Judge Denies Big Bank’s Motion to Dismiss Loan Modification Case

The U.S. District Court of Rhode Island denied a large U.S. Bank’s attempt to dismiss a case brought by a borrower for, among other things, breach of contract, misrepresentation, and violation of loss mitigation procedures under RESPA and Regulation X.

The case stems from a court-ordered meditation of a foreclosure proceeding in which the parties signed a settlement agreement where the bank would review the borrower’s loan modification application without considering a third party that was on the title of the home.  Once the borrower submitted the initial modification application, the court entered a Consent Judgment setting aside the foreclosure, returning the property to the borrower, and stating the mortgage was valid, “subject only to a modification and assumption agreement entered between the parties which shall also be recorded in the official records” of the city.

The bank requested additional documentation on a number of occasions resulting in the borrower submitting a total of five modification applications throughout the process.  The bank refused to review the loan applications until the third party was removed from the title of the home and the borrower was the sole owner of the property.  The bank moved forward with foreclosure proceedings causing the borrower to file for protection in US Bankruptcy Court and pay $16,000 to the third party to remove him from the title of the property.  The bank then denied the loan modification application and the borrower filed a complaint against the bank.

In denying the Motion to Dismiss for breach of contract and misrepresentation, the Court found that both the settlement agreement and Consent Judgment were considered contracts under Rhode Island law.  The Court also found that the Consent Judgment was ambiguous as to whether the loan modification agreement was mandatory and that an ambiguous contract term was a question of fact.

Chase also argued, in its Motion to Dismiss, that the borrower was not covered by Regulation X because she was not party to the note.  The Court disagreed and reasoned that the borrower was named as a “borrower” on the mortgage and subject to the covenants within the mortgage.  Therefore, the Court found that the borrower had standing to sue under Regulation X.