Filed 7/14/26 Fales v. Select Portfolio Servicing CA6
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
WILLIAM FALES, H052728
(Santa Clara County
Plaintiff and Appellant, Super. Ct. No. 23CV423278)
v.
SELECT PORTFOLIO SERVICING,
INC. et al.,
Defendants and Respondents.
After they initiated nonjudicial foreclosure proceedings against his property,
plaintiff William Fales sued the loan servicer Select Portfolio Servicing (SPS) and lender
U.S. Bank N.A. (U.S. Bank). Plaintiff alleged SPS repeatedly misapplied his timely and
correct loan payments. He now appeals from the judgment dismissing his second
amended complaint after the trial court sustained defendants’ demurrer without leave to
amend. For the reasons explained here, we will reverse the order sustaining the demurrer
and remand the matter for further proceedings consistent with this decision.
I. BACKGROUND
The following factual summary is taken from the operative second amended
complaint, accepting as true all well-pleaded material facts. (Environmental Health
Advocates, Inc. v. Sream, Inc. (2022) 83 Cal.App.5th 721, 728–729.)
Plaintiff owns properties located on Dean Avenue in San Jose and on Bean
Avenue in Los Gatos. Plaintiff obtained loans on the properties in June 2021: A
$600,000 loan secured by a deed of trust on the Dean Avenue property and a $975,000
loan secured by a deed of trust on the Bean Avenue property. SPS began servicing both
loans in September 2021. The Dean Avenue loan was assigned to defendant U.S. Bank
N.A. in August 2022. (At the same time Clear Recon Corporation, (Clear Recon) a non-
party to this litigation, was substituted as trustee of the loans.)
Plaintiff was current on both loans until SPS took over servicing and misapplied
the checks he sent in September 2021. Plaintiff notified SPS of the error after receiving
his October 2021 statement, but SPS continued to apply plaintiff’s payments incorrectly
as between the two loans. Plaintiff also informed SPS that its misapplication had resulted
in an IRS Form 1099 with incorrect figures. Plaintiff retained the services of Titan Credit
to help him correct the problem. SPS eventually agreed to correct the errors, but did not
remove the accumulated late fees or return the 18% default interest rate to the original
4.75 percent interest rate. As a result, the balance owing and amount due on the Dean
Avenue loan remained incorrect. Plaintiff eventually hired an attorney to address the
continuing problems with his loan payments. With the attorney’s assistance, SPS
acknowledged that plaintiff’s previous payments were timely received but were not
applied to the Dean Avenue loan. SPS noted in a June 2022 call log that it had received
and scanned both of plaintiff’s May 2022 checks but had not cashed and applied the one
for the Dean Avenue loan.
SPS ultimately placed the Dean Avenue loan in default status. Plaintiff continued
to send payments on the Dean Avenue loan, but SPS would either return or reissue them.
In October 2022, SPS notified plaintiff by letter that it would refuse to accept any
payment less than the total amount ($51,566.73) that SPS claimed was necessary to halt
foreclosure. Clear Recon recorded a notice of default on the Dean Avenue property on
May 10, 2023 based on the purportedly missed May 1, 2022 payment. The notice of
default states that the total amount due as of May 4, 2023 was $42,995.65. Defendants
recorded a Notice of Trustee’s Sale in September 2023, scheduling sale for November 1,
2023.
Plaintiff commenced this action in September 2023 for defects in the notice of
default under Civil Code sections 2924.17 and 2924, subdivision (a)(1)(B); unfair
business practices under Business and Professions Code section 17200 et seq.;
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negligence; and cancellation of instruments. Plaintiff alleged that defendants’ conduct
has damaged his credit, prevented him from securing loans for his work projects, and
caused him to suffer other unspecified damages and injuries. Plaintiff also obtained a
preliminary injunction to enjoin the foreclosure sale.
Defendants demurred and plaintiff filed a first amended complaint. The amended
complaint added causes of action for intentional misrepresentation, negligent
misrepresentation, defamation, breach of fiduciary duty and declaratory relief.
Defendants again demurred and moved to strike portions of the first amended complaint,
which the trial court sustained with leave to amend. Plaintiff then filed the operative
second amended complaint, removing the causes of action for intentional
misrepresentation, negligent misrepresentation, defamation and breach of fiduciary duty.
Defendants demurred and moved to strike portions of the second amended
complaint. Following briefing and a hearing, the trial court sustained the demurrer
without leave to amend as to all causes of action, and denied the motion to strike as moot.
The trial court found plaintiff’s factual allegations failed to state the statutory elements of
a Civil Code section 2924.17 violation. It also found plaintiff had effectively conceded
lack of specificity and materiality by relying entirely on the preliminary injunction
finding that he had established a likelihood of success. (Plaintiff also argued that he had
stated causes of action under both sections 2924.17 and 2924, subdivision (a)(1)(B) based
on misapplication of his 2021 payments.) The court also found the second amended
complaint did not state a cause of action for violation of Civil Code section 2924,
subdivision (a)(1)(B) because it did not allege that the notice of default failed to include
language required by statute, and plaintiff had not responded to defendants’ argument
regarding reasonable particularity. The trial court denied leave to amend and sustained
the demurrer to the remaining causes of action because it viewed them as derivative of
the two Civil Code claims.
