicability to a claim for
interference with contract rights. The rule is simply that ‘duly acting agents and
employees cannot be held liable for conspiring with their own principals . . . .’ [Citation.]
While the agent’s immunity rule ‘ “derives from the principle that ordinarily corporate
agents and employees acting for or on behalf of the corporation cannot be held liable for
inducing a breach of the corporation’s contract” ’ [citation], the rule, on its face, applies
only to claims of conspiracy to commit a tort or violate a statute. [Citation.] As the court

50
stated in [1-800 Contacts, Inc. v. Steinberg (2003) 107 Cal.App.4th 568], ‘the exception
for conduct undertaken in pursuit of a personal interest or advantage applies only to the
agent’s immunity rule. It does not relax the requirement that to be liable for conspiracy
to breach a duty, the defendant must be bound by that duty and capable of breaching it.’
[Citation.] . . . The only question is whether the representative of a contracting party
may be held liable for the substantive tort of interfering with the contract. The cases
answer that question in the negative. [Citations.]
“Second, the conclusion that there is no ‘financial advantage’ exception to the rule
that a corporate agent cannot be liable for interfering with its principal’s contract makes
good sense. Every agent, in one way or another, acts for its own financial advantage
when it acts for its principal, because the agent is compensated by its principal, and
conduct in furtherance of the principal’s interest will necessarily serve the agent’s
interests as well. A ‘financial advantage’ exception to the sound rule that the contracting
party’s agent, like the contracting party, cannot be liable for interference with the
contract, would entirely swallow up the rule.
“Third, even if a ‘financial advantage’ exception were applicable to the rule that
an agent cannot be liable for interfering with its principal’s contract, the cases discussing
the exception to the agent’s immunity rule demonstrate that merely receiving monetary
compensation for its services to the principal is not enough. As stated in Berg & Berg
Enterprises, LLC v. Sherwood Partners, Inc. (2005) 131 Cal.App.4th 802, 834, ‘[c]ases
have interpreted the “financial advantage” exception to the agent’s immunity rule to
mean a personal advantage or gain that is over and above ordinary professional fees
earned as compensation for performance of the agency.’ Berg & Berg involved a
statutory provision with exceptions that allowed a conspiracy claim against an attorney;
the exceptions mirrored those carved out from the agent’s immunity rule. The court held
the term ‘ “in furtherance of the attorney’s financial gain” ’ meant that ‘through the
conspiracy, the attorney derived economic advantage over and above monetary

51
compensation received in exchange for professional services actually rendered on behalf
of a client.’ [Citation.] Even allegations of excessive billing for the services rendered by
the attorney did not satisfy the financial gain requirement of the statute’s exception.
[Citation.]
“In short, the agent’s immunity rule, with its exceptions, applies to civil
conspiracy claims, which this is not. And, even if the ‘financial advantage’ exception
could be applied in the context of a claim for interference by an agent with its principal’s
contract, Mintz’s allegations that Blue Cross was ‘acting for its own financial interests,’
and ‘engaged in this conduct for the purpose of obtaining financial incentives available to
it under the Plan for keeping plan costs down,’ would be insufficient to state the
necessary economic advantage ‘over and above’ the compensation received in exchange
for Blue Cross’s services to CalPERS. [Citation.]
[¶] . . . [¶]
“Because the representative of a contracting party may not be held liable for the
tort of interfering with its principal’s contract, Mintz cannot state a cause of action
against Blue Cross for intentional interference with contract rights.” (Mintz, supra, 172
Cal.App.4th at pp. 1605-1607, fn. omitted.)
We find the reasoning of the Mintz court persuasive and applicable here.
Moreover, even if there were a “financial advantage” exception that could be applied in
this context—a possibility the Mintz court rejected—we note that plaintiff has not shown
us specific factual allegations establishing an advantage accruing to Penny Mac. On the
facts as alleged by plaintiff, there was no economic advantage accruing to Penny Mac
over and above the compensation it received as loan servicer.
We conclude that it is not reasonably possible that, if afforded the opportunity,
plaintiff can assert a legally sufficient cause of action against Penny Mac for intentional
interference with contract.

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*****

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 DISPOSITION
The judgment is affirmed. Penny Mac is awarded its costs on appeal. (Cal. Rules
of Court, rule 8.278, subd. (a)(1), (2).)

/s/
MURRAY, J.

We concur:

/s/
RAYE, P. J.

/s/
BLEASE, J.

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