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George v. Urban Settlement Services

United States District Court, D. Colorado

September 30, 2014

RICHARD GEORGE, STEVEN LEAVITT, SANDRA LEAVITT, DARRELL DALTON, and all others similarly situated, Plaintiffs,
URBAN SETTLEMENT SERVICES, d/b/a Urban Lending Solutions, and BANK OF AMERICA, N.A., Defendants.


PHILIP A. BRIMMER, District Judge.

This matter is before the Court on the Motion to Dismiss the First Amended Class Action Complaint [Docket No. 13] filed by defendant Urban Settlement Services ("Urban") and the Motion to Dismiss the First Amended Class Action Complaint [Docket No. 14] filed by defendant Bank of America, N.A. ("BOA").[1] This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331 and § 1332(d).


This case arises out of BOA's and Urban's administration of the Home Affordable Modification Program ("HAMP"). Plaintiffs Richard George, Steven and Sandra Leavitt, and Darrell Dalton all obtained home mortgages that were held by Countrywide Home Loans. Docket No. 12 at 53, ¶ 134, id. at 62, ¶ 163, id. at 69, ¶ 193. BOA purchased Countrywide Home Loans in 2008 and acquired hundreds of thousands of mortgages, including those of plaintiffs. Id. at 10, ¶ 23. Pursuant to a contract between BOA and Urban, Urban provided HAMP-related services to BOA. Id. at 35, ¶ 78. On behalf of themselves and a nationwide class, plaintiffs bring a claim against BOA and Urban under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c). Id. at 82-92. Plaintiffs' RICO claim alleges that BOA and Urban were part of an enterprise that engaged in mail and wire fraud and extortion. Id. On behalf of themselves and statewide classes of similarly situated borrowers, plaintiffs also bring a claim against BOA for promissory estoppel. Id. at 92-93.


In response to the foreclosure crisis, the federal government launched HAMP in 2009, which attempted to give mortgage servicers an incentive to modify loan terms for delinquent borrowers. Docket No. 12 at 11, ¶ 25. HAMP provided a vehicle by which borrowers could initially make lower monthly payments, thereby decreasing the risk of default and the instances of foreclosure. Id. at 12, ¶ 28. For each successful HAMP modification, servicers were paid $1000 by the federal government. Id. at 22, ¶ 50. The HAMP program was largely successful for those borrowers receiving HAMP modifications. Id. at 13, ¶ 29. HAMP was administered by the United States Treasury Department; banks who accepted funds through the Troubled Asset Relief Program were required to participate. Id. at 12, ¶ 27. Participating banks entered into a Servicer Participation Agreement (the "Agreement") with the Treasury Department at which point the bank became a Participating Servicer. Id. at 12-13, ¶¶ 27, 30. Under the Agreement, Participating Servicers were required to evaluate for HAMP eligibility all loans that were more than 60 days delinquent or appeared to be in imminent default. Id. If a borrower contacted the Participating Servicer regarding HAMP, the servicer was required to collect income and hardship information to determine HAMP eligibility. Id. at 13-14, ¶ 30.

The HAMP process has two steps. At step one, the servicer evaluates the borrower based upon information the borrower provides, determining if each of the threshold eligibility requirements is met and if modification would provide the mortgage holder a net present benefit. If the threshold eligibility requirements are met, the borrower is placed on a Trial Period Plan ("TPP"), which is a three-month period that allows the servicer to verify the borrower's information. Id. at 14-15, ¶ 32-34.[3] The Treasury Department expected servicers to reach a decision as to whether to extend a TPP to a borrower within 30 days of receiving the borrower's financial documents for 95% of submissions. Id. at 53, ¶ 132. The TPP's terms and conditions are explained in an FHA Home Affordable Modification Trial Period Plan ("TPP document") provided to the borrower, which both the borrower and the loan servicer are required to sign. See, e.g., Docket No. 14-2; Docket No. 14-3.[4] If the borrower complies with the TPP, makes all monthly payments, and the servicer verifies the borrower's information, then process proceeds to step two, which requires that the servicer make an offer of permanent modification if the borrower has met the required conditions. Docket No. 12 at 15-16, ¶ 35.[5]

