Sheng v. Select Portfolio Servicing, Inc. et al

Filing 18

ORDER signed by Judge John A. Mendez on 7/24/2015 GRANTING IN PART, DENYING IN PART 10 Motion to Dismiss; DISMISSING the plaintiff's first and third causes of action with prejudice; GRANTING 11 Motion to Dismiss; DISMISSING Defendant ALAW from this case; ORDERING that this case proceed against Defendant Select Portfolio Servicing, Inc. on the second and fourth causes of action; ORDERING Defendant Select Portfolio Servicing, Inc. to file it's answer within twenty days. (Michel, G.)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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HSIN-SHAWN C. SHENG,

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Plaintiff,

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No. 2:15-cv-0255-JAM-KJN

v.
SELECT PORTFOLIO SERVICING,
INC.; ALAW; and DOES 1-20,
inclusive,

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ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS’
MOTIONS TO DISMISS

Defendants.

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Plaintiff Hsin-Shawn Sheng (“Plaintiff”) sued her mortgage

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servicer, Select Portfolio Servicing (“Defendant SPS”), alleging

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that it mishandled her loan modification application, thereby

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depriving her of the opportunity to be considered for a

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modification.

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Defendant ALAW, from foreclosing on her property.

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move to dismiss each of four causes of action, asserting that

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Plaintiff’s claims fail as a matter of law.

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motions in part and denies them in part. 1

She seeks to enjoin her servicer and trustee,
Defendants

The Court grants the

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This motion was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). The hearing was
scheduled for July 1, 2015.
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I.

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FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND

Plaintiff took out a mortgage on her property with

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Washington Mutual in 2007.

Compl. ¶ 21.

Within two years, she

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fell into financial difficulty and defaulted on her loan.

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¶ 23.

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the property.

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loan servicer – Defendant SPS - “invited Plaintiffs [sic] to

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apply for a first-lien loan modification[.]”

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Plaintiff alleges that she timely submitted all required

Compl.

In May 2014, a notice of trustee’s sale was recorded on
Defendant’s RJN Exh. 14.

In July, Plaintiff’s

Compl. ¶¶ 2, 27.

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documents to be considered for the modification.

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29.

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Compl. ¶¶ 28-

But, Plaintiff alleges, Defendant did not timely acknowledge

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or respond to Plaintiff’s submissions.

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SPS sent numerous letters over the next two months asking for

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“different ‘missing document[s]’ that Plaintiff had already

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submitted previously.”

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resubmitting these documents.

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Compl. ¶ 30.

Compl. ¶ 29.

Instead,

Plaintiff complied by

Compl. ¶¶ 31-33.

In mid-August, Plaintiff received a letter stating that SPS

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had reviewed her “complet[e]” application and thanked her for

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“submitting all required documentation.”

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next paragraph of the letter stated that SPS could not offer a

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loan modification because “you did not provide us with the

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documents we requested.”

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Compl. ¶ 67.

Yet the

Id.

In September, Plaintiff had a phone conversation with an

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employee of SPS, in which he stated that one document was still

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missing.

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different employee who told her to “disregard” everything that

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anyone from SPS had previously told her, and to submit an

Compl. ¶ 34.

The next day, Plaintiff spoke with a

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entirely new application.

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complied.

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Compl. ¶ 36.

Plaintiff again

Compl. ¶ 37.

In October, Defendant SPS appeared to be evaluating

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Plaintiff’s most recently submitted application.

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¶¶ 43-46.

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[SPS] are awaiting the additional information, your account will

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not be referred to foreclosure, nor will it be sold at

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foreclosure sale if the foreclosure process has already been

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initiated.”

SPS sent Plaintiff a letter stating that “while we

Compl. ¶ 48.

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“missing document.”

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resending the document.

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See Compl.

The letter also asked for another

Compl. ¶ 47.

Plaintiff complied by

Compl. ¶ 49.

The trustee’s sale was scheduled for November 25, 2014, but
has not yet occurred.

See Compl. ¶¶ 51-52.

