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McCarthy v. Servis One, Inc.

United States District Court, N.D. California

April 10, 2017

SERVIS ONE, INC., et al., Defendants.


          William H. Orrick United States District Judge

         Plaintiff Lisa McCarthy challenges mortgage foreclosure proceedings that have been undertaken by defendants Servis One, Inc. dba BSI Financial Services (“BSI”), as the relevant mortgage loan servicer; Christiana Trust, as the Beneficiary of the trust holding the deed of trust on her residence; and Western Progressive, LLC., (“Western”), as the trustee to the deed of trust on her residence. McCarthy alleges causes of action against defendants for: (i) violation of California Civ. Code § 2923.6; (ii) Negligence; (iii) Fraud; (iv) Negligent Misrepresentation; (v) Unfair Competition under Cal. Bus. & Prof. Code § 17200; (vi) and Injunctive Relief under Cal. Civ. Code § 2924.12.

         Defendants move to dismiss. Pursuant to Civil Local Rule 7-1(b), this matter is appropriate for resolution without oral argument and the April 12, 2017 hearing is VACATED. McCarthy fails to allege sufficient facts to support her claims with respect to the processing of her 2016 loan modification application. Her Complaint is DISMISSED with leave to amend.



         In 2008, McCarthy obtained a $720, 000 mortgage loan secured by a deed of trust on her residence (“Property”). On November 26, 2014, a notice of default was recorded by defendant Western Progressive and on April 3, 2015 a Notice of Trustee's Sale recorded. Complaint ¶ 15, Ex. A; Declaration of Tara Spangler [Dkt. No. 1-2] at ECF pg. 101, ¶ 6, Ex. 4.[1] The parties went back and forth with the loan modification process through 2015, with denials based, variously and at different times, on defendants' assertion that McCarthy's paperwork was incomplete, that McCarthy did not reside in the Property (because it was listed on her tax returns as a rental property), and, ultimately, in September 2015 that McCarthy simply “did not qualify.” Spangler Decl. ¶ 11.

         The Property was foreclosed upon in October 2015. Spangler Decl. ¶ 14. In response, McCarthy filed her first complaint in Alameda County Superior Court, alleging causes of action under Civ. Code § 2923.6, promissory estoppel, and quiet title. Compl. ¶ 19; Spangler Decl. ¶ 15, Ex. 12. That case was settled by the parties. Compl. ¶ 19. In January 2016, the foreclosure was rescinded and McCarthy dismissed her first lawsuit, releasing her claims against defendants. Spangler Decl. ¶ 16.

         On February 9, 2016, Western Progressive issued a new Notice of Trustee's Sale, and that notice was recorded on February 23, 2016. Spangler Decl. ¶ 18, Ex. 15; Complaint ¶ 20, Ex. B. On March 8, 2016, McCarthy filed a Chapter 13 petition in the United States Bankruptcy Court for the Northern District of California. Spangler Decl. ¶ 20. On April 4, 2016, pursuant to McCarthy's motion, the parties were referred to the Bankruptcy Court's Mortgage Modification Mediation Program (MMMP), and the parties engaged in a “loss mitigation” evaluation process under that Program. Spangler Decl. ¶ 22. On April 5, 2016, McCarthy filed a new loan modification request with BSI. Declaration of Lisa McCarthy [Dkt. No. 6] ¶ 10.

         On June 22, 2016, BSI acknowledged the receipt of the loan modification package but asked for additional information (which McCarthy claims BSI already had or was seeking for the first time). Compl. ¶¶ 22-23; Spangler Decl. ¶ 22. On June 23, 2016, McCarthy was notified that she was not eligible for a HAMP modification because the entity on whose behalf BSI serviced the loan (Christiana Trust) was not a participant. Spangler Decl. ¶ 23, Ex. 18.[2] Following an initial denial for incompleteness, the allegedly missing information was received by BSI in July 2016, and BSI confirmed it possessed a completed application for its review. Complaint ¶ 25; Spangler Decl. ¶¶ 24-28.

