California Federal Court Dismisses Suit Challenging Rejection of Modification Request

On January 20, the U.S. District Court for the Northern District of California dismissed various state law claims challenging a lender’s refusal to refund a $750 fee it charged to consider a loan modification request that it eventually denied. Stevens v. JPMorgan Chase Bank, N.A., No. 09-03116 (N.D. Cal. Jan. 20, 2010). In the case, plaintiff contacted defendant to obtain a loan modification. According to plaintiff’s allegations, defendant responded that plaintiff would “likely” qualify and that the “only obstacle” would be a subsequent appraisal of the property that did not support the value of the loan. Defendant allegedly charged plaintiff $750 to cover the cost of an appraisal, title search and processing. When the appraisal indicated that the value of the home was substantially lower than the amount of the loan, defendant denied the modification request and refused to reimburse the $750 fee. Plaintiff sued, asserting various state law claims, including violations of the California Unfair Competition Law (UCL), false advertising, fraud, negligent misrepresentation, and breach of the implied covenant of good faith and fair dealing. Each of the claims was based on the alleged representation that plaintiff was “likely” to qualify for a loan modification. Plaintiff also pointed to a report issued by the U.S. Department of Treasury (Treasury), which indicated that defendant had approved modifications for only 20% of its loans, suggesting that the statement that a modification was “likely” was fraudulent, misleading, and unfair and deceptive. The court dismissed each claim, but permitted the plaintiff leave to amend. According to the court, the complaint failed to state any claim because, among other things, it did not allege that defendant guaranteed a loan modification or that the fee would be reimbursed. The court also found that the nationwide modification statistics in the Treasury’s report were irrelevant to the possible success of plaintiff’s individual loan modification.