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Hahn v. Select Portfolio Servicing, Inc.

United States District Court, N.D. California

January 8, 2020

'
v.
SELECT PORTFOLIO SERVICING, INC., Defendant.

          ORDER RE: DEFENDANT'S MOTION FOR SUMMARY JUDGMENT, RE: DKT. NO. 52

          JACQUELINE SCOTT CORLEY UNITED STATES MAGISTRATE JUDGE

         Roy Hahn, Linda Montgomery, and The Roy E. Hahn and Linda G. Montgomery Living Trust (the “Trust”) (collectively, “Plaintiffs”) sue Select Portfolio Servicing, Inc. (“SPS” or “Defendant”) for alleged violations of federal and state laws arising out of Defendant's processing of Plaintiffs' loan modification applications.[1] Defendant's motion for summary judgment, or in the alternative, partial summary judgment is pending before the Court. (Dkt. No. 52.)[2] After careful consideration of the parties' briefing and having had the benefit of oral argument on December 19, 2019, the Court GRANTS Defendant's motion.

         BACKGROUND

         The gravamen of Plaintiffs' First Amended Complaint is that SPS's failure to properly consider Plaintiffs' loan modification applications (also known as loss mitigation applications) resulted in SPS filing an “illegal” Notice of Trustee's Sale, forcing Plaintiffs to sell their home to avoid foreclosure.

         I. Factual Background

         A. Plaintiffs' Mortgage and Default

         Mr. Hahn and Ms. Montgomery are husband and wife. (Dkt. No. 62-1 at ¶ 2.) At all times relevant to this action they were self-employed accounting professionals. (See Dkt. Nos. 54-1, Ex. 9 at 4:4-5:2 & 54-2, Ex. 10 at 3:17-24.) In August 2001, they purchased a condominium located at 765 Market Street, Unit 34-F, San Francisco, CA 94103 (the “Residence”), in a building known to the public as the Four Seasons Residences. (Id.; see also Dkt. No. 64, Ex. 1 at 2.) The purchase price was $2, 650, 000. (Dkt. No. 64, Ex. 1 at 2.) Mr. Hahn and Ms. Montgomery “together owned the Residence, ” and “held title to the Residence under the terms of [the Trust].” (Dkt. No. 62-1 at ¶ 2.)

         In September 2005, Plaintiffs executed a 30-year mortgage loan (the “Note”) with Washington Mutual Bank, FA (“Washington Mutual”) in the amount of $2, 450, 000. (Dkt. No. 65, Ex. 17.) The Note was secured by a Deed of Trust (the “Deed”) on the Residence. (Id., Ex. 19.) JP Morgan Chase Bank (“Chase”) subsequently acquired the Note after Chase acquired Washington Mutual around 2008. (See Dkt. No. 1-2, Ex. A at 25 ¶ 4.)

         In January 2012, the IRS notified Mr. Hahn that it had assessed approximately $9, 000, 000 in penalties against him for “failure to register a tax shelter” related to an investment program he “designed and offered” to clients in 2001. (See Dkt. No. 1-2, Ex. A at 52 ¶ 84; see also Dkt. Nos. 54-1, Ex. 9 at 8:6-19 & 64, Ex. 8 at 91.) The IRS placed immediate liens on the Residence. (Dkt. No. 1-2, Ex. A at 52 ¶ 86; see also Dkt. Nos. 54-1, Ex. 9 at 7:19-25 & 64, Ex. 9.) The liens negatively affected Mr. Hahn's employment as investment manager by “prevent[ing] potential institutional investors from considering” retaining him. (Dkt. No. 1-2, Ex. A at 52 ¶¶ 84-86.) Further, Plaintiffs incurred “significant” legal fees in defending against the IRS assessment. (Id. at ¶ 84.) As a result, Plaintiffs “began to suffer severe financial distress in December 2013, ” primarily due to the IRS assessment against Mr. Hahn and resulting liens on the Residence. (Id.; see also Dkt. No. 54-1, Ex. 9 at 7:19-20 (testifying that “After [the effects of the global financial crisis in 2008], the Internal Revenue Service matters were the primary problem.”).)

         Plaintiffs defaulted on the Note around December 2013. (Dkt. No. 54-1, Ex. 9 at 6:17-19.) In January 2014, Chase sent correspondence to Plaintiffs regarding the default and notifying Plaintiffs that they may be eligible for “mortgage assistance options.” (Dkt. No. 65, Ex. 21 at 67.) Chase instructed Plaintiffs to complete and return an enclosed “Request for Mortgage Assistance Form” and send financial documents to Chase to determine eligibility. (Id.)

