In the recent Ninth District U.S. Court of Appeals decision
in Oskoui v. JP Morgan Chase Bank, the
appellate court allowed Plaintiff Mahin Oskoui to proceed with her cause of
action for breach of contract based upon evidence that:
-Oskoui properly requested and submitted the necessary
information for Chase to evaluate her loan modification request under the
federal program Making Home Affordable Program ("HAMP") and its own
Chase Modification Program ("CHAMP");
-Chase concluded that Oskoui was ineligible for a loan
modification for three separate reasons;
-Chase failed to disclose to Oskoui this information or its determination
that she was ineligible for a HAMP or CHAMP loan modification;
-Chase continued to accept mortgage payments that Oskoui was
induced to make based upon letters from Chase;
-Chase then informed Oskoui that she was ineligible for only
one of the reasons,
-Chase continued to induce Oskoui to make additional
payments that eventually totaled over $33,000, while it stated to Oskoui that
it was exploring unexplained "other alternatives"; and
-Chase had knowledge of Oskoui's advancing age and
precarious finances.
The Court of Appeals decided that these facts established a prima facie case (meaning that all of
the necessary elements were established for each cause of action, subject to
any defenses) of deceptive practices under California's Unfair Competition Law
("UCL"), as set forth in Business & Professions Code §
17200.
Earlier, federal Judge George Wu found that Oskoui had
presented the Court with a viable claim under California law for a fraudulent
and unfair business practice, relying on the rule that a business practice is
fraudulent under the UCL if members of the public are likely to be deceived. As stated by Judge Wu, "If what
Plaintiff alleges is true - that Chase's left hand sought payments from
Plaintiff pursuant to a plan designed to give her an opportunity to modify her
loan while, notwithstanding Plaintiff's payment in accordance with that plan,
Chase's right hand continued all along with foreclosure proceedings and both
hands should have known from the
start that Plaintiff's loan would not be eligible for modification in any event
- the Court can conceive of such allegations stating a section 17200
claim."
The facts appear similar to many other borrowers faced with
financial disaster by the Great Recession. In 1990, Oskoui, a registered nurse,
purchased her single-family home for $250,000.
After her home appraised for $1,250,000 in 2007 (the height of the
"housing bubble"), she refinanced with a new loan from Washington
Mutual Bank ("WaMu"). As a
result of massive loan defaults and the severe national economic recession,
WaMu was closed in September 2008, and its assets were transferred to Chase.
In November 2008, Oskoui missed a loan payment, and she
applied for a loan modification to WaMu, not realizing it's demise. Chase responded with a letter offering Oskoui
a "Trial Plan Agreement".
Chase did not inform Oskoui of the requirements of a borrower or of a
loan under the applicable modification rules.
The letter did advise Oskoui that "[i]f you comply with all terms
of this Agreement, we'll consider a permanent workout solution for your loan
once the Trial Plan has been completed."
The appellate court found the letter supported a breach of contract
claim as it constituted a clear promise of an offer of a permanent modification
if the borrower complied with its conditions.
Oskoui fully complied with the Agreement's payment term by
timely paying Chase $9,840.15.
Thereafter, Chase informed Oskoui she did not qualify "at this
time" for a modification under either HAMP or CHAMP because her income was
insufficient for the amount of credit she requested. Chase did not disclose to Oskoui that she was
ineligible for the two additional reasons of (1) the unpaid principal balance
on the loan of $833,000 exceeded the amount allowed by HAMP guidelines, and (2)
the loan failed to satisfy the CHAMP net present value test
("NPV"). Internally, a Chase
employee named "CHANG" determined in November 2009 that Oskoui's
application should be rejected because "denied - income insufficient and
did not pass the npv calc [i.e., NPV calculation] test."
However, Chase did not inform Oskoui that she was not
eligible for the loan modification, and instead, told her that "we may be
able to offer other alternatives to help avoid the negative impact" of
foreclosure and a deficiency judgment (i.e., a judgment against Oskoui for the
difference in the amount of the unpaid principal and the amount received by
Chase at the foreclosure sale). Chase did not inform Oskoui what its
"other alternatives" were or what Oskoui would need to demonstrate to
qualify for them.
Oskoui submitted in January 2010 another application for a
loan modification, without realizing that Chase has already determined that she
was not eligible. Chase responded with a
letter dated March 1, 2010 ("March 1 Letter") stating that Chase
"wants to help you stay in your home", and confirmed receipt and
review of her "verification of income documentation." Included with the March 1 Letter were three
payment coupons and three return envelopes, each coupon in the amount of
$2,988.49, and specifying they were due on April 1, May 1, and June 1,
2010. The March 1 Letter also stated on
the first page: "After successful completion of the Trial Period Plan,
CHASE will send you a Modification Agreement for your signature
which will modify the Loan as necessary to reflect this new payment
amount." (Emphasis added.) The
March 1 Letter did not disclose Chase's concerns about her income.
The next day, Chase sent Oskoui a letter dated March 2, 2017
("March 2 Letter"), telling her for the first time that she was not
eligible for a federal HAMP modification "because the current unpaid principal
balance on your Loan is higher than the program limit . . . ." The March 2
Letter did not disclose the fatal NPV test, but stated that Chase was
"happy" to tell Oskoui that she "may be eligible for other
modification programs", and that Chase may be able to offer "other
alternatives" to stave off "the negative impact" of a possible
foreclosure. Because Chase had left the
door open to relief and even urged Oskoui to make the additional payments,
Oskoui made, and Chase accepted, an additional seven months payments.
Meanwhile, Chase proceeded with the foreclosure process,
setting the trustee's sale on November 18, 2010. Amazingly, Chase allegedly sent another
letter dated November 1, 2010, encouraging Oskoui to continue to seek a loan
modification. By this time, Oskoui had
paid Chase $33,738.00, with no results over two years. By a letter dated January 4, 2011, Chase informed
Oskoui that her application was denied, stating that it was unable to offer her
a modification under HAMP or CHAMP "because you did not provide us with
the documents we requested."
Based upon these allegations of fact, the Appellate Court
agreed with Judge Wu's analysis, and found they "plainly demonstrate a
viable UCL claim." It found that
the published HAMP Guidelines disqualified Oskoui, and Chase had the relevant
information and could have made that "simple determination within a matter
of minutes". But instead of
determining eligibility before asking for money, "a logical
protocol called for by HAMP as of January 28, 2010", Chase requested more
payments. Even after Chase contradicted
the March 1 Letter with the March 2 Letter, it did not inform her of her
precarious situation, and accepted payments for seven additional months.
Describing Chase's conduct as "Kafkaesque" due to
intent or corporate ineptitude, the appellate court held that "Chase knew
that she was a 68 year old nurse in serious economic and personal distress, yet
it strung her along for two years, kept moving the finish line, accepted her
money, and then brushed her aside.
During this process, Oskoui made numerous frustrating attempts in person
and by other means to seek guidance from Chase, only to be turned away."
Fortunately for Oskoui, a federal judge and a federal
appellate court have given Oskoui an opportunity to present her case at trial.
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