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Mortgage Lender Hit with $158K Judgment for Wrongful Foreclosure

A California Superior Court Judge entered a judgment of $158,000 against PHH Mortgage for fraud when the lender made a loan modification but then repeatedly switched the amount of payments and initiated foreclosure proceedings.

Judge Steven W. Berrier reduced a verdict reached in July when a jury found for plaintiff Philip Linza of Plumas Lakes, CA, awarding $513,902 in damages and $15.7 million in punitive damages against the PHH.

The judgment, while dramatically less than the jury award, was still justice for the plaintiff and for California homeowners, according to plaintiff attorney Stephen Foondos of United Law Center. Linza filed suit against PHH 2012, trying in desperation to save his home from foreclosure after fighting with the bank for more than two years on his mortgage modification agreement.

Perplexing ruling

“We were perplexed by the judge’s ruling given the jury’s award of $15.7 million in punitive damages and the judge’s own $5 million bond to secure the award during the post-trial period," Foondos said. "Regardless, this decision must be viewed as a major victory for California homeowners as it empowers homeowners with the knowledge that anyone suffering from modification violations by their servicer can take legal action. No one can argue that $158,000 isn’t a significant sum.”

In overturning the jury, the judge ruled that PHH Mortgage’s conduct and subsequent attempts to foreclose on Mr. Linza were merely, “an ‘insensitive’ breach of contract.”

“This verdict sends the very clear message that such conduct will no longer be tolerated and that the individual homeowner has legal rights to combat such wrongful and outrageous business practices,” Foondos said.

False promise

Linza alleged that the mortgage company breached its contract and acted fraudulently by providing a loan modification but then repeatedly switching the amount of those payments and initiating foreclosure proceedings. In total, Linza and ULC sued on 11 causes of action including fraud, breach of contract, and intentional infliction of emotional distress.

Homeowners in California may sue on a fraud cause of action for false promise if a bank promises a homeowner a modification, but ends up denying the it, based on the California case by ULC, Bushell v. JPMorgan/Chase (3rd Dist. Ct. App. No. C070643).

As for Mr. Linza, his case continues. “We were not surprised by the court’s ruling as it is yet another example of a lower court not being informed on what’s really happening in this industry. Every day there is a report of another nonbank mortgage servicer coming under scrutiny by regulators for various abuses against mortgage holders. We intend to get back the millions of dollars the jury unanimously awarded Mr. Linza, on appeal."

"Given the nature of this decision, the plaintiff now has the opportunity to establish new law and strengthen existing case law relating to homeowner abuse by servicers. We are used to having to win on appeal,” added Foondos.

Mortgage industry under fire

This month, the mortgage servicing industry has increasingly come under fire by regulators due to their alleged inability to properly service their customers. Congressmember Elizabeth Warren sent a letter to the U.S. Government Accountability Office on October 20, 2014 requesting a study of the risks posed to consumers by the “unprecedented” growth in nonbank mortgage servicing.

The Consumer Financial Protection Bureau (CFPB) released a report on October 28, 2014, on the little amount of compliance happening among nonbank servicers with the CFPB’s mortgage servicing rules that took effect in Jan. 2014. Most violations were described as “unfairly delaying permanent loan modifications” and “deceiving consumers about status of permanent loan modifications” -- two of the biggest issues in the Linza case.

“This decision illustrates the glaring problem with the explosive growth of the servicing industry and the alleged oligopoly they’ve created,” added Foondos. “Mortgage holders are assigned to servicers when a lender sells its servicing rights to a nonbank servicer. The new servicer is forced upon the mortgage holder who has no ability to select a different servicer. When a servicer performs poorly, making mistakes that create havoc in a mortgage holder’s life, the person has no remedy other than to take legal action. Regulators must help open up the industry to competition so customers are better served.”

United Law Center intends to appeal the court’s ruling given that stipulations of fact agreed to during the trial with opposing counsel were not recognized in the final ruling and the court’s decision to give its own interpretation of “severe,” something the jury overwhelmingly recognized in the jury’s award. “This is fundamentally more than a breach of contract case. We will validate the jury’s decision at the California Court of Appeals,” added Foondos.

The case is Linza v. PHH Mortgage Corporation et al. (Yuba County Superior Ct. No. 12-0000714).

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