Homeowners who say Wells Fargo Bank duped them into loan-modification programs to stave off foreclosure survived a legal challenge to their case in San Francisco federal court.
U.S. District Judge Joseph Spero pared the class’s suit on Monday, rejecting claims for breach of contract but upholding allegations that the bank’s debt-collection practices were unfair, deceptive and fraudulent. He also permitted the plaintiffs to seek restitution for an installment payment they made in March 2010, since the bank had already foreclosed upon them by that point.
Lead plaintiffs Gustavo Reyes and Maria Teresa Guerrero claimed that, after they defaulted on their mortgage payments, Wells Fargo offered to freeze foreclosure proceedings against them if they signed a modified loan agreement.
But after they signed the loan and made payments over four consecutive months, the bank still foreclosed on their home.
Wells Fargo asked the district court to throw out the suit, arguing that the homeowners’ breach contract and fraud claims were fatally flawed.
Spero instead found that the homeowners may be entitled to damages under California’s Rosenthal Act, which protects consumers from improper debt-collection practices.
“The court cannot say, as a matter of law, that the statements made in the offer letter would not have been misleading to the least sophisticated buyer in light of: the words ‘good news’ at the beginning of the letter; the language in the letter indicating that the agreement was being offered based on a review of the recipient’s financial information; the statement that foreclosure counsel would be instructed to delay foreclosure proceedings as long as the recipients made timely payments under the agreement; and the use of the words ‘trial period’ to describe the agreement,” the ruling states.
While Spero tossed the homeowners’ contract claims for failure to state a claim, he upheld the homeowners’ claims under state law for unfair, unlawful and fraudulent business practices.
“Because plaintiffs in this case made payments to Wells Fargo as a result of the business practice that is the subject of their unfair competition law claim, the court concludes that they have standing to assert such a claim,” Spero wrote.
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