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Smith v. Specialized Loan Servicing, LLC

United States District Court, S.D. California

May 3, 2017

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


          HON. GONZALO P. CURIEL United States District Judge.

         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.


         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.)

         Plaintiff owns the subject real property located at 2453 Blackton Drive, San Diego, CA 92105. (Id. ¶ 69.) On October 13, 2005, Smith obtained a residential mortgage adjustable rate loan from IndyMac Bank, F.S.B. (“IndyMac”) in the amount of $220, 000. (Id. ¶ 70.)

         Smith is an eighty-eight year old woman who suffers from dementia. (Id. ¶ 7.) A durable power of attorney was executed in May 2005 where Smith's daughter, Lynette Ethan-Groza, was granted the authority to manage Smith's affairs. (Id.) In August 2016, after the death of Lynette Ethan-Groza, Zarah Kimble, Lynette's daughter and Smith's granddaughter, became the successor to the power of attorney. (Id.)

         From December 2013 until February 2014, Plaintiff did not pay her mortgage payments due to a family emergency. (Id. ¶ 71.) When the family crisis had passed, Smith sought a repayment plan that would allow her to prepay the amounts past-due. (Id.) In a letter dated February 11, 2014, IndyMac confirmed the details of a six-month repayment plan which called for six monthly payments of $826.88. (Id. ¶ 72.) Despite the confirmation of a repayment plan, IndyMac sent letters to Smith dated February 18, March 5, April 4, and April 15, 2014 informing Plaintiff that her loan was in default and invited her to explore repayment and loan modification options. (Id. ¶ 73.) After calling and emailing IndyMac concerning her repayment plan, around April 23, 2014, Smith submitted a formal Request for Mortgage Assistance (“RMA”), her first loss mitigation application pursuant to 12 C.F.R. § 1024.41. (Id. ¶ 74.) Instead of responding to the RMA, in a letter dated May 3, 2014, IndyMac stated Smith's loan was in serious default and threatened foreclosure. (Id. ¶ 75.) Two days later, IndyMac sent another letter inviting her to explore a repayment plan or a loan modification. (Id.) Then in a letter dated May 16, 2014, IndyMac informed Smith that her loan was being transferred to SLS effective June 1, 2014. (Id. ¶ 76.)

         Her first correspondence from SLS was around June 12, 2014 when SLS informed Smith of her delinquency and encouraged her to apply for loss mitigation programs offered by SLS to prevent foreclosure; there was no mention of IndyMac's repayment plan or the loan modification application she submitted to IndyMac. (Id. ¶ 78.)

         A. First Loss Mitigation Application with SLS

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

         Around November 7, 2014, SLS sent Smith a letter encouraging her to apply for loss mitigation options similar to the initial June 12, 2014 letter. (Id. ¶ 88.) Around December 11, 2014, SLS sent Smith another letter informing her that her mortgage was in serious default, threatening foreclosure, and invited her to contact SLS to discuss repayment plans. (Id. ¶ 89.)

         B. Second Loss Mitigation Application with SLS

         On December 16, 2014, Plaintiff submitted another loan modification application. (Id. ¶ 90.) Around December 15, 2014 and again on December 22, 2014, SLS sent letters identical to the letter of August 19, 2014 in which SLS stated that her application was under review without specifying whether the application was complete or not. (Id. ¶ 91.) Around December 22, 2014, SLS sent a second letter that SLS had received a letter from Smith about her loan and it would submit a response within 30 business days. (Id. ¶ 92.) On December 30, 2014, SLS informed Smith that her application was missing two documents.[2] (Id. ¶ 94.) The next day, Smith faxed the missing documents to SLS on December 31, 2014. (Id.) On or about January 19, 2015, SLS sent a letter denying her application because she failed to provide the requested documents. (Id. ¶ 102.) From December 31, 2014 when Plaintiff faxed SLS the missing documents and while her application was under review, until the denial of her application on January 19, 2015, Plaintiff received five contradictory and conflicting letters regarding the status of her loan. (Id. ¶¶ 95-101.) For example, on January 5, 2015, SLS informed Smith that her account was past due and encouraged her to contact SLS to discuss possible loss mitigation options. (Id. ¶ 95.) The next day, SLS sent Smith a letter informing her that her application was under review. (Id. ¶ 96.) But then on January 7, 2015, SLS sent Smith a “Notice of Default and Notice of Intent to Foreclose” which stated that she had 33 days to pay all past due amounts. (Id. ¶ 97.) Additional letters were sent with conflicting information on January 14, 2015 and January 15, 2015. (Id. ¶¶ 99-101.)

         Subsequent to the denial of the December 16, 2014 application on January 19, 2015, and prior to her next loss mitigation application submission on May 14, 2015, Plaintiff received conflicting letters similar to the ones described above. (Id. ¶¶ 103-111.)

