De Los Santos v. Specialized Loan Servicing, LLC

Background

Hilario De Los Santos and his wife obtained a $100,000 home-equity line of credit in May 2006, secured by a deed of trust on their property. The deed of trust was later assigned to Goldman Sachs Mortgage Company and then to GS Mortgage-Backed Securities Trust 2019-SL1, whose trustee is identified in the opinion as U.S. Bank Trust National Association. A notice of default was recorded on June 30, 2022; a trustee’s sale was set for December 1, 2022; the property was sold that day; and a trustee’s deed upon sale was recorded on December 29, 2022.

De Los Santos sued in state court in February 2023. He alleged violations of federal and state law, including the Truth in Lending Act, the California Homeowner Bill of Rights, and the Rosenthal Fair Debt Collection Practices Act. The defendants removed the case to federal court and moved to dismiss.

Prior Proceedings

The court had previously dismissed the initial complaint. After De Los Santos filed a first amended complaint, the court dismissed all claims with prejudice except the Rosenthal Act claim, which it allowed him to amend. The court also allowed him to reassert an unfair-competition claim under California Business and Professions Code section 17200 only to the extent it was supported by an amended Rosenthal Act claim.

De Los Santos filed a second amended complaint. He reasserted five claims that had already been dismissed with prejudice: claims under California Civil Code sections 2923.5 and 2924.9, negligence, unfair competition, and cancellation of written instruments under section 3412. He omitted the Rosenthal Act claim, which was the claim the court had allowed him to amend.

Rule 12(b)(6) Standard

The court applied Federal Rule of Civil Procedure 12(b)(6), which requires dismissal when a complaint does not state a legally sufficient claim for relief. A complaint must allege enough facts to make liability plausible, rather than merely possible. The court generally accepts well-pleaded allegations as true but need not accept conclusory statements, unsupported factual deductions, or unreasonable inferences.

Because the court had allowed amendment, it considered whether further amendment could cure the deficiencies. It concluded that further amendment was not warranted after two amended complaints.

Analysis

Homeowner Bill of Rights claims. The court had previously held that the cited provisions applied only to a first-lien mortgage or deed of trust. Public records showed that the $100,000 home-equity line of credit was a junior loan. The second amended complaint added no facts plausibly showing that the loan was a first-lien loan. Claims one and three therefore remained dismissed with prejudice.

Negligence claim. A negligence claim required allegations of a duty, breach, causation, and damages. The court found that the second amended complaint, like the first amended complaint, did not allege facts showing a breach. In particular, it did not allege that De Los Santos submitted a loan application or that the defendants offered him a loan they knew he could not afford. Claim seven remained dismissed with prejudice.

Unfair-competition claim. The court had allowed De Los Santos to reassert this claim only if he amended his Rosenthal Act claim. Because he omitted that claim, the court found that the unfair-competition claim failed. The court also concluded that he had not plausibly alleged an unlawful, unfair, or fraudulent business practice. He did not plausibly allege violations of other laws to support the unlawful theory, did not show how the defendants’ conduct injured customers for the unfairness theory, and did not plead a fraudulent theory with the required specificity. Claim eight was dismissed in its entirety, with prejudice.

Cancellation of written instruments. De Los Santos alleged that the foreclosure notices were void or voidable because the defendants violated the laws discussed in the complaint. The court found that he alleged no new facts establishing those violations or showing why the documents were void or voidable. The recorded documents also undercut several of his allegations. Claim nine remained dismissed with prejudice.

Rosenthal Act claim. De Los Santos omitted the only claim the court had allowed him to amend. The court therefore dismissed that claim with prejudice as well.

Disposition

Judge William H. Orrick granted the defendants’ motion to dismiss without leave to amend. The court dismissed all claims with prejudice and ordered that judgment be entered accordingly.