In re JPMorgan Chase Mortgage Modification Litigation

Citations: 880 F. Supp. 2d 220; 2012 U.S. Dist. LEXIS 104486; 2012 WL 3059377Docket: Case No. 11-md-02290-RGS

Court: District Court, D. Massachusetts; July 27, 2012; Federal District Court

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In March 2009, the U.S. Department of the Treasury introduced the Home Affordable Modification Program (HAMP) as part of the Making Home Affordable initiative, allowing mortgage servicers to modify loans for financial incentives. This multi-district litigation consolidates claims from homeowners against JPMorgan Chase Bank, N.A. (Chase), alleging breaches of trial mortgage modification agreements, misleading actions regarding modification prospects, mismanagement of the modification process, and wrongful foreclosures despite assurances of housing stability during negotiations. 

The MDL was formalized on October 11, 2011, with Chase filing a motion to dismiss certain claims in the consolidated Amended Complaint (CAC) on March 5, 2012, citing lack of subject matter jurisdiction and failure to state a claim. The court held oral arguments on July 12, 2012.

Plaintiffs' claims are categorized as follows: 
1. Group 1 alleges systematic breaches by Chase of obligations in form contracts tied to HAMP, despite plaintiffs meeting documentation and payment requirements.
2. Group 2 claims violations of state consumer protection statutes and promissory estoppel, arguing that Chase misled them.
3. Group 3 contends breaches of negotiated Loan Modification Agreements, asserting that Chase failed to honor these modifications, either by treating accounts as unmodified or cancelling modifications without notice.
4. Group 4 includes a single plaintiff alleging violations of the Fair Debt Collection Practices Act (FDCPA), claiming Chase engaged in unfair and deceptive debt collection practices.

Chase received $25 billion from the Troubled Asset Relief Program (TARP) in 2008 and agreed to follow HAMP guidelines in July 2009, which mandated a uniform loan modification process and suspension of foreclosure during evaluations and trial modifications. The HAMP modification process consists of a Trial Payment Plan (TPP) followed by a potential permanent modification, aimed at giving homeowners a five-year period to stabilize their finances and avoid foreclosure.

The HAMP TPP Agreement stipulates that if the borrower complies with the Trial Period Plan and maintains accurate representations, the Servicer is obligated to provide a Home Affordable Modification Agreement that modifies the Mortgage and the Note. Compliance with Section 2 and continued truthfulness in representations results in the Servicer sending a Modification Agreement for signature, which alters Loan Documents to reflect a new payment amount and waives any outstanding late charges. Borrowers are required to fulfill additional obligations beyond standard mortgage covenants, including credit counseling, submitting financial information, establishing escrow accounts, and disclosing personal economic details. HAMP dictates that if borrowers meet the Trial Period Plan conditions, the loan modification becomes effective at the start of the month following the trial period.

The Group 2 complaint alleges that Chase engaged in unfair and deceptive practices while handling modification applications. Plaintiffs claim that Chase misled borrowers into making modified payments that differed from original loan amounts, while systematically mishandling necessary documentation, leading to lost or destroyed files and accruing fees that exacerbated the borrowers' debt. Despite good faith compliance over extended periods, many homeowners did not receive modifications, instead being offered Forbearance or Repayment Agreements, with misleading assurances regarding their modification eligibility. Foreclosure proceedings were initiated against some borrowers, contradicting Chase's assurances of payment security. Even when modifications were granted, accrued interest and fees were often added to the principal balance. Additionally, Chase charged opaque fees that were inadequately explained.

The Fair Debt Collection Practices Act (FDCPA) section references Donna Follmer’s mortgage, which she obtained in 2002 with a 9.45% interest rate and subsequently modified by Chase in 2008, lowering her interest rate and monthly payments after she fell delinquent.

In January 2009, after three months of modified loan payments, Chase increased Follmer's mortgage payment by over 30%. Follmer ceased payments in May 2009, prompting Chase to initiate foreclosure proceedings. In response, she reapplied for a loan modification. In March 2010, Chase provided her with a Trial Payment Plan (TPP), which she signed and returned with the necessary documentation. She made all three required TPP payments, which were accepted by Chase. However, after completing the TPP, she received no loan modification or denial notification. Upon inquiry, Chase instructed her to make another TPP payment, which she did, and it was accepted. In September 2010, a Chase employee informed her that her modification application had been denied without any explanation.

