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Maryland District Court Finds Possible Violation of Consumer Protection Law and Negligent Misrepresentation against Loan Servicer in Home Foreclosure Case

Marquis Neal v. Residential Credit Solutions, Inc.
United States District Court for the District of Maryland, No. JKB-11-3707 (D. Md. Feb. 1, 2013)

by Jhanelle Graham, Law Clerk
Semmes, Bowen & Semmes (

In Marquis Neal v. Residential Credit Solutions, Inc., the United States District Court for the District of Maryland was asked to determine whether Residential Credit Solutions, Inc. (“RCS”), the loan servicer on the home mortgage of Marquis and Xanthe Neal (“the Neals”) used unfair and deceptive practices in leading the Neals into a wrongful foreclosure, which allegedly violated the Maryland Consumer Protection Act (“MCPA”). See MD. CODE ANN., COM. LAW § 13-301 et seq. District Judge James K. Bredar granted in part, and denied in part, RCS’s motion for summary judgment.

In September 2007, the Neals took out a mortgage on their residential property in Pikesville, Maryland. RCS was assigned the servicing rights on the mortgage in March 2009. Six (6) months later, Mr. Neal’s business ran into financial difficulties, and Mrs. Neal contacted RCS to inquire about a loan modification. The Neals submitted the necessary paperwork for loan modification in December 2009 and called RCS in early January 2010 to find out the status of their application for modification of their loan. At that time, the Neals alleged that the RCS representative told them they did not qualify because they were current in their mortgage payments; the representative then recommended that they should not make their January payment. Based on this advice, the Neals did not make the January payment. In late January, the Neals called RCS for a status update and again in early February, when they were allegedly told not to make the February payment. At a later point in February 2010, the Neals were told over the telephone by an RCS representative that they were approved for loan modification and the representative gave them the new monthly payment amount of $1,634, roughly two hundred ($200) dollars less than their original mortgage payment of approximately $1,840.

Three (3) times after that during March and April 2010, RCS confirmed that it would send the required paperwork to the Neals. At the beginning of March, the Neals received a notice from RCS of its intent to foreclose, but an RCS representative told them that the message was automatic and, as such, the Neals did not need to worry. In March, Mrs. Neal attempted to make an online payment in the monthly amount, but the payment processing system did not accept her payment. She called RCS to find out what was wrong, and she was told that their application for loan modification had been denied. Additionally, the RCS representative told her that the Neals would have to pay $5,000, and their new monthly payment would be $2,200. In late June 2010, the Neals were given a total amount to pay, including fees, to cure the default, but that occurred after RCS filed a foreclosure action.

The essence of the Neals’ complaint was that RCS gave them false information that the Neals should withhold their monthly payments during the application process, that they were approved for a new lower monthly payment and were to await the final paperwork, and that their missed payments would be added to the end of the mortgage—upon which they relied to their detriment inasmuch as their credit rating was adversely affected by the withheld payments and the declaration of default, and they forewent an opportunity to refinance their mortgage. The Neals asserted five (5) causes of action in their complaint: (1) violations of the Maryland Consumer Protection Act; (2) common law fraud; (3) promissory estoppel; (4) negligence; and (5) negligent misrepresentation.

With respect to the first cause of action, the district court found that, if credible, the evidence was sufficient for a fact-finder to render judgment in the Neals’ favor. Under the MCPA, any person may bring an action to recover for injury or loss sustained by him as the result of a practice prohibited by Section 13-408 of the MCPA. Here, the Neals asserted that RCS’s conduct violated the MCPA’s prohibition on unfair or deceptive trade practice because RCS’s communications constituted either a false or misleading oral statement that had the capacity, tendency, or effect of deceiving or misleading the Neals, MD. CODE ANN., COM. LAW § 13-301(1), or a deception, fraud, false pretense, false premise, misrepresentation, or omission of a material fact with the intent that the Neals would rely upon it. MD. CODE ANN., COM. LAW § 13-301(9). The district court determined that damage to the Neals’ credit score and resulting inability to refinance a mortgage were objectively identifiable losses under the MCPA. Thus, the court held that it would be within the jury’s province to decide an appropriate measure of damages under the MCPA provided that the jury found such a violation under the MCPA.

The court held, however, that the Neals’ claim of common law fraud failed. The elements of common law fraud were set forth in Gourdine v. Crews, 955 A.2d 769, 791 (Md. 2008) (false representation by defendant to plaintiff; falsity either known to defendant or representation made with reckless indifference as to its truth; misrepresentation was made for purpose of defrauding plaintiff; plaintiff had right to rely upon representation and did so rely; plaintiff suffered compensable injury caused by misrepresentation). Because the court determined that the record contained no evidence that any misrepresentation was done for the purpose of defrauding the Neals, the district court rejected the Neals’ second cause of action.

With respect to the third and fifth causes of action, the district court held that the Neals’ evidence was sufficient to go to the jury under their theories of promissory estoppel and negligent misrepresentation. The court articulated that promissory estoppel is another term for the doctrine of detrimental reliance set out in Pavel Enterprises, Inc. v. A.S. Johnson Co., Inc., 674 A.2d 521, 532 (Md. 1996), which, in the instant case, applied to RCS’s promise that the missed payments would be added to the end of the loan. The district noted that the duty of care applicable to Neals’ negligent misrepresentation claim arose from their existing contractual relationship with RCS based upon their original mortgage. In this regard, the court found it fair for the Neals to contend that RCS had a duty to provide truthful information to them to maintain their mortgage in good standing. It was, therefore, inconsistent with that duty for RCS to advise the Neals to miss mortgage payments to be eligible for loan modification, to advise them they were approved for loan modification and await the paperwork, and to advise them that the missed payments would be added to the end of the mortgage when none of that information was true and when they relied upon that information leading up to RCS’s declaration of default. Thus, the court denied RCS’s motion for summary judgment on counts three (3) and five (5).

The court, however, rejected the Neals’ negligence claim. In the context of loan applications, Maryland’s highest court has found a tort duty by a creditor to its customer to use reasonable care in the processing and determination of an application for credit. Jacques v. First Nat’l Bank of Md., 515 A.2d 756, 761-63 (Md. 1986). Based on their complaint, the Neals’ negligence count was premised upon a failure by RCS to use due care “in connection with their loan modification application.” Nonetheless, the court stated that simply submitting an application for a loan modification is insufficient to establish the “intimate nexus” that Jacques required. Here, the court found no special circumstances and no contractual basis to confer a tort duty of care on RCS as to the loan modification application, noting that the undisputed evidence in the record showed that the Neals did not qualify for the loan modification because of their “extensive credit card debt.” RCS could not, therefore, breach a duty of due care in the processing and determination of the application since the Neals were not entitled to a determination in their favor.

For these reasons, RCS’s motion for summary judgment was granted in part and denied in part by the Maryland district court.