On August 4, 2016, the Ninth Circuit Court of Appeals affirmed the dismissal
of a class action lawsuit which had been filed against Bank of America,
JP Morgan Chase and several other lenders and loan servicers, alleging
claims of fraud and improper foreclosures. The Ninth Circuit determined
that the dismissal by the lower court was proper because the class members
failed to properly allege the defendants were directly responsible for
The main accusation against the defendant loan servicers, including OneWest
Bank FSB and Ocwen Loan Servicing, LLC, was an allegation that they had
presented loan modifications to distressed homeowners and then purposefully
prolonged the process to ensure the applications remained pending. Plaintiffs
asserted that the delays were intentionally caused by the loan servicing
companies because they continued to receive hefty profits while the modifications
lingered in continuous limbo—the longer the modification process
was stalled, the more profits the servicers received. Plaintiffs’
main accusation against the defendant lenders was that the foreclosures
were invalid because the servicers had advanced payments to the loan trustees
on behalf of the borrowers, thus effectively resolving the default and
nullifying any basis for a foreclosure.
The Ninth Circuit disagreed with the plaintiffs’ theories and stated
that payments advanced by the servicers were reimbursable and therefore
not made for the benefit of the borrower. Furthermore, even if the servicers
made payments on behalf of the borrowers, that action did not constitute
an assumption of the loan obligation.
Ultimately, the court determined that plaintiffs failed to prove the foreclosures
did not result from their own individual failures. The Circuit’s
ruling read: “Plaintiffs do not provide a single allegation that
the foreclosures they suffered were due to justifiable reliance on an
actionable misrepresentation or omission and not due to their failure
to pay their mortgages.” When making a fraud claim, plaintiffs must
sufficiently and factually plead justifiable reliance. To the contrary,
these borrowers simply claimed they had been hurt by relying on fabricated
information presented in loan modification offers and advertisements.
This purported reliance, however, was not reasonable because none of the
loan modification offers contained a promise of an actual modification.
The case is another in a series of mortgage class actions that hit a roadblock
while attempting to sue banks and mortgage servicers without any substantive
facts to support the plaintiffs’ allegations. While many other mortgage
fraud cases are working their way through courts at various levels, this
decision demonstrates that conclusory assertions of wrongdoing are not
enough to convince a court that irreparable damage is being perpetrated
upon borrowers, and not enough to save a case from dismissal.
Contact Geraci Law Firm at (949) 298-8050 today, for more information.