The legal discussion references the appropriateness of a motion to dismiss under Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction when the plaintiff lacks standing. It emphasizes that, when faced with motions under both 12(b)(1) and 12(b)(6), courts should typically address the jurisdictional issue first, as dismissals under 12(b)(1) do not carry res judicata effect. To withstand a 12(b)(6) motion, a complaint must present a plausible entitlement to relief, avoiding mere labels or conclusory statements. Courts may consider undisputed documents central to the claim.

In April 2011, Chase entered into a Consent Order with the OCC, the Federal Reserve, and the OTS to address questionable mortgage servicing and foreclosure practices. The Consent Order mandates that Chase develop a comprehensive action plan to enhance its infrastructure for loss mitigation and foreclosure activities. It requires Chase to implement measures for adequate staffing, establish metrics for monitoring staffing levels, and set deadlines for reviewing loan modification documentation. Additionally, it requires Chase to create a plan to remediate financial injuries to borrowers resulting from identified errors or deficiencies, including reimbursement for excessive penalties or fees.

Chase's motion to dismiss asserts that significant progress is being made to comply with the consent orders, with expectations set by the OCC for completion in the first half of 2012. However, this timeline is deemed overly optimistic. At a July 12 hearing, Chase's counsel indicated that Deloitte, Touche has been engaged to assess high-risk loans across fourteen servicers, a process that requires extensive manpower and is now projected to conclude by September 30, 2012. 

In response, plaintiffs' counsel submitted an OCC publication titled Financial Remediation Framework, which outlines the remediation process for borrowers affected by servicer errors. This Framework establishes guidelines for compensation and clarifies that the listed categories are not exhaustive. Fixed dollar payments are suggested as approximations of direct financial injuries to streamline the process, though borrowers may seek additional compensation through legal avenues if needed. Importantly, the review process is final, and no appeals are permitted, meaning it does not affect other legal options borrowers may pursue regarding their mortgage loans.

Chase contends that FISA (Federal Institutions Supervisory Act) limits subject matter jurisdiction over certain claims because it prohibits any actions that could interfere with OCC consent orders. Chase argues that judicial review of the claims could conflict with the uniform remediation process intended by Congress. Under 12 U.S.C. 1818, judicial review is restricted to specific circumstances involving cease and desist orders, with a clear emphasis on limiting judicial interference to promote the efficiency of administrative proceedings. Notably, the statute does not allow non-parties to contest findings made under a consent order.

The jurisdictional bar does not prevent a non-party from presenting claims in federal court, as supported by the OCC’s FAQ, which clarifies that borrowers retain their right to pursue legal remedies despite participating in the Review process. The OCC also cautions that this process will not necessarily affect the timeline of foreclosure sales, urging borrowers to actively collaborate with their servicers to prevent such sales. Chase has failed to cite appropriate case law supporting its interpretation of the statute, with referenced cases being distinguishable as they involve parties circumventing a consent order. The case of *Am. Fair Credit Ass’n v. United Credit Nat’l Bank* is particularly relevant; it concluded that while the plaintiff could proceed against the subsidiary, claims against the parent company were dismissed due to conflict with the consent order. This case illustrates that federal courts can enforce contracts without violating existing consent orders, as long as enforcement does not disrupt the order. In this instance, plaintiffs accuse Chase of breaching TPP agreements, and the court is permitted to address this breach without conflict with the Consent Order. The Order explicitly states that compliance with state consumer protection laws is required and does not restrict the plaintiffs’ right to seek remedies for financial injuries, provided there is no duplicative recovery. 

To establish a breach of contract claim under Massachusetts law, plaintiffs must demonstrate the existence of a valid contract, a breach by the defendant, and resulting damages. Plaintiffs assert that the TPP Agreement constituted a valid offer from Chase, which they accepted, and that Chase's breach deprived them of alternatives to save their homes, such as debt restructuring or selling the property. Additionally, they claim Chase improperly added fees and servicing costs to already-defaulted loans. Chase acknowledges that a court previously rejected its arguments regarding similar claims in *Durmic v. J.P. Morgan Chase Bank*.

