Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—C.D. Cal.: Loan modification process not deceptive under California Unfair Competition Law, (Aug 21, 2013)

By Jody Coultas, J.D.

Homeowners were unable to state California Unfair Competition Law (UCL) claims against loan servicer Nationstar Mortgage, LLC for allegedly misleading and deceptive practices relating to a loan modification and foreclosure proceedings, according to the federal district court in Los Angeles (Rosenfeld v. Nationstar Mortgage, LLC, August 19, 2013, Snyder, C.).

In an effort to avoid foreclosure, the home owners sought a loan modification from Nationstar after it became the loan servicer. During the application process, the home owners received a notice that the property was to be sold at a trustee’s sale, but Nationstar assured them that no foreclosure would occur as long as they continued to submit the requested documents. Nationstar informed them orally, but not in writing, that they qualified for a trial payment plan. After the trial plan, the home owners received a proposed “Home Affordable Modification Agreement,” but it allegedly did not take into consideration the home owners’ circumstances. Nationstar never replied and a trustee’s sale was scheduled.

Nationstar did not violate the unlawful prong of the UCL, according to the court. The homeowners alleged that Nationstar violated the UCL by violating the California law that bars a mortgage servicer from conducting a foreclosure sale, or recording a notice of such a sale, while a borrower’s application for a mortgage loan modification is pending. The homeowners argued that Nationstar failed to take into account reduced working hours and a reduction in credit card debt when evaluating the loan modification application.

After approving or denying a first application for a loan modification, a mortgage servicer is not required to evaluate subsequent applications absent a material change in the borrower’s financial circumstances since the previous application. The facts showed that Nationstar was aware of all material details of the home owners’ financial circumstances before it offered the loan modification. California law did not bar Nationstar from pursuing a foreclosure after evaluating the first application for a loan modification.

The homeowners did not plead sufficient facts to establish fraud or misrepresentation under the UCL, according to the court. Nationstar allegedly misrepresented and falsely promised that the homeowners were safe from foreclosure, and improperly and prematurely instituted foreclosure proceedings in order to generate unwarranted fees. However, the facts showed that Nationstar refrained from foreclosing on the house until the completion of the application process for the loan modification. There was also no evidence to support the argument that Nationstar improperly instituted foreclosure proceedings to generate fees.

The case is No. CV 13-4830 CAS (CWx).

Attorneys: Joseph Richard Manning, Jr. (The Law Offices of Joseph R. Manning Jr. APC) for Sally Rosenfeld. Charles T. Meyer (Severson and Werson APC) for Nationstar Mortgage, LLC.

Companies: Nationstar Mortgage, LLC

Cases: StateUnfairTradePractices CaliforniaNews