Hueso v. Select Portfolio Servicing, Inc.

• Decision Date: 23 March 2021
• Docket Number: Case No. 18-cv-01892-BAS-WVG
• Parties: Robert HUESO, an individual, Plaintiff, v. SELECT PORTFOLIO SERVICING, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of California

527 F.Supp.3d 1210

Robert HUESO, an individual, Plaintiff,

v.SELECT PORTFOLIO SERVICING, INC., et al., Defendants.

Case No. 18-cv-01892-BAS-WVG

United States District Court, S.D. California.

Signed March 23, 2021

Matthew J. Faust, Yasaman Sharif, Sharif Faust Lawyers, Ltd., San Diego, CA, for Plaintiff.

Melissa Robbins Coutts, McCarthy & Holthus, LLP, San Diego, CA, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTION TO DISMISS PLAINTIFF'S FIRST AMENDED COMPLAINT

(ECF No. 39)

Cynthia Bashant, United States District Judge Before the Court is a Motion to Dismiss Plaintiff Robert Hueso's First Amended Complaint filed by Defendants Select Portfolio Servicing, Inc., Quality Loan Service Corporation, and Credit Suisse Financial Corporation ("Defendants"). (ECF No. 39.) Plaintiff opposes, and Defendants reply. (ECF Nos. 40, 41.) The Court finds this Motion suitable for determination on the papers submitted and without oral argument. See Fed. R. Civ. P. 78(b) ; Civ. LR 7.1(d)(1). For the reasons explained below, the Court GRANTS IN PART and DENIES IN PART Defendants’ Motion.

BACKGROUND

In 2006, Plaintiff obtained a home loan from Defendant Credit Suisse Financial Corporation ("Credit Suisse") to refinance his property. (First. Am. Compl. ("FAC") ¶ 2, ECF No. 16.) The loan was documented in a promissory note ("Note") secured by a Deed of Trust ("Deed"). (Id. ¶ 28.) The Deed identifies Mortgage Electronic Registration System, Inc. ("MERS") as the beneficiary. (Id. ¶ 29; Deed, Ex. A to FAC.)¹ Plaintiff was informed that the servicer of the Note was Defendant Select Portfolio Servicing ("SPS"), a subsidiary of Credit Suisse. (Id. ¶¶ 10, 31.) Plaintiff made regular monthly payments to SPS totaling more than $420,000. (Id. ¶ 31.)

I. Alleged Misapplication of Mortgage Payments by SPS

In 2017, Plaintiff "became concerned that [SPS] was misapplying his payments" because his statement showed that only $20,000 had been applied to the principal on the Note. (FAC ¶¶ 2, 32.) Plaintiff contacted SPS, which informed him that it had been applying some of his payments to "force-placed insurance" and a "tax escrow" account. (Id. ¶ 33.) However, Plaintiff claims that he personally maintained insurance on his home and was never notified that SPS did not have proof of coverage and would therefore obtain insurance and charge Plaintiff for it. (Id. ¶ 33(b).) Plaintiff also had neither been informed that his insurance policy had been terminated nor reimbursed by SPS for any duplicative insurance payments. (Id. ¶ 33(c).) Further, Plaintiff states that he "had never required the use of a tax escrow account" and had not "received notice from any taxing authority that [SPS] had paid taxes on his behalf" or that he had overpaid his taxes. (Id. ¶ 33(a).)

Plaintiff states that he then contacted Credit Suisse to ask how much money SPS had forwarded to them on his account. (FAC ¶ 34.) Credit Suisse informed Plaintiff that his loan did not exist in their system. (Id. ¶ 35.)

On November 7, 2017, Plaintiff made several "qualified written requests" ("QWRs") to SPS seeking information about his payments and advising SPS that that they made errors when calculating and applying his payments. (FAC ¶¶ 36–41.) Plaintiff alleges that SPS either did not respond or acknowledged his letters without explaining their actions or correcting the errors. (Id. ) According to Plaintiff, the only information SPS provided "was an explanation that the owner of the Credit Suisse Note was ‘Fannie Mae in its capacity as trustee.’ " (Id. ¶ 42.) Plaintiff then contacted Fannie Mae and was advised that Fannie Mae did not own any loans on residential property. (Id. ¶ 43.)

Plaintiff then retained counsel to contact SPS, which followed up on his QWRs and advised SPS that its failure to respond was subject to legal action. (FAC ¶ 44.) From November 2017 to February 2018, Plaintiff or his counsel sent eight letters to SPS requesting 16 items of information including, among other things: copies of the original Note and security instrument, all assignments of the instrument, information about the custodian of the original Note and the entity that funded the transaction, a complete audit history from the date of loan origination, information about the "force-placed insurance" obtained by SPS, and an itemized statement of the current payoff amount. (Id. ¶¶ 44–46.) In response, Plaintiff received only an unverified copy of the Note, an unrecorded copy of the Deed, and a limited itemization of his payments to SPS. (Id. ¶ 47.)

