Contradictory "amount owed" mortgage letters justified consumer protection claim

Trunzo v. Citi Mortgage, 2012 WL 2405257 (W.D. Pa.)

These homeowners are a rarity not because of how poorly they were treated, but because some of their claims against their servicer survived.  Though the court held that servicers weren’t bound by contractual promises in the mortgage, it was obviously offended by just how badly the servicer here treated consumers doing their best to become current on—not even renegotiate—their mortgage.

The homeowners brought a class action against Citi, LBPS (“Seterus”), and Phelan, Hallinan, and Schmieg, LLP (“PHS”).  In 2007, they got a mortgage with West Penn Financial for $69,900 at 7.25%.  On the day they got the mortgage, West Penn transferred the servicing rights under the mortgage to Citi, and sent a letter telling them that all future correspondence and payments should be directed to Citi.  The homeowners alleged that the beneficial interest in their note was acquired by Fannie Mae.

In June 2010, the homeowners defaulted.  In early August, they contacted Citi to negotiate an arrangement allowing them to become current.  Citi requested financial information from them and asked them to reply by August 16, ten days from the date of the letter and 3 days after they received it.  On August 16, they attempted to remit a payment to Citi, which was refused on the ground that the mortgage had already been referred for foreclosure.  Then they received a letter dated August 10 claiming that “[a]ll reasonable efforts afforded you to cure this default have failed.”  The letter said they should refer all future questions to the law firm handling the foreclosure proceedings, Defendant PHS.

The court commented that, “[o]bviously, the ten (10) day ‘please get back to us’ period set forth in Citi's August 6, 2010 letter had not run by the time Citi's second letter pulled the rug out from under any pre-foreclosure reconciliation opportunities. Given Citi's August 6, 2010 letter setting forth several possible solutions to Homeowners' default and requesting Homeowners' reply, it is difficult to fathom exactly what ‘reasonable efforts’ had failed.” 

But anyway, they contacted PHS and asked how to avoid foreclosure.  This led to a “litany of conflicting reinstatement figures, fees, and costs that form the primary nexus of Homeowners' Amended Complaint.”  This started on August 30, when the homeowners got a first letter from PHS with a reinstatement amount of $5204 (I’m rounding to the nearest dollar).  Meanwhile, Citi assigned its servicing rights to Seterus on November 1.  Seterus sent a Nov. 9 letter stating the total amount of their debt with fees ($73,611), but didn’t include a reinstatement amount.  On December 6, Seterus provided a reinstatement amount of $6416.  The next day PHS provided a reinstatement amount of $5363.  So, in less than three months, the homeowners received a “hodgepodge of conflicting numbers” from these two defendants.  There were variations in the components identified as separate line items, too, like property inspections.  While some of the apparent discrepancies were “likely” accrued interest, the homeowners identified many “unnacountably varying fees” as unauthorized by the note and/or mortgage and charged in violation of state and federal law.  On December 10, they remitted $5363 to PHS based on the final December 7 letter, $96 of which was allegedly “fees for unreasonable serial inspections” demanded in violation of state law although falsely labeled as “late fees.”  On December 20, they received a letter from Seterus indicating that their escrow account had been credited and demanding an (allegedly unauthorized) additional payment of $1,054.

On January 4, 2011, the homeowners received a response to a request they’d submitted to Seterus on November 17 of the previous year.  The response showed that the homeowners were current on their mortgage, their escrow account wasn’t overdrawn, and that the $1054 in attorneys’ fees and costs had been waived.  Yet they then received an invoice from Seterus in February including this same charge, and they were charged late fees when they refused to pay it.  Seterus allegedly repeatedly declined to waive these fees even though it also admitted that the February demand was in error.

The Pennsylvania UTPCPL bars “unfair or deceptive acts or practices.” The court first held that the homeowners’ allegations that they paid improper reinstatement fees didn’t allege that any defendant misrepresented the actual characteristics or benefits of the note and mortgage themselves, so the claim didn’t fall within the ordinary false advertising/misrepresentation of characteristics of goods or services part of the law.  The homeowners also alleged a violation of the “catchall provision,” which covers “any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.”  Defendants argued that this was equivalent to common-law fraud, and that the homeowners neither pled with particularity nor showed justifiable reliance.

The court disagreed that a heightened pleading standard was required.  Conduct can be deceptive if it creates a likelihood of confusion or misunderstanding—that is, if it is misleading.  The allegations sufficiently showed that confusion or misunderstanding could arise from defendants’ actions and that the homeowners were duly misled.  They alleged that Citi referred the mortgage to foreclosure while simultaneously representing that there was the possibility of an alternate payment arrangement to avoid foreclosure.  Then they sent multiple conflicting reinstatement letters, which allegedly contained misrepresentations as to the amount of their debt. They further alleged damage from remitting a payment including intentionally mislabeled fees.

Citi and Seterus also argued that the homeowners lacked standing because neither defendant signed the note/mortgage, so the homeowners didn’t buy any goods or services from them.  But the UTPCL’s reach is “expansive,” and not limited to situations where unfair or deceptive conduct induced an initial purchase.  As long as there are specific allegations of wrongdoing against the defendant, not simply against the original lender, a plaintiff can state a claim.

Thus, though the homeowners’ breach of contract, unjust enrichment, and assorted other claims were dismissed because defendants weren’t the original lenders, some of the claims survived, including other debt collection claims I didn’t discuss.