JOSEPH C. SPERO, Chief District Judge.
This is a case under the California Homeowner Bill of Rights ("HBOR"). Plaintiff Abraham Valentino contends that Defendants Select Portfolio Servicing, Inc. ("SPS") and U.S. Bank National Association wrongfully proceeded with the foreclosure of his home while a loan modification application was pending. The Court issued a Temporary Restraining Order ("TRO") on April 14, 2015 barring Defendants from proceeding with a foreclosure sale. See dkt. 38. Valentino now seeks a preliminary injunction. The Court held a hearing on April 24, 2015. Although aspects of Defendants' conduct in this litigation raise concern, Valentino's Motion is DENIED for the reasons stated below, and the Temporary Restraining Order is VACATED.
This case is based on a purported violation of the protections afforded by the HBOR, specifically California Civil Code section 2923.6. That statute attempts to eliminate the practice whereby financial institutions continue to pursue foreclosure even while evaluating a borrower's loan modification application, commonly known as dual tracking. See Jolley v. Chase Home Fin., LLC, 213 Cal.App.4th 872, 904 (2013). The following subparts of section 2923.6 are relevant to this action:
Cal. Civ. Code § 2923.6 (emphasis added). The HBOR provides a private right of action of action for injunctive relief "[i]f a trustee's deed upon sale has not been recorded," and for damages if the deed upon sale has been recorded. Id. § 2924.12(a), (b).
Valentino filed this action in state court in October of 2014 alleging that Defendants violated the HBOR by proceeding with foreclosure while a loan modification application was pending. The state court granted Valentino's application for a TRO, and ordered Defendants to show cause why a preliminary injunction should not issue by filing a response no later than November 10, 2014 and attending a hearing on November 18, 2014. Defendants removed the case to this Court on November 14, 2014 asserting diversity jurisdiction. There is no indication in the record that Defendants complied with the state court's order to show cause—specifically, the deadline for a written response four days before Defendants removed the case—and Valentino did not renew his application for a preliminary injunction in this Court after removal.
Defendants moved to dismiss, and Valentino amended his complaint pursuant to Rule 15(a)(1)(B) of the Federal Rules of Civil Procedure. The Court then granted Defendant's motion to dismiss Valentino's first amended complaint on February 10, 2015, but granted Valentino leave to amend his complaint no later than March 12, 2015. At a case management conference on February 13, 2015, Valentino's counsel suggested that mediation would be worthwhile, and proposed extending the deadline for an amended complaint so the parties could focus on settlement. Defendants' counsel endorsed this approach. The Court referred the case for mediation within ninety days
SPS states that Valentino's loan has been in default since October 1, 2008, and that Valentino "has missed more than seventy-eight (78) payments and the arrearage is more than $2,231,705.28." Weinberger Decl. (dkt. 40-1) ¶ 14.
After Valentino applied for a loan modification, SPS sent him a letter on June 16, 2014 requesting documents required to evaluate the application. Weinberger Decl. ¶ 4 & Ex. 1. As is relevant to the present Motion, this letter stated that "[e]ach self-employed borrower must provide copies of each of the most recent quarterly or year-to-date profit and loss statement [sic]." Id. ¶ 4 & Ex. 1 at ECF p. 8. The letter set a deadline of August 15, 2014, stated that the application would be considered withdrawn if the documents were not received, and included a notice that "[t]ime is of the essence." Id. ¶ 4 & Ex. 1 at ECF pp. 6, 9.
SPS sent a letter reminding Valentino of the deadline on July 1, 2014. Id. ¶ 5 & Ex. 2. SPS then sent a series of letters extending the deadline for Valentino to file his financial documents: first to September 6, then to November 13, and finally to November 30, 2014. Id. ¶¶ 6-8 & Exs. 3-5. Each of these letters was nearly identical to the June 16 letter, listing the documents needed, explaining that the application would be withdrawn if the documents were not received by the deadline, and admonishing Valentino that time was of the essence. See id. Exs. 1-5.
On January 27, 2015, Defendants' counsel sent Valentino's counsel an email designated as "Confidential settlement communication" that reads as follows:
Id. Ex. 6. The same day, Valentino's attorney responded that he "sent [the] request on to [his] client with a note about urgency." Id. Ex. 7. Valentino states that he "was informed that the lender's attorney had asked for three-months of profit and loss statements but received no written request for those P&L's and no deadline for submission." Valentino Decl. (dkt. 39) ¶ 3.
On February 13, 2015, SPS sent Valentino a letter stating that "SPS did not receive the required documents within the timeline specified," and thus "did not evaluate this account for loss mitigation and . . . closed this request for review." Weinberger Decl. ¶ 12& Ex. 8. Valentino submitted the profit and loss statements "in the first week of March 2015." Valentino Decl. ¶ 3. SPS states that Valentino appealed the denial on March 4, 2015 "based, in part, on his assertion that his income was on the rise." Weinberger Decl. ¶ 12.
SPS sent a letter dated March 27, 2015 to Valentino's attorney, responding to a request to review its denial of Valentino's modification application. Valentino Decl. ¶ 4; TRO Opp'n (dkt. 36) Ex. 1; Weinberger Decl. Ex. 9. On April 9, 2015, Valentino spoke to an SPS representative who told him that SPS did not consider the profit and loss statements because it had not received them on time. Valentino Decl. ¶ 4. The representative stated that under some circumstances, SPS would reopen the modification application to consider late-filed documents, but that SPS would not do so within thirty-seven days of the foreclosure sale set for April 15, 2015. Id. Valentino responded that he "understood the scheduled date to be a placeholder," based on SPS having set four previous "placeholder" dates after the state court issued the first TRO.
