Alphonso v. Real Time Resolutions, Inc.

Background

The plaintiffs brought consumer claims in state court against Real Time Resolutions, Inc., RRA CP Opportunity Trust 2, and MTC Financial Inc. doing business as Trustee Corps. The defendants removed the case to federal court. The court had previously issued a temporary restraining order blocking a foreclosure sale scheduled for April 19, 2023.

The plaintiffs alleged that they executed a $170,000 promissory note and deed of trust in 2007. Real Time Resolutions later notified them that it was servicing a delinquent mortgage, and MTC Financial recorded a notice of default in September 2018. The plaintiffs alleged that they did not receive periodic mortgage statements until May 2022, when they received a statement showing $393,509.46 due.

The complaint asserted claims under 12 C.F.R. § 1026.41, a regulation implementing the federal Truth in Lending Act; California’s implied covenant of good faith and fair dealing; California’s Unfair Competition Law; California Civil Code § 2923.55; and the Rosenthal Fair Debt Collection Practices Act. Real Time Resolutions and RRA CP Opportunity Trust 2 moved to dismiss. MTC Financial moved to join that motion, and its request was unopposed.

Trustee privilege and MTC Financial

The court held that the claims against MTC Financial were barred by the trustee privilege. That privilege protects certain communications and foreclosure procedures carried out in connection with a nonjudicial foreclosure. The court did not decide whether the privilege was absolute or qualified because it found that MTC Financial’s alleged conduct—recording the notice of default and failing to communicate with the plaintiffs—was privileged under either formulation.

The defendants’ motion was granted as to all claims against MTC Financial, with leave to amend because additional allegations might cure the defect.

Periodic-statement claim

The court held that the claim under 12 C.F.R. § 1026.41 was time-barred on the face of the complaint. The regulation requires a mortgage servicer to provide a periodic statement for each billing cycle. The court concluded that the loan had no further billing cycles after February 2022, when all amounts owed became due. Because the plaintiffs filed suit in March 2023, more than one year after the latest alleged violation, the claim was untimely.

The court also found that the complaint did not allege facts supporting equitable tolling or equitable estoppel. Equitable tolling can suspend a filing deadline when a party, despite due diligence, cannot obtain important information about the claim. Equitable estoppel can halt the deadline when a defendant takes additional active steps to prevent a timely lawsuit. The court concluded that the alleged failure to send statements did not support either doctrine. The motion was granted as to this claim, with leave to amend.

Implied covenant claim

The plaintiffs alleged that defendants breached the implied covenant of good faith and fair dealing by failing to send periodic statements. The court held that the alleged duty to send those statements came from federal regulation, not from a contractual benefit, and therefore did not support the plaintiffs’ implied-covenant theory. The plaintiffs also referred to a provision of the note that was not alleged in or attached to the complaint. The motion was granted as to this claim, with leave to amend.

Unfair Competition Law claim

The plaintiffs based their California Unfair Competition Law claim on the alleged failure to send periodic statements. The court held that the claim was not barred by the federal claim’s one-year limitations period because the Unfair Competition Law has a four-year limitations period. The complaint alleged violations through February 2022, less than four years before filing.

The court also found that the allegations plausibly supported the claim’s unlawful and unfair theories, as well as the plaintiffs’ statutory standing. The motion was denied as to this claim for Real Time Resolutions and RRA CP Opportunity Trust 2. The claim was dismissed as to MTC Financial with leave to amend because of the trustee privilege ruling.

Contact-before-default claim

The court held that California Civil Code § 2923.55 applies only to senior loans used to purchase a home, not junior loans secured by a home. The motion was granted as to this claim, and the claim was dismissed without leave to amend.

Rosenthal Act claim

The court noted that the Rosenthal Fair Debt Collection Practices Act has a one-year limitations period. The plaintiffs’ opposition identified Real Time Resolutions’ refusal to validate the loan in 2018 as the basis for the claim, but that conduct occurred more than one year before suit was filed. The complaint alleged little about other conduct, and the court found that the allegation concerning MTC Financial becoming trustee in November 2022 did not cure the problem. The motion was granted as to this claim, with leave to amend.

Disposition

The defendants’ motion was granted in part and denied in part. The claims under 12 C.F.R. § 1026.41, for breach of the implied covenant, and under the Rosenthal Act were dismissed with leave to amend. The claim under California Civil Code § 2923.55 was dismissed without leave to amend. The Unfair Competition Law claim was dismissed as to MTC Financial with leave to amend, but was not dismissed as to Real Time Resolutions or RRA CP Opportunity Trust 2. Judge Jacqueline Scott Corley allowed the plaintiffs to file an amended complaint by June 22, 2023.