B. BOA's Implementation of HAMP

As a recipient of Troubled Asset Relief Program funds, BOA was required to participate in HAMP. In April 2009, BOA signed a Servicer Participation Agreement with the Treasury Department and began administering the HAMP program to borrowers. Id. at 12, ¶ 27. BOA contracted with third parties, including Urban, to provide services related to its implementation of HAMP. Id. at 35, ¶ 78. BOA represented publicly that it was participating in HAMP and that qualifying homeowners would be able to secure a permanent loan modification. Id. at 18, ¶ 41. A BOA executive testified before Congress that efforts to place borrowers in the HAMP program were hindered by borrowers' failure to provide financial information and failure to respond to outreach efforts, statements which plaintiffs claim were knowingly false. Id. at 26-27, ¶ 59. However, BOA also offered internal or proprietary non-HAMP modification programs, which were more profitable for BOA. Id. at 25, ¶ 56. Privately, BOA supervisors were told that the more the HAMP process was delayed, the more fees BOA would collect and the more borrowers would be directed towards proprietary modification programs. Id. at 25, ¶¶ 55-56. Thus, BOA instituted a practice of delaying the HAMP application process, implemented by regional vice presidents, including executives Rebecca Mairone, John Berens, Kenneth Scheller, Troy Novotny, Patricia Feltch, and Tyrone Wells. Id. at 27, ¶¶ 60-61, at 31, ¶ 71. Former BOA employees stated that BOA did not have sufficient underwriting staff to implement the program and complete review of borrowers' documents within the 30 days of submission. Id. at 27, ¶¶ 60-61. A former employee stated that BOA executives knowingly failed to provide sufficient underwriting staff to process all of the incoming HAMP applications. Id. at 28, ¶ 62. By early 2012, the average case load size for a customer relationship manager was 600 loans. Id. at 34, ¶ 74. BOA employees were instructed to inform applying borrowers that their application documents had not been received, to hold application documents for 30 days, or to scatter application documents so that the documents could not be viewed on a single system. Id. at 28-30, ¶¶ 63-65. In some instances, BOA would order borrowers' applications denied "for no reason other than that the borrower documents were more than 60 days old." Id. at 30, ¶ 66. For those applications that were considered, BOA failed to properly employ the HAMP-mandated qualifications. Id. at 30, ¶ 68. In some instances, BOA offered managers and employees rewards based upon the number of homeowner applications they could decline. Id. at 31, ¶ 70. In 2010 and 2011, the United States Of fice of the Comptroller of the Currency evaluated BOA's practices and, on March 29, 2011, BOA executed a consent decree, wherein BOA agreed to implement remedial measures to correct issues in its loan modification process. Id. at 32-34, ¶ 73. Plaintiff claims that BOA failed to comply with its obligations under the consent decree, including failing to lessen the case load of its customer relationship managers. Id. at 34, ¶¶ 74-76.

C. Urban

Urban maintained offices and a corporate identity separate from BOA. Id. at 35, ¶ 80. Plaintiff claims that BOA assigned Urban specific tasks and broad duties to manage, that Urban communicated regularly with BOA, and that both entities were engaged in the common goal of reducing the number of HAMP modifications issued to borrowers. Id. at 36, ¶ 82. Urban was compensated based upon the volume of loan files it processed. Id. at 37, ¶ 87. Within parameters set by BOA, Urban performed key functions related to BOA's implementation of HAMP, including deciding, based upon BOA criteria, "which modification program a particular borrower should be steered toward, and deciding which borrowers should be denied modifications in order to meet quotas and timeframes." Id. at 35-36, ¶¶ 80-81, 83. BOA also directed Urban to receive financial documents from borrowers, field telephone inquiries from borrowers, and notify borrowers when required documents were missing. Id. at 37, ¶¶ 84-86. Although borrowers believed that they were returning financial documents to BOA, the address and fax number BOA provided borrowers was a Urban address and fax number. Id. at 37, ¶ 88. Urban employees fielding calls from borrowers would represent themselves as BOA employees and were given titles and email addresses suggesting that they were BOA employees. Id. at 37-38, ¶ 89. BOA executives were aware of the problems with Urban's role in implementing HAMP, but made no effort to correct its own or Urban's performance. Id. at 38, ¶ 93.

D. The Enterprise

Plaintiffs claim that BOA and Urban were part of an enterprise (the "enterprise") with the goal of furthering a fraudulent scheme to keep borrowers from acquiring permanent HAMP loan modifications. Plaintiffs claim that BOA's TPP documents induced borrowers to make trial payments with the expectation that they would receive a permanent modification. Id. at 17, ¶ 38. Plaintiffs claim that Urban served as a "black hole" for borrowers' HAMP-related documents, effectively guaranteeing that TPPs would not be converted to permanent modifications. Id. at 39, ¶ 94. At BOA's direction, Urban delayed forwarding modification packages, falsely informed inquiring borrowers that their loans were being processed, and falsely telling borrowers that their files were incomplete, requiring the borrowers to send additional documents. Id. at 39, ¶ 96. For example, Urban was directed to close any file that contained a letter to the borrower seeking additional information, regardless of whether the borrower had provided the requested information. Id. at 41, ¶ 100. Despite the fact that BOA required that documents such as bank statements be less than 90 days old, Urban would allow the documents to age until they could no longer be used in the underwriting process, at which point BOA would deem the documents unacceptable and deem the file incomplete. Id. at 40, ¶ 97. Pursuant to the TPP documents, BOA instructed borrowers to make temporary payments - in amounts lower than would ordinarily be due under their un-modified mortgages -, yet BOA continued to consider full, unmodified loan payments due from each borrower. Id. at 40, ¶ 98. Eventually, due to the delay in processing borrowers' TPPs, the borrowers' debt would continue to accumulate and rise to a level where BOA would decline the loan modification due to "excessive forbearance." Id. at 40-41, ¶ 98.[6] As a result of this "delay loop, " plaintiffs claim that BOA and Urban fraudulently denied permanent loan modifications to tens of thousands of borrowers who had otherwise fulfilled their requirements under the TPPs. Id. at 41, ¶¶ 99-100.