On Monday, April 13, 2015, Defendants' counsel sent an email stating their intent to proceed with the April 15 foreclosure sale. Id. ¶ 5. Valentino filed his TRO application (dkt. 34) that day, and on April 14, 2015 the Court issued a TRO and ordered the parties to show cause why a preliminary injunction should or should not issue. Order Granting TRO (dkt. 38). In accordance with the Court's Order, the parties filed simultaneous briefs on April 17 and April 22, 2015 (Valentino's opening brief takes the form of a Motion for Preliminary Injunction), and the Court held a hearing on April 24, 2015.
"A preliminary injunction is an extraordinary remedy never awarded as of right." Winter v. Natural Res. Defense Council, Inc., 555 U.S. 7, 24 (2008). "A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Id. at 20. Irreparable harm must be likely—it is no longer sufficient to grant a preliminary injunction upon a mere showing of a "possibility" of irreparable harm when the other factors weigh heavily in favor of the plaintiff. Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1132 (9th Cir. 2011). Nonetheless, the Ninth Circuit still evaluates the likelihood of success on a "sliding scale." Id. A preliminary injunction may be warranted upon a showing of "serious questions going to the merits" as well as "a hardship balance that tips sharply toward the plaintiff," so long as the plaintiff is likely to suffer irreparable harm and the injunction or restraining order is in the public interest. Id.
Both standards discussed above require Valentino to make some showing as to the merits of the case: either that he is likely to succeed, or that serious questions go to the merits. Because the record indicates that Valentino is unlikely to prevail on the merits, the Court may not grant a preliminary injunction.
The relevant portion of the HBOR only bars foreclosure where "a borrower submits a complete application for a . . . loan modification," which in turn requires that "a borrower has supplied the mortgage servicer with all documents required by the mortgage servicer within the reasonable timeframes specified by the mortgage servicer." Cal. Civ. Code § 2923.6(c), (h). Here, SPS's June 16 letter plainly stated that Valentino, as a self-employed borrower, must submit profit and loss statements. See Weinberger Decl. ¶ 4 & Ex. 1. Valentino states that he submitted such statements in March of 2015. Valentino Decl. ¶ 3. The relevant question is therefore whether that submission fell "within the reasonable timeframes specified by" SPS. See Cal. Civ. Code § 2923.6(h).
SPS set an initial deadline of August 15, 2014, which it ultimately extended to November 30, 2014.
Valentino argues that a preliminary injunction should issue because the "date of [SPS's] denial letter establishes that it had Plaintiff's [profit and loss statements] before it when it chose to deny the application without considering them." Mot. at 4. That statement is not accurate: SPS denied Valentino's application on February 13, 2015, and Valentino did not submit the profit and loss statements until "the first week of March 2015." Valentino Decl. ¶ 3; Weinberger Decl. ¶ 11 & Ex. 8. Valentino's argument appears to be based on SPS's March 27 letter in response to Valentino's appeal, stating that SPS found no error in its initial denial. See Weinberger Decl. Ex. 9. Valentino cites no authority, however, that would require a loan servicer to consider new documents on appeal that the borrower failed to submit before the initial denial.
Valentino's other arguments are no more persuasive. He argues that federal regulations promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act "require a lender to make a reasonable, good-faith determination before or when consummating a mortgage loan that the consumer has a reasonable ability to repay the loan," but fails to explain how such a requirement is relevant to SPS's denial of Valentino's existing loan or to the scope of protection available under the HBOR. See Mot. at 4 (citing 12 U.S.C. § 5481 et seq.; 12 C.F.R. § 1024, 1026) (emphasis added). Valentino also notes that SPS recently conceded its inadvertent failure to send a letter requesting an explanation of Valentino's hardship and Valentino's two most recent tax returns, apparently prepared in response to communication from Valentino's attorney in October of 2014. See Pl.'s Response Br. (dkt. 42) at 1-2 & Ex. A. He does not explain, however, why SPS's failure to send that letter—which does not discuss Valentino's profit and loss statements—excuses Valentino's failure to submit the profit and loss statements before the deadline. See id.
Because SPS clearly communicated that Valentino was required to submit the profit and loss statements by November 30, 2014, and Valentino failed to do so, Valentino is not entitled to protection under the HBOR. Valentino has therefore made no showing of likelihood of success or serious questions going to the merits of his claim, and his request for a preliminary injunction must be DENIED. The Court does not reach the parties' arguments regarding the remaining elements of the Winters and Alliance for the Wild Rockies tests.
The Court notes that aspects of Defendants' conduct during this litigation raise concerns regarding Defendants' good faith. First, Defendants appear to have disregarded an order by the state court before the case was removed, requiring Defendants to file a response to that court's order to show cause. Second, in a case management conference before this Court, defense counsel endorsed granting Valentino an extension of time to amend his complaint in order to allow the parties to mediate the case, with no indication whatsoever that Defendants intended to sell Valentino's home during the intervening period—thus preventing any opportunity to arrange for expedited mediation to occur before the foreclosure sale. The recent disclosure that SPS negligently failed to send a response to correspondence from Valentino's attorney in early October is also troubling. Despite the Court's concerns, however, such conduct does change the fact that Valentino failed to submit a timely and complete loan modification application, and thus cannot claim protection under the HBOR.
For the reasons stated above, Valentino's Motion for Preliminary Injunction is DENIED. The Temporary Restraining Order issued April 14, 2015 is hereby VACATED.