Chase seeks to dismiss certain claims based on recent court decisions from California, Florida, and Pennsylvania. It cites Nungaray v. Litton Loan Servicing, LP, arguing that TPP Agreements should not be seen as binding contracts under California law. However, a key difference exists: Nungaray involved a summary judgment where plaintiffs did not provide the required financial documentation, thus failing to meet the agreement's terms. A California district judge noted this distinction, suggesting that TPPs could be interpreted as binding agreements if the conditions are met, meaning claims based on California law will not be dismissed without clearer state court direction.

Regarding consumer protection and promissory estoppel claims from Group 2 plaintiffs, Chase argues that claims under Michigan, Washington, New Jersey, and California statutes are preempted by the National Bank Act (NBA) or fail to demonstrate an 'economic loss.' The NBA may preempt state laws that hinder a national bank's federal lending powers, and the OCC regulates this under the NBA to prevent state interference. Chase claims the plaintiffs’ allegations attempt to regulate its mortgage processing contrary to the NBA, although it acknowledges that not all state consumer protection laws are preempted.

Citing Wigod, the Seventh Circuit's ruling that some state claims complement federal objectives while others do not, Chase contends that claims based on fraud or misrepresentation are valid and do not conflict with the NBA. It agrees that national laws do not preempt state laws aimed at preventing deception but contests claims related to its mortgage servicing procedures. Although some of Chase's preemption arguments hold, they do not apply universally across all claims.

The court identifies practices not preempted, including instructing mortgagors to halt payments under false pretenses, misrepresenting loan modification statuses and account statuses, refusing to provide written statements, failing to explain fees, concealing charges, arbitrarily increasing debt, unjustifiably rejecting payments, and misrepresenting credit reporting policies for loans in trial payment plans (TPPs). Chase contends that even if these practices are not preempted, the plaintiffs have not established unfair and deceptive acts and practices (UDAP) claims under New Jersey, California, and Washington law due to a lack of demonstrated economic loss. The plaintiffs, however, assert that they owe more after engaging with the modification process due to additional fees and erroneous advice from Chase, claiming they would have been better off had foreclosure occurred sooner. While these are merely allegations, the court must accept them at this stage. 

Chase also argues that the Group 2 plaintiffs have not adequately pled promissory estoppel based on oral promises of imminent eligibility for modifications, citing the Statute of Frauds in Michigan and Washington that requires such promises to be in writing. The court agrees, noting that previous case law allowed claims based on written agreements, while here, the claims rely on verbal promises. Consequently, the Michigan claims must be dismissed under the Statute of Frauds. For the remaining estoppel claims, Chase argues that the promises lacked definite terms and thus failed to demonstrate reasonable reliance. Given that many plaintiffs received permanent modifications, any inconsistency between oral statements and final terms is either vague or unprovable, leading Chase to assert that there is no enforceable oral agreement.

To establish a claim of promissory estoppel, a promise must be clear and unambiguous. In this case, plaintiffs Cureton and Leopold sought mortgage modifications from Chase in 2009 and were advised by a Chase representative to stop making payments to qualify for HAMP. Despite significant confusion leading to modification agreements that increased the principal balance and added fees, both plaintiffs ultimately received the promised modifications, which resulted in lower monthly payments. However, the court found that the plaintiffs did not demonstrate a sufficiently definite promise that was relied upon and subsequently broken.

The factual patterns for other plaintiffs, who received oral promises for modifications but did not receive them, were similar: they requested modifications, were instructed to miss payments, received forbearance agreements, complied, but ultimately did not receive the promised modifications. The legal standards for estoppel claims in California, New Jersey, and Washington are comparable. While forbearance agreements instructed borrowers to contact Chase for further options, they lacked specific terms regarding potential modifications. The plaintiffs failed to provide detailed evidence of the alleged oral promises from Chase representatives, which were too vague to support a claim for promissory estoppel. Courts have established that indefinite promises cannot form the basis for such claims. 

