Thursday, April 18, 2013

Alleged misrepresentations in foreclosure complaint covered by Pa. consumer protection law

Salvati v. Deutsche Bank Nat. Trust Co., N.A., 2013 WL 1315962 (W.D. Pa.) (magistrate judge)

Salvati sued Deutsche Bank, Bank of America, OneWest Bank, and a law firm (McCabe), largely based on the validity of the pre-foreclosure notice he was sent, the foreclosure complaint filed against him, and the demand for attorneys' fees and other legal expenses contained in that complaint. The magistrate judge recommended granting defendants’ motion to dismiss in part and denying it in part.

Salvati refinanced with New Century, taking out a first and second mortgage, only the first of which is at issue here. New Century allegedly filed for bankruptcy in 2007, and though there was no assignment on file at the county recorder, Salvati subsequently began receiving statements from Countrywide.  BOA bought Countrywide and continued to service the loan.  Over four years after New Century filed for bankruptcy, it somehow assigned the mortgage to Deutsche Bank in September 2011.

At some point, Salvati defaulted.  McCabe sent him a notice in May 2011 indicating the lender’s intention to accelerate the balance of the loan, as required by law before foreclosure. Salvati alleged that the notice was defective in many ways, including that it was sent by McCabe instead of the mortgagee and that it failed to inform him of his rights to attempt to refinance or restructure the loan. The notice listed Deutsche Bank as the lender, even though the mortgage wasn’t yet assigned to Deutsche Bank.

In February 2012, McCabe allegedly filed a foreclosure complaint against him, bumping up his initial $139,200 loan to $206,611.64 as the total of principal, interest, attorney's fees, late charges, corporate advances, and escrow advances.  Salvati alleged that the complaint unlawfully failed to indicate on what date the amounts were due and owing; failed to itemize the amounts, including the attorney’s fees; failed to allege the attorney’s fees were based on actual work performed/costs incurred; and failed to attach supporting documents. He alleged that his current account balance was overstated, reflecting unauthorized fees. He filed a class action on behalf of Pennsylvania consumers, alleging claims based on various debt-specific laws as well as on the Pennsylvania Unfair Trade Practices and Consumer Protection Law. I will focus only on the UTPCPL.

Salvati alleged that the defendants violated the UTPCPL by overcharging and/or misrepresenting the amounts owed by homeowners in the putative class.   BOA argued that the claim should be dismissed because Salvati failed to allege a fraudulent or deceptive act or that he justifiably relied on any such act.

Salvati failed to state a claim that BOA represented “that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits or quantities that they do not have,” since he only alleged that he paid improper fees. However, the UTPCPL also bars “any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.”  This encompasses a wide range of conduct, as long as an act or practice “has the capacity or tendency to deceive.”  Here, the allegedly defective notice was submitted on BOA’s behalf, and BOA verified the allegations in the foreclosure complaint, including the representation that allegedly illegal and/or unauthorized attorneys' fees and other costs were due and owing. “These alleged misrepresentations clearly have the capacity to deceive and, thus, run afoul of the UTPCPL. Moreover, having alleged that he paid at least a portion of the illegal fees, it is reasonable to infer that Mr. Salvati did so in reliance on the misrepresentation that attorneys' fees and other legal expenses were due and owing.”

So, was that enough to infer that he suffered an ascertainable loss as a result of his reliance?  He alleged that he’d paid at least part of his allegedly overstated balance, which was enough to allege ascertainable loss “in the form of an increased mortgage balance which increased the encumbrance on his property.”

The same arguments applied to Deutsche Bank.  Here, the allegation was that the notice was sent on Deutsche’s behalf when it wasn’t yet assigned the loan, and that the alleged assignment by a bankrupt entity couldn’t have taken place.  The foreclosure complaint listed Deutsche as the plaintiff and indicated that McCabe was its attorney. Thus, the allegedly false/deceptive representations in the foreclosure complaint about the fees owed were attributable to Deutsche.

McCabe argued that UTPCPL claims couldn’t be brought against attorneys for claims arising out of the practice of law.  Beyers v. Richmond, 937 A.2d 1082 (Pa. 2007), in which the Pennsylvania Supreme Court found that collecting and distributing settlement proceeds fell within the boundaries of “practicing law” and was within the exclusive power of the Supreme Court to regulate, so the UTPCPL did not apply. However, the Court distinguished the case before it from cases in which the misconduct wasn’t related to the practice of law or legal representation, including a case in which a lawyer was sued for his role in commencing allegedly unwarranted eviction proceedings on behalf of his landlord client in order to extort money from the plaintiff that he did not owe.  That case found that debt collection was an act in trade or commerce to which the UTPCPL applied.  Here, Salvati didn’t allege that McCabe’s misconduct was committed during the course of practicing law but, rather, contends only that McCabe filed the foreclosure complaint on behalf of Deutsche and that it violated the UTPCPL by overcharging and or misrepresenting the amount that Salvati owed.  This was a challenge not to the adequacy of McCabe’s legal representation but rather to the propriety of its debt collection practices and thus should survive a motion to dismiss.

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