Update: IndyMac/OneWest Bank Denied Second Bid to Dismiss HAMP Class Action Lawsuit

On July 27, 2010, plaintiff Stacey Fletcher filed a putative class action complaint alleging that the defendant IndyMac Mortgage Servicers, FSB (a division of OneWest Bank, FSB)(“OneWest”) mishandled her application for a mortgage loan modification pursuant to the Home Affordable Modification Program (“HAMP”). The HAMP was created by the federal government in August 2009 to combat the national foreclosure crisis. The program was designed to allow eligible homeowners who are at imminent risk of defaulting on their mortgages to save their homes by modifying the terms of their mortgage loans.

Despite the government’s noble intentions, HAMP has been largely unsuccessful.  (See our March blog post describing the wave of HAMP lawsuits by homeowners against U.S. mortgage lenders and our April post on consent orders that Federal Banking Regulators issued with 14 of the nation’s largest mortgage loan servicers.)

The original complaint alleged breach of contract, promissory estoppel, and violations of the Illinois Consumer Fraud and Deceptive Business Practices (“ICFA”). Specifically, Plaintiff alleged that OneWest’s practices fell into an identifiable pattern of misconduct that is consistent across a wide range of homeowners: OneWest makes a written offer to a pre-qualified homeowner, in which it offers a permanent loan modification if the homeowner makes three monthly trial period payments and complies with OneWest’s requests for documentation. Homeowners execute and submit all of the required documents and make the trial period payments, but OneWest does not live up to its end of the bargain, failing even to respond to applicants, denying permanent modifications without justification, avoiding permanent modifications by losing paperwork, claiming ignorance of payments made and papers submitted, sending out late payment letters and engaging in other evasive conduct which makes it extraordinarily difficult, if not impossible, for homeowners to obtain loan modifications to which they are entitled.  OneWest also applied substantial late fees and other fees to plaintiff and other homeowner accounts and reported those loans as delinquent to credit bureaus, causing damage to their credit scores.

Judge William J. Hibbler of the United States District Court for the Northern District of Illinois originally presided over this case. On June 30, 2011, Judge Hibbler issued an Order substantially denying OneWest’s January 18, 2011 motion to dismiss and largely upheld Plaintiff’s class action claims for breach of contract, promissory estoppel and violations of the ICFA.  Fletcher v. OneWest Bank, FSB, 2011 U.S. Dist. LEXIS 72562 (N.D. Ill. June 30, 2011).

On July 15, 2011, OneWest filed a motion to stay this litigation pending the U.S. Court of Appeal for the Seventh Circuit’s decision in Wigod v. Wells Fargo Bank, N.A., Appeal No. 11-1423 (7th Cir. Feb. 22, 2011). In Wigod, Judge Manning dismissed the plaintiff’s claims stemming from defendant Wells Fargo’s alleged non-compliance with HAMP. Like the Fletcher litigation, plaintiff Wigod’s class action complaint alleged violations of Illinois law under common-law contract and tort theories and under the ICFA.  The district court’s reason for dismissing Wigod’s complaint was primarily that Wigod alleged Wells Fargo had violated HAMP, a federal statute which it determined did not allow for a private right of action. See Wigod v. Wells Fargo Bank, N.A., No. 10 CV 2348, 2011 WL 250501 (N.D. Ill. Jan. 25, 2011). After the Wigod appeal, OneWest argued that a stay was warranted in the Fletcher litigation because the issues raised were virtually identical to those pending before the Seventh Circuit Court of Appeals.  After opposing the motion and filing a motion for a preliminary injunction, Plaintiff consented to a stay so long as the status quo was to be maintained.

On March 7, 2012, the Seventh Circuit issued its opinion in Wigod v. Wells Fargo Bank, N.A., No. 11-1423, 2012 U.S. App. LEXIS 4714 (7th Cir. March 7, 2012).  Relying in part on Judge Hibbler’s June 30, 2011 opinion denying OneWest’s motion to dismiss, the Seventh Circuit reversed the judgment of the Wigod district court on breach of contract, promissory estoppel, fraudulent misrepresentation and ICFA claims.  In its decision, the Seventh Circuit determined that plaintiff Wigod’s state law claims are not preempted or otherwise barred by federal law. In light of the Seventh Circuit’s decision, Plaintiff requested that the stay in this action should be lifted. The Court lifted the stay on March 15, 2012.

On April 24, 2012, Plaintiff filed an amended complaint alleging breach of contract, promissory estoppel and violations of the ICFA.  On May 22, 2012, OneWest made a motion to dismiss Plaintiff’s amended complaint and to strike Fletcher’s class allegations. After full briefing and oral argument by the parties, on October 22, 2012, Judge Sharon Johnson Coleman issued a Memorandum and Order denying OneWest’s motion to dismiss and denying OneWest’s motion to strike Plaintiff’s class allegations.

In light of Judge Coleman’s decision, the case will now proceed.  Abbey Spanier, LLP, is lead counsel in the Fletcher litigation.  We believe that the Court’s decision is a significant victory for homeowners who have been harmed by OneWest’s improper and deceptive practices.  Abbey Spanier intends to litigate this action aggressively.

If you have been harmed by OneWest’s improper practices, please tell us your story here.

Abbey Spanier located in New York City, is a well-recognized national class action and complex litigation law firm.