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.