         BSI contends that it informed McCarthy in an August 23, 2016 letter that its “review of your financial and other information indicates that although you may have a hardship, you do not qualify for a loan modification.” Spangler Decl. ¶ 29, Ex. 21. At oral argument on the TRO, McCarthy's counsel insisted that McCarthy did not receive the August 23, 2016 letter. In any event, neither McCarthy nor BSI dispute that McCarthy appealed that denial on September 22, 2016.[3] After McCarthy submitted additional information to BSI through her bankruptcy counsel, BSI denied the appeal on November 28, 2016. Spangler Decl. ¶ 32. McCarthy admits that she received the November 28, 2016 denial of her appeal. Complaint ¶ 34.

         On September 26, 2016, the parties participated in the Bankruptcy Court's MMMP mediation with a third-party neutral mediator. According to defendants, the mediation was not successful because McCarthy did not qualify for a modification. The final amended plan was not confirmed and the bankruptcy case was dismissed on January 3, 2017.


         Defendants scheduled a trustee's sale for the Property on January 26, 2017. On January 20, 2017, McCarthy filed this case in Alameda County Superior Court.[4] The case was removed to this Court on February 22, 2017, and McCarthy applied for a Temporary Restraining Order to prevent the scheduled foreclosure sale. Dkt. No. 7. On March 7, 2017, I denied the application for a TRO and the foreclosure sale proceeded. Dkt. No. 20 (“March 2017 Order”). Defendants now move to dismiss.

         In her Complaint, McCarthy alleges that the conduct of BSI and the other defendants - in elongating the loan modification process by asking for documents already produced and continually asking for additional documents as well as misrepresenting the grounds on which McCarthy was allegedly not qualified for a modification - meant that McCarthy was not provided a meaningful opportunity to save the Property from foreclosure. Compl. ¶¶ 39-40. She also asserts that defendants are “obliged” to complete a review of her completed application and determine whether or not she is entitled to a modification under California's Homeowners Bill of Rights (“HBOR, ” Cal. Civ. Code § 2923.6(c)). Id. ¶ 41.

         More specifically, she alleges that defendants violated HBOR by: (i) “dual tracking” the mortgage modification and foreclosure processes, Compl. ¶¶ 47-48; and (ii) failing to conduct a good faith review of her completed loan modification request and appeal, which were denied on the basis of “fraud and pretext.” Id. ¶ 49. McCarthy contends that defendants were negligent because they did not “competently and professionally” handle her loan modification application and appeal. Id. ¶¶ 56-57. Her fraud claim is based upon the BSI's representation that BSI participated in the Making Home Affordable loan modification process (“HAMP”), when in reality BSI did not participate and intended to deny McCarthy's application on that basis. Id. ¶¶ 62-67. She also alleges negligent misrepresentation based on: (i) BSI's false representation that it participated in HAMP and/or that BSI was not authorized to modify McCarthy's loan under HAMP; and (ii) BSI's determination that the Property was not McCarthy's residence, and her loan modification was denied as a result. Id. ¶¶ 70-74. Finally, she alleges that the conduct described above was unlawful, fraudulent, and unfair in violation of California's Unfair Competition Law (“UCL, ” Cal. Bus. & Prof. Code § 17200).


         Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when the plaintiff pleads facts that “allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted). There must be “more than a sheer possibility that a defendant has acted unlawfully.” Id. While courts do not require “heightened fact pleading of specifics, ” a plaintiff must allege facts sufficient to “raise a right to relief above the speculative level.” See Twombly, 550 U.S. at 555, 570.

         In deciding whether the plaintiff has stated a claim upon which relief can be granted, the Court accepts the plaintiff's allegations as true and draws all reasonable inferences in favor of the plaintiff. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the court is not required to accept as true ÔÇťallegations that are merely conclusory, unwarranted deductions of ...

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