Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—DAlaska: Failure to Modify Home Loan Did Not Violate Alaska Unfair Trade Practices Act, (Jan 15, 2013)

By Tobias J. Gillett, J.D., LLM.

A homeowner did not state a claim against Bank of America (BoA) for violation of the Alaska Unfair Trade Practices Act (UTPA) for BoA’s refusal to modify her loan pursuant to a Home Affordable Modification Trial Period Plan (TPP), the federal district court in Anchorage, Alaska has ruled (Brinson v. Back of America, N.A., January 13, 2013, Sedwick, J.). BoA did not send the homeowner an executed copy of the TPP, as required under the document’s terms, and therefore the TPP did not constitute an enforceable offer.

The homeowner possessed a mortgage through BoA and sought to modify the loan through a TPP. BoA’s subsidiary loan servicer BAC Home Loans Servicing, LP (collectively, BoA) had sent the homeowner the TPP pursuant to the federal government’s Home Affordable Mortgage Program (HAMP), part of the Emergency Economic Stabilization Act of 2008. The program sought “to help qualified homeowners avoid foreclosure by reducing monthly payments to sustainable levels.”

The TPP established a trial loan modification period during which the homeowner would make reduced payments to BoA for three months and provide certain financial documents, and BoA would permanently modify the loan if the homeowner qualified under HAMP guidelines. The TPP stated that it would not take effect until both the homeowner and BoA signed it, and that the TPP would terminate if BoA did not provide the homeowner with a fully executed copy by the effective date of the modification.

The homeowner alleged that she signed the TPP and returned it to BoA and that she made timely payments in accordance with the plan. She also alleged that she continued to make such payments for months after the trial period, and that BoA accepted those payments. She claimed that, since she qualified for a loan modification under HAMP and had met the conditions of the TPP, BoA was obligated to grant her the modification. The homeowner brought suit, asserting a claim for violation of the UTPA, among other claims.

TPP as Offer

The homeowner argued that the TPP constituted an offer, one that she accepted, and that by refusing to modify her loan, BoA breached an enforceable contract. The court explained that Alaska contract law specified that “the existence of a contract requires an offer including all essential terms, an unequivocal acceptance of those terms by the offeree, consideration, and an intent to be bound by the contract.” The court noted a split in authority regarding whether a TPP could be considered an enforceable contract, with some courts concluding they are not contracts and others finding the possibility that they are contracts plausible enough to survive a motion to dismiss.

The court concluded that the TPP in this case did not constitute a contract. The court distinguished Turbeville v. J.P. Morgan Chase Bank, 2011 WL 7163111, a 2011 Central District of California decision cited by the homeowner that had found a plaintiff’s allegations “sufficient to establish the existence of an enforceable contract based on the TPP.” The case was distinguished because it did not involve the TPP provision stating that BoA would send the homeowner a signed copy of the TPP if the homeowner qualified for the modification.

The court noted that more recent cases involving similar signature provisions had turned on whether the lender had signed and returned the TPPs at issue to the borrower. In its 2012 decision in Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, the Seventh Circuit had found an enforceable contract where the borrower had sent in a signed TPP, and the lender had signed and returned a copy of the TPP to the borrower. Other cases had distinguished Wigod on the basis that the TPPs in those cases had not been executed by the lender and returned to the borrower, thus not creating a binding contract.

Here, the homeowner had not alleged that BoA had sent her an executed copy of the TPP. The court found that the TPP “unambiguously states that the TPP does not take effect unless the lender signs it and provides a copy to” the homeowner and “merely invite[d the homeowner] to apply for a loan modification.” BoA had thus not intended to be bound, “and thus the TPP never ripened into an offer.” BoA’s acceptance of the homeowner’s continued payments under the terms of the TPP trial period did not change the court’s conclusion regarding BoA’s intent to be bound, because the homeowner already owed payments under the mortgage, and the payments could be applied to the amount the homeowner owed.

Alaska Unfair Trade Practices Act Claim

The court explained that the UTPA prohibits “unfair methods of competition and unfair or deceptive acts or practices in the conduct of trade or commerce,” as well as “representing that an agreement confers or involves rights, remedies, or obligations which it does not confer or involve.” The homeowner claimed that BoA violated the UTPA by “leading borrowers to believe that it will permanently modify their mortgage loans” and by misrepresenting the “rights remedies, and obligations” that the TPP conferred.

The court noted that the Alaska Supreme Court had previously held that the UTPA did not apply to mortgages, but that the Alaska legislature later amended the Act to make certain mortgage practices a violation of the UTPA. BoA contended that the homeowner had not alleged that BoA had committed any of those violations, and hence did not state a claim under the UTPA. The court concluded that, whether or not the UTPA now applied to all mortgage actions, the homeowner’s claim failed because it had already concluded that the TPP did not constitute an offer, and therefore BoA “did not engage in any deceptive practices or represent that the TPP conferred rights that it did not.”

The court also rejected claims for breach of contract, breach of the duty of good faith and fair dealing, promissory estoppel, and intentional misrepresentation, and dismissed the homeowner’s complaint.

The case is No. 3:12-CV-00169 JWS.

Attorneys: Octavio Cardona-Loya, II (Golden & Cardona-Loya, LLP) for Kary Brinson. Nelson G. Page (Burr Pease & Kurtz) for Bank of America, N.A.

Companies: Bank of America, N.A.

Cases: StateUnfairTradePractices AlaskaNews