Bostwick v. SN Servicing Corp.
| Decision Date | 05 January 2023 |
| Docket Number | 21-cv-02560-LB |
| Parties | TIMOTHY BOSTWICK, et al., Plaintiffs, v. SN SERVICING CORPORATION, et al., Defendants. |
| Court | U.S. District Court — Northern District of California |
ORDER DENYING SUMMARY JUDGMENT
Re: ECF No. 95
In 2017, the plaintiffs - Timothy Bostwick and Michele Nessier San Francisco residents who own a second property in Truckee California - defaulted on a 2013 mortgage refinance loan secured by the property.[1] Defendant Seterus, Inc. (a previous loan servicer) allegedly sent confusing letters to the plaintiffs in December 2018, causing Mr. Bostwick to declare bankruptcy in January 2019 to avoid foreclosure. Defendant SN Servicing (the current loan servicer) allegedly sent a deceptive reinstatement quote to the plaintiffs in December 2020, causing Ms. Nessier to declare bankruptcy later that month to avoid foreclosure. The plaintiffs also sued U.S Bank (the beneficiary of the loan). They claim abusive debt-collection practices in violation of California's Rosenthal Fair Debt Collection Practices Act, Cal. Civ. Code §§ 1788-1788.33.[2]
The defendants moved for summary judgment on the grounds that the mortgage loan is not a “consumer debt” within the meaning of the Rosenthal Act because it is an investment property used for third-party rentals, and in any case, Seterus's letters were not confusing or misleading.[3]The court denies summary judgment because there are genuine disputes about whether the loan was “primarily for personal, family or household purposes,” Cal. Civ. Code § 1788.2(f), and whether the least sophisticated debtor would likely be misled by Seterus's letters.
In 1999, the plaintiffs purchased their second residential property in Truckee, California. Ms. Nessier declares that it was purchased “as a vacation home for [their] family.”[4] Their “intention has always been and remains to be to hold the [p]roperty as a vacation home and eventually to retire there.”[5]
In June 2013, the plaintiffs refinanced the mortgage with a $403,350 mortgage loan secured by a first deed of trust on the property.[6] Ms. Nessier declares that “[a]t the time [the plaintiffs] obtained the refinance loan, [they] intended to continue using the [p]roperty as a vacation home.”[7]
The loan application said that the property would be an investment property as opposed to a primary or secondary residence.[8] The plaintiffs signed the application under an acknowledgement stating that “the property will be occupied as indicated in this application.”[9] At the time of the loan application, the plaintiffs also signed a “Schedule of Real Estate Owned” that listed the Truckee property as a rental property to be rented 100% of the time. The rental income was listed as $0.[10]And the deed of trust for the Truckee property included a 1-4 Family Rider that (1) deleted the deed's requirement that the plaintiffs use the Truckee property as their principal residence, (2) required the plaintiffs to obtain rent-loss insurance, and (3) assigned the plaintiffs' leases and rents to the lender in the event of default.[11]
Ms. Nessier declares that she “did not fill out any part of the [loan] application [herself] other than to sign [it]” several months after her phone call with a Bank of America employee. Similarly, she signed the Schedule of Real Estate Owned but did not fill it out.[12]
From 1999 until “approximately mid-2014,” the plaintiffs used the Truckee property “almost entirely as a vacation home for [their] family.” After that, they began renting the property. According to Ms. Nessier, they rented it “for about half of the year to supplement the costs of owning and maintaining [it].” They had “no choice” but to do so because they had “incurred financial difficulties with [their] business that left [them] with almost no income for several years.”[13]
They rented the property “during most of the years 2015 and 2016.”[14] [16]) In 2017, they personally used the property for “approximately one third of the year.” In 2018 and 2019, they again rented the property to tenants.[17] [19]) In 2020, they personally used the property for all but sixty-four days of the year, and in 2021 and 2022, they rented the property for sixty percent of the year.[20] (For 2021, their tax returns indicate 219 rental days and zero personal use days.[21]) Overall, in their twenty-three years of owning the property, the plaintiffs have personally used it “approximately [seventy-five percent] of the time.”[22]
According to Ms. Nessier, the plaintiffs have never “even come close to covering [their] costs by renting out the [p]roperty.”[23] In his bankruptcy petition, Mr. Bostwick claimed $25,200 in rental income in 2017 and $22,800 in 2018.[24] Between September 2020 and March 2022, the plaintiffs received about $95,000 by renting the property through Airbnb.[25] And in an April 9, 2021, bankruptcy court filing, Ms. Nessier listed gross monthly rental income of $4,750 and net monthly income of $1,143.37.[26]
In the plaintiffs' bankruptcy proceedings, they characterized the Truckee property. In her Chapter 11 Plan of Reorganization and Disclosure Statement, filed on April 9, 2021, Ms. Nessier attached an “Investment Property Analysis” that listed the Truckee property.[27] In her monthly operating report for December 2020, she listed the San Francisco property as a “residential” property and the Truckee property as a “rental or commercial” property.[28] And in Mr. Bostwick's bankruptcy petition, he claimed the homestead exemption for the San Francisco property but not the Truckee property (meaning, he claimed that the San Francisco property was his principal residence).[29] Cal. Civ. Proc. Code § 704.710(c).
