Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—DAriz: Homeowner’s Consumer Fraud Charges Against Mortgage Loan Servicer Survive Dismissal, (Jan 10, 2013)

By E. Darius Sturmer, J.D.

Bank of America, N.A. (BofA) and BAC Home Loan Servicing LP could have violated the Arizona Consumer Fraud Act (AFCA) by double-posting an Arizona consumer’s mortgage payment and purportedly misrepresenting the terms of a loan modification agreement, but not by allegedly attempting to foreclose on her home without authority or utilizing deceptive practices in the servicing of her loan, the federal district court in Phoenix has ruled (Bergdale v. Countrywide Bank FSB, January 9, 2013, Snow, G.).

The consumer charged that after Bank of America acquired Countrywide Bank (from which she had originally obtained the mortgage loan at issue in 2007) and BofA subsidiary BAC began servicing the loan, a missed payment set into motion an escalating dispute between the consumer and BAC as to what balance was currently due and how payments were being posted. The process ultimately culminated—after (1) her participation in a trial payment program, (2) her entry into a loan modification agreement, and (3) a series of Notices of Intent to Accelerate throughout the process—in her receipt of a Notice of Trustee’s Sale on the property scheduled for March 2012, although the sale apparently has not yet occurred.

Consumer Fraud

The court rejected the consumer’s theory that BofA and BAC engaged in deceptive acts prohibited by the AFCA by misrepresenting their authority to enforce her promissory note and to foreclose on behalf of the claimed trust, when it had “knowingly failed to properly transfer the interest in the note to the trust in November 2011.” Documents submitted by the plaintiff herself refuted her argument that BofA lacked the authority to foreclose, the court observed. Upon its acquisition of Countrywide, BofA succeeded to Countrywide’s interest in the loan note, and then became the beneficiary under the Deed of Trust via assignment. Moreover, the consumer did not show that statements of authority at the origination and modification stages of the loan were fraudulent or misrepresentations.

The consumer’s allegations that the defendants engaged in deceptive practices by threatening foreclosure despite her timely payments, by misapplying her payments, by misrepresenting amounts owed, and by declaring a false default also did not state a viable AFCA claim. Assuming the statute applied to loan servicing activity, the consumer failed to allege detrimental reliance on the alleged misrepresentations of the defendants in November and December 2009, in the court’s view. Despite being told by numerous BAC representatives that she owed completely different amounts during that period, the court noted, she continued to make the same payment that was called for in a trial payment program in which she was participating.

The consumer could, however, rest an actionable AFCA claim on her allegation that she was defrauded when the defendants double-posted a trial payment she made in November 2009, the court found. The consumer alleged that after making one $2,325 payment in the middle of the month and being told by a BAC representative that it had not shown up in the servicer’s computers, she was asked to submit another payment, on the promise that if the original came through, it would be cancelled. Instead, she asserted, BAC posted both payments.

Rejected was an argument by the defendants that there was no loss because the trial program required three monthly payments and the consumer’s account had been credited to both. The consumer sufficiently alleged misrepresentation, reliance, and consequent damage, the court found. As a result of the avowed misrepresentations, she had submitted a second payment that, when applied, caused an overdraft of her account that left her unable to pay her bills.

Further, BofA and BAC could have violated the AFCA by allegedly misrepresenting the terms of the loan modification. Whereas the final modification set the consumer’s principal and interest payment at $2,163.39, her December 2010 statement offered three different payment choices—none of which matched that figure, the court explained. Although the third choice referenced the agreed-upon payment, confusion resulted because the total payment amount included certain “outstanding late charges” and an escrow payment. The consumer’s averment that the defendants made numerous miscalculations regarding the required escrow payment that could force her to overpay was a valid complaint, the court decided. She had alleged not only a misrepresentation, according to the court, but detrimental reliance, in that she made the wrong payment for two months, which led to increased payments she was unable to afford.

Other Claims

Bergdale also adequately stated a claim against BofA and BAC for breach of the duty of good faith and fair dealing, the court noted. However, additional claims for negligent performance of an undertaking, for violations of the Fair Debt Collection Practices Act, and to quiet title were dismissed as insufficiently pled.

The case is No. CV-12-8057-PCT-GMS.

Beth Findsen for Rozann G. Bergdale. Gregory Bryan Iannelli (Bryan Cave LLP) for Bank of America NA.

Cases: StateUnfairTradePractices ConsumerProtection ArizonaNews