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Gonzalez v. Wilshire Credit Corporation

411 N.J. Super. 582, 988 A.2d 567 (App. Div. 2010)

CONSUMER FRAUD ACT; MORTGAGES — The Consumer Fraud Act applies to lenders when engaging in loan packing or other fraudulent lending practices and, at times, can govern settlement agreements with lenders.

Two individuals purchased a home. Several years later, one of them obtained a loan. Both executed a mortgage, but the non-debtor owner did not sign the note. When the debtor owner died, the loan went into default. Following entry of a foreclosure judgment, but before the sheriff’s sale, several payment agreements were executed by the surviving non-debtor owner and the lender. The agreements provided that if the account was made current, the lender would dismiss the foreclosure action. The arrearage calculations were disputed, and the surviving owner sued the lender. She claimed that the lender had violated the New Jersey Consumer Fraud Act (CFA) by: (a) including fees, costs, and charges that were prohibited by law; (b) seeking to collect payments that were not due; and (c) force-placing insurance after having been provided with competent evidence that she already maintained such insurance (a practice known as loan packing).

The lower court dismissed the owner’s complaint, holding that she was not a “consumer” covered by the CFA and also that the Legislature never intended the CFA to apply to law suit settlement agreements. It ruled that the appropriate mechanism to seek relief would be to move to vacate, modify or enforce the settlement, but not a separate action under the CFA. The owner appealed.

The Appellate Division reversed, holding that the owner had offered sufficient factual evidence of unconscionable conduct on the part of the lender to require a remand. It maintained that the language of the CFA demonstrated a clear legislative intent that its provisions should be broadly applied in order to root out consumer fraud. These prohibitions have been found to encompass lenders engaged in loan packing and other fraudulent lending practices. Although the CFA did not specifically mention settlement agreements, the Court found that the CFA could not possibly enumerate all, or even most, of the areas and practices that it covers without severely retarding its broad remedial power to root out fraud. Instead, applicability of the CFA hinges on the nature of a transaction, thus requiring a case by case analysis. While the Court hesitated to hold that most “settlements” were subject to the CFA’s strictures, it regarded the particular agreements in this case to be so closely allied to the cures of default and reinstatement agreements (that are recognized in the CFA) as to warrant coverage. It further found that there was little doubt that, if the owner had been the initial debtor and her attempts to cure default had taken place before entry of the foreclosure order, the transaction would have been covered by the CFA. Finally, it rejected the lower court’s holding that the owner could obtain relief only by way of a motion to vacate, modify or enforce the “settlement.” It declared that such a motion would not effectively address the unconscionable practices that the owner was claiming had been employed.

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