mortgages and the UCL: an occasional series

Pestana v. Bank of America, 2014 WL 2616840, No. A137566 (Cal. Ct. App. June 12, 2014)

Pestana sued his mortgage loan servicers (BoA) after BoA denied his application for a loan modification under the federal Home Affordable Mortgage Program (HAMP), and instead offered him an allegedly less favorable in-house modification, which he accepted. He alleged that BoA representatives made misrepresentations about the requirements and availability of a HAMP modification, breached promises to modify his loan, improperly stalled the modification review process, and incorrectly denied his application for a HAMP modification.  The trial court dismissed all his claims, but the court of appeals revived his UCL claim.

The breach of an oral agreement claim was dismissed because there was no writing signed by BoA, despite the alleged oral promise to review Pestana’s application/modify his loan.  The only letter he received just listed documents he should send in and didn’t make promises. 

The promissory estoppel claim relied on oral statements made by BoA representatives during three telephone conversations, but none of these was enough to make a clear and unambiguous promise supporting a claim for promissory estoppel.  Pestana first alleged that a BoA representative named Bob told him that, if he became delinquent on his mortgage payments, he would receive a loan modification. But he didn’t allege that Bob promised a HAMP modification, and he alleged that he only learned about HAMP later.  Offering an in-house modification fulfilled any general promise of a modification.  Then, Pestana alleged that a BoA rep named Denise told him he’d be evaluated for a HAMP modification if he returned the appropriate form and supporting documentation, and that this implied that BoA’s evaluation would be conducted in good faith.  But this too was not a clear and unambiguous promise that BoA would conduct its evaluation in a particular manner.  And BoA fulfilled its general promise to evaluate Pestana’s application, ultimately rejecting it.  Finally, Pestana alleged that a rep named Shawn told him that BoA had received all the required documentation and that the review process would begin immediately, which he alleged implied good faith review. The court found no express promise about how the review would be conducted.

Intentional misrepresentation claims were also dismissed.  They’re a variety of fraud claims.  The allegations didn’t establish that the reps made false promises or promises without any intention of performing them.  Requests by BoA for additional documentation and BoA’s denial of his application didn’t themselves involve false representations or false promises, except for (allegedly) BoA’s statement that Pestana didn’t qualify for a HAMP modification, and Pestana didn’t believe or rely on that.

However, the UCL claim was different.  BoA allegedly

(1) told borrowers, including Pestana, that, if (and only if) they stopped making mortgage payments, they could apply for loan modifications and Bank would review their applications in good faith, (2) promised Pestana he would be granted a modification, (3) stalled the review process for Pestana and other borrowers, including by requesting documents Bank had already received, and (4) falsely represented to qualified borrowers, including Pestana, that they did not qualify for HAMP modifications.

BoA argued that Pestana lacked standing.  But Pestana alleged that he incurred late fees and penalties after he stopped making (and continued to withhold) his mortgage payments in reliance on BoA’s representations about the availability and requirements of a loan modification.  That was enough to show economic injury and causation at this stage.  Pestana alleged that he stopped making mortgate payments “after (and in reliance on) representations in June 2009 by a [BoA] representative that (1) [BoA] could not help him with a loan modification as long as he was current on his payments, and (2) if he were to miss his payments, he would receive a modification.”  His default and late fees could thus be traced to BoA.

BoA argued that Pestana was contractually obligated to pay late fees if he missed mortgage payments and thus couldn’t count them as injury.  Even if the note so provided, that didn’t mean Pestana suffered no economic injury: he wouldn’t have become obligated to pay the late fees if he hadn’t stopped paying.  BoA also argued that Pestana ultimately received an in-house loan modification, but at the pleading stage the court wasn’t going to determine the factual question of whether this was enough benefit to match or outweigh his loss.

UCL “fraudulent” conduct: This doesn’t require the elements of the common-law tort of fraud, but rather only requires a showing that members of the public are likely to be deceived.  Pestana sufficiently alleged that BoA made untrue or misleading representations that were likely to deceive reasonable consumers, such as that modifications would only be possible if he stopped making mortgage payments.  Then BoA allegedly stalled the review process, racking up extra late fees and penalties that benefited BoA as servicer.  And BoA allegedly falsely told Pestana and other borrowers they did not meet the eligibility requirements for HAMP modifications.  At the demurrer stage, the court couldn’t determine that BoA’s statements were accurate and nonmisleading.

Clean-up: the absence of a federal right of action under HAMP didn’t bar the UCL claim. There was no indication that federal law displaced state remedies.