Denied Loan Modifications Lead to Litigation

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2 · 05 · 13

Several lawsuits filed by distressed borrowers alleged that mortgage servicers misled them about the loan modification process. Some borrowers claim they were wrongfully denied a modification, while others say they were victims of dual tracking.

After his request for a loan modification through the Home Affordable Modification Program was denied by U.S. Bank, N.A., Otis Wayne Phillip filed a lawsuit seeking damages and an injunction to prevent foreclosure. He claims that his request for a HAMP modification wasn’t properly evaluated.

“Specifically, Phillips’s complaint set forth claims for third-party beneficiary breach of contract; breach of the implied covenant of good faith and fair dealing; negligent implementation of HAMP; and wrongful attempted foreclosure,” court documents say.

U.S. Bank filed a motion to dismiss the case, but the motion was denied.

Nancy Easterling sought to modify her 2002 mortgage after losing her job. Her lender, PHH Mortgage Corp., agreed in November 2009 to a trial modification that Easterling maintained at $372 a month. But in July 2010, she was notified that her permanent loan modification had been denied. Two months later, Easterling received a 30-day demand for $2,247 in order to avoid foreclosure. A summary judgment was awarded to PHH.

But the Court of Appeals of Ohio, Ninth District, reversed the judgment on Oct. 24. The court said it agreed with Easterling that the summary judgment was improper because PHH failed to demonstrate that there was no genuine issue of material fact that she was in default. The judgment was reversed, and the cause was remanded.

The U.S. District Court for the Southern District of Texas on April 30 granted a motion to amend by Angel Fernando Bonilla and Julianne Denise Lizama-Bonilla in their lawsuit against Wells Fargo Bank subsidiary America’s Servicing Co. In addition, the plaintiffs’ motion to remand the case to the 270th Judicial District Court, Harris County, Texas, was also granted.

The Bonillas claim that even though they were told that the foreclosure would be cancelled while they applied for a loan modification, their home was posted for foreclosure in March 2011.

A motion to dismiss Dennly R. Becker’s lawsuit against Wells Fargo Bank, N.A., was denied on Nov. 30 by U.S District Court Judge Kendall J. Newman. The case generally involves multiple defaulted loans on foreclosed properties owned by Becker, some that he attempted to modify. Becker’s original wrongful foreclosure and quiet title claims were dismissed with prejudice on the grounds that they were pre-empted by the Home Owners Loan Act. The decision requires a answer to the plaintiff’s third amended complaint and a joint status report within 30 days of the decision.

A class action complaint filed against Wells Fargo in U.S. District Court for the Northern District of California failed to state a claim for breach of contract or debt collection violations, U.S. Magistrate Joseph Spero ruled on Nov. 30. But Courthouse News Service reported that unfair competition claims can remain, and the plaintiffs were given class leave to amend the complaint to allege damages from contract breach..

Becker had previously filed a motion seeking certification that plaintiff may file an interlocutory appeal as to orders dismissing two of plaintiff’s claims, but that motion was denied on Sept. 20, 2012.

Mark Sanders and another borrower applied with CitiMortgage Inc. for a loan modification under the Home Affordable Modification Program in the fall of 2009. In early 2010, the borrowers executed a modification and sent it to Citi. Believing that the modification was complete, they began making the payment per the modification. But the modification was never implemented because of a mathematical error. A corrected modification agreement sent by Citi in April 2010 was never received, and a foreclosure was started in the fall of 2010.

The borrowers filed a counterclaim, while Citi voluntarily dismissed its claim for foreclosure without prejudice. After that, the state court realigned the borrowers as plaintiffs and Citi as defendant based on the borrowers’ pending counterclaim. A federal court in Kansas on Dec. 4 issued an order addressing requirements for a deposition and document requests.

While the U.S. District Court for the District of Arizona dismissed some defendants and found that some of Rozann G. Bergdale’s charges in a second amended complaint against Countrywide Bank FSB and Bank of America, N.A., failed to state a claim as a matter of law — the court concluded that two claims could survive. Bergdale can proceed on a theory that BAC Home Loan Servicing LP and Bank of America violated Arizona’s Consumer Fraud Act and breached their duty of good faith by double posting a November 2009 trial modification payment and by offering materially different terms in a December 2010 invoice than what was required by the final loan modification.

Motions to dismiss a federal lawsuit filed by 160 individuals were denied on Dec. 20 and the case was remanded to the Superior Court of California, County of Sacramento. The securitization of their loans is being challenged, while Bank of America is accused of misleading them about loan modifications. In addition to BofA, defendants include Countrywide Financial Corp., Countrywide Home Loans Inc., ReconTrust Co., Bank of New York Mellon, the Federal National Mortgage Association, Wells Fargo Bank, U.S. Bank, Bank of the West and HSBC Bank.

In June 2011, MetLife Home Loans initiated foreclosure proceedings against James and Karen Louy. Soon after the foreclosure was filed on the defaulted $159,000 loan, the Louys applied for a loan modification. But during the application process, a the Fulton County Court of Common Pleas granted MetLife a default judgment and denied the Louy’s motion to vacate the default judgment. On appeal, the Court of Appeals of Ohio, Sixth District, reversed the trial court’s judgment, noting in the decision, “we find appellants’ assignment of error well-taken.”

A judge in the U.S. District Court for the Eastern District of New York ruled on Sept. 18, 2012, that an August 2011 class action can proceed against Saxon Mortgage Services Inc., plaintiffs’ counsel Chittur & Associates announced. Plaintiffs Ranujoy and Deborah Pandit sought a HAMP modification in October 2008. But after repeatedly supplying the Morgan Stanley subsidiary with requested documents, their modification was denied after around a year.

However, the court dismissed claims for breach of contract and jurisdiction under the Equal Credit Opportunity Act. Law360 reported that while the plaintiffs allege that they were misled about loan modification agreements, the court found that Saxon was not required to offer a permanent HAMP modification despite confusing language in poorly drafted documents.

Search warrants were executed in June at four locations associated with C.C. Brown Law Office, according to a notice from the Federal Bureau of Investigation. The FBI — along with the Office of the Special Inspector General for the Troubled Asset Relief Program — is seeking information from consumers who tried to obtain a modification from the Utah company, which also operated at Sentry Legal, WT Lee and JL Martin.

Guaranteed Home Mortgage Co., Fremont Investment & Loan, and America’s Servicing Co. doing business as Wells Fargo Home Mortgage Inc. were named in a lawsuit filed by Terry Steel II on Jan. 8 in Wayne Circuit Court, The West Virginia Record reported. Steele — who alleges he was charged illegal fees and his loan modification was mishandled — additionally named as defendants John Doe Holder, Kelly Clark Comer, Wesley Wood and Jamil Allie.

Distressed California borrowers Mauder and Alice Chao, Deogenoso and Glorina Palugod, and Maritza Pinel claim in a November 2011 class action that Aurora Loan Services misled them about avoiding foreclosure and obtaining loan modifications if they met a trial payment plan, according to a Dec. 26, 2012, story from Courthouse News Service. A motion for summary judgment was denied by U.S. District Judge Saundra Brown Armstrong in a rejection to Aurora’s argument that the class’ claims were preempted by the Home Owners’ Loan Act.

A story from Reuters said that JPMorgan Chase & Co.’s motion to dismiss a lawsuit alleging is misled borrowers about HAMP modification was denied by a judge for a federal court in Massachusetts. The judge wrote that Chase made problems worse for distressed borrowers by prolonging the modification process through “gross ineptitude.”


Mortgage Daily Staff


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