         C. Third Loss Mitigation Application with SLS

         On May 14, 2015, Smith faxed a new, complete RMA and supporting materials to SLS. (Id. ¶ 111.) In a letter dated June 12, 2015, SLS informed Smith that it needed a couple of documents. (Id. ¶ 115.) Plaintiff faxed the additional responsive information around June 26, 2015. (Id.) Then, on July 1, 2015, SLS informed Smith, for the first time, that it required a Dodd Frank Certification concerning financial contributors. (Id. ¶ 118.) In a letter dated July 21, 2015, SLS indicated it had not evaluated her account for any loss mitigation options because she failed to provide all necessary documentation. (Id. ¶ 120.) Then in a letter dated September 14, and 21, 2015, SLS identified five documents that were supposedly missing from her application. (Id. ¶ 124.) A letter from SLS dated November 11, 2015 informed Smith that it evaluated her request for loan assistance and it was denied because of undisclosed requirements by the investor and the net present value calculation. (Id. ¶ 134.) Again, from May 14, 2015, when Plaintiff submitted her application until November 11, 2015, when SLS denied her application, Plaintiff received a deluge of conflicting letters from SLS informing her that her application was under review, informing her that she was in default and SLS intended to foreclose, and informing her that her mortgage was in serious default and inviting her to discuss alternative payment plans. (Id. ¶¶ 112, 113, 116-117, 119, 121, 122, 123, 125, 126, 127, 132.)

         D. Fourth Loss Mitigation Application with SLS

         On November 19, 2015 Smith contacted SLS to pursue a secondary review but in a letter dated December 2, 2015, SLS told Smith that it conducted a further review and found her denial of her request for mortgage assistance was proper. (Id. ¶ 142.) The letter explained that SLS did not consider the contributor income because the contributor, Smith's granddaughter, [Zarah Kimble] did not reside at the property and invited Smith to submit a new RMA for consideration. (Id.) Plaintiff immediately filed a new RMA. (Id.) In a letter dated December 22, 2015, SLS informed Smith she needed Kimble's paystubs. (Id. ¶ 143.) On January 20, 2016, Smith faxed SLS Kimble's paystubs. (Id. ¶ 145.) In a letter dated February 1, 2016, SLS requested the paystubs again. (Id.)

         In early March 2016, Smith received a property valuation report which was conducted as part her request for mortgage assistance. (Id. ¶ 146.) Two weeks after receiving the property valuation report, around March 17, 2016, Smith received a letter informing her that her loan was in serious default and was referred to foreclosure. (Id. ¶ 148.) In letters dated May 15 and 17, 2016, SLS told Smith that her application was under review and referred her to the RMA form for a list of required documents without stating which documents were missing. (Id. ¶149.) A May 18, 2016 letter indicated she failed to provide proof of her social security income, when in fact she had previously submitted that document. (Id. ¶ 150.) The May 18th letter asked that the document be provided by June 17, 2016. (Id.) A letter dated May 25, 2016 informed Smith that her account had been referred to foreclosure, and stated that it was unable to review the account to determine the appropriate program until receipt of a complete “financial information package, with all supporting documentation.” (Id. ¶ 151.) The letter also provided a breakdown of assessed fees to Smith's account to include $4, 909.63 in foreclosure fees/costs; $249.70 in property inspections; $25.00 for payoff statement and $11.00 on corporate advances for a total of $5, 195.33. (Id. ¶ 152.) A June 3, 2016 letter again requested proof of Plaintiff's social security income by June 17, 2016. (Id. ¶ 153.) On June 17, 2016, SLS sent her another letter stating that her application is in the process of being reviewed. (Id.) In a latter dated August 18, 2016, SLS stated it conducted a review of Smith's loan modification request but did not evaluate her eligibility because she did not provide the required documents. (Id. ¶ 157.) According to Plaintiff, SLS's letters from May - August 2016 indicate that it was dual tracking[3] her loan in violation of RESPA. (Id. ¶ 158.)

         Plaintiff filed the instant complaint on October 7, 2016. (Dkt. No. 1.) Defendant filed a motion to dismiss all causes of action alleged against it. (Dkt. No. 8.) Plaintiff filed an opposition to the RESPA and UCL claims. However, Plaintiff does not oppose Defendant's motion concerning the CLRA claim and withdraws her CLRA claim. (Dkt. No. 14 at 30 n. 10.) Accordingly, the Court GRANTS Defendant's unopposed motion to dismiss the CLRA claim.


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

         Federal Rule of Civil Procedure (“Rule”) 12(b)(6) permits dismissal for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). Dismissal under Rule 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory. See Balistreri v. Pacifica Police Dep't., 901 F.2d 696, 699 (9th Cir. 1990). Under Rule 8(a)(2), the plaintiff is required only to set forth a “short and plain statement of the claim showing that the pleader is entitled to relief, ” and “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).

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

         Where a motion to dismiss is granted, “leave to amend should be granted ‘unless the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency.'” DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992) (quoting Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986)). In other words, where leave to amend would be futile, the Court may deny leave to amend. See Desoto, 957 F.2d at 658; Schreiber, 806 F.2d at 1401.

         B. Requests for Judicial Notice

         Defendant and Plaintiff filed requests for judicial notice. (Dkt. Nos. 10, 14-1.) As a general rule, “a district court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion.” Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). However, a district court may consider “material which is properly submitted as part of the complaint” or if the documents are not attached to the complaint, they may be considered if the documents' “authenticity . . . is not contested” and “the plaintiff's complaint necessarily relies” on them. Id. (citations omitted). In addition, a court may take judicial notice of “matters of public record” under Rule 201. Id. at 688-89.

         Here, both parties seek judicial notice of the Deed of Trust recorded on October 20, 2005. Plaintiff also seeks judicial notice of SLS's May 25, 2016 letter to Ms. Ethan-Groza, which is incorporated by reference in the complaint. Because neither party has filed an opposition to either party's request for judicial notice, and the Court finds it appropriate to take judicial notice of the deed of trust, a publically recorded document, and the May 25, 2017 letter which is ...

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