A Mortgage Servicer can Violate the Texas Finance Code

A mortgage servicer can violate the Texas Finance Code by asserting legal rights it does not actually have. See McCaig v. Wells Fargo Bank, 788 F.3d 463 (5th Cir. 2015).

But the Fifth Circuit says seemingly inconsistent communications by a servicer do not violate the Code:

“[Plaintiff] does not contend that any one letter is a misrepresentation in and of itself but rather that the amounts differ, so the letters are misleading as a whole. But the letters explicitly state that they are describing two different types of obligations: notices of the entire outstanding obligation and notices of the amount due to bring the loan current. Each category is internally consistent and consistent with the other.

[Plaintiff’s] amount to bring the loan current continued to grow over time because she was not making adequate payments and still occupied the property. The total outstanding obligation grew for the same reason. The letters were not misrepresentations but, instead, were accurate descriptions of two different types of obligations and were specifically identified as such.”

Rucker v. Bank of America, 15-10373 (Nov. 20, 2015).

A Win for a Homeowner, in split Panel Opinion

Disputes between borrowers and mortgage servicers are common; jury trials in those disputes are rare.  But rare events do occur, and in McCaig v. Wells Fargo Bank, 788 F.3d 463 (5th Cir. 2015), a servicer lost a judgment for roughly $400,000 after a jury trial.

The underlying relationship was defined by a settlement agreement in which “Wells Fargo has agreed to accept payments from the McCaigs and to give the McCaigs the opportunity to avoid foreclosure of the Property; as long as the McCaigs make the required payments consistent with the Forbearance Agreement and the Loan Agreement.” Unfortunately, Wells’s “‘computer software was not equipped to handle’ the settlement and forbearance agreements meaning ‘manual tracking’ was required.”  This led to a number of accounting mistakes, which in turn led to unjustified threats to foreclose and other miscommunications.

In reviewing and largely affirming the judgment, the Fifth Circuit reached several conclusions of broad general interest:

• The “bona fide error” defense under the Texas Debt Collection Act allows a servicer to argue that it made a good-faith mistake;  Wells did not plead that defense here, meaning that its arguments about a lack of intent were not pertinent to the elements of the Act sued upon by plaintiffs;
• The economic loss rule did not bar the TDCA claims, even though the alleged misconduct breached the parties’ contract: “[I]f a particular duty is defined both in a contract and in a statutory provision, and a party violates the duty enumerated in both sources, the economic loss rule does not apply”;
• A Casteel – type charge issue is not preserved if the objecting party submits the allegedly erroneous question with the comment “If I had to draft this over again, that’s the way I’d draft it”;
• The plaintiffs’ lay testimony was sufficient to support awards for mental anguish; and
• “[A] print-out from [plaintiffs’] attorney’s case management system showing individual tasks performed by the attorney and the date on which those tasks were performed” was sufficient evidence to support the award of attorneys fees.

A dissent from former Chief Justice Edith Jones took issue with the economic loss holding, and would find all of the plaintiffs’ claims barred; “[t]he majority’s reading of these [TDCA] provisions specifically equates mere contract breach with statutory violations[.]”