A debtor was not defrauded by his mortgage servicer when he failed to receive a loan modification after rejecting a proposed modification during his bankruptcy proceeding, the U.S. District Court for the Southern District of New York held May 29 (McFarland v. Loan Care, S.D.N.Y., No. 1:12-cv-02847-JPO, 5/29/13).
Judge J. Paul Oetken found that the mortgage servicer had not made any material misrepresentations to the debtor regarding his loan modification and that the debtor's suit was grounded in the belief that he should have been offered a modification with more favorable terms.
McFarland's income dropped significantly between 2009 and 2010, and he filed for Chapter 13 protection on June 12, 2010. Loan Care moved to lift the stay on Jan. 18, 2011, in order to enforce its rights to the property. On the advice of his attorney Daniel M. Katzner, McFarland filed a motion with the bankruptcy court requesting loss mitigation. Loan Care approved McFarland for a loan modification and sent him a letter offering to reduce the monthly payments to $1,454, reduce the monthly interest rate, and extend the term of the loan.
On Aug. 11, 2011, the bankruptcy court issued an order granting Loan Care's motion to lift the automatic stay. On Aug. 22, 2011, Loan Care denied a new request from McFarland for loss mitigation. The following day, McFarland, through his attorney, moved the bankruptcy court to modify his Chapter 13 plan so that he could surrender his property to Loan Care in satisfaction of the debt. However, McFarland would later claim that he did not recall discussing surrendering the property with his attorney and that it was his understanding that he was at all times discussing a loan modification with Loan Care.
On Feb. 15, 2012, Jarboe contacted McFarland about surrendering the property, and McFarland replied that he was under the impression that he was being considered for a loan modification and that he was “very confused.” Jarboe replied that Katzner, McFarland's attorney, had told her McFarland wished to surrender the property but said that she would reassign the loan for modification. McFarland's loan was reassigned to Marcus Scott, who requested McFarland's last four paystubs. Based on McFarland's income and expenses, Scott offered him a trial loan modification with payments of $1,580 (a payment higher than his original monthly payment).
In a phone call with Scott, McFarland rejected the offer as not affordable, and claimed that Scott would not consider the fact that his income was “inconsistent” and that Scott ended their phone call mid-conversation. McFarland filed suit in the district court on Feb. 21, 2012, alleging that Loan Care defrauded him with regard to the loan modification. Loan Care moved for summary judgment.
The court found that McFarland could not succeed on any of these grounds. The court said that following McFarland's first rejection of the modification offer, Loan Care proceeded with the surrender based on McFarland's motion and Katzner's statements. Furthermore, Jarboe corrected the misunderstanding immediately when McFarland told her that he still wanted to pursue a modification. The court said there was no evidence that Loan Care made any knowing misrepresentations regarding the modification. The court said this appeared to be a “genuine mistake” especially considering that loss mitigation would handle both modifications and surrenders and require similar documents for both.
With regard to the final ground, the court said that Loan Care “represented to McFarland that it would evaluate his application and explained how it would do so, and all of those statements were accurate.”
“Ultimately, McFarland's case is grounded in his belief that Loan Care should have offered him a better loan modification package,” the court said. Having found that no reasonable juror could conclude that Loan Care had knowingly made any misrepresentations to McFarland, the court granted the motion for summary judgment.
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