         B. Plaintiffs' Loss Mitigation Applications

         In February 2014, Plaintiffs submitted the mortgage assistance form and financial documents to Chase. (Dkt. No. 65, Ex. 26.) By letter dated March 4, 2014, SPS notified Plaintiffs that servicing of the Note was transferred from Chase to SPS effective March 1, 2014. (Dkt. No. 65, Ex. 27.) SPS and Plaintiffs thereafter engaged in a year of back and forth correspondence. SPS continually asserted that certain necessary information was missing and thus the loss mitigation application was not complete, and Plaintiffs repeatedly responded that they had already provided the information on multiple occasions and that the application was complete. Plaintiffs also sometimes provided additional information. (See, e.g., Dkt. Nos. 56-4, Ex. D; 56-5, Ex. E; 56-6, Ex. F; 56-7, Ex. G; 56-8, Ex. H; 66, Exs. 28, 32, 34-36, 38-40, 43, 45, 47, 49.)

         1. The March 2015 Complete Loss Mitigation Application

         On March 12, 2015 SPS finally advised Plaintiffs by letter that it “ha[d] received a complete Assistance Review Application, including all required information and documentation required to evaluate your account for loss mitigation assistance.” (Dkt. No. 56-9, Ex. I at 2.) SPS's letter further states, in pertinent part: “We will evaluate your complete application for all loss mitigation options available to you and the results will be sent to you within thirty (30) days of this letter.” (Id.) The letter also advised that SPS “may order” an appraisal in connection with its loss mitigation review. (Id.)

         SPS's “Contact History Report” for Plaintiffs' account (“Account Report”) includes an entry dated March 30, 2015, noting that an appraisal is needed to proceed with the loss mitigation review, but that attempts to gain access to the Residence had failed. (Dkt. No. 56-1, Ex. A at 63.) On April 7, 2015, SPS sent Plaintiffs a letter stating, in pertinent part: “[SPS] received your request for loss mitigation assistance, but due to your request or inactivity, we consider the assistance request withdrawn” because “[a]fter initially asking to be considered for assistance, you withdrew that request on 04/06/2015.” (Dkt. No. 56-10, Ex. J at 2.) Mr. Hahn responded by fax on April 12, 2015, disputing that Plaintiffs withdrew their loan mitigation and stating, in pertinent part: “Show me the purported letter from me that asks for a withdrawal!” (Dkt. No. 66, Ex. 54 at 98.)

         On June 29, 2015, SPS sent a letter to Plaintiffs notifying them that the Residence was “close to being referred to foreclosure, ” that they were in default of the Note in the amount of $347, 898.83, and that the last payment had been received on November 15, 2013. (Dkt. No. 66, Ex. 55 at 100.) The letter further states, in pertinent part: “We have been unable to contact you to consider you for a loan modification.” (Id. at 101.) The next day, SPS sent Plaintiffs an “Assistance Review Application” letter identifying the “Required Information” necessary for loss mitigation assistance review. (Dkt. No. 66, Ex. 57 at 109.)

         2. Plaintiffs' Continued Loss Mitigation Efforts

         Mr. Hahn responded to SPS's June 29 letter by fax on July 11, 2015, stating, in pertinent part:

[Y]ou have continually failed to respond to the multitude of respon[ses] and information I have furnished to you at your request. Instead I received form letters asserting my formal withdrawal of an application (plainly untrue) and my failure to communicate with you (blatantly untrue given my written responses all of which you refuse to acknowledge). I again request that you review the information I have previously furnished.

(Dkt. No. 66, Ex. 56 at 106.) On July 17, 2015, SPS sent a Required Information Notice requesting the same federal tax information it had previously requested, as well as a “Hardship Affidavit.” (Dkt. No. 56-11, Ex. K at 2-3.) Mr. Hahn responded by fax on August 1, 2015, referencing SPS's letters, Mr. Hahn's July 11 fax, and stating, in pertinent part: “Having now submitted multiple requests for loan modifications and provided every single document requested, timely and completely, I am unable to understand why my prior requests have been ignored.” (Dkt. No. 66, Ex. 57 at 108.) Mr. Hahn's fax further “incorporate[d] all prior responses to SPS, ” and “again request[ed] a loan modification.” (Id.)

         The following month SPS responded to Mr. Hahn's August 1 fax, noting that “review initiated on March 13, 2014 remains closed” but stating that “a new Loss Mitigation Review was initiated on July 16, 2015.” (Dkt. No. 66, Ex. 58 at 116.) The letter further states, in pertinent part: “In order for us to complete the review for loss mitigation assistance you are first required to submit a complete loss mitigation application.” (Id.) The letter lists the specific “required documentation, ” and asks Plaintiffs to provide it “as soon as possible.” (Id.)