Furthermore, even though reliance on alleged promises is typically a factual question for juries, the court determined that the plaintiffs' reliance was unreasonable as the forbearance agreements explicitly stated that any permanent modification would be provided in writing, detailing the qualifying terms.

California's Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) is a state version of the federal Fair Debt Collection Practices Act (FDCPA), detailed in Cal. Civ. Code § 1788 et seq. The Rosenthal Act aligns with the FDCPA’s provisions and remedies for violations, as referenced in § 1788.17. Under this Act, a "debt collector" includes any individual or entity engaged in debt collection during regular business operations, as defined in § 1788.2(c). California courts have interpreted this definition more broadly than the FDCPA, which excludes creditors collecting their own debts. Consequently, a mortgage servicer may qualify as a "debt collector" under the Rosenthal Act even if it is the original lender, unlike under the federal statute.

In the case at hand, plaintiffs allege that Chase violated the Rosenthal Act by employing false and misleading statements during mortgage debt collection. Although plaintiffs initiated contact with Chase, they did so after receiving communications from Chase indicating a potential mortgage loan modification. These communications stated their intent to collect a debt and prompted borrowers to call with questions. Upon contacting Chase, borrowers received forbearance agreements warning that failure to comply would result in resumed foreclosure activities. The legal assessment of whether an initial communication violates the FDCPA and the Rosenthal Act hinges on its potential to deceive a "least sophisticated debtor," a standard aimed at protecting less informed consumers. The court finds that Chase’s communications could have misled borrowers regarding their available options, particularly the threatening nature of the forbearance agreements.

The court addressed multiple claims in a case involving Chase. It found sufficient grounds to proceed with a Rosenthal Act claim, noting that the loan servicer's use of a misleading TPP document induced the plaintiff, Follmer, to make payments. Chase's defense against an FDCPA violation was rejected, as the Sixth Circuit's ruling in Bridge v. Ocwen Fed. Bank clarified that loan servicers can be classified as either creditors or debt collectors based on the debt's default status upon acquisition. The court reiterated that a loan servicer becomes a debt collector under the FDCPA if the debt was in default when acquired. Chase’s argument that it did not engage in aggressive collection tactics was dismissed; Follmer specifically alleged that Chase attempted to collect an amount exceeding her forbearance agreement, distinguishing her case from the precedent set in Bailey, where communications pertained to a forbearance agreement without collection attempts on the original loan.

Chase also sought to dismiss nine named plaintiffs for not including necessary co-borrowers, but plaintiffs' counsel agreed to add these parties. Consequently, the court denied Chase's motions regarding several claims, allowed dismissal of certain preempted claims and promissory estoppel claims (except for one plaintiff), and denied the motion concerning the FDCPA claim. Plaintiffs were ordered to voluntarily dismiss specific claims and add necessary parties within fourteen days, and the stay on discovery deadlines was lifted, requiring a revised scheduling order within ten days.

JPMorgan Chase Bank, N.A., a national banking association headquartered in New York, is a wholly owned subsidiary of JPMorgan Chase Co. It has directed and participated in the loan servicing activities of EMC Mortgage Corp., Bear Stearns Companies LLC, and Chase Home Finance LLC. In 2008, JPMorgan Chase Co. acquired the banking operations of Washington Mutual Bank, with JPMorgan Chase Bank, N.A. absorbing its loan servicing portfolio. The plaintiffs, citizens from various states including California, Florida, and New York, have made plausible allegations that are assumed to be true in the context of a motion to dismiss, as per Bell Atl. Corp. v. Twombly.

As a participant in the Home Affordable Modification Program (HAMP), Chase entered into Trial Period Plan (TPP) Agreements with borrowers, promising that compliance would lead to permanent loan modifications or timely decisions regarding such modifications. Group 1 plaintiffs allege breach of contract, breach of good faith and fair dealing, promissory estoppel, and violations of state consumer protection laws. Group 3 plaintiffs, who completed the TPP process, received permanent Loan Modification Agreements that adjusted their mortgage terms. Despite keeping current on these modified loans, they allege Chase continues to demand payments exceeding those specified in their agreements, placing them at risk of foreclosure.

