Smith v. Specialized Loan Servicing, LLC

Filing 16

ORDER Granting in Part and Denying in Part 8 Defendant's Motion to Dismiss. Plaintiff shall file an amended complaint within seven days of the filed date of the order. The hearing date set for May 5, 2017 shall be vacated. Signed by Judge Gonzalo P. Curiel on 5/3/17. (dlg)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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MARGARETTE SMITH, on behalf of
herself and all others similarly
situated,

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v.

Plaintiff,

SPECIALIZED LOAN SERVICING,
LLC,

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ORDER GRANTING IN PART AND
DENYING IN PART
DEFENDANT’S MOTION TO
DISMISS
[Dkt. No. 8.]

Defendant.
Before the Court is Defendant’s motion to dismiss for failure to state a claim.
(Dkt. No. 8.) Plaintiff filed an opposition and Defendant filed a reply. (Dkt. Nos. 14,
15.) Based on the reasoning below, the Court GRANTS in part and DENIES in part
Defendant’s motion to dismiss with leave to amend.

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CASE NO. 16cv2519-GPC(BLM)

Background
Plaintiff Margarette Smith (“Plaintiff” or “Smith”) filed a purported class action
complaint against Defendant Specialized Loan Servicing, LLC (“Defendant” or “SLS”)
for alleged violations of Regulation X of the Real Estate Settlement Procedures Act
(“RESPA”), 12 C.F.R. §1024.41; the California Consumers Legal Remedies Act
(“CLRA”), and California Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code
17200 et seq. (Dkt. No. 1, Compl.)

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Plaintiff owns the subject real property located at 2453 Blackton Drive, San

2 Diego, CA 92105. (Id. ¶ 69.) On October 13, 2005, Smith obtained a residential
3 mortgage adjustable rate loan from IndyMac Bank, F.S.B. (“IndyMac”) in the amount
4 of $220,000. (Id. ¶ 70.)
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Smith is an eighty-eight year old woman who suffers from dementia. (Id. ¶ 7.)

6 A durable power of attorney was executed in May 2005 where Smith’s daughter,
7 Lynette Ethan-Groza, was granted the authority to manage Smith’s affairs. (Id.) In
8 August 2016, after the death of Lynette Ethan-Groza, Zarah Kimble, Lynette’s daughter
9 and Smith’s granddaughter, became the successor to the power of attorney. (Id.)
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From December 2013 until February 2014, Plaintiff did not pay her mortgage

11 payments due to a family emergency. (Id. ¶ 71.) When the family crisis had passed,
12 Smith sought a repayment plan that would allow her to prepay the amounts past-due.
13 (Id.) In a letter dated February 11, 2014, IndyMac confirmed the details of a six-month
14 repayment plan which called for six monthly payments of $826.88. (Id. ¶ 72.) Despite
15 the confirmation of a repayment plan, IndyMac sent letters to Smith dated February 18,
16 March 5, April 4, and April 15, 2014 informing Plaintiff that her loan was in default and
17 invited her to explore repayment and loan modification options. (Id. ¶ 73.) After calling
18 and emailing IndyMac concerning her repayment plan, around April 23, 2014, Smith
19 submitted a formal Request for Mortgage Assistance (“RMA”), her first loss mitigation
20 application pursuant to 12 C.F.R. § 1024.41. (Id. ¶ 74.) Instead of responding to the
21 RMA, in a letter dated May 3, 2014, IndyMac stated Smith’s loan was in serious default
22 and threatened foreclosure. (Id. ¶ 75.) Two days later, IndyMac sent another letter
23 inviting her to explore a repayment plan or a loan modification. (Id.) Then in a letter
24 dated May 16, 2014, IndyMac informed Smith that her loan was being transferred to
25 SLS effective June 1, 2014. (Id. ¶ 76.)
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Her first correspondence from SLS was around June 12, 2014 when SLS

27 informed Smith of her delinquency and encouraged her to apply for loss mitigation
28 programs offered by SLS to prevent foreclosure; there was no mention of IndyMac’s
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1 repayment plan or the loan modification application she submitted to IndyMac. (Id. ¶
2 78.)
3 A.

First Loss Mitigation Application with SLS

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In response to SLS’s letter, Smith resubmitted her loss mitigation application

5 around July 1, 2014 with a letter specifically asking whether SLS would let her know
6 if any additional documentation was required. (Id. ¶ 79.) In violation of RESPA, SLS
7 did not inform Smith in writing within 5 days after receiving her loss mitigation
8 application that it received the application and whether the application was complete
9 or incomplete. (Id. ¶ 82.) Instead, SLS sent two letters dated August 19, 2014. The
10 first letter acknowledged receipt of her application without informing her whether the
11 application was complete or incomplete. (Id. ¶ 83.) The letter also stated that SLS was
12 in the process of reviewing the application and may contact her if the application is
13 determined to be incomplete. (Id.) The second letter indicated two documents were
14 missing from Smith’s application.1 (Id. ¶ 84.) Then around September 23, 2017, SLS
15 informed Smith that she had not been evaluated for a loan modification or repayment
16 program because she failed to provide the required documents but the letter did not
17 identify which documents were missing or when SLS had requested them, if ever. (Id.
18 ¶ 87.)
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Around November 7, 2014, SLS sent Smith a letter encouraging her to apply for

20 loss mitigation options similar to the initial June 12, 2014 letter. (Id. ¶ 88.) Around
21 December 11, 2014, SLS sent Smith another letter informing her that her mortgage was
22 in serious default, threatening foreclosure, and invited her to contact SLS to discuss
23 repayment plans. (Id. ¶ 89.)
24 B.

