Bostwick v. SN Servicing Corporation

Background

Timothy Bostwick and Michele Nessier sued Seterus, Inc., SN Servicing Corporation, and U.S. Bank over alleged unfair debt-collection practices under California’s Rosenthal Fair Debt Collection Practices Act. The operative complaint asserted one claim and alleged violations of provisions of the federal Fair Debt Collection Practices Act that the Rosenthal Act incorporates, including provisions concerning harassment, misleading representations, and unfair collection methods.

The dispute involved a 2013 refinance loan secured by the plaintiffs’ second residential property in Truckee, California. The loan amount was $403,350. The plaintiffs used the property as a vacation home from 1999 until approximately mid-2014, later rented it for portions of several years, and said they intended to retire there. The loan application described the property as an investment property, listed it as a rental property, and included a rider requiring rent-loss insurance and assigning leases and rents to the lender after default.

The plaintiffs defaulted on the loan by July 24, 2017. Seterus became the servicer in May 2016. In December 2018, Seterus sent one letter stating that SN Servicing would become the new servicer and that certain materials concerning loss mitigation would be forwarded to SN Servicing. A second letter stated that Seterus had denied the plaintiffs’ loss-mitigation request, gave them thirty days to appeal, and said that payments should be directed to Seterus and that Seterus could continue collection efforts. The plaintiffs testified that the letters confused them about which servicer would handle their situation while foreclosure was pending. Timothy Bostwick filed for bankruptcy in January 2019 to stop the foreclosure.

Motion and legal standard

The defendants moved for summary judgment. Summary judgment is appropriate only when there is no genuine dispute about a fact that could affect the outcome and the moving party is entitled to judgment under the law. The court must view disputed evidence in the light most favorable to the party opposing the motion and may not decide witness credibility or weigh conflicting evidence at this stage.

Analysis

The defendants first argued that the loan was not a “consumer debt” because it concerned a rental or investment property. Under the Rosenthal Act, a consumer debt is a debt obtained primarily for personal, family, or household purposes. The court explained that the relevant inquiry examines the transaction as a whole and focuses on the borrower’s purpose when the debt was incurred. The court also relied on authority recognizing that a rental property can still present a factual question about consumer purpose when the owners intend to move there after retirement.

The court found a genuine factual dispute about the loan’s purpose when it originated in 2013. The plaintiffs had used the property as a vacation home before the loan, and Michele Nessier declared that they had always intended to retire there. The investment-property descriptions in the loan documents and the rental activity did not eliminate that dispute. The court therefore denied summary judgment on the consumer-debt issue.

The court also found a factual dispute about whether Seterus violated the Rosenthal Act. The applicable objective standard asks whether the least sophisticated debtor would likely be misled by the communications. The court noted that one letter directed future payments to SN Servicing and said loss-mitigation materials would be forwarded there, while the other directed payments to Seterus, stated that Seterus could continue collection efforts, and provided an appeal process through Seterus. The plaintiffs said the conflicting information left them unable to determine which servicer would handle their request. The court held that a factfinder could determine whether the letters were materially misleading.

The court rejected Seterus’s argument that the plaintiffs’ bankruptcy-court descriptions of the Truckee property barred their position through judicial estoppel, an equitable doctrine that can prevent a party from benefiting from clearly inconsistent positions. Seterus had not shown that the bankruptcy court accepted the plaintiffs’ earlier representations, and the descriptions of the property as a rental property were not clearly inconsistent with an intention to use it primarily for personal, family, or household purposes. The court also declined to consider an argument that the plaintiffs lacked evidence of damages because Seterus raised it for the first time in its reply brief. The court noted that statutory damages were available under the Rosenthal Act.

Disposition

The court denied summary judgment and stated that the order resolved ECF No. 95. The order did not resolve the plaintiffs’ underlying liability claims.