Eng v. Specialized Loan Servicing

• Decision Date: 13 December 2021
• Docket Number: No. 82378-7-I,82378-7-I
• Parties: Saody ENG, an individual, Appellant, v. SPECIALIZED LOAN SERVICING, a foreign limited liability company, Respondent.
• Court: Washington Court of Appeals

500 P.3d 171

Saody ENG, an individual, Appellant,

v.SPECIALIZED LOAN SERVICING, a foreign limited liability company, Respondent.

No. 82378-7-I

Court of Appeals of Washington, Division 1.

FILED December 13, 2021

Amanda Nicole Martin, Northwest Consumer Law Center, 936 N 34th St. Ste. 300, Seattle, WA, 98103-8869, Joshua Lohec Turnham, Northwest Justice Project, 715 Tacoma Ave. S, Tacoma, WA, 98402-2206, for Appellant.

Garrett Stephen Garfield, Attorney at Law, 601 Sw 2nd Ave. Ste. 1800, Portland, OR, 97204-3171, for Respondent.

PUBLISHED OPINION

Verellen, J.

¶ 1 The statute of limitations runs against each installment of a promissory note once it is past due. Time-barred debt remains valid though unenforceable. A creditor can demand repayment of valid debt without enforcing it.

¶ 2 When, as here, a creditor holds a deed of trust securing an unaccelerated promissory note with past due installments—some time-barred and some not—the creditor can demand payment of all past due installments. But if the creditor threatens to foreclose the deed of trust based upon both actionable and time-barred debt unless the debtor repays both, then the creditor's omission that the time-barred debt is unenforceable has the capacity to mislead the debtor regarding a statute of limitations defense to the foreclosure. An allegation that the creditor engaged in this type of deceptive practice in violation of the Consumer Protection Act (CPA), chapter 19.86 RCW, can survive a CR 12(b)(6) motion to dismiss.

¶ 3 A creditor's mere threats of enforcement actions it can legally take do not violate RCW 19.16.250(16) of the Collection Agency Act (CAA). Nor does a creditor violate RCW 19.16.250(21) of the CAA merely by demanding payment of time-barred debt when the debt remains valid.

¶ 4 Saody Eng filed a complaint alleging Specialized Loan Servicing, LLC, (SLS) violated the CPA, the CAA, and was negligent when it threatened foreclosure on a deed of trust because of past due installments that included time-barred debt. The trial court granted SLS's CR 12(b)(6) motion to dismiss. SLS omitted disclosing that portions of the debt were time-barred and unenforceable. Because SLS's notice of intent to foreclose created an impression with the capacity to mislead a reasonable consumer about the availability of a statute of limitations defense, Eng adequately alleged a deceptive act under the CPA. And because she adequately pleaded the remaining elements of a prima facie CPA claim, Eng's CPA claim should not have been dismissed at this stage of the proceedings.

¶ 5 Because Eng failed to allege a cognizable CAA violation or negligence claim, the trial court did not err by dismissing those claims.

¶ 6 Therefore, we affirm in part, reverse in part, and remand.

FACTS ¹

¶ 7 In 2006, Eng purchased a property using two loans, each secured by a deed of trust. The second loan, which was for $67,990, is at issue here.

¶ 8 In 2008, Eng lost her job and began missing payments. She has not made a payment toward her second loan since, at the latest, November 1, 2008.

¶ 9 In March of 2019, SLS began servicing the loan. In July of 2019, it sent Eng a "Default Notice and Notice of Intent to Foreclose":

¶ 10 Dear Saody Eng,

The Note on the above-referenced loan is now in default as a result of your failure to pay the 11/01/08 payment and the payments each month thereafter, as provided for in said Note. You are hereby notified that to cure such default[,] you are required to pay this office all past due payments plus late charges ... The amount required to cure the arrears as of 07/25/19 is $88,196.01. You have thirty-three (33) days from the date of this letter to cure the default. We urge you to immediately, upon receipt of this letter, contact our Customer Assistance Department at the number provided below to obtain the updated amount required to reinstate your loan.

....

This notice does not affect your ability to apply for or be evaluated for a foreclosure prevention option or any pending loss mitigation option that may have been extended.

Failure to pay the total amount due ... by 08/27/19 may result in acceleration of the entire balance outstanding under the Note including ... commencement of foreclosure of the Trust Deed/Mortgage[,] which is security for your Note.^[2]

In early October, SLS notified Eng her "mortgage account is delinquent" and sent her a "Notice of Pre-Foreclosure Options."³ SLS has not accelerated the note.

¶ 11 Eng filed a complaint against SLS in mid-October, alleging it was a collection agency that violated the CAA, violated the CPA, and committed common law negligence. SLS filed a CR 12(b)(6) motion to dismiss, which the court granted without prejudice.⁴

¶ 12 Eng appealed. SLS moved to dismiss, arguing the trial court order was not appealable because the court dismissed without prejudice. Commissioner Masako Kanazawa denied the motion but let SLS raise issues of appealability in its briefing on appeal.

