EDITOR’S NOTE: This post was guest-authored by Alyssa Sussman, a senior associate in Goodwin Procter’s Consumer Financial Services Litigation Practice. Ms. Sussman defends financial services clients in putative state and nationwide class actions and multi-district actions, including in loan modification-based disputes.
Last month, the United States District Court for the Eastern District of California issued the latest in a string of decisions denying class certification in cases of alleged misconduct regarding residential mortgage loan modifications.
Beginning in 2010 and 2011, mortgage servicers saw a marked increase in cases challenging their loan modification practices, in response to the surge in loan modification options available to borrowers after the Obama Administration’s initiation of the Home Affordable Modification Program in 2009.
These cases have been brought as both state- and nation-wide putative class actions and have been filed in courts across the country. They have alleged various forms of misconduct related to mortgage loan servicers’ issuance of loan modifications, including (1) the servicer did not offer borrowers permanent loan modifications after successful completion of trial modifications, (2) the servicer did not honor borrowers’ loan modifications after borrowers signed loan modification agreements, (3) the servicer took too long to implement borrowers’ loan modifications, and (4) the servicer did not timely and properly respond to borrowers’ loan modification applications.
Borrowers in these cases have brought claims for breach of contract, violations of state consumer protection statutes, and violations of federal and state credit reporting statutes, among other things.
Courts have identified inherent problems with trying to certify classes in loan modification cases. For example, some of these cases involve various loan modification agreements with differing terms and borrower conditions. Some of these cases involve various communications sent to borrowers with differing language and borrower impact. Some of these cases implicate the laws of many different states. And some of these cases involve servicer practices that vary with respect to each borrower. These circumstances preclude findings that common questions exist and predominate over individual issues.
Loan modification cases also often fail on the typicality front due to the complex interactions between a borrower and a mortgage servicer and the borrower’s specific financial circumstances. For example, if a named plaintiff cannot show that she was denied a loan modification for the same reason as the putative class, she will not be typical. Class actions also are not superior to individual actions in loan modification cases because of the manageability problems involved in evaluating the idiosyncratic facts of each borrower’s case. Finally, some of these cases pose ascertainability problems due to the individualized inquiry required to identify members of the putative class.
The number of loan modification cases filed as putative class actions began to decrease in 2013 and 2014 after the first major court decisions were issued denying class certification in these cases. As the picture becomes more bleak for plaintiffs with each class certification decision rendered, we expect the tide of loan modification putative class actions to continue to recede.