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In December, Plaintiff sued Defendant SPS and the trustee

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named on the notice of trustee’s sale, ALAW, 2 in Placer County

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Superior Court.

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(Doc. #2) asserts four causes of action: two violations of the

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Homeowner Bill of Rights (“HBOR”), promissory estoppel, and

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negligence.

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diversity and Defendant SPS moved to dismiss (Doc. #6).

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Defendant ALAW filed a motion entitled “Joinder,” in which it

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adopted Defendant SPS’s arguments for dismissal and also sought

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dismissal on independent bases (Doc. #7).

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dismissed for failure to comply with the Court’s standing order

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(Doc. #9).

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with that order (Docs. #10-11).

Her complaint for injunctive relief and damages

Defendants removed the case on the basis of

The motions were

Defendants then refiled their motions in compliance
The Court has considered

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If ALAW is an acronym, Plaintiff does not provide the full name
of this Defendant in her complaint.
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Plaintiff’s previously filed opposition (Doc. #8) as well as her

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updated opposition (Doc. #12) and Defendant SPS’s reply filed

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July 1, 2015 (Doc. #16).

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II.

OPINION

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A.

Judicial Notice

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Defendant SPS seeks judicial notice of sixteen documents

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(Doc. #10-1).

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Office.

Each was recorded in the Placer County Recorder’s

Because these documents are in the public record and are

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not subject to reasonable dispute, the Court takes judicial

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notice.

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City of Santa Monica, 450 F.3d 1022, 1025 n.2 (9th Cir. 2006);

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Lee v. City of Los Angeles, 250 F.3d 662, 689 (9th Cir. 2001).

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B.

See Fed. R. Evid. 201; Santa Monica Food Not Bombs v.

Analysis
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First Cause of Action: Dual Tracking

Plaintiff first alleges that Defendants violated the dual

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tracking provision of HBOR.

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“record[ing] a notice of default or notice of sale, or

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conduct[ing] a trustee’s sale, while [a] complete first lien loan

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modification application is pending.”

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§ 2923.6(c).

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That provision prohibits

Cal. Civ. Code

Defendants argue that this cause of action fails because

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Plaintiff did not initiate her application for a loan

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modification until July 2014 – two months after Defendants

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recorded the notice of sale.

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dispute this timing, but instead counters that dual tracking

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occurred when Defendant SPS’s employee “stated it would carry out

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the sale eventually.”

Mot. at 5.

Opp. at 9:12.
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Plaintiff does not

The parties also dispute

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whether the application was ever “complete” for purposes of the

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statute.

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See Mot. at 4-7; Opp. at 8-9.

The plain terms of the statute foreclose Plaintiff’s theory,

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because Defendants did not record a notice, or conduct a sale,

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after July.

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May, see Defendant’s RJN Exh. 14, then Plaintiff filed her

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application (assuming for the moment that it was complete)

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sometime in July or August, see Compl. ¶¶ 27-33.

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recordation occurred before Plaintiff submitted any application,

Defendants recorded the notice of trustee’s sale in

Because

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Defendant did not “record a notice of default or . . . sale”

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while Plaintiff’s application was pending.

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“conduct a trustee’s sale.”

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has not yet occurred).

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within the terms of the statute.

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simply scheduling or rescheduling a sale does not violate the

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dual tracking provision.

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2014 WL 3845205, at *5 (C.D. Cal. Aug. 4, 2014) (“Plaintiffs

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allege only that a sale remained scheduled, but this is not

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barred by Section 2923.6(c).”) (citations omitted); McLaughlin v.

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Aurora Loan Servs., LLC, 2014 WL 1705832, at *6 (C.D. Cal. Apr.

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28, 2014) (“[Plaintiff] now argues that even scheduling the sale,

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though the notice was never recorded, violated the HBOR’s

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prohibition on ‘conducting a trustee's sale[.]’

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argument is without merit and not supported by the statutory

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language.”) (citation omitted).

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Nor did Defendants

See Compl. ¶ 51 (stating that sale

Plaintiff’s claim therefore does not fall
Indeed, other courts agree that

See Johnson v. SunTrust Mortg., Inc.,

Plaintiff cites one case to the contrary.

