Tennessee homeowner claims servicer set the auction date with his buyer's offer still on the table
A Tennessee homeowner claims PHH Mortgage rushed his house to foreclosure while a short sale offer sat on the servicer's desk, awaiting review.
That is the central allegation in a lawsuit filed on April 28, 2026, in the US District Court for the Middle District of Tennessee, where Alberto Castillo, Jr., is suing PHH Mortgage Corporation - which does business as PHH Mortgage Services - under the federal Real Estate Settlement Procedures Act, better known across the industry as RESPA.
The story laid out in the filing will sound familiar to anyone who has worked a default servicing desk. According to the complaint, Castillo fell behind on his Murfreesboro home loan in 2024 after losing his job, hired real estate agents to sell the property, and watched servicing of the loan move to PHH that September. By December 11, 2024, his agents had an offer in hand - roughly $30,000 short of the payoff - and Castillo says he asked PHH that same day for permission to pursue a short sale.
What happened next is the heart of the case. The filing says PHH wrote back on December 18 asking for more documents and gave Castillo until January 20, 2025, to send them in. He says he emailed the requested paperwork on January 2. One day later, on January 3, according to the complaint, PHH started foreclosure and set a sale date of February 26 - more than two weeks before Castillo's own deadline to finish his application had even passed.
From there, according to the complaint, the file went sideways. Castillo says PHH did not properly acknowledge two follow-up submissions, then denied the request on January 27, citing a third-party authorization form it deemed unacceptable. He says he resubmitted using PHH's own form, but by then the buyer had spotted the home on a foreclosure auction website and withdrew the offer. On February 3, the filing states, PHH wrote back saying "there is insufficient time to review the MAA prior to account's scheduled foreclosure sale date." The home was sold at foreclosure on February 26, 2025.
For mortgage professionals, the legal framing is the part to watch. The lawsuit accuses PHH of so-called dual tracking - moving toward a foreclosure sale while a complete loss mitigation application is sitting open - and of failing to work the file with reasonable diligence, both core servicing obligations under Regulation X. A third count alleges that PHH refused to hand over its servicing notes after a written information request, telling Castillo's side they were "proprietary and confidential."
The filing also points to fifteen consumer complaints in the Consumer Financial Protection Bureau's public database to argue that what happened to Castillo fits a wider pattern at PHH. Castillo is asking for actual damages, $2,000 in statutory damages per violation, attorneys' fees, and a jury trial.
The allegations have not been tested in court. PHH has not yet filed a response, and no court has ruled on any of the claims.