By the third quarter of 2012, BOA had approximately 20, 000 unresolved complaints or service requests from borrowers. BOA provided Urban with lists of service requests to close. Id. at 41-42, ¶¶ 102-104. Despite the fact that some of the service requests may have required follow-up work, BOA instructed Urban employee to close service requests as quickly as possible such that Urban employees were expected to close dozens of service requests per day and did so, in some cases, by deeming the borrowers to have failed the HAMP application process. Id. at 42, ¶ 105. Urban employees raised concerns to Urban executives regarding the manner in which service requests were being closed. Employees who did so were disciplined and the practice of improperly closing service requests continued. Id. at 43-45, ¶¶ 109-114. Plaintiffs allege that BOA executives Mr. Scheller, Ms. Mairone, Mr. Swain, and Ms. Feltch were repeatedly informed that BOA's application of HAMP was wrongfully denying a majority of borrowers' loan modifications, but that those individuals, along with BOA executives Robbie Nicholson, Tony Meola, and John Berens continued to direct a program of mass declinations. Id. at 45-56, ¶¶ 115-119.

As a result of BOA's and Urban's knowledge of their scheme of mass declinations, BOA and Urban made knowingly false statements to borrowers by mail, telephone, email, and over the internet, including: letters, website communications, TPP documents, and phone calls containing misleading representations regarding the availability of HAMP modifications, phone calls misrepresenting the status of borrowers' loan modifications, notices that application documents or information was missing, and notices of denial of permanent modifications. Id. at 47-48, ¶ 123.[7]

BOA used other entities to further its scheme. Sykes Enterprises, Inc. was retained by BOA to communicate with customers. Wingspan Portfolio Advisors was used by BOA to process customer efforts to secure loan modifications. Robertson Anschutz & Vetters and Robertson Anschutz & Schneed (the "law firms") were law firms BOA used to facilitate the foreclosure of homes once borrowers were denied loan modifications. BOA retained Stewart Lender Services to mail and receive HAMP application documents. Id. at 48-49, ¶ 125.

E. Plaintiffs' Modification Applications

1. Mr. George

In 2007, Mr. George refinanced his mortgage with Countrywide. Id. at 62, ¶ 164. In 2008, Mr. George's work hours were reduced. Id. at 62, ¶ 165. Mr. George contacted BOA about HAMP and was told to pay a modified amount. Rather than receiving a TPP document, Mr. George received a Notice of Intent to Accelerate. Id. at 62-63, ¶¶ 166-67. Mr. George attempted to continue to pay the full amount of his mortgage payment. Id. at 63, ¶ 168. After receiving a letter from BOA directing him to submit documents for TPP consideration, Mr. George submitted all documents requested. Unbeknownst to Mr. George, the address to which he sent the requested documents belonged to Urban. Id. at 63-64, ¶¶ 170-71. On June 24, 2010, Mr. George received a TPP document. Id. at 64, ¶ 172. Mr. George signed the TPP as instructed and returned it to the address belonging to Urban and thereafter fulfilled all the TPP requirements. Id. at 65, ¶ 174-75. Mr. George claims that the TPP document and BOA's website "indicated that Mr. George could expect a permanent modification within a month of the end of the trial period, " but Mr. George received no such loan modification. Id. at 65, ¶ 175.[8] On several occasions, Mr. George attempted to contact BOA regarding the status of his HAMP modification and, on January 19, 2013, received a permanent modification agreement. Id. at 66, ¶¶ 177-79. Mr. George subsequently received conflicting representations from BOA regarding the status of his modification paperwork, but returned the signed paperwork to Urban's address as instructed. Id. at 67, ¶¶ 181-185. Despite this, on April 20, 2013, Mr. George received yet another set of modification papers. Id. at 67, ¶ 186. As a result of these interactions with BOA, Mr. George claims, among other things, to be living in constant risk of foreclosure, alleging that ...

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