. . . [T]his

See Opp. at 9:13-

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14.

The Court refuses to rely on it, as it is an apparently

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unpublished order from Sacramento County Superior Court that
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Plaintiff has not provided to the Court.

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133(i)(3)(i).

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See E.D. Cal. L.R.

Plaintiff’s claim therefore fails even assuming that

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Plaintiff submitted a complete application.

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her first cause of action.

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2.

The Court dismisses

Second Cause of Action: Acknowledgement of
Documents

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Plaintiff’s second claim alleges that Defendant SPS violated
HBOR by failing to “provide written acknowledgement of the

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receipt of documentation within five business days of receipt.”

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Cal. Civ. Code § 2924.10(a).

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such acknowledgement “[w]hen a borrower submits a complete first

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lien modification application or any document in connection with

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a first lien modification application.”

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must include:

A mortgage services must provide

Id.

Acknowledgement

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(1) A description of the loan modification process,

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including an estimate of when a decision on the loan

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modification will be made after a complete application has

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been submitted by the borrower and the length of time the

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borrower will have to consider an offer of a loan

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modification or other foreclosure prevention alternative.

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(2) Any deadlines, including deadlines to submit missing

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documentation, that would affect the processing of a first

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lien loan modification application.

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(3) Any expiration dates for submitted documents.

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(4) Any deficiency in the borrower's first lien loan

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modification application.

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Id.
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Defendant argues that Plaintiff has not shown that any

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violation of the statute was “material.”

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suggests that Plaintiff knew what she needed to do to complete

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her application, so any failure to acknowledge documents was not

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material.

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material in that Defendant’s compliance would have allowed her to

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complete her application to Defendant’s specifications at an

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earlier time.

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See id.

Mot. at 7.

Defendant

Plaintiff argues that the violation was

Opp. at 11.

Plaintiff is only entitled to the injunctive relief that she

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seeks if she shows that the violation of section 2924.10 was

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“material.”

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interpreted the term material to refer to whether the violation

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affected the loan modification process.

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Citimortgage, Inc., 2015 WL 3505533, at *6 (N.D. Cal. June 3,

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2015); Fink v. Wells Fargo Bank, N.A., 2015 WL 2438120, at *5

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(N.D. Cal. May 21, 2015).

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Cal. Civ. Code § 2924.12(a)(1).

Courts have

See, e.g., Gonzales v.

Taking the facts in the light most favorable to Plaintiff,

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the violation alleged here did affect her loan modification

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process.

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to Defendant for which she belatedly or never received

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acknowledgement.

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eventually received from Defendant allegedly did not include the

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four pieces of information required by the statute.

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This information is integral to the loan modification process, as

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it informs the borrower about the process, the required

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documents, the timeline, any “deficiency” in the application as

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submitted, and any deadlines.

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§ 2924.10(a)(1)-(4).

Plaintiff alleged that she submitted numerous documents

Compl. ¶¶ 32, 34, 66.

And the information she

Compl. ¶ 70.

See Cal. Civ. Code

Plaintiff alleges that if she had timely
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received this information, she could have more quickly and

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thoroughly responded to it.

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Plaintiff’s application was determining whether the application

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was complete and how to complete it.

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violation affected Plaintiff’s loan modification process, it was

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a material violation.

In fact, the main difficulty in

Because Defendant’s alleged

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Defendant’s reply goes further, suggesting that Plaintiff

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has not stated any violation, because the complaint supposedly

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shows that Defendant responded properly.

Reply at 2-3.

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Defendant simply quotes three paragraphs of the complaint and

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states, “The timeline actually alleged by Plaintiff demonstrates

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that SPS did not breach [section] 2924.10[.]”

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Plaintiff’s complaint cannot be used to defeat its own

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allegations. Defendant’s motion to dismiss this claim is denied.

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3.

Reply at 3:3-4.

Third Cause of Action: Promissory Estoppel

Defendant SPS argues that Plaintiff has not alleged

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detrimental reliance to support her promissory estoppel claim.