Second Loss Mitigation Application with SLS

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On December 16, 2014, Plaintiff submitted another loan modification

26 application. (Id. ¶ 90.) Around December 15, 2014 and again on December 22, 2014,
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The two missing documents were Smith’s social security income information
and Zarah Grooa’s (sic) paystubs. (Dkt. No. 1, Compl. ¶ 84.)
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1 SLS sent letters identical to the letter of August 19, 2014 in which SLS stated that her
2 application was under review without specifying whether the application was complete
3 or not. (Id. ¶ 91.) Around December 22, 2014, SLS sent a second letter that SLS had
4 received a letter from Smith about her loan and it would submit a response within 30
5 business days. (Id. ¶ 92.) On December 30, 2014, SLS informed Smith that her
6 application was missing two documents.2 (Id. ¶ 94.) The next day, Smith faxed the
7 missing documents to SLS on December 31, 2014. (Id.)

On or about January 19, 2015,

8 SLS sent a letter denying her application because she failed to provide the requested
9 documents. (Id. ¶ 102.) From December 31, 2014 when Plaintiff faxed SLS the
10 missing documents and while her application was under review, until the denial of her
11 application on January 19, 2015, Plaintiff received five contradictory and conflicting
12 letters regarding the status of her loan. (Id. ¶¶ 95-101.) For example, on January 5,
13 2015, SLS informed Smith that her account was past due and encouraged her to contact
14 SLS to discuss possible loss mitigation options. (Id. ¶ 95.) The next day, SLS sent
15 Smith a letter informing her that her application was under review. (Id. ¶ 96.) But then
16 on January 7, 2015, SLS sent Smith a “Notice of Default and Notice of Intent to
17 Foreclose” which stated that she had 33 days to pay all past due amounts. (Id. ¶ 97.)
18 Additional letters were sent with conflicting information on January 14, 2015 and
19 January 15, 2015. (Id. ¶¶ 99-101.)
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Subsequent to the denial of the December 16, 2014 application on January 19,

21 2015, and prior to her next loss mitigation application submission on May 14, 2015,
22 Plaintiff received conflicting letters similar to the ones described above. (Id. ¶¶ 10323 111.)
24 C.

Third Loss Mitigation Application with SLS

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On May 14, 2015, Smith faxed a new, complete RMA and supporting materials

26 to SLS. (Id. ¶ 111.) In a letter dated June 12, 2015, SLS informed Smith that it needed
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The missing documents were tax returns and Form 4506T for Smith and Zarah
Groca’s (sic) paystubs. (Dkt. No. 1, Compl. ¶ 94.)
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1 a couple of documents.

(Id. ¶ 115.)

Plaintiff faxed the additional responsive

2 information around June 26, 2015. (Id.) Then, on July 1, 2015, SLS informed Smith,
3 for the first time, that it required a Dodd Frank Certification concerning financial
4 contributors. (Id. ¶ 118.) In a letter dated July 21, 2015, SLS indicated it had not
5 evaluated her account for any loss mitigation options because she failed to provide all
6 necessary documentation. (Id. ¶ 120.) Then in a letter dated September 14, and 21,
7 2015, SLS identified five documents that were supposedly missing from her
8 application. (Id. ¶ 124.) A letter from SLS dated November 11, 2015 informed Smith
9 that it evaluated her request for loan assistance and it was denied because of undisclosed
10 requirements by the investor and the net present value calculation. (Id. ¶ 134.) Again,
11 from May 14, 2015, when Plaintiff submitted her application until November 11, 2015,
12 when SLS denied her application, Plaintiff received a deluge of conflicting letters from
13 SLS informing her that her application was under review, informing her that she was
14 in default and SLS intended to foreclose, and informing her that her mortgage was in
15 serious default and inviting her to discuss alternative payment plans. (Id. ¶¶ 112, 113,
16 116-117, 119, 121, 122, 123, 125, 126, 127, 132.)
17 D.

