Unreported / Non-Citable
Background
Carlos Avila borrowed approximately $400,000 in 2008 to buy a Merced home and fell behind on payments in 2017. He alleged that Ocwen Loan Servicing placed him in two trial payment plans without delivering final modification paperwork. PHH Mortgage Corporation replaced Ocwen as servicer around February 2019. Avila subsequently described repeated applications, conflicting notices about missing documents, and little contact with his assigned single point of contact. The appellate court treated PHH, identified in the judgment as Ocwen's successor by merger, as the sole respondent.
PHH recorded a notice of default on January 19, 2022, and a notice of trustee's sale in May 2022. Avila alleged that complete modification applications were pending on both occasions. He submitted another application on June 9, supplied additional income records on June 29, and later learned through an August 22 letter that PHH claimed it did not receive the missing documents and that his review had been denied on August 1. He alleged that he received no opportunity to appeal. PHH said no foreclosure sale had occurred, but the record did not show rescission of the notice of default.
After three demurrers were sustained with leave to amend, the trial court sustained a fourth demurrer to Avila's May 2024 third amended complaint without leave to amend in August 2024, and a judgment of dismissal was entered. The remaining claims alleged dual tracking under Civil Code section 2923.6, single-point-of-contact violations under section 2923.7, and unfair competition. Avila sought injunctive relief rather than damages for a completed foreclosure. The Fifth District reviewed the pleading de novo, accepting properly pleaded material facts and reasonable inferences as true.
The Court’s Holding
The court reversed dismissal of the dual-tracking claim. Allegations that complete applications were pending when the default and sale notices were recorded stated a prima facie statutory violation. The issue was preserved and, in any event, could be considered on de novo review. The complaint explained the alleged violation rather than merely reciting the statute. Completeness depends on supplying required documents within the servicer's timeframes, not on the servicer acknowledging completeness. The court also found that the trial court overlooked allegations that Avila answered PHH's June document request. His allegations concerning the August denial and absence of an appeal opportunity independently supported the claim. Expiration of the sale notice did not eliminate possible relief because a court could require the denied appeal opportunity.
The single-point-of-contact claim also survived, limited to handling of the June 2022 application. Although one paragraph merely repeated statutory language, surrounding allegations described PHH confirming receipt of supplemental documents and later claiming documents were missing. Liberally construed, those allegations supported failures to coordinate documents, identify missing materials, and ensure consideration of foreclosure alternatives. The resulting disruption and lost consideration made the alleged violations material, although the court noted that available injunctive relief would be limited.
The court affirmed dismissal of the unfair-competition claim without leave to amend on the alternative ground of standing. Avila's assertion of injuries including imminent loss of property did not identify an economic loss causally connected to the alleged statutory violations. His earlier default undermined reliance on impending foreclosure, unspecified litigation expenses did not establish standing, and the improper charges discussed in his cited federal cases had no pleaded analogue here. Because neither appellate brief proposed a curative amendment, Avila did not carry his burden to show that amendment could save the claim.
Key Takeaways
- A borrower need not allege that a mortgage servicer acknowledged an application's completeness when the statute defines completeness by the borrower's submission of required documents.
- Allegations that complete applications were pending when foreclosure notices were recorded were sufficient to plead dual tracking without evidentiary details about every application event.
- The alleged denial of a meaningful opportunity to appeal a modification decision supported potential injunctive relief even after the recorded notice of sale expired.
- Specific allegations about contradictory document handling made the single-point-of-contact claim minimally sufficient for the June 2022 application.
- A derivative unfair-competition claim still requires pleaded economic injury and causation, and dismissal without leave to amend was proper when no curative amendment was proposed.
Why It Matters
The decision separates the adequacy of foreclosure-protection pleadings from the borrower's eventual ability to prove them. It rejects a pleading rule that would let a servicer control statutory completeness by withholding acknowledgment, while treating the servicer's document requests and the application's actual completeness as matters not resolvable on demurrer. It also explains that correction of a material violation can involve more than stopping a trustee's sale.
The judgment was affirmed in part and reversed in part. The trial court must vacate its order sustaining the entire demurrer, overrule the demurrer to the first two causes of action, and sustain it as to the unfair-competition claim without leave to amend. The parties bear their own appellate costs. The opinion also advised Avila on remand to clarify exactly which party or parties he is suing; it did not determine the merits of his allegations or order a particular injunction.