Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—EDPa: Fear of Foreclosure Precluded Claim of Justifiable Reliance on Deceptive Mortgage Loan Agreement Terms , (Dec 14, 2012)

By Jody Coultas, J.D.

Mortgage holders could not state a Pennsylvania Unfair Trade Practices and Consumer Protection Law (CPL) claim against a mortgage loan servicing company for its business practices related to a mortgage modification, according to the federal district court in Philadelphia (Cave v. Saxon Mortgage Services, Inc., December 12, 2012, Padova, J.).

After having issues with another mortgage company, the mortgage holders’ loan was transferred to the servicing company. The company denied the holders’ application for a Home Affordable Modification Program (HAMP) modification, and the holders agreed to a proposed in-house modification program.

After the mortgage holders filed CPL claims in connection with the company’s in-house modification program, the company filed for summary judgment on the basis that it was not was not liable for the original mortgage company’s actions, it did not independently violate the CPL, and the mortgage holders could not show justifiable reliance or ascertainable loss.

The company was not liable for the original company’s actions, according to the court. The company was not a successor-in-interest and could not, therefore, be held liable for an unrelated entity’s actions.

Because the mortgage holders could not show justifiable reliance, the court dismissed the claim. The mortgage holders alleged that the company violated the CPL by including a deceptive balloon payment provision in its modification program, the terms violated the Fair Debt Collection Practices Act, and by charging interest and fees after it began servicing the loan. Balloon terms in loan agreement may violate the CPL where the borrower was not notified that executing the note could result in a large balloon payment and the note did not disclose or estimate the amount of the lump sum payment. The company could be liable for a deceptive act prohibited by the CPL by including the deceptive balloon payment provisions and the company violated the Fair Debt Collection Practices Act. However, the mortgage holders did not allege that they would not have signed the modification agreement had the company provided different information. Rather, the mortgage holders specifically stated that they signed the agreement out of fear of foreclosure and losing their home.

The case is No. 11-4586.

Ann Miller (Ann Miller, LLC) for Lisa and Scott Cave. Thomas T. Loder (Duane Morris LLP) for Ocwen Loan Servicing, LLC.

Cases: StateUnfairTradePractices PennsylvaniaNews