Fourth Loss Mitigation Application with SLS

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On November 19, 2015 Smith contacted SLS to pursue a secondary review but

19 in a letter dated December 2, 2015, SLS told Smith that it conducted a further review
20 and found her denial of her request for mortgage assistance was proper. (Id. ¶ 142.) The
21 letter explained that SLS did not consider the contributor income because the
22 contributor, Smith’s granddaughter, [Zarah Kimble] did not reside at the property and
23 invited Smith to submit a new RMA for consideration. (Id.) Plaintiff immediately filed
24 a new RMA. (Id.) In a letter dated December 22, 2015, SLS informed Smith she
25 needed Kimble’s paystubs. (Id. ¶ 143.) On January 20, 2016, Smith faxed SLS
26 Kimble’s paystubs. (Id. ¶ 145.) In a letter dated February 1, 2016, SLS requested the
27 paystubs again. (Id.)
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In early March 2016, Smith received a property valuation report which was
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1 conducted as part her request for mortgage assistance. (Id. ¶ 146.) Two weeks after
2 receiving the property valuation report, around March 17, 2016, Smith received a letter
3 informing her that her loan was in serious default and was referred to foreclosure. (Id.
4 ¶ 148.) In letters dated May 15 and 17, 2016, SLS told Smith that her application was
5 under review and referred her to the RMA form for a list of required documents without
6 stating which documents were missing. (Id. ¶149.) A May 18, 2016 letter indicated she
7 failed to provide proof of her social security income, when in fact she had previously
8 submitted that document. (Id. ¶ 150.) The May 18th letter asked that the document be
9 provided by June 17, 2016. (Id.) A letter dated May 25, 2016 informed Smith that her
10 account had been referred to foreclosure, and stated that it was unable to review the
11 account to determine the appropriate program until receipt of a complete “financial
12 information package, with all supporting documentation.” (Id. ¶ 151.) The letter also
13 provided a breakdown of assessed fees to Smith’s account to include $4,909.63 in
14 foreclosure fees/costs; $249.70 in property inspections; $25.00 for payoff statement and
15 $11.00 on corporate advances for a total of $5,195.33. (Id. ¶ 152.) A June 3, 2016
16 letter again requested proof of Plaintiff’s social security income by June 17, 2016. (Id.
17 ¶ 153.) On June 17, 2016, SLS sent her another letter stating that her application is in
18 the process of being reviewed. (Id.) In a latter dated August 18, 2016, SLS stated it
19 conducted a review of Smith’s loan modification request but did not evaluate her
20 eligibility because she did not provide the required documents. (Id. ¶ 157.) According
21 to Plaintiff, SLS’s letters from May - August 2016 indicate that it was dual tracking3 her
22 loan in violation of RESPA. (Id. ¶ 158.)
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Plaintiff filed the instant complaint on October 7, 2016. (Dkt. No. 1.) Defendant

24 filed a motion to dismiss all causes of action alleged against it. (Dkt. No. 8.) Plaintiff
25 filed an opposition to the RESPA and UCL claims. However, Plaintiff does not oppose
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“Dual tracking” occurs when a servicer is negotiating with defaulted
homeowners on their loans for a loan modification while also initiating the foreclosure
28 process. See Gelinas v. Bank of America, N.A., No. 16-1355-RAJ, 2017 WL 1153859,
at *4 (W.D. Wash. Mar. 28, 2017).
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1 Defendant’s motion concerning the CLRA claim and withdraws her CLRA claim. (Dkt.
2 No. 14 at 30 n. 10.) Accordingly, the Court GRANTS Defendant’s unopposed motion
3 to dismiss the CLRA claim.
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Discussion

5 A.

Legal Standard on Federal Rule of Civil Procedure 12(b)(6)

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Federal Rule of Civil Procedure (“Rule”) 12(b)(6) permits dismissal for “failure

7 to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). Dismissal
8 under Rule 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory
9 or sufficient facts to support a cognizable legal theory. See Balistreri v. Pacifica Police
10 Dep’t., 901 F.2d 696, 699 (9th Cir. 1990). Under Rule 8(a)(2), the plaintiff is required
11 only to set forth a “short and plain statement of the claim showing that the pleader is
12 entitled to relief,” and “give the defendant fair notice of what the . . . claim is and the
13 grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555
14 (2007).
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A complaint may survive a motion to dismiss only if, taking all well-pleaded

16 factual allegations as true, it contains enough facts to “state a claim to relief that is
17 plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly,
18 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual
19 content that allows the court to draw the reasonable inference that the defendant is liable
20 for the misconduct alleged.” Id. “Threadbare recitals of the elements of a cause of
21 action, supported by mere conclusory statements, do not suffice.” Id. “In sum, for a
22 complaint to survive a motion to dismiss, the non-conclusory factual content, and
23 reasonable inferences from that content, must be plausibly suggestive of a claim
24 entitling the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir.
25 2009) (quotations omitted). In reviewing a Rule 12(b)(6) motion, the Court accepts as
26 true all facts alleged in the complaint, and draws all reasonable inferences in favor of
27 the plaintiff. al-Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009). The court
28 evaluates lack of statutory standing under the Rule 12(b)(6) standard. Maya v. Centex
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1 Corp., 658 F.3d 1060, 1067 (9th Cir. 2011).
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Where a motion to dismiss is granted, “leave to amend should be granted ‘unless

3 the court determines that the allegation of other facts consistent with the challenged
4 pleading could not possibly cure the deficiency.’” DeSoto v. Yellow Freight Sys., Inc.,
5 957 F.2d 655, 658 (9th Cir. 1992) (quoting Schreiber Distrib. Co. v. Serv-Well
6 Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986)). In other words, where leave to
7 amend would be futile, the Court may deny leave to amend. See Desoto, 957 F.2d at
8 658; Schreiber, 806 F.2d at 1401.
9 B.
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Requests for Judicial Notice
Defendant and Plaintiff filed requests for judicial notice. (Dkt. Nos. 10, 14-1.)

