New Jersey Federal Court Dismisses RESPA and Consumer Fraud Act Claims Arising Out of Loan Modification But Allows FDCPA Claim to Proceed

The United States District Court for the District of New Jersey recently granted in part and denied in part a loan servicer’s motion for summary judgment seeking dismissal of a host of claims arising out of a purported loan modification, including claims under the Fair Debt Collection Practices Act (the “FDCPA”), the New Jersey Consumer Fraud Act (the “CFA”), and the Real Estate Settlement Procedures Act (“RESPA”).  See Dautrich v. Nationstar Mortg., LLC, 2018 WL 3201786 (D.N.J. June 29, 2018).  In the case, the plaintiff borrowers owned a beach home and defaulted on the mortgage.  Defendant, the servicer on the loan, sent plaintiffs a proposed modification agreement that expired three days later.  Plaintiffs called defendant and reached an agreement that plaintiffs instead had one month to accept the modification.  Plaintiffs then executed the modification, but handwrote a change that delayed their payment obligations by 30 days.  Defendant never countersigned this modified agreement.  Nonetheless, plaintiffs began making payments pursuant to their modified payment schedule (i.e., 30 days late).  Each time defendant received a check, it placed the funds in a suspense account, did not apply the funds towards the debt, and returned the check to plaintiffs with a letter stating that the funds were insufficient to bring the account current and that “the total amount required to bring your account current is $99999.99.”  The actual amount required to bring the account current was over $200,000, but a computer glitch resulted in this incorrect amount being placed on each of the twelve letters sent by defendant to plaintiffs.  Eventually, plaintiffs filed this lawsuit alleging a breach of contract and violations of the FDCPA, the CFA and RESPA.  The breach of contract and the CFA claim were based on defendant’s refusal to accept plaintiffs’ payments, the RESPA claim was based on defendant’s initial requirement that the loan modification be executed within three days, and the FDCPA claim was based on the incorrect dollar amounts given in the letters defendant sent to plaintiffs.  The parties cross-moved for summary judgment.  Although the Court denied plaintiffs’ motion in its entirety, it granted defendant’s motion only on the breach of contract, the CFA, and the RESPA claims, allowing the FDCPA claim to proceed. 

First, the Court granted defendant’s motion with regard to the breach of contract claim.  Although the Court held that plaintiffs “just barely” raised a material issue of fact with regard to whether the parties agreed to adjourn plaintiffs’ payment schedule by 30 days, there was no  issue of fact that plaintiffs immediately breached the agreement when they failed to make the required monthly escrow payment.  In granting this portion of the motion, the Court rejected plaintiffs’ claim that they did not know how much they needed to pay for their monthly escrow payment because “ignorance of the terms of a contract does not excuse a breach of the contract.”  Thus, plaintiffs breached the modification agreement “almost immediately after the contract was formed. Therefore, as matter of law, the alleged subsequent breaches by Nationstar were excused.”

Second, the Court denied defendant’s motions for summary judgment on the FDCPA claim.  The Court first found that the FDCPA applied here despite the fact that plaintiffs sometimes rented out their beach house, because there was no dispute that the debt “was incurred primarily for personal, family, or household purposes.”  Additionally, the Court found that defendant was not entitled to summary judgment on its claim that any FDCPA violations were excused under a bona fide error defense.  Instead, the Court found that there was a dispute as to whether the incorrect $99,999 figure was the result of a bona fide error because “[a] reasonable juror could conclude that Nationstar’s repeated conduct of sending twelve erroneous letters in a row—four of which undisputedly are dated after Nationstar asserts that it fixed the glitch—is evidence that Nationstar intentionally failed to correct the $99,999.99 error.”

Third, the Court granted defendant’s motion regarding the CFA, finding that plaintiffs’ claim—arising from the fact that defendant placed plaintiffs’ payments into a suspense account rather than applying the funds to the debt—was nothing more than a breach of contract claim and that “a mere breach of contract, without more, is not actionable under the NJ CFA.”  Finally, the Court granted defendant’s motion dismissing the RESPA claim.  Although plaintiffs argued that defendant violated RESPA because it did not give them at least 14 days to accept a loss mitigation proposal, the Court found that defendant gave plaintiffs a one-month extension to accept the modification and that this extension satisfied defendant’s RESPA obligations.  See 12 C.F.R. § 1024.41(e)(1).  The Court further rejected plaintiffs’ argument that the agreement to extend needed to be in writing under RESPA, finding instead that only the modification offer must be in writing, and that there is no such requirement for extensions. 

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, or Dylan Goetsch at dgoetsch@riker.com.