Seterus became the loan servicer in May 2016.[30] As of July 24, 2017, the plaintiffs had defaulted on the loan.[31]
In a letter dated December 12, 2018, Seterus (1) notified the plaintiffs that effective January 7, 2019, SN Servicing would be the new loan servicer and that payments due on or after that date must be sent to SN Servicing at an identified address and (2) said that the documentation for any pending loss-mitigation requests would be forwarded to SN Servicing, SN Servicing would notify the plaintiffs of its decision, and the servicing transfer “may extend the time needed for a final decision.”[32] Then, in a letter dated December 17, 2018, Seterus (1) told the plaintiffs that it had denied their loss-mitigation request and they had thirty days to appeal and (2) told them that “monthly payments must be directed to Seterus,” Seterus “may continue with collection efforts” given that the loan was in default, and the plaintiffs may have certain options available “to avoid foreclosure.”[33]
Mr. Bostwick testified that these letters caused him confusion: the plaintiffs had only “a few days before [the property was] going to be sold,” the servicer change was happening “in the middle of a foreclosure” and “in the middle of the holiday season,” and “[i]t was not clear to [him] at all who[] [he] should be speaking with about a refinance.”[34] Mr. Bostwick also testified that the first letter “ma[de] a commitment” that SN Servicing would notify the plaintiffs of its “decision about the [refinance],” but he does not recall receiving any notification from SN Servicing.[35]
Ms. Nessier testified that she never read the two letters or had “interaction with Seterus or SN Servicing” because Mr. Bostwick “took care of all that interaction.”[36] But she had an understanding of the letters based on her “ongoing dialogue” with Mr. Bostwick “about the situation.” To Ms. Nessier, “[t]he situation was very confusing.”[37]
According to Mr. Bostwick, the two letters also left the plaintiffs “in limbo without any options” to keep the Truckee property - except to declare bankruptcy.[38] Mr. Bostwick filed for bankruptcy in January 2019 to stop the foreclosure.[39] The bankruptcy “devastated [the plaintiffs'] financial position” because they “have been unable to raise capital for [their] new company,” unable to obtain Small Business Administration loans, and unable to refinance their “personal property” when interest rates were low.[40]
The operative complaint names three defendants (Seterus, SN Servicing, and U.S. Bank) and has one claim: unfair debt-collection practices in violation of the Rosenthal Act, Cal. Civ. Code §§ 1788-1788.33.[41] Specifically, the operative complaint claims that the defendants violated certain provisions of the federal Fair Debt Collection Practices Act () in connection with their debt collection: 15 U.S.C. §§ 1692d (), 1692e (false, deceptive, or misleading representations or means), and 1692f (unfair or unconscionable means).[42]
The court has diversity jurisdiction under 28 U.S.C. § 1332.[43] All parties consented to magistrate-judge jurisdiction under 28 U.S.C. § 636.[44] The court held a hearing on December 22, 2022.
The court must grant summary judgment where there is no genuine dispute as to any material...
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