11 As a general rule, “a district court may not consider any material beyond the pleadings
12 in ruling on a Rule 12(b)(6) motion.” Lee v. City of Los Angeles, 250 F.3d 668, 688
13 (9th Cir. 2001). However, a district court may consider “material which is properly
14 submitted as part of the complaint” or if the documents are not attached to the
15 complaint, they may be considered if the documents’ “authenticity . . . is not contested”
16 and “the plaintiff’s complaint necessarily relies” on them. Id. (citations omitted). In
17 addition, a court may take judicial notice of “matters of public record” under Rule 201.
18 Id. at 688-89.
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Here, both parties seek judicial notice of the Deed of Trust recorded on October

20 20, 2005. Plaintiff also seeks judicial notice of SLS’s May 25, 2016 letter to Ms.
21 Ethan-Groza, which is incorporated by reference in the complaint. Because neither
22 party has filed an opposition to either party’s request for judicial notice, and the Court
23 finds it appropriate to take judicial notice of the deed of trust, a publically recorded
24 document, and the May 25, 2017 letter which is incorporated by reference in the
25 complaint, the Court GRANTS Defendant and Plaintiff’s requests for judicial notice of
26 these two documents.
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Plaintiff also seeks judicial notice of a print out from the San Diego County

28 Recorder’s Office website indicating that a notice of default was filed on September 29,
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2016 on Smith’s property. However, the print out does not identify the property subject
to the notice of default. While Defendant does not oppose the request for judicial
notice, the Court declines to take judicial notice of the print out from the San Diego
County Recorder’s Office, and DENIES Plaintiff’s request for judicial notice.
C.

Regulation X of RESPA
The complaint alleges a violation of Regulations X; specifically, it alleges a

violation of 12 C.F.R. § 1024.41(b)(2)(i) requiring a servicer to notify the borrower
within five days after receiving a loss mitigation application that it received the
application and whether it is complete; 12 C.F.R. § 1024.41(c) requiring a servicer,
once a complete application is received, to evaluate and provide the borrower with loss
mitigation options, if any, it will offer within 30 days after receiving the loss mitigation
application; and 12 C.F.R. § 1024.41(f) prohibiting a servicer from initiating
foreclosure proceedings while a loss mitigation application is pending. (Dkt. No. 1,
Compl. ¶¶ 182-185.)
1.

Standing

As a threshold inquiry, Defendant argues that Plaintiff lacks statutory standing
to bring her claim under Regulation X of RESPA because it applies only to a “mortgage
loan that is secured by a property that is a borrower’s principal residence”, 12 C.F.R.
§ 1024.30(c), and because Plaintiff has not asserted that she maintained the property as
her principal residence at the time she submitted her application, she lacks statutory
standing. Plaintiff opposes presenting facts, outside the complaint, that Plaintiff lived
in the home until around October 2015 at which point she moved into a nursing care
facility.

(See Dkt. No. 14 at 18; Dkt. No. 14-2.)

After she moved out, her

granddaughters lived in the home and the property has been a family home used by
family members and never used as a rental property. (Id.) These facts are raised for the
first time in Plaintiff’s opposition and in the accompanying declaration of Zarah Kimble
and not in the complaint. Facts outside the complaint are not proper for the Court to
consider on a Rule 12(b)(6) motion. See Lee, 250 F.3d at 688. Therefore, the Court
declines to consider Plaintiff’s additional facts not alleged in the complaint.
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The parties do not dispute that Regulation X applies only to a “mortgage loan that
is secured by a property that is a borrower’s principal residence.” 12 C.F.R. §
1024.30(c). While the property may have been Smith’s principal residence at the time
she submitted her application, it is not alleged; therefore, the Court GRANTS
Defendant’s motion to dismiss for lack of standing with leave to amend.4
Because it appears the Plaintiff may be able to amend the deficiency of the
standing allegations, the Court continues to address Defendant’s remaining arguments.
2.

Actual Damages

Defendant argues that the Regulation X claims fail to state a claim because
Plaintiff has not plausibly demonstrated that she suffered damages as a result of the
purported RESPA violations. Plaintiff disagrees arguing that she alleged foreclosure
fees assessed against her in the letter dated May 25, 2017 and she has also incurred
administrative costs due to SLS’s alleged violations of RESPA. In reply, Defendant
argues that Plaintiff has failed to allege that any foreclosure fees assessed against her
loan were causally related to SLS’s alleged violation of RESPA. Moreover, because
Plaintiff has not demonstrated she was entitled to loss mitigation assistance and since
she was in default, she would have incurred at least a portion of the administrative
expenses regardless of whether there was a violation of RESPA.
RESPA allows an individual to recover “any actual damages to the borrower as
a result of the failure [to comply with provisions of RESPA].”