Plaintiff then demanded that SPS "provide documentary proof" that an owner of the Note existed and that SPS had been providing Plaintiff's payments to the owner and properly applying them to the balance of the loan. (FAC ¶ 48.) Plaintiff alleges that because SPS has refused to comply with this request, he is holding his payments in abeyance until this proof is provided. (Id. )

II. Allegations Regarding Unlawful Assignment, Substitution, and Foreclosure

On November 28, 2017, MERS, the beneficiary of the Deed, executed a "Corporate Assignment of Deed of Trust" assigning its rights under the Deed to SPS. (FAC ¶ 50; Ex. B to FAC.) Plaintiff states MERS’ assignment to SPS was unlawful because MERS had been suspended from operating in California at the time it was designated a beneficiary in 2006. (Id. ¶¶ 17, 54.) Specifically, Plaintiff claims MERS was suspended by the California Franchise Tax Board in 2004, only to be "briefly revived" in 2009 before being suspended again. (FAC ¶ 17.) Further, Plaintiff alleges that although a successor entity to MERS qualified to do business in California in 2010, this entity is the alter ego of the initial MERS and thus "any and all transactions perpetrated by the Successor MERS are voidable at the option of" Plaintiff. (Id. ¶¶ 18–21.)

On July 7, 2018, SPS recorded a "Substitution of Trustee" substituting Defendant Quality Loan Service Corporation ("Quality") for itself as trustee under the Deed. (FAC ¶ 51; Ex. C. to FAC.) Shortly thereafter, Quality sent Plaintiff a "Debt Validation Notice" to collect on the Note. (FAC ¶ 57.) About a month later, Quality recorded a Notice of Default and commenced foreclosure on Plaintiff's home. (Id. ¶ 52; Ex. D. to FAC.) Plaintiff claims that SPS and Quality were not legally authorized to file the Notice of Default because neither Defendant appears on the Deed as the trustee or beneficiary. (FAC ¶ 54.) Further, according to Plaintiff, the Notice of Default is deficient under California law because it does not include a summary document and falsely represents that someone contacted Plaintiff to explore available options to avoid foreclosure. (Id. ¶ 56.)

III. Summary of Claims

Based on these facts, Plaintiff alleges the following:

Count 1: Violation of RESPA: SPS and Quality violated the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2605, by failing to investigate, correct, and/or explain Plaintiff's account in response to his QWRs and by unlawfully misapplying the funds to a tax escrow account and force-placed insurance. (FAC ¶¶ 62–63.)

Count 2: Cancellation of Instrument: Credit Suisse destroyed the Note, thus extinguishing it and rendering the Deed and all subsequent "Subject Instruments"—including the MERS assignment to SPS, SPS’ substitution of Quality as Trustee, and Notice of Default—void. (FAC ¶¶ 49, 55, 67–76.)

Count 3: Receiving Stolen Property: SPS and Quality are liable for receiving stolen property, on the basis that SPS was not entitled to keep his payments because the Note has been destroyed, or, alternatively, because SPS misapplied his payments. (FAC ¶¶ 81–82.) Plaintiff also states that Quality knew Plaintiff's funds were stolen but nonetheless retained them for its own benefit and has continued to wrongfully foreclose on Plaintiff's property. (Id. ¶ 83.)

Count 4: Common Count: SPS and Quality unlawfully obtained Plaintiff's payments on the Note and have been unjustly enriched by retaining these funds. (FAC ¶¶ 87–90.)

Count 5: Declaratory Judgment: Because an actual controversy regarding the parties’ legal interests in the property exist, Plaintiff is entitled to declaratory judgment establishing that because the Subject Instruments are void, Plaintiff does not owe any payments under the Note and is therefore not in default, and consequently no Defendants have legal claim to his property. (FAC ¶¶ 92–95.)

Count 6: Accounting: Alternatively, Defendants should be required to provide an accounting regarding what amount, if any, Plaintiff owes to the true holder of the Note. (FAC ¶¶ 97–98.)

Count 7: Unfair Competition: Defendants’ conduct constitutes deceptive and unfair business practices that violate California public policy and California Business and Professions Code § 17200. (FAC ¶¶ 100–02.)

Plaintiff also asks the Court to enjoin Defendants "from conducting business to the detriment of Mr. Hueso and others similarly situated" and from foreclosing on his home or evicting him from the property (FAC ¶ 103); to order Defendants to disgorge any of Plaintiff's money that they have wrongfully retained (id. ¶ 104), and for other damages, including punitive damages. (See id. ¶¶ 77, 106–113.)

LEGAL STANDARD

A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the claims asserted in the complaint. Fed. R. Civ. P. 12(b)(6) ; Navarro v. Block , 250 F.3d 729, 731 (9th Cir. 2001). The Court must accept all factual allegations pleaded in the complaint as true and must construe them and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mutual Ins. Co. , 80 F.3d 336, 337–38 (9th Cir. 1996). To avoid a Rule 12(b)(6) dismissal, a complaint need not contain detailed factual allegations, rather, it must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A claim has ...