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Mot. at 8.

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promise to postpone foreclosure until it received her loan

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modification application.

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detrimental, according to Plaintiff, because it led her to not

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“retain[] counsel [or] seek[] injunctive relief at an earlier

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time.”

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Plaintiff states that she relied on Defendant’s

Opp. at 11.

This reliance was

Id.

The doctrine of promissory estoppel provides that “[a]

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promise which the promisor should reasonably expect to induce

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action or forbearance on the part of the promisee . . . and which

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does induce such action or forbearance is binding if injustice

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can be avoided only by enforcement of the promise.”
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Jones v.

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Wachovia Bank, 230 Cal.App.4th 935, 944 (2014).

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demonstrate (1) a clear and unambiguous promise; (2) reliance by

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the promisee; (3) the reliance was reasonable and foreseeable;

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and (4) the plaintiff was injured by her reliance.

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Inc. v. State, 129 Cal.App.4th 887, 901 (2005).

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reliance requires a showing that plaintiff has undertaken a

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sufficient change of position in reliance on defendant's

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promise.”

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*5 (N.D. Cal. May 22, 2013) (citations and quotation marks

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A plaintiff must

US Ecology,

“Detrimental

Panaszewicz v. GMAC Mortgage, LLC, 2013 WL 2252112, at

omitted).
The Court agrees with Defendant that Plaintiff has not shown

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detrimental reliance.

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allegations show that she relied on Defendant’s promise lacks

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merit.

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in a letter dated October 13, 2014.

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states that she relied on this promise by choosing not to retain

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counsel or seek an injunction.

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had done exactly these things: she retained counsel and filed

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this action to enjoin a sale of her property.

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actions shortly after she was allegedly deterred from taking them

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belies Plaintiff’s claim of reliance.

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First, Plaintiff’s argument that her

Defendant made its alleged promise to delay foreclosure
Compl. ¶¶ 48, 80.

Plaintiff

But within two months, Plaintiff

Taking these

Even if she did rely on the promise for that two month

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period, not having counsel did not change her position.

Indeed,

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the feared injury did not occur: the property was not sold.

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was able to bring this action in a similar position to where she

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was two months earlier.

She

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Because Plaintiff’s reliance – if any – did not result in a

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detrimental change of position, the third cause of action fails.
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4.

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Fourth Cause of Action: Negligence

Defendant argues that Plaintiff’s final cause of action

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should be dismissed because it does not adequately allege duty,

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breach, causation, or damages.

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fails because it ignores recent developments in the law and

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mischaracterizes Plaintiff’s claim, which adequately states a

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negligence cause of action.

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Mot. at 9-10.

This argument

To state a claim for negligence, Plaintiff must show (1) a

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legal duty, (2) breach of that duty, and (3) proximate cause

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between the breach and (4) the plaintiff’s injury.

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City of L.A., 66 Cal. App. 4th 1333, 1339 (1998).

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of a legal duty to use reasonable care in a particular factual

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situation is a question of law for the court to decide.”

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v. Wells Fargo Home Mortg., 2014 WL 1921829, at *6 (N.D. Cal. May

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13, 2014) (citation omitted).

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Mendoza v.
“The existence

Bowman

SPS asserts it did not have a duty of care because “it was

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not asked to do anything outside of the ordinary course of its

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duties as loan servicer[.]”

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Nymark v. Heart Federal Saving & Loan Association, 231 Cal.App.3d

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1089 (1991) and Shepherd v. American Home Mortgage Services,

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Inc., 2009 WL 4505925 (E.D. Cal. Nov. 20, 2009).

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argument ignores the developments in this area of law over the

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past six years, in which courts have increasingly established a

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duty for loan servicers who agree to consider a borrower’s loan

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modification application. 3

Mot. at 9:17-18.

Defendant cites

But Defendant’s

See Banks v. JPMorgan Chase Bank,

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In reply, Defendant does not even respond to the more recent
cases cited by Plaintiff, but rather parrots its earlier argument
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N.A., 2014 WL 6476139, at *12 (C.D. Cal. Nov. 19, 2014) (“[Recent

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California cases] support the conclusion that servicer conduct

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during the modification negotiation process may create a special

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relationship and a resulting duty of care[.]”).