12 U.S.C. §

2605(f)(1)(A); Ponds v. Nationstar Mortg., LLC, Case No. 15-8693-DMG(JPRx), 2016
WL 3360675, at *5 (C.D. Cal. June 3, 2016) (citation omitted) (Plaintiff must allege
“actual pecuniary damages as a result of the RESPA violation.”); see also Jenkins v. JP

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In opposition, Plaintiff argues that the property is still considered a principal
residence under RESPA since the home is being used by the family after Smith moved
26 into a nursing care facility in October 2015 and the property is not used for business,
commercial or agricultural purposes. In reply, Defendant argues Smith has not alleged
27 and can no longer show that she actually resides and intends to remain at the property.
The Court declines to consider the hypothetical allegations that are not yet alleged in
28 the complaint and reserves the issue for further briefing in the event Defendant files
another motion to dismiss.
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Morgan Chase Bank, N.A., 216 Cal. App. 4th 497, 532 (2013) (disapproved on other
grounds by Yvanova v. New Century Mort. Corp., 62 Cal. 4th 919 (2016)). Actual
damages must include harms caused by RESPA violations, and “not harms generally
resulting from a plaintiff's default and the foreclosure of his or her home.” Jenkins, 216
Cal. App. 4th at 532. “Actual damages may include, but are not limited to, (1)
out-of-pocket expenses incurred dealing with the RESPA violation, (2) lost time and
inconvenience to the extent it resulted in actual pecuniary loss, and (3) late fees.”
Wanger v. EMC Mort. Corp., 103 Cal. App. 4th 1125, 1137 (2002).
In this case, the complaint alleges that the May 25, 2016 letter from SLS listed
a breakdown of fees assessed against Plaintiff’s account to include $4,909.63 in
foreclosure fees/costs, $249.70 in property inspections; $25.00 for payoff statements;
and $11.00 on corporate advances. (Dkt. No. 1, Compl. ¶ 153.) According to the
complaint, the foreclosure fees were improperly being assessed against her while her
loss mitigation application was being reviewed in violation of 12 C.F.R. §§ 1024.41(f).
As discussed below, the Court concludes that Plaintiff has not alleged a violation of 12
C.F.R. § 1024.41(f); therefore, her alleged actual damages arising alleged improper dual
tracking cannot assert a claim for damages. However, Plaintiff further claims that
Defendant had no intention of processing her loss mitigation application, (id. ¶ 165),
indicated by its failure to comply with the regulations; therefore, if Defendant had
complied with RESPA, then the foreclosure fees would not have been assessed against
her. Thus, Plaintiff has sufficiently alleged that her foreclosure fees were due to SLS’s
alleged violations of RESPA.
She also asserts actual damages in the form of administrative costs such as
“postage, travel expenses, photocopying, scanning, and facsimile expenses pursuing the
loss mitigation process.” (Id. ¶¶ 163-64.) The complaint alleges that SLS violated 12
C.F.R. § 1024.41(c) numerous times from August 2014 until August 19, 2016 when
SLS failed to provide her with notice in writing regarding its determination of which
loss mitigation options, if any, it would offer to her within 30 days of receiving a loss
mitigation application. (Id. ¶¶ 85- 157.) During this time period, Plaintiff had to
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resubmit her loss mitigation application several times, and resubmit documents she
already submitted. She spent considerable time and effort and administrative costs,
pursuing the loss mitigation process with SLS which she would not have spent had SLS
complied with Regulation X. (Id. ¶¶ 163, 164.) The Court concludes that Plaintiff has
sufficiently alleged actual damages arising from the alleged RESPA violations.
3.

12 C.F.R. § 1024.41(c)

Defendant contends that under § 1024.41(c), a servicer is only required to
provide a borrower a written decision within 30 days of receiving a “complete”
application. Since Plaintiff acknowledges that SLS did not deem her applications
complete, she cannot plausibly argue a violation of § 1024.41(c) absent a complete
application. In response, Plaintiff argues she asserts a claim under § 1024.41(c) because
she alleges her applications were complete when she provided SLS with the requested
information.
12 C.F.R. § 1024.41(c) provides the following:
(c) Evaluation of loss mitigation applications.
(1) Complete loss mitigation application. If a servicer receives a
complete loss mitigation application more than 37 days before a
foreclosure sale, then, within 30 days of receiving a borrower's
complete loss mitigation application, a servicer shall:
(i) Evaluate the borrower for all loss mitigation options available
to the borrower; and
(ii) Provide the borrower with a notice in writing stating the
servicer's determination of which loss mitigation options, if any,
it will offer to the borrower on behalf of the owner or assignee
of the mortgage. The servicer shall include in this notice the
amount of time the borrower has to accept or reject an offer of a
loss mitigation program as provided for in paragraph (e) of this
section, if applicable, and a notification, if applicable, that the
borrower has the right to appeal the denial of any loan
modification option as well as the amount of time the borrower
has to file such an appeal and any requirements for making an
appeal, as provided for in paragraph (h) of this section.

