Editor: David Reiss
Brooklyn Law School

June 20, 2013

Servicing Fraud Claim Survives Motion To Dismiss

By David Reiss

Judge Gonzalez Rogers issued an opinion in Ellis v. J.P. Morgan Chase, No. 4:12-cv-03897-YGR (N.D. Cal. June 13, 2013) in which she denied a motion to dismiss a fraud claim in this class action lawsuit arising from Chase’s servicing business. The plaintiffs allege that “Chase engaged in fraudulent practices by charging marked-up or unnecessary fees in connection with Defendants’ home mortgage loan servicing businesses.” (1)

The opinion states that

Plaintiffs have alleged numerous instances where deficient information was provided and could have been revealed—namely, in the mortgage agreements themselves, in the mortgage statements reflecting the marked-up fees, or during communications with Chase where it told Plaintiffs that the fees were in accordance with their mortgage agreements.  Plaintiffs provide specific dates for statements in which they believe they were charged the marked-up fees, and allege they paid the fees without knowing their true nature.  Plaintiffs describe the content of the omission as the failure to inform them that the fees were marked-up and that the majority of the fees ultimately went to Chase, and not third-party vendors performing the services.  As discussed above, Plaintiffs have also sufficiently alleged that they did pay the marked-up fees. (36)

It continues,

Defendants allegedly demanded payment for fees that, in some cases, were never actually incurred. Moreover, Plaintiffs allege that false representations were made to borrowers when Chase told them that the fees were in accordance with their mortgage contracts—this is distinguishable from an omission. As alleged, the fraud is equally about the failure to disclose material information as it is that the amounts demanded on mortgage statements were false because they did not correspond to the actual amounts owed pursuant to the mortgage agreements relied upon by Defendants. Based on the alleged nature of the fraudulent scheme, the lack of an explicit “duty to disclose” is not dispositive in light of affirmative fraud that is also alleged. (37, citations omitted)

Denying the motion to dismiss this claim exposes servicers to great potential liability for their acts and omissions.

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