Oskoui vs. J.P. Morgan Chase Bank, N.A, ___F3d ___, 2017 WL 957206 (9th Cir. 2017)
Oskoui vs. J.P. Morgan Chase Bank, N.A, ___F3d ___, 2017 WL 957206 (9th Cir. 2017): Ninth Circuit holds that when a lender encouraged a borrower to make thousands of dollars in payments in pursuit of an unavailable mortgage modification program, the lender engaged in deceptive practices in violation of the California Unfair Competition Law.
FACTS: A homeowner asked her lender for a home mortgage modification pursuant to the federal “HAMP” standards. Her lender allegedly misled her into making interim payments, even though the lender knew that she was not eligible for modification. In total, she made almost $34,000 in fruitless payments, in pursuit of modification.
She brought suit against the lender under California’s Unfair Competition Law, on the ground that the lender’s behavior had been unconscionable. The district court granted the lender’s motion for summary judgment, on the ground that the borrower had failed to provide the lender with appropriate documentation.
REASONING: The Ninth Circuit reversed, holding that her allegations demonstrated an unconscionable course of conduct on the part of the lender:
The published HAMP Guidelines disqualified [the borrower] from HAMP relief. In an age of computerized records, [her lender] no doubt had this disqualifying information at its fingertips and could have made this simple determination within a matter of minutes. But instead of determining eligibility before asking for money-a logical protocol called for by HAMP … – [the lender] asked [the borrower] for more payments… And even when [the lender] told [the borrower] the next day that she did not qualify for HAMP, it did not inform her of her precarious situation concerning unexplained “other alternatives,” preferring instead to accept payments for seven additional months.
The 9th Circuit concluded that the lender had either intentionally or negligently deceived the borrower, saying:
“We can discern no acceptable utility in [the lender’s] alluring “other alternatives” strategy or tactics. Whether [the lender’s] Kafkaesque conduct was intentional or the result of corporate ineptitude … the result is the same: The facts in this record would amply support a verdict on this claim in [the borrower’s] favor on the ground that she was the victim of an unconscionable process. [The lender] knew that she was a 68 year old nurse in serious economic and personal distress, yet it strung her along for two years, kept moving the finish line, accepted her money, and then brushed her aside. During this process, [the borrower] made numerous frustrating attempts in person and by other means to seek guidance from [the lender], only to be turned away.”
COMMENT: This opinion should provide a strong incentive to lenders to either fish or cut bait when borrowers apply for mortgage modifications: instead of stringing the borrower along for many months while “evaluating” the application, the lender should quickly determine whether or not the borrower can qualify for a modification. Those of us who are active in this area of the law are quite familiar with anecdotal horror stories told by borrowers who have been led down the garden path by lenders holding out false hopes of modifications while draining the borrowers of additional cash.
Admittedly, there are many instances in which the borrower’s application is incomplete, due to missing documentation; in those situations, the lender will be justified in demanding interim payments while those documents are in the process of completion. But the lender should be prepared to back up its assertion that the long pendency of the modification process is objectively justifiable, rather than the result of bureaucratic inertia or incompetence.
[this case analysis is from The State Bar of California – Business Law Section e-newsletter of 6/19/17]