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Chase Settles Class Action Wrongful Foreclosure Suit for $56 Million

Mortgage & Lending Law by Peter N. Brewer, Esq.

On April 21, 2011, JPMorgan Chase agreed to settle a class action lawsuit filed by active-duty military personnel for claims of wrongful foreclosure.  In Rowles v. Chase, three members of the armed forces sued Chase alleging violations of the Servicemembers Civil Relief Act (“SCRA”).  The SCRA provides protections to active-duty servicemembers by requiring lenders to reduce interest rates to six percent (6%), to not foreclose or report negative credit, and limits lenders’ ability to terminate loans.  The settlement, if approved, will provide cash payments to servicemembers, return wrongfully foreclosed homes or pay for the value of the home, create of an advisory council, and reduce interest rates.  Unlike previous cases, this settlement is a matter of public record.  While the settlement has no admissions of wrongdoing, Chase has stated that there were wrongful foreclosures and failure to follow applicable law.

Jonathan Rowles, a captain in the Marine Corp, alleged that Chase continually refused to reduce his interest rate to six percent.  Instead, over the course of several years, Chase repeatedly asked for the same documentation to prove that Rowles was in active service, refused to reduce the interest rate, and began aggressive collection methods that including calling Rowles at 4:00 A.M. and calling Rowles’ mother.

Sarah Letts-Smith, the second plaintiff, owned a house in California.  While Letts-Smith was serving in Iraq, Chase began foreclosure proceedings against her.  Three days after Letts-Smith was released from active duty, Chase completed the foreclosure of her home.

Martin Hupfl, the third plaintiff, financed a purchase of a car through Chase Auto Finance.  Hupfl began serving as a marine and notified Chase of his rights under SCRA.  Chase confirmed receipt of Hupfl’s SCRA request and confirmed that Chase had made the appropriate changes.  However, while Hupfl was serving as a marine, Chase terminated the loan contract and resold the account to a collection agency.  Chase also reported that Hupfl’s account had been “charged off as bad debt.”

While the settlement is a step in the right direction, it is unlikely to have an impact on other homeowners.  The plaintiffs only allege violations of the SCRA instead of broader state or federal laws.  Additionally, because the matter was settled, there is no precedent established for future cases.  However, the public statements and the terms of the settlement provide valuable information for other homeowners fighting to save their homes.  Chase has publically acknowledged that, at least in the case of active-duty personnel, it has failed to follow the applicable statutes and wrongfully foreclosed on servicemembers.  In addition, it is interesting to note that Chase agreed to void the foreclosure sales wherever possible and waive any mortgage debts.  Chase, along with most other lenders, had previously been reluctant to approve any principal debt reduction.

Practice Notes – While it is unlikely that this settlement will help other homeowners, this case may provide a template for other class action suits against lenders.  Although the class action lawsuit alleging violations of the Perata Mortgage Relief Act was struck down in California, other cases that allege violations of specific protections for smaller groups may be viable.  It will be interesting to watch to see if other active-duty personnel or other homeowners with special protections will seek class action lawsuits against lenders.  Previously, Deutsche Bank and Morgan Stanley had settled similar cases filed by active-duty servicemen, however, those settlements were never made public.  Additionally, the current settlement discussions between the group of 50 state attorneys general and loan servicers may provide additional relief to homeowners.

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