Gonzalez v. Specialized Loan Servicing, LLC

691 F.Supp.3d 1162

Rogelio GONZALEZ, an individual, Plaintiff, v. SPECIALIZED LOAN SERVICING, LLC, a Limited Liability Company;Affinia Default Services, LLC, a Limited Liability Company; and Does 1-50, inclusive, Defendants.

Case No. 2:23-cv-04119-MCS-RAO

United States District Court, C.D. California

Signed September 13, 2023

Jessica Diane Adair, Sarah Elizabeth Shapero, Shapero Law Firm PC, San Francisco, CA, for Plaintiff.

Neil Joseph Cooper, Robert W. Norman, Jr., Houser LLP, Irvine, CA, for Defendant Specialized Loan Servicing, LLC.

ORDER RE: DEFENDANT'S MOTION TO DISMISS (ECF No. 19)

MARK C. SCARSI, UNITED STATES DISTRICT JUDGE

Defendant Specialized Loan Servicing, LLC ("SLS") moves to dismiss Plaintiff Rogelio Gonzalez's first amended complaint ("FAC"). (Mot., ECF No. 19.) Plaintiff opposed the motion, (Opp'n, ECF No. 24), and Defendant replied, (Reply, ECF No. 26.) Defendant also filed a request for judicial notice, (RJN, ECF No. 20), to support the proposition that "Plaintiff filed a Chapter 7 bankruptcy in 2009 and received a discharge on September 17, 2009," (Mot. 7). Courts "may take notice of proceedings in other courts, both within and without the federal judicial system, if those proceedings have a direct relation to matters at issue." U.S. ex rel. Robinson Rancheria Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992) (internal quotation marks omitted); Fed. R. Evid. 201. The Court finds that the existence these documents are "not subject to reasonable dispute over [their] authenticity," Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001) (internal quotation marks omitted), and takes judicial notice of the fact that Plaintiff filed a Chapter 7 bankruptcy in 2009 and received a discharge on September 17, 2009. The Court does not take judicial notice of facts recited in these public records to the extent they are disputed. Id. The Court heard oral argument on July 31, 2023. (Mins., ECF No. 29.)

I. Background

This case involves what Plaintiff refers to as a "zombie mortgage." (Opp'n 11.) On January 25, 2007, Plaintiff obtained a second-position mortgage worth $92,500 at an interest rate 10.40% from Homecoming Financial, LLC and executed a deed of trust as security for the note. (FAC ¶ 12, ECF No. 9.) Plaintiff made payments on the loan until 2009, when he filed for Chapter 7 Bankruptcy. (Id. ¶¶ 13-14.) Because "Plaintiff's Second Position Loan was an existing debt at the time of filing for Bankruptcy," he "believed the obligation was extinguished" through the bankruptcy proceeding. (Id. ¶ 15.) "Plaintiff wholly stopped receiving monthly statements or any communication on the loan from HOMECOMING, SLS or any other party . . . from September 2009 to February 2023 when Plaintiff received a letter from Defendant SLS." (Id. ¶¶ 17-18.) At some unknown point during this period, Defendant assumed responsibility for servicing of the loan. (Id. ¶ 19.) Defendant's letter "attached a 'Notice of Default' [("NOD")] filed against Plaintiff's Property and stated that Plaintiff" was required to pay the "default amount of $158,263.00 or the Trustee Defendant AFFINIA would foreclose on the Property." (Id. ¶ 18.)

Plaintiff "reached out to Defendant SLS to try to resolve this informally." (Id. ¶ 23.) Plaintiff was told that resolution would require him to make "a down-payment of $47,417.31 by May 31, 2023." (Id.) Plaintiff was also informed that SLS had been "charging interest for every month since 2009 without sending monthly statements" and that the loan had accrued more than $100,000 in interest during that time. (Id.) Plaintiff was told that he "now owe[d] $158,263.00 in principal and interest that accrued on the loan when no collection activity was occurring." (Id. ¶ 25.)

Plaintiff brings nine causes of action: 1) violation of Federal Truth in Lending Act ("TILA"), 15 U.S.C. § 1638, (id. ¶¶ 29-34); 2) breach of the implied covenant of good faith and fair dealing, (id. ¶¶ 35-40); 3) violation of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §§ 1692e and 1692f, (id. ¶¶ 41-45); 4) violation of C.F.R. § 1024.39, (id. ¶¶ 46-48); 5) violation of 12 C.F.R. § 1024.41, (id. ¶¶ 49-52); 6) violation of 12 C.F.R. § 1024.33, (id. ¶¶ 53-56); 7) financial elder abuse, California Welfare and Institutions Code section 15610.30, (id. ¶¶ 57-65); 8) unfair competition under California Business and Professions Code section 17200 et seq., (id. ¶¶ 66-71); and 9) declaratory relief, (id. ¶¶ 72-76).