Chase is not seeking to dismiss claims from Group 3 plaintiffs. The loan servicer must confirm the mortgage holder's participation in HAMP and apply the HAMP "Waterfall" calculation to determine if a borrower qualifies for a modification. If qualified, a TPP Agreement is offered. Additionally, Chase operates its own modification program, the Chase Modification Program (CHAMP), which issues TPP documents similar to HAMP's. EMC also has a comparable program. The TPP Agreements from HAMP, CHAMP, and EMC are collectively referred to as TPP Agreements.

Chase Home Finance LLC is actively seeking to collect a debt, with the intention of using any obtained information for that purpose. The Office of the Comptroller of the Currency (OCC) is authorized to intervene in cases of “unsafe or unsound” practices by financial institutions, as outlined in 12 U.S.C. 1818(b). The Comptroller found that Chase inadequately allocated financial, staffing, and managerial resources to manage its foreclosure processes, lacking sufficient oversight, internal controls, and training.

Loss mitigation efforts should encompass various activities, including special forbearances and modifications, as detailed in the Consent Order. The Framework specifies categories for borrower compensation for financial harm due to servicer errors, including violations of the Servicemembers Civil Relief Act, wrongful foreclosures, and errors related to loan modification applications.

The jurisdiction of the court is limited regarding the issuance or enforcement of notices or orders under 12 U.S.C. 1818(i)(1). Chase does not contest claims from a specific group of plaintiffs regarding breaches of permanent modifications, as these claims relate to post-modification conduct outside the OCC's Order. While the court is not bound by the OCC's interpretation of the law, it will give appropriate deference to the agency's perspective. Chase references several cases that emphasize the availability of review processes under the statute for parties involved in administrative orders.

Chase contends that any supplemental relief awarded by the court would undermine the determinations made during the OCC Review process, equating it to setting aside those determinations. The OCC has explicitly rejected this position in its FAQ publication.

The court acknowledges a limitation on its jurisdiction due to potential conflicts between the plaintiffs’ requests for injunctive relief and the existing Consent Order, which aims to standardize practices among fourteen mortgage servicers. It would be inappropriate for the court to grant injunctive relief affecting future servicing practices as defined by the OCC’s Order. This limitation does not extend to evaluating whether past servicing practices violated state consumer protection laws. 

Plaintiffs also assert a claim of promissory estoppel, primarily relying on Massachusetts contract law, which is generally consistent across the relevant states. They argue that their return of TPP Agreements constituted offers, with consideration established when Chase accepted trial payments. Plaintiffs cite risks such as foreclosure and adverse credit reporting as harms suffered. 

The court emphasizes that not all contract terms need to be explicitly defined for an agreement to be binding, referencing cases that support the idea that contingent agreements can still establish rights and obligations. Notably, Franco, a plaintiff from Florida, has settled with Chase and will be dismissed from the case, so Florida-related issues will not be considered. 

Chase references Ishler v. Chase Home Fin. LLC to argue against the viability of a contract claim under Pennsylvania law; however, that case did not rule out contract claims but rather found a lack of a breach claim. Plaintiffs counter with Cave v. Saxon Mortg. Servs. Inc., where a similar breach of contract claim was allowed to proceed. They also allege various violations of state consumer protection laws, claiming Chase acted in bad faith by providing misleading instructions on mortgage payments, misrepresenting loan modification statuses, employing inadequately trained staff, and failing to maintain accurate account records.

Chase is currently not seeking to dismiss claims under California Unfair Competition Law, New Jersey Consumer Fraud Act, and Washington Consumer Protection Act. Plaintiffs are voluntarily dismissing Michigan consumer protection claims. It is established that state laws hindering a national bank's federally authorized real estate lending powers do not apply, except where federal law makes them applicable. National banks can originate real estate loans without state law restrictions on mortgage processes. Certain state laws, such as those related to contracts, torts, and debt collection, do apply to national banks if they only incidentally affect real estate lending. The National Bank Act (NBA) and Office of the Comptroller of the Currency (OCC) regulations do not preempt the entire field of banking. Specific state laws related to loan-making and deposits are preempted. Implied conflict preemption occurs when compliance with both state and federal laws is impossible or when state law obstructs federal objectives. The Home Owners' Loan Act (HOLA), governing thrifts, has explicit full field preemption, unlike the OCC's regulations. The Treasury’s HAMP directive requires servicers to comply with all relevant laws, indicating that HAMP does not preempt state law claims that align with its directives.

