Bostwick v. SN Servicing Corporation

Background

Timothy Bostwick and Michele Nessier owned a second home in Truckee, California, secured by a mortgage loan. They defaulted in 2017. Seterus, Inc. became the loan servicer in 2018, and SN Servicing became the servicer in January 2019. The plaintiffs sued Seterus in state court in 2019 under California’s Rosenthal Act, alleging abusive debt-collection practices.

After SN Servicing recorded a new notice of default and scheduled a foreclosure sale, the plaintiffs amended their complaint to add SN Servicing and U.S. Bank and to assert additional claims. They alleged that SN Servicing and U.S. Bank failed to promptly provide a single point of contact for foreclosure-prevention matters, that the defendants failed to provide a timely reinstatement quote, and that SN Servicing breached the implied duty of good faith and fair dealing. They also asserted California Unfair Competition Law claims against all defendants.

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim based on its allegations.

Rulings on the Claims

Homeowner Bill of Rights single-contact claim

The court granted the motion to dismiss the claim under California Civil Code section 2923.7. The statute requires a mortgage servicer to promptly establish a single point of contact in certain foreclosure-prevention situations. The court noted that the property was not owner-occupied and that the plaintiffs had not pleaded facts showing that it met the statute’s separate eligibility requirements for rental property.

The court also held that there was no violation because SN Servicing identified the person who could provide the reinstatement quote, and that person provided the quote on December 21, 2020. The court dismissed this claim with prejudice.

Reinstatement-quote claim

The court granted dismissal of the claim under California Civil Code section 2924c. That statute requires a lender to provide a written itemization of the amount needed to cure a mortgage default when the borrower requests one, and it permits the borrower to cure the default up to five business days before the scheduled sale. The plaintiffs requested a quote on December 11, 2020, and SN Servicing provided one on December 21, 2020—13 days before the scheduled sale. The court held that this complied with the statute.

The plaintiffs alleged that the quote included unexplained fees and omitted some payments, but the court said the statute entitled them to a quote, not necessarily to the relief they sought based on those allegations. The court dismissed this claim with prejudice.

Good-faith-and-fair-dealing claim

The court dismissed the claim that SN Servicing breached the implied covenant of good faith and fair dealing by delaying the reinstatement quote. The court held that the quote was issued 10 days after the request and 13 days before the sale, and that the plaintiffs had not plausibly alleged harm from that delay. The court dismissed this claim with prejudice.

Rosenthal Act claim

Seterus sought dismissal of the Rosenthal Act claim, arguing that the statute did not apply because the property was a second home that the plaintiffs rented to a third party rather than their primary residence. The court denied the motion to dismiss.

The court explained that the Rosenthal Act applies to debts incurred primarily for personal, family, or household purposes, and that the record did not establish as a matter of law that this mortgage was outside that definition. The court noted authority suggesting that a mortgage for a secondary residence can qualify and that renting out a secondary residence is not necessarily inconsistent with a personal, family, or household purpose.

The court emphasized that this was a pleading-stage ruling. It did not decide that the Rosenthal Act applied; it decided only that Seterus had not shown at this stage that the Act could not apply. The court also noted that the complaint’s allegations about Seterus’s specific debt-collection conduct were difficult to discern, but Seterus had not moved to dismiss on that ground.

Unfair Competition Law claim

The court denied the motion to dismiss the UCL claim to the extent that claim was based on the Rosenthal Act claim. The court dismissed the UCL claim with prejudice to the extent it was based on the claims the court dismissed.

Judicial estoppel

SN Servicing argued that the plaintiffs’ claims were barred by judicial estoppel because the claims were not listed in a bankruptcy petition. The court treated the issue as moot because it was dismissing the claims against SN Servicing. The court also said it lacked enough information about the bankruptcy proceedings to decide the issue.

Disposition

Judge Laurel Beeler denied Seterus’s motion to dismiss the Rosenthal Act claim and denied the motion to dismiss the UCL claim to the extent it was based on that claim. The court otherwise granted the defendants’ motions to dismiss and dismissed the remaining claims with prejudice to the extent they were based on the timeliness allegations. The order allowed an amended complaint within 21 days, with a blackline comparing it to the current complaint.