II. Legal Standard

Federal Rule of Civil Procedure 12(b)(6) allows an attack on the pleadings for "failure to state a claim upon which relief can be granted." "A complaint may be dismissed for failure to state a claim only when it fails to state a cognizable legal theory or fails to allege sufficient factual support for its legal theories." Caltex Plastics, Inc. v. Lockheed Martin Corp., 824 F.3d 1156, 1159 (9th Cir. 2016). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). "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.

The determination of whether a complaint satisfies the plausibility standard is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679, 129 S.Ct. 1937. Reviewing a motion to dismiss, a court must accept the factual allegations in the pleadings as true and view them in the light most favorable to the non-moving party. Park v. Thompson, 851 F.3d 910, 918 (9th Cir. 2017). At the same time, a court is "not bound to accept as true a legal conclusion couched as a factual allegation." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955).

III. Analysis

A. TILA and CFR 12 C.F.R. § 1026.41 Claims

1. Plaintiff has Stated a Claim Under 15 U.S.C. § 1638(f)

"TILA is a consumer protection statute that seeks to 'avoid the uninformed use of credit.' " Amparan v. Plaza Home Mortg., Inc., 678 F. Supp. 2d 961, 967 (N.D. Cal. 2008) (quoting 15 U.S.C. § 1601(a)). "The Act requires disclosure of credit terms to consumers so that potential borrowers will be able to compare the available costs of credit." Dixey v. Idaho First Nat'l Bank, 677 F.2d 749, 751 (9th Cir. 1982). "In order to effectuate this purpose, the TILA has been liberally construed in this circuit" and "[e]ven technical or minor violations of the TILA impose liability" on the violator. Jackson v. Grant, 890 F.2d 118, 120 (9th Cir. 1989). "To insure that the consumer is protected[,] the TILA and accompanying regulations must be absolutely complied with and strictly enforced." Id. (cleaned up).

Plaintiff alleges Defendant violated 15 U.S.C. § 1638(f) by failing to send regular statements. (FAC ¶¶ 17, 22-23, 29-33.) § 1638(f) requires a "creditor, assignee, or servicer" of any "residential mortgage loan" to "transmit to the obligor, for each billing cycle, a statement setting forth" the amount of principal remaining under the mortgage, the current interest rate, the next date on which the interest rate may reset or adjust, the amount of any prepayment fee that may be charged, a description of any late fees, contact information for the obligor to obtain information about the mortgage, contact information for counseling agencies, and any information as the Bureau of Consumer Financial Protection may provide. 15 U.S.C. § 1638(f). Defendant argues that because "Plaintiff discharged any personal liability for the Loan in his bankruptcy," he is not an "obligor" as that term is used in the statute, and thus Defendant had no duty to send regular statements under § 1638(f). (Mot. 7.) Defendant argues this construction is supported by "the language and history of its implementing regulation, 12 C.F.R. § 1026.41, which contains an exemption for borrowers who discharged their debts in bankruptcy." (Id.)

"Neither the statute nor the regulations define 'obligor,' so [courts] use the ordinary legal understanding in this context, one who is obligated to pay a debt." Edwards v. Wells Fargo & Co., 606 F.3d 555, 557 (9th Cir. 2010) (citing Black's Law Dictionary (7th ed. 1999) (defining "obligor" as "[o]ne who has undertaken an obligation; a promisor or debtor")). "Given the remedial nature of TILA, Congress's intent to protect consumers, and the courts' mandate that TILA be liberally construed, the term 'obligor[s]' must necessarily be construed to include those whom the creditor claims are obligors, as well as individuals who are in fact obligors in the contract law sense." Belmont v. Assocs. Nat'l Bank (Del.), 119 F. Supp. 2d 149, 164 (E.D.N.Y. 2000) (citation omitted) (alteration in original).

In its loan modification offer, Defendant stated it was "attempting to collect a debt" from Plaintiff. (FAC Ex. A ("Loan Modification Offer"), at 19.)¹ " '[T]his is an attempt to collect a debt' language . . . is not required by the TILA or its regulations." Daniels v. Select Portfolio Servicing, Inc., 34 F.4th 1260, 1270 (11th Cir. 2022). Such language may be required under the FDCPA, but only when the defendant is a "debt collector" attempting to collect a debt. See id.; 15 U.S.C. § 1692e(11). In either case, given the TILA's protections should be applied broadly, see Grant, 890 F.2d at 120, Defendant's choice "to treat [Plainitff] as if he were an obligor," means Plaintiff should be construed as an "obligor" for the purposes of his TILA claim, Belmont, 119 F. Supp. 2d at 163.

This conclusion is supported by the fact that Plaintiff remains bound by the terms of the deed of trust. A loan for real property "generally involves two documents, a...