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II. DISCUSSION
A. LEGAL PRINCIPLES AND STANDARD OF REVIEW
We review de novo a judgment of dismissal based on a sustained demurrer.
(Organizacion Comunidad de Alviso v. City of San Jose (2021) 60 Cal.App.5th 783, 790.)
The complaint’s “allegations must be liberally construed, with a view to substantial
justice between the parties” (Code Civ. Proc., § 452), and we will reverse the judgment if
the allegations state a cause of action under any legal theory. (Organizacion, at p. 790.)
Plaintiff must show that the facts pleaded are sufficient to establish every element of a
cause of action and to overcome the grounds on which the trial court sustained the
demurrer. (Martin v. Bridgeport Community Assn., Inc. (2009) 173 Cal.App.4th 1024,
1031.) We assume the truth of all facts alleged in the complaint (Organizacion, at
pp. 790–791), but we do not consider conclusory factual or legal allegations.
(B & P Development Corp. v. City of Saratoga (1986) 185 Cal.App.3d 949, 953.)
B. ANALYSIS
1. The Second Amended Complaint States a Cause of Action Under Civil
Code Section 2924.17
The trustee holds title under a deed of trust and has authority to sell the subject
property in the event of default. (Brown v. Deutsche Bank National Trust Co. (2016)
247 Cal.App.4th 275, 280.) To initiate foreclosure, the trustee, mortgagee, or beneficiary
must record a notice of default. (Civ. Code, § 2924, subd. (a)(1); all further statutory
references are to this Code.) The notice of default must identify the deed of trust and the
trustor, and must state that a breach of the obligation secured by the deed of trust has
occurred. It must also set forth the nature of each breach and announce the election to
sell the property to satisfy the obligation that is in default. (§ 2924, subd. (a)(1)(A)–(C).)
The notice serves to inform the trustor of the nature of the default and provide an
opportunity to reinstate the secured obligation. (5 Miller & Starr, Cal. Real Estate
(4th ed. Nov. 2025 Update) Notice of Default – In general, § 13:224.) The beneficiary
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may not rely on any ground of default other than as stated in the notice. (Miller v. Cote
(1982) 127 Cal.App.3d 888, 894.)
Section 2924.17, subdivision (a) requires that “a notice of default … recorded by
or on behalf of a mortgage servicer in connection with a foreclosure … be accurate and
complete and supported by competent and reliable evidence.” (§ 2924.17, subd. (a).)
Under section 2924.17, subdivision (b), before recording a notice of default “a mortgage
servicer shall ensure that it has reviewed competent and reliable evidence to substantiate
the borrower’s default and the right to foreclose, including the borrower’s loan status and
loan information.” (§ 2924.17, subd. (b).) The purpose of that provision is to ensure the
foreclosing entity reviews and confirms its right to foreclose. (Lucioni v. Bank of
America, N.A. (2016) 3 Cal.App.5th 150, 163.) Section 2924.12, subdivision (a)(1)
allows a borrower to seek injunctive relief to enjoin a “material violation” of
section 2924.17. And for a material violation, the statute provides for both injunctive
relief before a foreclosure sale is recorded and monetary damages after a trustee’s deed
upon sale has been recorded. (§ 2924.12, subds. (a) & (b).)
Plaintiff’s section 2924.17 cause of action is based on the purportedly inaccurate
notice of default recorded against the Dean Avenue property. Specifically, plaintiff
alleged the notice falsely states that payment was due and not made on May 1, 2022,
despite SPS’s acknowledgement in June 2022 that payment had been timely received.
Plaintiff also alleges defendants refused to accept his subsequent payments and
demanded he pay not only the May 1, 2022 payment, but also fees and charges at an
increased default 18% interest rate that had improperly accrued from SPS’s
misapplication of his earlier payments. By October 2022, SPS contended that the
additional fees, charges and payments due had grown to over $50,000, which SPS
demanded plaintiff pay to halt foreclosure. (We observe that the accuracy of the
evidence relied on by SPS is further called into question by the discrepancy between the
amounts SPS claimed to be due in the May 10, 2023 notice of default ($42,995.65) versus
its October 2022 letter to plaintiff ($51,566.73).)
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We conclude that plaintiff’s allegations, which we must accept as true, sufficiently
allege that the notice of default recorded by SPS was not “accurate and complete and
supported by competent and reliable evidence” as required by section 2924.17,
subdivisions (a) and (b). (See Penermon v. Wells Fargo Bank, N.A. (N.D.Cal. 2014)
47 F.Supp.3d 982, 997–998 [section 2924.17, subd. (a) cause of action stated where
substantial increase in claimed arrears “could be explained by Defendant’s failure to
verify the amount with competent and reliable evidence.”]; Green v. Central Mortgage
Company (N.D.Cal. 2015) 148 F.Supp.3d 852, 876 [discrepancy between loan servicer’s
declaration and plaintiff’s allegations stated plausible claim for section 2924.17
violation]; Rothman v. U.S. Bank National Association (N.D.Cal. 2014) 2014 Lexis
57518 at p. 21 [claim stated under sections 2924.12, subd. (a) and 2924.17, subd. (a)
based on inaccuracies such as wrongfully levied charges and fees included in the notice
of default].)