         Plaintiffs filed a complaint against SPS with the Consumer Financial Protection Bureau (“Consumer Bureau”) on October 6, 2015, asserting that SPS had failed to process Plaintiffs' “complete and timely” loss mitigation application. (Dkt. No. 66, Ex. 59 at 121.) The Consumer Bureau forwarded the complaint to SPS. (Id.) The same day Plaintiffs filed their Consumer Bureau complaint, Mr. Hahn responded by fax to SPS's September 15 letter, disputing the closure of Plaintiffs' initial loss mitigation application. (Dkt. No. 66, Ex. 60 at 127.)

         On October 14, 2015, SPS responded to Mr. Hahn's October 6 fax, explaining that SPS closed the initial loss mitigation application because SPS was unable to contact Plaintiffs to “obtain access to the property to complete the [walk-through] BPO.” (Dkt. No. 66, Ex. 61 at 129.) The letter further states, in pertinent part:

We do not send out a letter requesting to gain access to the property, but we attempt to reach you by phone, which was unsuccessful. Since we began servicing your account, we have had phone contact with you only one time, which was on March 24, 2014.
On July 13, 2015, SPS received documentation and on July 16, 2015, SPS submitted your account for a review of all foreclosure prevention options. A walk-through BPO will be required to complete this review also. The phone numbers that we have for you are (415) 371-9541 and (415) 957-9396. If these numbers are incorrect, please contact us so we may update our records. We have not received the required documentation to complete our current review.

(Id.) The letter lists the required documentation. (See id.)

         On November 4, 2015, National Default Servicing Corporation (“National Default”) sent Plaintiffs a letter notifying them that National Default had “been retained to conduct a non-judicial foreclosure sale (trustee's sale) pursuant to the Deed.” (Dkt. No. 66, Ex. 63 at 134-137.) SPS sent Plaintiffs a letter the following day, notifying them that the SPS had referred Plaintiffs' mortgage for legal action. (Id. at 138.) The letter informed Plaintiffs that they could submit a loan mitigation application to possibly avoid foreclosure. (Id.)

         3.The July 2016 Complete Loss Mitigation Application

         On November 8, 2015, Plaintiffs again applied for loss mitigation assistance review. (Dkt. No. 66, Exs. 62 & 64.) SPS and Plaintiffs thereafter engaged in frequent correspondence similar to that done in connection with the prior loss mitigation application: SPS repeatedly asked for specific information, Plaintiffs repeatedly responded that they had already provided such information, and occasionally Plaintiffs provided SPS with additional information. (See, e.g., Dkt. No. 67, Exs. 70-81, 86-96.)

         By letter dated July 29, 2016, SPS notified Plaintiffs that it had “received a complete Assistance Review Application, including all required information and documentation necessary to evaluate [Plaintiffs'] account for loss mitigation assistance.” (Dkt. No. 56-22, Ex. V at 2.) SPS engaged RRReview to conduct an appraisal of the Residence, (Dkt. No. 56 at ¶ 29) and on August 1, 2016, RRReview in turn contacted Gurami Bantsadze, a licensed real estate appraiser, to inspect the Residence. (Dkt. No. 53 at ¶¶ 1, 5.) Mr. Bantsadze accepted the assignment and RRReview issued him a letter of engagement on August 3, 2016, listing Mr. Hahn as the point of contact for “interior access” and providing Mr. Hahn's daytime phone number. (Dkt. No. 53-2, Ex. 2.)

         RRReview emailed Mr. Bantsadze five days later to check on the status of the inspection. (Dkt. No. 53-3, Ex 3 at 4.) Mr. Bantsadze responded that he had “[l]eft a message” and “need[ed] additional contact information.” (Id. at 3.) On August 9, 2016, RRReview emailed Mr. Bantsadze stating that it had “placed th[e] order on hold for access” and notified SPS that Plaintiffs were not responding. (Id. at 2.)

         The next day, RRReview emailed Mr. Bantsadze with a “new number” to contact Mr. Hahn. (Dkt. No. 53-4, Ex. 4 at 2.) RRReview also emailed Mr. Bantsadze a new engagement letter that again listed Mr. Hahn as the “contact for interior access, ” but also listed the new number as Mr. Hahn's “evening phone.” (See Dkt. No. 53-5, Ex. 5 at 3.) On August 11, 2016, Mr. Bantsadze emailed RRReview, stating that he had “[l]eft repeated messages on multiple days on both numbers you have prov[ided], and waiting for [Mr. Hahn's] call back.” (Dkt. No. 53-6, Ex. 6.) RRReview emailed Mr. Bantsadze five days later to check on the status of the inspection. (Dkt. No. 53-7, Ex. 7 at 4.) Mr. Bantsadze responded that morning by email, stating again that he had “[l]eft repeated messages on multiple days” and was “still waiting for [Mr. Hahn] to call back.” (Id. at 2.) RRReview then emailed Mr. Bantsadze regarding “the access issue, ” stating that RRReview had placed the order “on hold to obtain assistance from [SPS].” (Id.) The email further instructed Mr. Bantsadze to “[p]lease continue to follow up with the borrower on your end.” (Id.)

