Alert January 22, 2013

Eighth Circuit Rejects Borrowers’ Fraudulent Misrepresentation Suit over Loan Modification

The United States Court of Appeals for the Eighth Circuit affirmed a lower court’s dismissal of plaintiffs’ fraudulent misrepresentation and promissory estoppel claims arising out of an attempted loan modification under HAMP. Plaintiffs attempted to negotiate a loan modification under HAMP with defendant, their loan servicer. After plaintiffs received conflicting information regarding their eligibility for a modification and after believing they would be eligible for a modification, plaintiffs stopped making mortgage payments and defendant initiated a foreclosure proceeding. Plaintiffs then filed an action seeking injunctive relief alleging fraudulent misrepresentation and promissory estoppel. Specifically, plaintiffs alleged “[defendant’s] representatives insured [sic] plaintiffs that they would qualify for a modification and their mortgage would be modified upon receipt of requested documentation.” The lower court granted defendant’s motion to dismiss finding that defendant’s representations were insufficient to authorize a recovery for fraudulent misrepresentation. Similarly, defendant’s representation did not rise to the level of a promise to authorize a recovery for promissory estoppel.

The Eight Circuit affirmed. In doing so, the Court rejected plaintiffs’ argument that defendant’s “knowing[] misrepresent[ion] that it had authority to modify their loan” was a factor allowing the fraudulent misrepresentation claim to continue and declining to relax the Federal Rules of Civil Procedure which require that fraud claims be stated with particularity.