Court Approves $13.8 Million Settlement in Unwanted Loan Modifications Class Action

The U.S. District Court for the Western District of North Carolina recently approved a settlement in a class action between borrowers and a large national bank for alleged unwanted loan modifications imposed on borrowers without their consent, which caused many borrowers to unknowingly default on payments.

The plaintiffs in the case, all of whom have filed for wage earners’ bankruptcy, alleged that the bank solicited Chapter 13 debtors for preapproved “trial” loan modifications of their existing mortgage loans.  The bank referred to such loan modifications as “no-application modifications.”  The plaintiffs further alleged that around the same time, the bank filed payment change notices in many of their bankruptcy proceedings, which falsely asserted that the borrowers’ mortgage payments had been adjusted to the amount of the proposed “no-application” modified payment, even though the borrowers had not requested or consented to those changes.  According to the plaintiffs, these actions “created havoc” in their bankruptcies and caused their mortgage loans to go into contractual default.  The plaintiffs also alleged that the bank used such defaults as grounds to file motions for relief from the automatic stay with the bankruptcy courts to foreclose on the affected borrowers’ homes.  Further, the plaintiffs alleged that the bank’s solicitations and other communications related to the “no-application” modifications included false or misleading statements in violation of bankruptcy and other consumer protections laws.

The approved settlement requires the bank to pay $13.46 million into a settlement fund for nearly 6,000 class members.  The bank must also provide another $366,376 for account remediation for 393 of those borrowers, resulting in a total settlement of $13.8 million.  The court approved attorneys’ fees of 33% of the common fund, or $4.56 million, in addition to $54,466 in litigation costs and $87,045 in administrative costs.  While all class members will receive a minimum of $100 in cash, some borrowers will receive cash payments of $2,300 or $3,800.  Additionally, each class representative will receive $10,000 in service awards.