Servicer Liable For Treble Damages Under UDAP For Falsely Representing That Mers Assigned The Note When It Could Only Assign The Mortgage

Although the mortgagors did not argue that the servicer in the foreclosure action committed consumer fraud when it submitted an affidavit that MERS had assigned not only the mortgage, but also the note in which MERS had no interest, the U.S. Bankruptcy Court in _In Re: Residential Capital, LLC_, No. 12-12020 (Bankr. S.D.N.Y. Oct. 6, 2014) on its own deemed this sufficient to warrant damages under the state consumer fraud statute (CFA). After the mortgagors fell into default, the servicer filed foreclosure in state court on behalf of the putative note holder. Shortly thereafter, MERS executed an assignment purporting to assign the mortgage and note to the plaintiff in the foreclosure. The mortgagors were granted summary judgment because the plaintiff did not have standing to bring the foreclosure, the assignment having occurred after the case was commenced. Mortgagors later sued the servicer and holder for negligence, breach of contract and consumer fraud claiming they were injured because the servicer was unable to prove that it sent the required notice before foreclosing. Notably, they did not complain about the assignment from MERS to the holder. The mortgagors later dismissed the action without prejudice but resurrected the claims in the holder’s bankruptcy action. The case was tried and the court found for the servicer on the negligence claim because the mortgagors did not prove duty, causation, or damages. The court observed that, [r]ather than focusing on remedies in tort, New Jersey courts appear to remedy violations of standing requirements and [ ] notice requirements in foreclosure proceedings through dismissal of the proceedings. When the New Jersey courts have granted such dismissals they have not granted economic relief to the mortgagors. The court also overruled the objection to breach of contract claim finding among other things that the mortgagors failed to prove any damages. The trial court allowed mortgagors to proceed with the CFA claim on a different theory: that the servicer misrepresented that during the foreclosure that it had standing. While the issue was not argued by the parties or addressed by the Chancery Division Court, the record before this Court establishes that [servicer] did not have standing …. The Court concluded that the servicer committed an unlawful act that violated the CFA when it submitted the assignment signed under oath. This was an affirmative act/misrepresentation so no showing of intent was required. But one must establish an ascertainable loss and causal connection to recover damages. The only possible ascertainable loss from the improperly filed foreclosure is the attorneys’ fees Mortgagor’s incurred in defending the case. Recognizing an exception to the rule that each party bears its own costs except where the tort of another required the injured party to bear fees, the court found this case fit that exception because the servicer was acting for another, i.e., the note holder. Such circumstances satisfy the tort of another requirement and the mortgagor’s’ attorneys’ fees in defending the foreclosure satisfy the ascertainable loss requirement for recovery. The court therefore treated the fees as damages and trebled them in accordance with the CFA.

Download Related Document