Loan Modification, Washington Mutual, Recent Case Summaries

Loan Modification, Washington Mutual, Recent Case Summaries

Fifth Circuit Rejects Challenge to Loan Modification Fee

The Fifth Circuit affirmed a summary judgment in a putative class action challenging a loan modification fee. In Sanders v. Washington Mutual, the lender filed foreclosure proceedings against borrowers who were delinquent on their mortgage loan, the parties entered into a loan modification agreement, and the borrowers paid a loan modification fee in connection with entering into the agreement. The Fifth Circuit held that Louisiana’s voluntary payment doctrine barred the borrowers’ attempt to challenge the fee, because it has been paid voluntarily with knowledge of the relevant facts. The Court also held that the existence of the pending foreclosure did not constitute the requisite duress under Louisiana law to avoid application of the voluntary payment doctrine. Goodwin Procter partners Tom Hefferon and Joe Yenouskas represented Washington Mutual.

Sanders v. Washington Mutual Home Loans, Inc., No. 07-30032 (Sept. 18, 2007) case summary and background.

In 2003, the Robinsons became delinquent on their home mortgage loan payments, and Washington Mutual Home Loans ("Washington Mutual") instituted a foreclosure proceeding on November 5, 2003. The Robinsons thereafter contacted Washington Mutual about their options to avoid foreclosure and indicated their interest in a possible loan modification, which would terminate the foreclosure action and suspend the collection of delinquent amounts. Washington Mutual developed a proposed modification plan that would (1) reinstate the loan; (2) capitalize amounts for delinquent interest, previously incurred foreclosure fees and costs, and escrow advances; (3) decrease the interest rate; and (4) extend the loan's maturity date.

Washington Mutual sent the Loan Modification Agreement ("LMA"), along with a cover letter explaining the terms of the LMA, to the Robinsons on December 23, 2003. The cover letter explained that in order for the LMA to become effective, the Robinsons would be required to pay a $500 "Administrative Fee" at the time of execution. Three days later, on December 26, 2003, the Robinsons signed the LMA and returned it to Washington Mutual, along with a payment that included the $500 Administrative Fee.

On July 25, 2005, the Robinsons intervened as plaintiffs in a lawsuit against Washington Mutual. In the "Amended and Superseding Complaint," the Robinsons asserted a separate claim that the $500 Administrative Fee was "illegal" because it was not provided in a writing signed by them, in violation of LA. REV. STAT. ANN. §6:1097.2

On September 6, 2006, Washington Mutual moved for partial summary judgment on this claim, asserting that (1) federal law preempts the Robinsons' state law claim; (2) even if the Louisiana statute applies, Washington Mutual complied with its requirements; (3) the Louisiana statute does not prohibit the fees at issue; (4) the original Note and Mortgage authorized the fees at issue; and (5) Louisiana's voluntary payment doctrine independently bars the Robinsons' claim. On November 29, 2006, the district court orally granted Washington Mutual's motion for partial summary judgment.

See Also: Washington Mutual, Class Action, Securities Fraud