Antitrust Law Daily Wrap Up, RICO—E.D. Cal.: Homeowner’s racketeering, unfair competition claims proceed against loan servicer, (Jul 31, 2015)

By Linda O’Brien, J.D., LL.M.

A homeowner alleged sufficient facts to pursue claims against a mortgage loan servicer for engaging in racketeering and unfair competition by misapplying his loan payments and improperly assessing marked up services fees in connection with his mortgage, the federal district court in Sacramento has ruled. Thus, the defendants’ motion to dismiss was denied (Weiner v. Ocwen Financial Corporation, July 28, 2015, England, M.).

In 2012, Ocwen Loan Servicing assumed the serving of David Weiner’s home mortgage loan, from GMAC. Although Weiner had arranged with GMAC to pay his property taxes directly, Ocwen began charging Weiner an annual escrow fee and diverting funds to that escrow account. The diversion of funds caused the large surplus in the escrow account and a default on Weiner’s principal and interest payments.

Weiner filed suit against Ocwen and its parent company, Ocwen Financial Corporation, alleging that the servicer forced him into default by misapplying his loan payments and improperly assessed marked up fees for default related services, in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO) and California’s Unfair Competition Law (UCL). The defendants moved to dismiss the complaint.

RICO claims. To plead a claim under RICO, a plaintiff must allege conduct of an enterprise through a pattern of racketeering activity. In this case, Weiner alleged that Ocwen transferred its computer management programs designed to assess fees to a related company, Altisource, and directed Altisource to order default-related services. Ocwen and Altisource acted together to pass on marked up default services fees to borrowers and qualified as an associated-in-fact enterprise for RICO purposes. Thus, Weiner adequately alleged the existence of a RICO enterprise, in the court’s view.

Ocwen’s argument that Weiner failed to establish the requisite predicate act by not identifying the date and content of its alleged misstatements disguising the true nature of the services fees owed by borrowers was rejected. The court noted that Weiner’s allegations that Ocwen used the Internet, telephone, facsimile, and U.S. mail to communicate with borrowers and he received monthly statements demanding payment of the marked up fees satisfied the pleading requirements for establishing RICO liability at the current stage of the proceedings.

UCL claims. Additionally, the plaintiff adequately stated claims with sufficient particularity under the “fraudulent” and “unfair” components of the UCL. Weiner alleged that Ocwen affirmatively misled delinquent borrowers into paying marked up fees which it was not authorized to collect and used its position as a major financial institution to disguise the true nature of the fees. According to the court, those allegations adequately set forth a fraudulent business practice likely to deceive the public.

The court also noted that, although Ocwen was authorized to implement default-related services to protect its interest in the mortgaged property, the servicer could not charge marked up fees for that purpose. Therefore, the plaintiff sufficiently alleged a claim of unfairness under the UCL.

The case is No. 2:14-cv-02597.

Attorneys: Mark Pifko (Baron & Budd) for David Weiner. Ashley Pavel (O'Melveny & Myers LLP) for Ocwen Financial Corp., and Ocwen Loan Servicing, LLC.

Companies: Ocwen Financial Corp.; Ocwen Loan Servicing, LLC

Cases: RICO StateUnfairTradePractices CaliforniaNews