26 12 C.F.R. § 1024.41(c)(1). A complete application is one for which the servicer has
27 received all of the required documents. 12 C.F.R. § 1024.41(b)(1).
28

The complaint alleges at least five loan modification applications Smith
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submitted to her original servicer, IndyMac and then to SLS, her current servicer. (Dkt.
No. 1, Compl. ¶¶ 74, 79, 90, 111, 142.) Among these applications, at least one, the
December 16, 2014 application is alleged to be “complete.” On December 30, 2014,
when SLS requested two missing documents from Plaintiff, she immediately faxed the
missing information the next day on December 31, 2014. (Id. ¶¶ 90, 94.) However,
around January 19, 2015, SLS denied her application because she failed to provide the
requested documents. (Id. ¶ 102.) Thus, the Court concludes that Plaintiff has alleged
she provided a “complete” loan modification application to SLS sufficient to allege a
violation of § 1024.41(c).
4.

12 C.F.R. § 1024.41(f)

Defendant avers that a violation of § 1024.41(f) precludes a servicer from making
the “first notice or filing required by applicable law for any judicial or non-judicial
process” while a borrower has a complete loan modification application pending;
however, in this case, Defendant did not institute nonjudicial foreclosure proceedings
by recording a notice of default and cannot be subject to § 1024.41(f). Plaintiff
disagrees arguing that SLS sent at least 11 default notices to Plaintiff during January
2015 and May 2016 and started charging fees for foreclosure no later than May 2016;
these acts violates RESPA prohibition against dual tracking. She complains that SLS
should not be able to avoid RESPA by sending unrecorded notices and charging
foreclosure fees.
“A servicer shall not make the first notice or filing required by applicable law for
any judicial or non-judicial foreclosure process” while a complete loss mitigation
application is pending. 12 C.F.R. § 1024.41(f). The Consumer Financial Protection
Bureau’s (“CFPB”) Official Bureau Interpretations provide guidance on what
constitutes the first notice or filing under § 1024.41(f)
1. . . . Such notices or filings include, for example, a foreclosure
complaint, a notice of default, a notice of election and demand, or any
other notice that is required by applicable law in order to pursue
acceleration of a mortgage loan obligation or sale of a property securing
a mortgage loan obligation. . . .
iv. A document provided to the borrower but not initially required to be
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filed, recorded, or published is not considered the first notice or filing
on the sole basis that the document must later be included as an
attachment accompanying another document that is required to be filed,
recorded, or published to carry out a foreclosure.

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12 C.F.R. Pt. 1024. Supp. I, § 1024.41(f) (Jan. 10, 2014).5 It specifically states that an
unrecorded notice of default does not constitute a “first notice” under § 1024.41(f).
The Official Bureau Interpretations refer to state law to determine when a non-judicial
foreclosure process begins. In California, the recording of the “notice of default” starts
the non-judicial foreclosure proceeding to begin. See Cal. Civil Code § 2924.
The complaint has not alleged that SLS recorded a notice of default with the San
Diego County Recorder’s Office. Instead, SLS has sent notices of default and intent to
foreclose directly to Smith and charged her foreclosure fees. However, according to the
CFPB’s interpretation, an unrecorded notice of default does not constitute the “first
notice” and Smith has not provided any legal support that imposing foreclosure fees or
sending letters entitled “notice of default” to a borrower constitute a “first notice or
filing required by applicable law.” Accordingly, Plaintiff fails to state a violation of §
1024.41(f).
5.

Pattern or Practice

Defendant argues that Plaintiff has only conclusorily alleged that SLS has
engaged in a “pattern or practice” of violating Regulation X. (See Dkt. No. 1, Compl.
¶¶ 6, 62 (“SLS has engaged in a pattern and practice of violating these regualtions in
numerous ways.”) Moreover, Plaintiff’s citation to other complaints submitted to the
CFPB does not amount to noncompliance and not sufficient to demonstrate a pattern
or practice. Plaintiff respond that SLS’s use of the seventeen “review” letters, itself,
constitutes a pattern or practice that violates 12 C.F.R. § 1024.41(b) because the letters
do not state whether her application was complete.

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Congress granted the CFPB exclusive authority to interpret the federal
consumer financial laws and deference shall be granted under Chevron, U.S.A., Inc. v.
28 Natural Resources Defense Council, 467 U.S. 837 (1984). Consumer Fin. Prot. Bureau
v. Morgan Drexen, Inc., 60 F. Supp. 3d 1082, 1091 (C.D. Cal. 2014).
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RESPA allows an individual to recover “actual damages” as a result of a

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violation of Regulation X but also allows a borrower to recover “additional damages”
of up to $2,000 if the borrower can demonstrate a “pattern or practice of
noncompliance.” See 12 U.S.C. § 2605(f)(1)(A) (actual damages); 12 U.S.C. §
2605(f)(1)(B) (additional damages).) The term “pattern or practice” under RESPA is
defined according to the usual meaning of the words. In re Maxwell, 281 B.R. 101, 123
(D. Mass. 2002) (quoting Cortez v. Keystone Bank, Inc., No. 98–2457, 2000 WL
536666 at *10 (E.D. Pa. May 2, 2000)). “The term suggests a standard or routine way
of operating.” Id. While one or two RESPA violations do not establish a “pattern or
practice”, see id.; Garcia v. Wachovia Mort. Corp., 676 F. Supp. 2d 895, 909 (2009);
five violations constitute a “pattern or practice.” See Ploog v. HomeSide Lending, Inc.,
209 F. Supp. 2d 863, 868-69 (N.D. Ill. 2002).
Here, the complaint alleges that over a period of 22 month period, Smith received

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seventeen allegedly unlawful letters that stated her application was under review
without specifying whether her application was either complete or incomplete.6 (Dkt.
No. 1, Compl. ¶ 83.) Plaintiff has sufficiently stated a “pattern or practice of
noncompliance” subject to 12 U.S.C. § 2605(f)(1)(B).
D.