ANALYSIS

¶ 13 As a threshold matter, SLS argues the trial court's decision is not reviewable as a matter of right under RAP 2.2(a) because the trial court dismissed Eng's complaint without prejudice. Dismissal of an action with prejudice is a final judgment on the merits of a controversy.⁵ A dismissal without prejudice ordinarily does not have preclusive effect and is not appealable as a matter of right unless the practical effect is to determine an action by discontinuing it or preventing a final judgment.⁶ In Barnier v. City of Kent , for example, this court concluded a CR 12(b)(6) dismissal without prejudice was appealable because the trial court dismissed the claim as nonjusticable, meaning the "practical effect of the order was to discontinue the action."⁷

¶ 14 Here, like Barnier, the trial court dismissed Eng's claims because it concluded they were legally insufficient, essentially adjudicating their merits with the practical effect of discontinuing the action. Because RAP 2.2(a)(1) allows an appeal as a matter of right under these circumstances, we will consider Eng's appeal.

¶ 15 We review a CR 12(b)(6) motion to dismiss de novo.⁸ Under this generous standard of review, we presume all factual allegations in the complaint are true, as are any reasonable inferences from them.⁹ " ‘[A]ny hypothetical situation conceivably raised by the complaint defeats a CR 12(b)(6) motion if it is legally sufficient to support the plaintiff's claim.’ "¹⁰ But dismissal is appropriate when " ‘a plaintiff's claim remains legally insufficient even under his or her proffered hypothetical facts.’ "¹¹

I. Collection Agency Act

¶ 16 Eng alleges SLS violated RCW 19.16.250(16) and .250(21) of the CAA. RCW 19.16.250(16) prohibits a collection agency from "[t]hreaten[ing] to take any action against the debtor which the [debt collector] cannot legally take at the time the threat is made." SLS sent a letter threatening foreclosure on $89,562.39 in debt.¹² Eng concedes that SLS has "the right to foreclose on installment payments within the statute of limitations,"¹³ and her complaint alleges portions of her debt are within the limitations period. Thus, Eng agrees that SLS could legally begin foreclosure proceedings against her, even if she disagrees about the amount of debt to which it was entitled from that proceeding. Because SLS could legally threaten foreclosure, it did not violate RCW 19.16.250(16).

¶ 17 RCW 19.16.250(21) prohibits a collection agency from collecting or "attempt[ing] to collect in addition to the principal amount of a claim any sum other than allowable interest, collection costs or handling fees expressly authorized by statute." Under the CAA, a "claim" is "any obligation for the payment of money or thing of value arising out of any agreement or contract, express or implied."¹⁴ Thus, subsection .250(21) prohibits a collection agency from attempting to collect amounts other than principal, interest, and statutorily authorized costs or fees from an obligation originating in an agreement.

¶ 18 Eng alleged SLS violated this statute by sending the notice of default threatening foreclosure on a sum of debt, including time-barred debt, from a note secured by a deed of trust. Although the lapsed limitations period restricts the right to enforce the entire obligation,¹⁵ the debt remains valid.¹⁶ Eng does not argue her debt was invalid. Because SLS was demanding payment of principal, interest, and authorized fees from a valid claim, Eng failed to adequately allege SLS violated RCW 19.16.250(21).

II. Negligence

¶ 19 Eng alleges that SLS breached its common law duty of reasonable care "when it attempted to collect amounts not legally owed by [her]."¹⁷ But Eng acknowledges "she has not made any of the installment payments since at least 2008."¹⁸ SLS was entitled to demand payment of valid debt Eng legally owed,¹⁹ even if, as explained below, it is unable to enforce the time-barred portion of Eng's valid obligation.²⁰ Because time-barred debt remains valid and owing, Eng failed to allege facts supporting a claim that SLS breached its duty by attempting to collect amounts not legally owed.

III. Consumer Protection Act

¶ 20 The CPA prohibits "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce."²¹ Eng alleged SLS committed both a per se CPA violation by violating the CAA and a statutory violation by using unfair and deceptive collection practices. Because Eng failed to allege a valid CAA violation, the issue is whether she adequately alleges an unfair or deceptive practice.

¶ 21 "The CPA is a particularly appropriate vehicle" for regulating collection practices²² because "debt collection activities that are not regulated under the CAA may constitute unfair and deceptive practices under the broader scope of the CPA."²³ "To prevail on a CPA action, the plaintiff must prove an ‘(1) unfair or deceptive act or practice; (2) occurring in trade or commerce; (3) public interest impact; (4) injury to plaintiff in his or her...