Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—S.D. Tex.: Homeowner’s DTPA claims against mortgage loan servicer dismissed, (Jan 21, 2014)

By Linda O’Brien, J.D., LL.M.

A homeowner failed to allege sufficient facts to pursue claims against a banking and mortgage services provider for engaging in unfair or deceptive trade practices by denying her request for a loan modification in violation of the Texas Deceptive Trade Practices Act (DTPA), the federal district court in Houston has decided (Khan v. Wells Fargo Bank, N.A., January 17, 2014, Atlas, N.).Thus, the mortgage services provider’s motion for summary judgment was granted and the complaint dismissed with prejudice.

In 2006, Bernadine Khan obtained a mortgage loan from New Century Mortgage Corporation for the purchase of property. The deed of trust for the mortgage listed Mortgage Electronic Registration Systems, Inc. (MERS) as a nominee for the lender. After New Century filed a Chapter 11 bankruptcy petition and ultimately ceased operations, MERS assigned Khan’s loan to U.S. Bank. Wells Fargo Bank, N.A., a banking and mortgage services provider, became the loan servicer of Khan’s loan on behalf of U.S. Bank. In 2008, Khan sought to restructure her loan and was informed by Wells Fargo that she would have to fall behind in her loan payments to be considered for a loan modification. Khan fell behind in her payments, and Wells Fargo commenced foreclosure proceedings. Khan paid the past due balance and the loan was reinstated. She made a second request to restructure her loan, which was denied by Wells Fargo. Wells Fargo subsequently foreclosed on the property.

Khan filed suit against Wells Fargo alleging that Wells Fargo unfairly and deceptively initiated a non-judicial foreclosure process for the property without a proper basis and denied her request for a loan modification in violation of the DTPA. Wells Fargo moved for summary judgment.

To sue under the DTPA, the plaintiff must be a consumer. To qualify as a consumer, the party must seek or acquire goods or services and goods or services purchased must form the basis of the complaint. Although loan transactions are not a good or a service, a mortgagor can qualify as a consumer under the DTPA if her primary objective in obtaining the loan was to acquire a good or service, and that good or service formed the basis of the complaint, according to the court.

The court determined that Khan failed to establish that she was a consumer entitled to relief under the DTPA. She also failed to allege (1) how Wells Fargo falsely represented the goods or services sold; (2) how Wells Fargo misrepresented that an agreement conferred certain rights or remedies; or (3) what information Wells Fargo failed to disclose to induce her into a transaction that she would not otherwise have entered into. Moreover, the denial of the requested loan modification could not form the basis of “consumer status.” Finally, Khan’s allegations that the note underlying the loan was put in a deed of trust and Wells Fargo was not a valid holder of the note did not establish the requirements for a claim under the DTPA, the court concluded.

The case is No. H-12-1116.

Attorneys: James Michael Andersen (James Michael Andersen, Attorney at Law) for Bernadine Khan. George Anthony Kurisky, Jr. (Johnson DeLuca Kurisky & Gould, P.C.) for Wells Fargo Bank, N.A.

Companies: Wells Fargo Bank, N.A.

Cases: StateUnfairTradePractices TexasNews