UCL
The UCL prohibits “any unlawful, unfair or fraudulent business act or practice.”

Cal. Bus. & Prof. Code § 17200. “Each of these three adjectives captures a separate and
distinct theory of liability.” Rubio v. Capital One Bank, 613 F.3d 1195, 1203 (9th Cir.
2010) (quotation marks omitted).
1.

Standing

Defendant argues that Plaintiff does not have standing to assert a UCL claim

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The parties also dispute whether other complaints against SLS that were
submitted to the CFPB can be used to allege a “pattern or practice.” The complaint
27 cites five different complaints against SLS to the CFPB concerning loan modification
issues. (Dkt. No. 1, Compl. ¶ 14.) Since Plaintiff’s allegations of alleged RESPA
28 violations against SLS are sufficient to allege a “pattern or practice”, the Court need not
address this issue.
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because she has not alleged an economic injury. Plaintiff claims she has alleged an
injury in fact and loss of property by being subject to marked up charges and
foreclosure fees.7
Section 17204 requires that a plaintiff must demonstrate injury-in-fact and loss
of money or property caused by the unfair competition. Cal. Bus. & Prof. Code §
17204. The purpose of this provision is “to confine standing to those actually injured
by a defendant's business practices . . . . .” Kwikset Corp. v. Superior Court, 51 Cal. 4th
310, 321 (2011).

“To satisfy the narrower standing requirements imposed by

Proposition 64, a party must now (1) establish a loss or deprivation of money or
property sufficient to qualify as injury-in-fact, i.e., economic injury, and (2) show that
the economic injury was the result of, i.e., caused by, the unfair business practice or
false advertising that is the gravamen of the claim.” Id. at 322. Marked up charges and
excess fees are sufficient to establish standing under the UCL. See Sullivan v.
Washington Mut. Bank, FA, No. C-09-2161 EMC, 2009 WL 3458300, at *4 (N.D. Cal.
Oct. 23, 2009) (improper finance charges would constitute both injury in fact and loss
of money).
The complaint alleges Smith has been assessed thousands of dollars in fees, had
her credit ruined, and has expended money on postage, photocopying and faxing in
response to SLS’s correspondence. (Dkt. No. 1, Compl. ¶¶ 164-65.) She alleges that
SLS failed to comply with Regulation X by failing to inform her whether her
application was complete, required her to resubmit documents already submitted, and
failed to evaluate her for loss mitigation options. She also claims that SLS never
intended to evaluate her loss mitigation options as SLS was also informally initiating
foreclosure proceedings. (Id. ¶¶ 67-68.) Plaintiff alleges that she was assessed marked
up charges, excessive fees, and incurred administrative costs due to Defendant’s failure
to properly comply with the loss mitigation regulations under RESPA. Thus, Plaintiff

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While Plaintiff argues she also alleged a loss in equity in her property, it is not
claimed in the complaint.
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has alleged facts to assert standing to assert a UCL claim.
2.

Unlawful Prong

Defendant argues that the unlawful prong claim fails because Plaintiff has not
stated a viable claim for violation of Regulation X. Plaintiff disagrees arguing she has
stated a Regulation X claim.
The unlawful prong of the UCL incorporates “violations of other laws and treats
them as unlawful practices.” Cel-Tech Comms., Inc. v. Los Angeles Cellular Tel. Co.,
20 Cal. 4th 163, 180 (1999). This prong creates an “independent action when a
business practice violates some other law.” Walker v. Countrywide Home Loans, Inc.,
98 Cal. App. 4th 1158, 1169 (2002). A UCL claim “stands or falls depending on the
fate of antecedent substantive causes of action.” Krantz v. BT Visual Images, 89 Cal.
App. 4th 164, 178 (2001).
Here, because the Court GRANTS Defendant’s motion to dismiss as to the
RESPA claim, the Court, at this time, also GRANTS the claim under the unlawful
prong of the UCL.
3.

Unfair Prong

SLS contends that Plaintiff has not asserted facts to establish that it acted
“unfairly” because Plaintiff failed to demonstrate that SLS had an obligation to review
her application.

