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Eighth Circuit Upholds Dismissal of Loan Modification Fraud Lawsuit - Freitas v. Wells Fargo

January 21, 2013

Vincent Howard and our Corona foreclosure defense lawyers were interested to see a lawsuit that grew out of a loan modification denial. Since the Home Affordable Modification Program, the federal government's loan modification program, failed to work for most people, there have been some homeowners who took their cases to court. In Freitas v. Wells Fargo Home Mortgage Inc., Christopher and Diane Freitas did not allege that they had a private right of action under HAMP itself, but rather sued Wells Fargo's loan servicer for fraudulent misrepresentation and promissory estoppel. The district court in western Missouri dismissed both claims for failure to state a claim, and the Eighth U.S. Circuit Court of Appeals affirmed.

Starting in 2008, the Freitases attempted to negotiate a loan modification with Wells Fargo under HAMP. They allege in their complaint that Wells Fargo gave them conflicting information at different times about their eligibility and the fate of their loan. However, they say they were told they would be eligible if they stopped making payments on their loan, so they did stop, and Wells Fargo started foreclosure proceedings. They sued in state court, alleging Wells Fargo assured them that they'd qualify; that they'd been unable to get a consistent and candid answer from the bank; and that they were told they needed to stop making payments in order to qualify for a loan modification. After removing it to federal court, Wells Fargo successfully moved to dismiss. The district court found that neither count stated a claim upon which relief could be granted.

On appeal, the Eighth Circuit agreed. On fraudulent misrepresentation, the court said that the couple's pleadings didn't adequately establish their claim. The allegation that Wells Fargo said they would qualify and would be granted a modification amounts to expectations and predictions for the future, which do not establish fraudulent misrepresentation. The Freitases argued that Wells Fargo misrepresented whether it had the authority to modify the loan, but the Eighth said this was inapposite because they hadn't argued for a private right of action under HAMP. It also said they should have identified the people who made the representations and times and placed they were made. Furthermore, the trial court said, alleging that Wells Fargo was constantly inconsistent undermines their attempt to argue that they reasonably relied on any of its representations. The Eighth agreed, and used the same argument to dismiss the promissory estoppel claim.

Vincent Howard and our Fontana foreclosure defense attorneys have represented many clients whose experiences were similar to the underlying facts here. During the housing bust, in fact, loan servicers became notorious for making inconsistent statements, being impossible to reach, delaying decisions outrageously and incorrectly telling borrowers they had to stop making payments. We believe these were stalling tactics designed to drive the borrower into default and foreclosure, and we do not believe they should be rewarded by the courts. The door was left open in this case for a lawsuit alleging a private right of action under HAMP, an uphill battle that Vincent Howard and our Orange foreclosure defense lawyers would like to see won in more circuits.

If you got into trouble because were lied to when you tried to get a loan modification or a loan, don't wait to call Howard Law, P.C., to discuss how we can help. You can send us an email or call toll-free at 1-800-872-5925.

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