Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—DCAppCt: Condo Owners, Association State Claims Against Lenders for Failure to Disclose Material Facts , (Apr 19, 2013)

By Jody Coultas, J.D.

Condominium owners stated District of Columbia Consumer Protection Procedures Act (CPPA) claims against Countrywide Home Loans Presidential Bank FSB for allegedly failing to make a required disclosure concerning mortgage loans, according to a District of Columbia appellate court. The owners failed to state CPPA claims based on affirmative misrepresentations (Saucier v. Countrywide Home Loans, April 18, 2013, Reid, I.).

After the condo owners closed on mortgage loans from either Countrywide or Presidential insured by the Federal Housing Administration (FHA), an agency within the federal Department of Housing and Urban Development, they alleged that the companies knowingly approved loan applications knowing that the information on them was incorrect, that the property was overvalued, and that the owners would not be able to repay their loans. The owners also alleged that the lenders failed to disclose the Informed Consumer Choice Disclosure Notice, which makes a potential condo unit purchaser aware of possible financing choices by comparing FHA fixed rate financing with conventional fixed rate financing with mortgage insurance.

A trial court held that the condo owners failed to show either that the companies misrepresented or omitted material facts concerning the loans. Also, the court stated that the lenders had no duty to disclose the omissions. On appeal, the condo owners argued that they presented a triable issue as to whether the statements at issue would mislead a reasonable person to believe the conditions and requirements for approval had been met, and that the CPPA did not require a pre-existing fiduciary relationship between the merchant and the consumer.

The owners were not required to show a duty on the part of the lenders to disclose information, according to the court. To state a CPPA claim based on a failure to disclose a fact, the party must show that the omission was material and had a tendency to mislead. The trial court judge relied on the Supreme Court’s interpretation of SEC Rule 10b-5 in determining that omissions were not actionable under the CPPA’s failure to disclose section if the company had no duty to disclose. Courts in Maryland construing the Maryland Consumer Protection Law, which is similar to CPPA, as allowing unfair or deceptive trade practices claims regardless of the relation between the consumer and the merchant. The disclosure notice could be material because unsophisticated consumers could find the information important in determining whether to a course of action regarding their purchase of a condo unit. A reasonable jury could find that the lenders omitted material facts contained in appraisals that withheld from owners was material.

The condominium association had standing to assert CPPA claims against the lenders, according to the court. The trial court held that the association lacked standing to bring CPPA claims on behalf of its members because of the failure to demonstrate an injury-in-fact. The association had paid for repairs to the condo’s common areas and roof. There was sufficient evidence that the association suffered an injury fairly traceable to information likely to have been known by the lenders but not disclosed to at least some of the condo owners prior to the closing on their mortgage loans.

The case is No. 11-CV-646.

Attorneys: Thomas J. Henderson (Sanford Heisler, LLP) for Joyce Saucier. Thomas M. Hefferon (Goodwin Procter LLP) for Countrywide Home Loans.

Companies: Countrywide Home Loans

Cases: StateUnfairTradePractices DistrictofColumbiaNews