In response, Plaintiff argues that SLS’s practice of providing

confusing, conflicting, and untimely information constitutes unfair conduct because it
violates the purpose of RESPA which is to ensure consumers are provided with more
information concerning the settlement process.
A business act or practice is “unfair” when the conduct “threatens an incipient
violation of an antitrust law, or violates the policy or spirit of one of those laws because
its effects are comparable to or the same as a violation of the law, or otherwise
significantly threatens or harms competition.” Cel-Tech Comms., Inc. v. Los Angeles
Cellular Tel. Co., 20 Cal. 4th 163, 187 (1999). Where a claim of an unfair act or
practice is predicated on public policy, Cel-Tech requires that the public policy which
is a predicate to the action must be “tethered to specific constitutional, statutory or
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regulatory provisions.” Schnall v. Hertz Corp., 78 Cal. App. 4th 1144, 1166 (2000)
(Cel-Tech holding that “any claims of unfairness under the UCL should be defined in
connection with a legislatively declared policy” also applied to UCL actions brought
by consumers); Churchill Village, L.L.C. v. General Electric Co., 169 F. Supp. 2d
1119, 1130 & fn. 10 (N.D. Cal. 2000) (holding Cel-Tech’s definition of unfair also
applies to consumer UCL actions).
Here, Plaintiff’s allegations that SLS’s practices on processing loss mitigation
applications violate the policy underlying RESPA which is to ensure consumers are
provided with “greater information during the settlement process and to protect
consumers against unwarranted charges.” (Dkt. No. 1, Compl. ¶ 35.) Specifically, the
policy is tethered to Regulation X which was implemented by the CFPB to provide
procedural protections for borrowers as they seek out loss mitigation options as an
alternative to foreclosure. (Id. ¶¶ 39, 40.) Thus, Plaintiff has sufficiently stated a claim
under the unfair prong of the UCL as she has asserted a violation of a public policy that
is tethered to Regulation X and RESPA.
4.

Fraudulent Prong

Defendant asserts that Plaintiff’s claim that SLS’s conduct in reviewing her
application was fraudulent because it had no intention of offering her a loss mitigation
alternative is undermined by her acknowledgment that SLS actually reviewed her last
application and determined she was ineligible based on her income. Defendant also
argues that Plaintiff has failed to comply with the heightened pleading required under
Rule 9(b).

Plaintiff responds that she alleged SLS’s “deluge of conflicting

correspondence was likely to deceive consumers” because while SLS offered or invited
Plaintiff to submit a loan modification application, it then created barrier after barrier
to prevent her from completing an application to its satisfaction or actually obtaining
a loss mitigation option.
To state a claim under the fraudulent prong of the UCL, “it is necessary only to
show that members of the public are likely to be deceived” by the business practice.
Prakashpalan v. Engstrom, Lipscomb and Lack, 223 Cal. App. 4th 1105, 1134 (2014).
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“Unless the challenged conduct targets a particular disadvantaged or vulnerable group,
it is judged by the effect it would have on a reasonable consumer.” Puentes v. Wells
Fargo Home Mortg., Inc., 160 Cal. App. 4th 638, 645 (2008) (quotations and citation
omitted).
In federal court, where a plaintiff alleges fraud or a claim is grounded in fraud,
Rule 9(b) requires a plaintiff to “state with particularity the circumstances constituting
fraud or mistake.” Fed. R. Civ. P. 9(b). The Ninth Circuit has held that Rule 9(b)
applies to state-law causes of action, including the UCL. Vess v. Ciba-Geigy Corp.,
U.S.A., 317 F.3d 1097, 1103 (9th Cir. 2003); Kearns v. Ford Motor Co., 567 F.3d 1120,
1125 (9th Cir. 2009) (applying Rule 9(b) particularity requirement to UCL claim
grounded in fraud).
Here, Plaintiff does not make an allegation of fraud nor do the allegations sound
in fraud. Therefore, the requirements of Rule 9(b) do not apply. In compliance with
Rule 8, Plaintiff has alleged facts that members of the public are likely to be deceived.
Plaintiff claims that SLS’s process of offering and inviting consumers to apply for loss
mitigation options, and then creating blocks to be evaluated for loss mitigation options
are likely to deceive members of the public. As such, Plaintiff has stated a claim under
the fraudulent prong of the UCL.
Alternatively, even if Plaintiff’s allegations are construed to sound in fraud, she
has complied with the heightened pleading requirement under Rule 9(b).
Rule 9(b) requires a plaintiff to “state with particularity the circumstances
constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a
person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). A party must set forth
“the time, place, and specific content of the false representations as well as the identities
of the parties to the misrepresentation.” Odom v. Microsoft Corp., 486 F.3d 541, 553
(9th Cir. 2007) (internal quotation marks omitted).
The complaint alleges that SLS sent her with a deluge of conflicting letters. As
to each letter, Plaintiff provides the date and the content of each conflicting letter. This
satisfies the heightened pleading requirement under Rule 9(b).
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In sum, the Court GRANTS Defendant’s motion to dismiss the UCL based on the
unlawful prong and DENIES Defendant’s motion to dismiss the UCL claim based on
the unfair and fraudulent prongs.
Conclusion

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Based on the above, the Court GRANTS in part and DENIES in part Defendant’s
motion to dismiss with leave to amend. Specifically, the Court GRANTS Defendant’s
motion to dismiss the Regulation X cause of action for lack of standing and the CLRA
claim as unopposed, and GRANTS in part DENIES in part the UCL claim. Plaintiff
shall file an amended complaint within seven days of the filed date of the order. The
hearing date set for May 5, 2017 shall be vacated.
IT IS SO ORDERED.

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DATED: May 3, 2017
HON. GONZALO P. CURIEL
United States District Judge

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