         On August 19, 2016, RRReview emailed Mr. Bantsadze an “order cancellation notice” instructing him not to proceed with the order. (Dkt. No. 53-8, Ex. 8 at 2.) Four days later, SPS sent a letter to Plaintiffs stating that SPS considered Plaintiffs' “request for loss mitigation assistance withdrawn” because SPS's “attempts to contact [Plaintiffs] to arrange for a property valuation, which is a requirement for a loss mitigation review, ha[d] been unsuccessful.” (Dkt. No. 68, Ex. 100 at 5.) Mr. Hahn responded to the SPS's August 23 letter by fax on September 8, 2016, disputing “ever having received [a request for an appraisal]” and requesting that SPS immediately send him “a copy of such request.” (Dkt. No. 68, Ex. 101 at 7.)

         SPS responded to Mr. Hahn's September 8 fax on October 3, 2016, stating, in pertinent part:

In your [September 8] inquiry, you requested to dispute our loss mitigation decision due to the request for an appraisal not being received. Please note a property valuation is required to proceed with the [loss mitigation application] review. As such we have verified that our multiple attempts to gain access into the property were unsuccessful. Therefore, the assistance request was withdrawn. If you wish to reapply for loss mitigation assistance, you must submit a new application and provide two good contact numbers, so that we may gain access to the property.

(Dkt. No. 68, Ex. 103 at 11.)

         Mr. Hahn responded by fax on October 23, 2016, stating, in pertinent part:

I continue to be available to accommodate your request for an appraiser and request that such request be sent to me in writing. I travel extensively in Asia and want to avoid miscommunication in arranging such a meeting. I intend to cooperate fully with my request for a loan modification and dispute any attempt on your part to suggest I have failed in any way to be responsive to any request.

(Dkt. No. 68, Ex. 104 at 14.) That same day Mr. Hahn filed another complaint with the Consumer Bureau against SPS. (See Dkt. No. 68, Ex. 105.)

         C. The Notice of Default and Plaintiffs' Sale of the Residence

         On September 13, 2016, Plaintiffs entered into a Residential Listing Agreement with Paragon Real Estate Group (“Paragon”) to list the Residence for sale at $6, 500, 000. (Dkt. No. 66, Ex. 65 at 151-55.) Plaintiffs had initially engaged Paragon regarding sale of the Residence in July 2016. (See Id. at 150.) On September 26, 2016, Paragon Broker Associate Diana M. Nelson emailed Plaintiffs and recommended listing the Residence for sale between $6, 150, 000 and $6, 250, 000. (See Dkt. Nos. 54-3, Ex. 11 at 5:1-6 & 54-4, Ex. 12 at 2.)

         On November 1, 2016, National Default recorded a “Notice of Default and Election to Sell Under Deed of Trust” with the San Francisco Assessor-Recorder. (Dkt. No. 68, Ex. 106.) The Notice of Default states that as of October 28, 2016, Plaintiffs were in default on the Note in the amount of $585, 843.71. (Id. at 20.) SPS recorded a “Notice of Trustee's Sale” on February 14, 2017, setting a foreclosure sale for March 13, 2017. (See Dkt. No. 68, Ex. 107 at 26; see also Dkt. No. 56 at ¶ 31.) On February 27, 2017, SPS wrote Plaintiffs that SPS had “received and reviewed [Plaintiffs'] request for loss mitigation assistance, ” but there were “no available loss mitigation assistance options” and a foreclosure sale had been scheduled to “occur within the next 14 business days.” (Dkt. No. 68, Ex. 108 at 30.)

         A few days later Plaintiffs retained Martin L. Hudler of Coast Equities, LLC to, in pertinent part, assist Plaintiffs in negotiating a forbearance agreement to avoid the pending foreclosure. (Dkt. No. 68, Ex. 109 at 41.) Approximately one week later, Plaintiffs recorded a Grant Deed with the San Francisco Assessor-Recorder, granting Mr. Hudler's company, Centurion Cascade, LLC (“Centurion”), a 7.5% interest in the Residence. (Id. at 43; see also Dkt. No. 54-1 at 16:14-17.) That same day Mr. Hudler filed a voluntary petition for bankruptcy on behalf of Centurion in the United States Bankruptcy Court for the District of Oregon. (See Id. at 48-73.)

         On March 13, 2017, SPS suspended the foreclosure sale after “receiv[ing] notice that a third-party possessing an ownership [interest in the Residence] had filed for bankruptcy.” (Dkt. No. 56 at ¶ 32.) SPS wrote Plaintiffs on March 16, 2017 notifying them that the foreclosure sale had been postponed and rescheduled for May 15, 2017. (Dkt. No. 56-24, Ex. X.) On March 27, 2017, ...


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