Fay Servicing told him to reapply. Two weeks later, the sale was still on
A California public school teacher filed a federal lawsuit against Fay Servicing on October 7, 2026 - the same day the servicer had scheduled a foreclosure sale on his family home.
Matthew Del Real, representing himself, filed the suit in the US District Court for the Eastern District of California. The defendants include Fay Servicing, Fay Servicing LLC, Fay Financial LLC, Fay Group, US Bank Trust National Association, Citigroup Mortgage Loan Trust 2023-A, and Clear Recon Corp. He is seeking $25 million in compensatory damages, plus punitive damages and a jury trial.
At the center of the case is a practice the mortgage industry calls dual tracking - when a servicer moves forward with foreclosure while a borrower's request for mortgage relief is still being reviewed. Federal rules under Regulation X bar servicers from doing exactly that.
According to the lawsuit, Del Real bought his home in Chico, California in July 2011 and had more than a decade of smooth sailing with his original servicer, Wells Fargo Home Mortgage. After hitting a financial rough patch in mid-2023, he received a six-month forbearance from Wells Fargo that paused his payments.
Then his loan changed hands.
Welcome letter, then a foreclosure warning
The lawsuit says Fay Servicing sent its introductory letter on December 11, 2023: "Welcome to Fay Servicing LLC, your new mortgage loan servicer!" That same day, according to the filing, a separate letter arrived: "We are sending this notice to you because you are behind in your mortgage payments... We have a right to invoke foreclosure."
Two days later, the suit says another letter identified Fay Servicing as a debt collector trying to collect a debt owed to "CMLTI 2023-A" - Citigroup Mortgage Loan Trust 2023-A. The first mortgage statement from Fay Servicing showed $15,151.08 due, according to the filing.
By May 2024, Fay Servicing sent what the filing describes as a "Notice of Default and Intent to Accelerate," with $22,994.67 needed to cure the default. Del Real's parents tried to help, the suit says, submitting two payments of $2,643.42 each - the monthly mortgage amount - in May and June 2024.
The lawsuit alleges Fay Servicing returned both payments on July 1, 2024, with a letter stating: "The funds received were not sufficient for the minimum amount due." When Del Real called, the filing says, a representative told him "partial payments" would not be accepted.
Application after application
Del Real submitted his first loss mitigation application in June 2024, according to the filing. Over the next two years, the suit says he filed several more. Each time, the filing alleges, Fay Servicing told him his application was "missing information" - a claim Del Real disputes, saying he "consistently submitted complete Loss Mitigation Applications." The lawsuit calls the repeated rejections a "predatory practice."
The suit also alleges Fay Servicing assigned more than one account manager to Del Real's file, which the filing frames as a failure to provide the single point of contact required under California's Homeowner Bill of Rights.
The financial toll kept climbing. A September 2025 payoff statement showed the total loan payoff at $443,852.69, according to the filing. By September 2026, the reinstatement amount - what Del Real would need to bring the loan current and stop the sale - had reached $113,823.63.
The letter that invited one more try
This is where the dual tracking allegation comes into sharpest focus. According to the suit, Fay Servicing sent Del Real a letter in September 2026 stating: "As your mortgage loan remains delinquent and a foreclosure sale is currently scheduled for October 7, 2026, we encourage you to submit an updated loss mitigation application for review."
Del Real says he did exactly that - submitting a new application with a borrower assistance form, pay stubs, bank statements, home insurance proof, and a letter of financial support. Then, on September 22, 2026 - less than two weeks before the scheduled sale - the filing says Fay Servicing sent a letter titled "Acknowledgement of Additional Documentation; Loss Mitigation Application Remains Incomplete," asking for still more paperwork. The suit says Del Real immediately sent the requested documents, completing his application before the sale date and the stated deadline.
The sale was still set for 3:30 PM on October 7, outside the Butte County Courthouse. Del Real filed his lawsuit that same day.
A servicer already on the CFPB's radar
The filing leans on Fay Servicing's regulatory track record. It cites a June 7, 2017 CFPB order that, according to the suit, sanctioned Fay Servicing for what the filing describes as "illegal and predatory mortgage practices and mortgage servicing failures." The servicer allegedly "kept borrowers in the dark regarding foreclosure prevention options and even took prohibited foreclosure actions while mortgage assistance was requested," the suit says.
The filing also cites an August 21, 2024 CFPB order that, according to the suit, found Fay Servicing violated the 2017 order along with Regulation X, the Homeowners Protection Act, Regulation Z, and the Consumer Financial Protection Act.
Six claims, including racial discrimination
The lawsuit brings six causes of action: racial discrimination, wrongful foreclosure, dual tracking under federal rules, violations of the Fair Debt Collection Practices Act, violations of the Real Estate Settlement Procedures Act, violations of California's Rosenthal Act, and violations of California's Homeowner Bill of Rights.
The racial discrimination claim alleges that the defendants' "continued refusal to accept a Loss Mitigation Application from a First Generation, Mexican American, created and maintained of a racially hostile business relation between the mortgage servicer and her affiliates and the Borrower," according to the filing. The wrongful foreclosure claim alleges Fay Servicing "engaged in fraud by recording fraudulent assignments, robo-signing documents, refusing to return phone-calls and emails," the suit says.
For servicers, compliance teams, and loss mitigation departments, the case is a sharp reminder that dual tracking exposure runs highest when the servicer itself invites the borrower to reapply weeks before a scheduled sale.
None of the allegations in the lawsuit have been tested, and no court has ruled on any of the claims.
