Smith v. Specialized Loan Servicing, LLC
3:16-cv-02519
S.D. Cal.May 3, 2017Background
- Margarette Smith (age 88, alleged dementia) owns a San Diego home secured by a 2005 mortgage; her granddaughter held power of attorney during much of the events.
- After missed payments in late 2013–early 2014, Smith entered into repayment discussions with IndyMac, submitted multiple loss mitigation applications to IndyMac and, after servicing transfer, to Specialized Loan Servicing, LLC (SLS).
- From 2014–2016 Smith received numerous letters from IndyMac and SLS: repeated ‘‘application under review’’ notices, requests (and re-requests) for documents, denial letters, and letters threatening foreclosure; she alleges many requests conflicted and some documents she had already provided.
- Smith alleges SLS failed to: (1) timely acknowledge completeness of RMAs within 5 days; (2) provide written decisions on complete applications within 30 days; and (3) refrain from foreclosure activity while applications were pending (i.e., dual tracking). She claims actual damages (fees, admin costs) and a pattern or practice of violations.
- Procedurally, Smith filed a putative class complaint asserting violations of RESPA (Regulation X), the CLRA, and the California UCL. She withdrew the CLRA claim in opposition. SLS moved to dismiss; the court granted in part and denied in part, with leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing under Regulation X (whether property was borrower’s principal residence) | Smith’s home was her principal residence when she applied (and remained a family home even after she moved to a facility) | Smith did not allege in the complaint that the property was her principal residence at time of applications, so she lacks statutory standing | Dismiss RESPA claim for lack of standing with leave to amend (plaintiff may plead residence facts) |
| §1024.41(b)/(c) — acknowledgment and 30‑day decision for complete applications | Smith alleges at least one application (Dec. 16, 2014) became complete (she faxed missing docs Dec. 31) but SLS still failed to timely notify/evaluate | SLS contends it never received a complete application, so §1024.41(c) does not apply | Plaintiff plausibly alleged a complete application and surviving §1024.41(c) claim (sufficient to state actual damages claims for administrative costs) |
| §1024.41(f) — prohibition on ‘‘first notice or filing’’ / dual tracking | SLS sent multiple default/foreclosure notices to Smith and assessed foreclosure fees while applications were pending, constituting impermissible dual tracking | The regulation bars the first statutory filing or recording; SLS did not record a notice of default and unrecorded letters/charges are not the ‘‘first notice or filing’’ under CFPB interpretation | Claim under §1024.41(f) dismissed — unrecorded notices and assessed fees, without recording the notice of default, do not show a §1024.41(f) violation |
| UCL claims (standing; unlawful, unfair, fraudulent prongs) | Smith alleges economic injury (fees, marked‑up charges, costs) and that SLS’s practices violated RESPA and its policy; the confusing/conflicting correspondence is likely to deceive consumers | SLS challenges economic injury and contends the unlawful prong fails if RESPA claim fails | Court finds UCL standing met (economic injury alleged); unlawful prong dismissed tied to RESPA dismissal; unfair and fraudulent prongs survive (Plaintiff pleaded conduct tethered to RESPA policy and deception likely to mislead consumers) |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility standard for Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standards and conclusory allegations)
- Balistreri v. Pacifica Police Dep’t, 901 F.2d 696 (dismissal where complaint lacks cognizable legal theory)
- Lee v. City of Los Angeles, 250 F.3d 668 (when courts may consider documents outside the complaint / judicial notice)
- Maya v. Centex Corp., 658 F.3d 1060 (Rule 12(b)(6) and statutory standing evaluation)
- Jenkins v. JP Morgan Chase Bank, N.A., 216 Cal. App. 4th 497 (actual damages under RESPA must be caused by the violation, not by foreclosure generally)
- Wanger v. EMC Mort. Corp., 103 Cal. App. 4th 1125 (examples of recoverable actual damages under RESPA)