The U.S. Court of Appeals for the Eighth Circuit recently affirmed summary judgment against a former husband borrower and his ex-wife on their claims under the Missouri Merchandising Practices Act (MMPA) and for tortious interference with contract.
In so ruling, the Court held that the foreclosure of the plaintiffs’ home loan was justified due to the husband’s misrepresentation on the modification application that he, not his ex-wife who was responsible for making the payments, was experiencing financial hardship and could not afford the loan payments.
A copy of the opinion in Dale Wheatley v. JP Morgan Chase Bank is available at: Link to Opinion.
In 2006, the ex-wife wanted to refinance her home but did not have good enough credit to obtain a loan. The ex-husband agreed that he would take out a mortgage and buy the ex-wife’s home, the ex-wife would make the mortgage payments, and the ex-husband would deed the house back to her when she paid off the loan.
The ex-wife defaulted in 2008, but the ex-husband convinced the loan servicer to modify the loan by falsely claiming the house was leased to the ex-wife’s stepfather. She defaulted again in 2009.
The ex-husband agreed to a repayment plan then applied for a loan modification, which was approved in May 2010. The modification was conditioned upon the truth of several sworn statements in an affidavit, including that he was experiencing financial hardship and was either in default or about to default. The ex-husband also represented in the affidavit that he did not reside in the home and also orally told the loan servicer’s representatives that his ex-wife made the mortgage payments.
The loan modification never went into effect because the loan servicer made a mistake by “double-counting some interest that had been capitalized” such that the loan continued in default status.
The loan was service-transferred in May 2011. Two years later, the new servicer contracted a sub-servicer to handle the loan, who foreclosed in August 2013.
The former husband and wife then sued the servicer and the sub-servicer for wrongful foreclosure, breach of contract, tortious interference, and deceptive and unfair trade practices under the MMPA. The trial court granted summary judgment in the defendants’ favor on all four counts, but the ex-husband and ex-wife appealed only the tortious interference and MMPA claims.
On appeal, the Eighth Circuit agreed with the trial court’s reasoning that the defendants had the right to foreclose because the ex-husband “could not prove his loss was caused by any misconduct of the defendants, as opposed to his own ‘noncompliance with the loan documents.’”
In addition, the Court held, because the foreclosure was proper, the tortious interference claim failed because the plaintiffs “could not establish the ‘absence of justification’ that is a necessary element of such a claim.”
The Eighth Circuit explained that the modification agreement only amended and supplemented the existing loan documents if the ex-husband’s representations were true. Thus, if his representations were false, “the agreement did not ‘amend and supplement’ anything, the existing version of the loan stayed in default, and foreclosure remained an authorized remedy.” More important, the Court reasoned, was the ex-husband’s misrepresentation that he, not his ex-wife, was experiencing financial hardship and couldn’t make the payments.
The Court rejected as irrelevant the ex-husband’s argument that the servicer knew it was the ex-wife making the loan payments because “[n]othing [he] might have told [the servicer] about his arrangement with [his ex-wife] could have made it true when he said the default was the result of his own financial condition, or changed his clear statement into a representation about [his ex-wife’s] financial condition.” Likewise, it did not matter whether the ex-husband could not afford the mortgage on his own “because there is no evidence [he] would have made the payments if he had the money.”
Because whether the debt would be paid depended only on the ex-wife’s ability to pay, and the ex-husband’s financial condition “had no bearing on the truthfulness of his representation about the reason for the default,” the Eighth Circuit held that the foreclosure was lawful and the plaintiffs’ MMPA and tortious interference claims failed as a matter of law.
Accordingly, the summary judgment for the defendants was affirmed.