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Gonzalez v. Wilshire Credit Corp.

207 N.J. 557, 25 A.3d 1103 (2011)

CONSUMER FRAUD ACT; LOANS — Post-judgment forbearance agreements are either an extension of credit or a new loan and therefore servicing and collection activities with respect to such an agreement constitutes subsequent performance of that extension of credit or the new loan and that kind of activity is subject to the Consumer Fraud Act.

A couple purchased a property as tenants in common. One of the owners took a loan secured by a mortgage against the property. When one of the owners died, the other continued making payments. When she was unable to continue making payments, the lender foreclosed. Before the sheriff’s sale took place, she entered into a written forbearance agreement with the bank’s servicing agent whereby the servicer agreed not to pursue the sheriff’s sale as long as certain payments were made. The agreement provided that the foreclosure action would be dismissed when the loan was made current. At the time, the owner, who was unsophisticated, was represented by an attorney.

About a year and a half later, the owner was again in arrears. The lower court fixed the amount of arrears and a sheriff’s sale was scheduled. The sale was cancelled when the parties entered into a second agreement. This time, however, the loan servicer contacted the owner directly and did not notify her attorney. This second agreement called for repayment of more than the arrears calculated by the lower court. The costs included unnecessary, force-placed homeowner’s insurance. Although the owner did not miss a payment under the second agreement, she was told by the servicer that the agreement was about to expire and that she would have to enter into a third agreement in order to avoid foreclosure. The owner contacted her attorney, who questioned why the loan was not deemed current and why the lender’s calculations differed from those determined by the lower court prior to the execution of the second agreement. The loan servicer could not explain the discrepancies. The owner sued, claiming that the lender and the servicer had engaged in deceptive and unconscionable business practices in violation of New Jersey’s Consumer Fraud Act (CFA). The lower court dismissed the owner’s complaint, finding that the CFA did not apply to post-judgment settlement agreements designed to avoid a foreclosure sale. The Appellate Division reversed and reinstated the owner’s CFA claim. The lender and servicer appealed further, but the New Jersey Supreme Court affirmed.

The lower court had reasoned that New Jersey’s Legislature never intended to have the CFA apply to settlement agreements and that applying the CFA to such agreements would undermine the settlement of foreclosure actions and, potentially, the settlement of all lawsuits. It concluded that the only action available to the owner would be to make a motion to vacate, modify or enforce the settlement agreement. The Appellate Division disagreed, finding that the CFA was created to address the circumstances that allegedly occurred in this instance, and that the owner’s monetary damages, if proven, could meet the “ascertainable loss” requirement for a CFA claim.

The Supreme Court began by reciting that the CFA provides a remedy to consumers for unlawful and unconscionable business practices and that it cover the offering, sale or provision of consumer credit. Collecting or enforcing a loan constitutes “subsequent performance” of the loan, and that falls within the CFA. The Court found that, in this case, it did not need to decide whether the servicer’s post-judgment collection activities constituted “subsequent performance” of the original loan because post-judgment agreements, standing alone, are either an extension of credit or a new loan. Therefore, the servicer’s collection activities with respect to the settlement agreements constituted “subsequent performance” of that extension of credit and this activity was subject to the CFA. The Court noted that if the CFA were not applicable to these post-foreclosure agreements, it would be an unregulated free-for-all zone. It found that the CFA was broad enough to combat this new type of fraud and enforcing the CFA would prevent lenders and their servicing agents from preying on individuals desperate to keep their homes.

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