The California Court of Appeals, Third Appellate District, recently held that a borrowers' allegations of fraudulent concealment in connection with the origination of their home loan were, if proven, sufficient to toll the applicable statute of limitations period, reversing the lower court's ruling dismissing the borrowers' claims.
A copy of the opinion is available at http://www.courts.ca.gov/opinions/documents/C070452.PDF.
Two borrowers sued their mortgage broker ("broker"), loan originator ("originator") and the originator's successor in interest ("owner"), alleging misrepresentation and fraudulent concealment in connection with the origination of the borrowers' home loan. The broker and originator each separately demurred. The lower court issued an order sustaining the broker's demurrer without leave to amend, and dismissing the originator. Subsequently, the broker was also dismissed. The borrowers appealed.
The borrowers alleged that the broker and originator hired an appraiser who supposedly "significantly inflated" the value of the property; that the broker supposedly indicated to the borrowers that they did not qualify for any loan with more favorable terms than the loan offered by the broker - even though this allegedly was not true; and that the broker supposedly did not explain the terms of the loan to the borrowers.
The loan closed in 2006. In 2009, the borrowers had difficult making payments, and contacted the originator to inquire into whether they might modify their loan. The borrowers alleged that it was supposedly only during this conversation that they learned the true terms of the loan. Borrowers then retained counsel, at which time they allegedly learned of the inflated appraisal.
The statute of limitations periods for the borrowers' various causes of action were between 2 and 4 years. All would be untimely using the date of the loan closing; none would be untimely using the date where the borrowers purportedly became aware of the facts underlying this matter.
As you may recall, California law provides that if a party has notice of facts which would put a reasonable person on inquiry notice, or if a party has a reasonable opportunity to obtain information from sources open to investigation, the limitations period begins to run. See Community Cause v. Boatwright, 124 Cal.App.3d 888, 902 (1981). Where a pleading is untimely on its face, it is the plaintiff's burden to demonstrate an exception to the limitations period. The doctrine of fraudulent concealment tolls the statute of limitations, where a defendant's deceptive conduct "has caused a claim to go stale." Aryeh v. Canon Business Solutions, Inc., 55 Cal.4th 1185, 1192 (2013).
With that standard in place, the Court determined that the borrowers' allegations, if proven at trial, would establish that the limitations period began to run in 2009 - thus making the lower court's dismissal of the originator and broker improper.
The originator and mortgage broker argued that because the borrowers asked questions at closing, and because they received a copy of the appraisal at issue, they were on notice of the terms of the loan at the time of the closing.
The Court disagreed, finding that the borrowers' purported lack of knowledge concerning their mortgage loan was due to the alleged "failure" of the mortgage broker to explain the terms of the loan to the borrowers, in derogation of the broker's fiduciary duty to the borrowers. The Court also held that the fact that the borrowers received a copy of the appraisal "does not of itself provide any notice to first-time buyers that the appraisal's bases were improper..."
For those reasons, the Court determined that "nothing in the circumstances surrounding the closing of the loan makes [borrowers'] unawareness of the true circumstances unreasonable."
The Court concluded by noting that "evidentiary facts" developed at trial could well demonstrate that the borrowers' lawsuit was untimely. However, the Court held that "the allegations establish with adequate specificity nondisclosures and misrepresentations" sufficient for it to determine that the demurrer should not have been sustained.
Accordingly, the Court reversed the lower court's judgments of dismissal, and directed the lower court to overrule the demurrers of the originator and broker.