District Court Dismisses with Prejudice Borrowers’ Claims for Fraudulently Denying Loan Modification Requests and Alleged Violations of Federal and State Consumer Protection Laws
On April 26, 2011, the Eastern District of Virginia, in an opinion authored by Chief Judge James R. Spencer, dismissed with prejudice claims made by a husband and wife against Wells Fargo Home Mortgage, a division of Wells Fargo Bank, N.A. (“Wells Fargo”). Plaintiffs’ claims arise from denials of loan modification requests relating to two loans originated by a third party in 2007. The plaintiffs alleged five theories of fraud, violations of the Fair Debt Collection Practices Act (“FDCPA), Truth in Lending Act (“TILA”), and the Virginia Consumer Protection Act (“VCPA”), as well as a claim for estoppel.
Plaintiffs claimed that Wells Fargo fraudulently denied their first loan modification application after requesting additional documentation that Plaintiffs allege had already been provided. They further alleged Wells Fargo committed fraud and violated consumer laws by encouraging them to reapply for two subsequent loan modifications while simultaneously pursuing foreclosure and subsequently denying their modification requests. Specifically, plaintiffs alleged that Wells Fargo informed them that they “had failed to qualify within investor guidelines for a modification” and “that as long as the mortgage was not delinquent, they would not qualify for a loan modification.” They also claimed Wells Fargo should be estopped from offering either of the properties for sale since their loan modification requests were denied.
Regarding the claims for fraud, the Court held that Plaintiffs failed to allege either a false representation of material fact or that they were damaged by their reliance on the representations. The Court held that “[t]he denial of a requested loan modification is not a false representation of fact.” Although not pleaded in their Complaint, the Court further held that, even if plaintiffs had alleged that “Wells Fargo said or implied that the Plaintiffs would receive modifications if their loans were in default, the Plaintiffs cannot show that they reasonably relied on that representation” because, under Virginia law, “one may not reasonably rely upon an oral statement when he has in his possession a contrary statement in writing.” Here, the deeds of trust explicitly state that “no offset or claim which Borrower might have now or in the future against Lender shall relieve Borrower from making payments due under the Note and this Security Instrument or performing the covenants and agreements secured by this Security Instrument.” They also state that “Lender shall not be required to ... modify amortization of the sums secured by this Security Instrument by reason of any demand made by the original Borrower ….”
The Court dismissed the VCPA claim because this statute excludes banks and held that, despite Wells Fargo only acting as the servicer of the loans, it is still entitled to the exemption from liability for banks under the VCPA. This is the first known decision from a federal or state court in Virginia holding this exemption applies to a bank acting in its capacity as a loan servicer.
Plaintiffs’ allegations of violating the FDCPA were dismissed by the Court on two grounds: (1) “mortgage servicers are not debt collectors under the FDCPA,” and (2) the FDCPA exempts collection activity that began on a debt prior to default, therefore Wells Fargo is exempt from liability because it began servicing the loans prior to default.
Plaintiffs sought to voluntarily dismiss, without prejudice, their TILA claims for charging excessive and unlawful fees. The Court agreed that their TILA claims should be dismissed with prejudice because Wells Fargo was not the originator of either of the loans and the statute of limitations has expired.
Finally, the cause of action for estoppel was dismissed because the allegations lacked the required particularity to support a claim for equitable relief and failed to show Plaintiffs suffered any detriment.
A copy of the court’s opinion is attached here. Michael Schmidt and Deborah Barker v. Wells Fargo Home Mortgage, No.
3:11-cv-059, 2011 U.S.Dist. LEXIS 45122 (E.D. Va. April 26, 2011) (Spencer, C.J.).