Laws applicable to all businesses, including banks, which mandate honesty in representations and adherence to contracts do not hinder a bank's lending powers. In Scott v. Wells Fargo Bank, plaintiff's claims regarding fraudulent mortgage modifications are based on generally applicable laws that only incidentally impact the bank's lending. Federal courts have consistently held that contract claims, consumer protection statutes, and tort actions are not preempted by the National Bank Act (NBA), as noted in multiple cases including Gerber v. Wells Fargo Bank. The Office of the Comptroller of the Currency (OCC) has indicated that statutory torts, such as those under consumer fraud laws, can apply to national banks without significantly affecting their lending functions.

Specific consumer protection statutes, such as the New Jersey Consumer Fraud Act and the California Unfair Competition Law, require plaintiffs to demonstrate an ascertainable loss and a causal relationship between the defendant's conduct and that loss. Similarly, the Washington Consumer Protection Act mandates a causal link between the deceptive act and the injury suffered. Plaintiffs allege that the mortgage modification process precluded them from options like short-selling or renting their homes.

Estoppel claims hinge on a representation intended to induce reliance, reasonable reliance by the claimant, and resulting detriment. When a reliance-based promise is enforceable, it constitutes a contract under traditional contract theory. The Washington Statute of Frauds does not explicitly bar estoppel claims, and the Washington Supreme Court has ruled that partial performance can override the Statute of Frauds in land transactions. Here, plaintiffs made modified mortgage payments, indicating partial performance of their oral agreement.

The forbearance agreement is a pre-qualification document for the Home Affordable Modification Program (HAMP). To proceed with a mortgage loan modification review, the borrower must complete a specified form, provide necessary documentation, sign the forbearance agreement, and make the first forbearance payment. Upon receipt of the required documents, a review of modification options will be finalized, and the borrower will receive a new agreement detailing the terms of the qualifying program. After the final forbearance payment, regular payments, alongside any overdue amounts, will be required. If the account remains in default at the end of the forbearance period, collections or foreclosure may resume, and alternative workout options may be available if the borrower contacts Chase Homeowners Assistance before the period concludes.

A "Special Forbearance Agreement" indicates that if all scheduled payments are made, the application for assistance will be reevaluated for a potential permanent solution to bring the loan current. Promissory estoppel claims require a clear promise, reasonable reliance by the promisee, substantial detriment from that reliance, and damages corresponding to the unmet obligation, as established in cases across California, Washington, and New Jersey. The court acknowledges the binding nature of a prior decision in a related case. Additionally, debt collectors are prohibited from using false or misleading representations in debt collection efforts, as per the Fair Debt Collection Practices Act (FDCPA). However, communication by a lender regarding debt restructuring is not classified as debt collection if no payment demand for past due amounts is made.

The court rejects the argument based on the FDCPA's narrow definition of "debt collector," referencing the case Bailey v. Sec. Nat. Serv. Corp., which clarified that the FDCPA distinguishes between collectors of defaulted debts and those collecting on current payment plans. The court applies Sixth Circuit law to Follmer's case, acknowledging that the Sixth Circuit's interpretation of the FDCPA may not reflect the consensus among other circuits. The CAC alleges that Follmer was delinquent on her mortgage payments when Chase began servicing her loan, an allegation Chase does not contest. Follmer claims that Chase unexpectedly increased her loan payments by 30%. The text lists multiple co-borrowers associated with various individuals, noting the moot status of Constanza Cardenas in relation to claims involving Gustavo Franco, who is set to voluntarily dismiss his claims. Additionally, plaintiff Hajnal must include her parents, the Shourds, as parties to the note and TPP.