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Fourte v. Countrywide Home Loans, Inc.

2009 WL 2998110 (U.S. Dist. Ct. D. N.J. 2009) (Unpublished)

MORTGAGES; CONSUMER FRAUD ACT — New Jersey’s Consumer Fraud Act, on its terms, applies to the offering, sale or provision of consumer credit and would cover fraud allegations dealing specifically with home mortgages.

A military reservist obtained a purchase money mortgage and a home equity line of credit. Later that year he was told to report for duty. The next day, he notified his lender that he was applying for relief under the Service-members’ Civil Relief Act (SCRA) to limit any interest rate increases on his debt. Later, the reservist claimed that the lender failed to keep the interest rate at the level required under SCRA for much of the time that he was on active duty. He sued the lender in federal court alleging violations of SCRA, fraud with malice, violations of the New Jersey Consumer Fraud Act (CFA), fraudulent misrepresentation, and negligence. He also requested injunctive relief. The lender moved for summary judgment to dismiss these claims.

First, the United States District Court rejected the lender’s argument that the reservist lacked standing since he did not suffer an injury. In denying the motion, the Court noted there was voluminous evidence that the lender’s actions caused him financial injury and found the injury was within the Court’s power to address. It also rejected the lender’s argument that the serviceman’s ability to pay was not materially affected by reason of his military service. The Court believed there were significant questions of fact on this point that could not be properly resolved in a summary judgment motion. As to the CFA claim, the Court held there was a presumption that a state’s police powers were not to be superseded by a federal law unless that was the clear purpose of Congress. Here, the Court found that the SCRA was not meant to be the complete consumer lending regulatory system. The SCRA only addressed specific practices affecting only one class of citizen. It also noted that: (a) the amount of damages available to victims of consumer fraud did not “demand” uniformity in the way that the Court has said that other practices do; and (b) treble damages under CFA provided further incentive for mortgage companies to comply with the federal statute’s dictates. The Court further held that, given the CFA’s broad language, its terms applied to the “offering, sale, or provision of consumer credit,” and include a fraud allegation dealing specifically with home mortgages. Finally, it rejected the lender’s argument that the reservist did not sustain an “ascertainable loss” under the CFA. In that regard, it found the reservist had submitted specific details and calculations of the damages caused by the lender’s actions. Thus, the lender’s motion to dismiss on these grounds was denied.

As to the SCRA claim, the Court ruled that the statute applied to reservists. Since the lender admitted that it violated the SCRA with respect to the line of credit loan, summary judgment was granted to the borrower on that claim. Summary judgment was not granted for the home mortgage claim because there were significant disputes of material fact. For example, the borrower claimed that the lender failed to timely apply the SCRA benefits and charged a higher interest rate than was permitted under the statute for several months while he was on active duty. The lender, on the other hand, argued that the borrower received credits to his account that more than made up for any initial delay or inadvertent temporary increases in the interest rate. As a result, the Court ordered that the matter go to trial on the merits.

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