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Although the law remains unsettled in California, this Court

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agrees with those cases finding a duty in processing a loan

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application.

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WL 1893514, at *10 (E.D. Cal. Apr. 24, 2015) (discussing cases

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holding that a special relationship arises when a loan servicer

See, e.g., Meixner v. Wells Fargo Bank, N.A., 2015

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agrees to consider a borrower’s loan modification); Johnson v.

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PNC Mortg., 2015 WL 662261, at *4 (N.D. Cal. Feb. 12, 2015) (“The

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California Court of Appeals has [] held that, particularly in

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light of HBOR, once a mortgagee undertakes to consider a loan-

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modification request, it owes the borrower a duty to use

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reasonable care in handling that request.”) (citation omitted);

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Alvarez v. BAC Home Loans Servicing, L.P., 228 Cal.App.4th 941,

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949-50 (2014) (imposing a duty based on “borrower’s lack of

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bargaining power” in seeking loan modification, the fact that

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“[b]orrowers cannot pick their servicers or fire them,” and

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allegations that defendants had violated specific provisions of

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HBOR).

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loan modification in July 2014, it had a duty to handle her

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application with reasonable care.

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Therefore, once SPS agreed to consider Plaintiff for a

Defendant’s other arguments as to breach, causation, and

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damages mischaracterize Plaintiff’s allegations.

For example,

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Plaintiff did not allege that Defendant breached its duty by

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from the original motion and again cites Nymark and Shepherd.
See Reply at 4.
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“failing to give [her] a loan modification,” Mot. at 9:27-28 –

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and the alleged injury was not Plaintiff’s original default, see

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Mot at 10:12-13.

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to consider her loan modification application, then violated HBOR

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by failing to “timely address or respond” to it.

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that Defendant belatedly followed up with confusing and

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contradictory information regarding whether the application was

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complete, what needed to be done to make it complete, whether the

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application had been denied or was still being considered, and

Rather, Plaintiff alleges that Defendant agreed

She alleges

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whether and how Plaintiff could resubmit or renew her

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application.

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allegedly caused Plaintiff to lose the “opportunity to have her

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loan modified sometime in early in [sic] September[.]”

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¶ 85.

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Lender Servs., 2014 WL 5419721, at *9 (C.D. Cal. Oct. 24, 2014)

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(denying motion to dismiss because “Plaintiff [] alleged he

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received contradictory information from RCS, that an RCS

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representative told him his documents had been received and his

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application was being considered when it was later denied because

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of missing documents, and that RCS failed to ever notify him

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which documents were missing”); Alvarez, 228 Cal.App.4th at 951

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(stating that loss of the opportunity to obtain a loan

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modification is an adequate damages allegation).

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This mishandling – between July and October 2014 -

These allegations are adequate.

Compl.

See Shapiro v. Sage Point

Because the complaint alleges facts satisfying each element

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of negligence, the Court denies Defendant’s motion as to this

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claim.

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5.

Defendant ALAW

Plaintiff named Defendant ALAW in only one cause of action.
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The Court dismisses that cause of action – the first cause of

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action – for the reasons stated above.

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therefore dismissed from this case, and the Court does not reach

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ALAW’s further arguments about whether liability can attach to a

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trustee.

Defendant ALAW is

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III.

ORDER

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For the reasons set forth above, the Court GRANTS Defendant

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SPS’s motion to dismiss as to Plaintiff’s first and third causes

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of action.

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any further amendment would be futile.

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other aspect of SPS’s motion to dismiss.

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is GRANTED, and ALAW is hereby dismissed from this case.

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The dismissal of these claims is with prejudice as
The Court DENIES all
Defendant ALAW’s motion

This case will proceed against SPS on the second and fourth

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causes of action. SPS must file its Answer within twenty days of

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this Order.

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IT IS SO ORDERED.
Dated: July 24, 2015

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