Federal Court: Servicer's Conduct Stiffing Homeowner Seeking Loan Modification May Be Unfair, Deceptive Practice; Allows Lawsuit To Continue

In San Francisco, California, Courthouse News Service reports:

• Homeowners who say Wells Fargo Bank duped them into loan-modification programs to stave off foreclosure survived a legal challenge to their case in San Francisco federal court.

• U.S. District Judge Joseph Spero pared the class's suit [last week], rejecting claims for breach of contract but upholding allegations that the bank's debt-collection practices were unfair, deceptive and fraudulent. He also permitted the plaintiffs to seek restitution for an installment payment they made in March 2010, since the bank had already foreclosed upon them by that point.

• Lead plaintiffs Gustavo Reyes and Maria Teresa Guerrero claimed that, after they defaulted on their mortgage payments, Wells Fargo offered to freeze foreclosure proceedings against them if they signed a modified loan agreement. But after they signed the loan and made payments over four consecutive months, the bank still foreclosed on their home.

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• Spero [] found that the homeowners may be entitled to damages under California's Rosenthal Act, which protects consumers from improper debt-collection practices.(1)

For more, see Wells Fargo Loses Bid to Dismiss Fraud Claims.

For Judge Spero's ruling, see Reyes v. Wells Fargo Bank, N.A.

(1) In denying Wells Fargo's motion to dismiss the homeowner's claims that the bank used unfair and deceptive practices to dupe them into an allegedly phony loan modification arrangement, Judge Spero made this observation:

• The court cannot say, as a matter of law, that the statements made in the offer letter would not have been misleading to the least sophisticated buyer in light of: the words 'good news' at the beginning of the letter; the language in the letter indicating that the agreement was being offered based on a review of the recipient's financial information; the statement that foreclosure counsel would be instructed to delay foreclosure proceedings as long as the recipients made timely payments under the agreement; and the use of the words 'trial period' to describe the agreement.

Judge Spero also found that the homeowner had standing to bring an unfair competition claim under Cal. Bus. & Prof. Code §§17200 et seq., according to the ruling.