We are not persuaded by defendants’ contention that plaintiff did not specifically
allege that SPS had found and yet failed to apply his May 2022 check. Even if necessary
to state a section 2924.17 violation, we can infer from plaintiff’s allegations and the
notice of default that SPS received but did not properly apply the May 2022 payment.
We likewise find unpersuasive defendants’ reliance on Roca v. Wells Fargo Bank, N.A.
(N.D.Cal., Sept. 29, 2015) 2015 Lexis 133376. There the district court ruled that a
section 2924.17 cause of action could be based on alleged misapplication of a loan
payment and failure to verify the amount with competent and reliable evidence prior to
recordation of default. The plaintiff was therefore granted leave to amend her complaint
to allege that her account was current when the payment was made and that she was not
otherwise in default as of the date stated in the recorded notice of default. (Roca v Wells
Fargo Bank, N.A., at p.23.) Here plaintiff alleged that he was current with his payments
until 2021 when SPS became the loan servicer (and immediately began misapplying his
payments), and that he was not otherwise in default when he submitted his May 2022
payment.
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We also reject defendants’ assertion that there was no basis to find a material
violation of section 2924.17 where “[i]f SPS did not cash the [May 2022] check,
[plaintiff] could have just sent another check in.” According to the complaint, plaintiff
did send checks and SPS rejected all later payments on the Dean Avenue loan. Further
demonstrating materiality, plaintiff suffered harm that he would not have otherwise
suffered but for SPS’s conduct, including damage to his credit rating, difficulty in
obtaining business loans, and the costs of attempting to correct SPS’s errors and of
litigating the foreclosure proceedings. (Compare, e.g., Cardenas v. Caliber Home Loans,
Inc. (N.D.Cal. 2017) 281 F.Supp.3d 862, 870 (no material violation where no facts
suggested statutory breaches affected loan obligations, disrupted loan modification
process, or caused other harm]; Galvez v. Wells Fargo Bank, N.A. (N.D.Cal., Oct. 4,
2018, No. 17-cv-06003-JSC) 2018 U.S. Dist. Lexis 172087 at p. 12 [applying Cardenas
standard].)
2. The Second Amended Complaint States a Cause of Action Under Civil
Code Section 2924, Subdivision (a)(1)(B)
The operative complaint alleges defendants improperly invoked their power of
sale because the purported breach was caused by SPS’s errors and misapplication of
payments. Accepting those allegations as true, they state a cause of action under
section 2924, subdivision (a)(1)(B), which requires a notice of default to include, among
other things, “[a] statement that a breach of the obligation for which the mortgage or
transfer in trust is security has occurred.” In order to comply with the statute, the notice
of default must contain a correct statement of a sufficiently substantial breach to justify
the trustee or beneficiary to declare a default and proceed with foreclosure. (Little v.
Harbor Pacific Mortgage Investors (1985) 175 Cal.App.3d 717, 720; Birkhofer v.
Krumm (1938) 27 Cal.App.2d 513, 523–524.) Here the breach identified in the notice of
default cannot be correct if it is based on SPS’s misapplication of plaintiff’s payments.
And as we have noted, the allegations that defendants improperly instituted foreclosure
proceedings because SPS misapplied payments (and refused to correct other errors) are
sufficient to show substantial harm and prejudice. (See Melendrez v. D&I Investment,
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Inc. (2005) 127 Cal.App.4th 1238, 1257; Angell v. Superior Court (1999)
73 Cal.App.4th 691, 700 [a plaintiff must show prejudice from procedural failures].)
3. Plaintiff’s Remaining Causes of Action
The trial court sustained the demurrer to the remaining causes of action finding
them derivative of the Civil Code causes of action. The trial court therefore did not reach
defendants’ alternative arguments. On remand, the trial court must determine in the first
instance whether the demurrer to those remaining causes of action should be sustained in
light of our conclusion that plaintiff has stated causes of action under sections 2923.17
and 2924, subdivision (a)(1)(B). We express no opinion regarding the validity of those
causes of action.
III. DISPOSITION
The judgment is reversed and the order sustaining the demurrer to the second
amended complaint is vacated. On remand, the superior court shall overrule the demurrer
to the first and second causes of action and shall consider the demurrer to the remaining
causes of action in the second amended complaint. As the prevailing party on appeal,
plaintiff is entitled to appellate costs by operation of California Rules of Court,
rule 8.278(a).
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____________________________________
Grover, Acting P. J.
WE CONCUR:
____________________________
Lie, J.
____________________________
Wilson, J.
H052728
Fales v. Select Portfolio Servicing, Inc. et al.