HELENA — The Montana Supreme Court will hear arguments this week in a mortgage dispute between a Meagher County couple and Bank of America over allegedly fraudulent dealings by the bank.
Oral arguments are set for 9:30 a.m. Wednesday.
Attorneys will argue whether an alleged oral modification of a real estate contract can be subject to a damages lawsuit and to the Montana Consumer Protection Act.
However the Supreme Court rules either could stop, or open the door to, lawsuits by homeowners under similar circumstances in Montana.
Bank of America’s loan modification practices have come under criticism nationally and been the subject of litigation elsewhere. (See related story.)
In Montana, Abraham and Betty Jean Morrow are appealing District Judge Kathy Seeley’s summary judgment in Bank of America’s favor.
The Morrows sued Bank of America for fraud, negligent representation, negligence and breach of contract over an alleged modification to their written mortgage made by a bank representative over the telephone.
The Helena judge agreed with the bank’s argument that the Morrows could not make these claims because of the “statute of frauds,” which requires loans to be made in writing and signed by both parties.
“Despite Morrows’ worthy effort to establish the elements of an executed oral agreement, there is no evidence before the court to substantiate that it was fully executed ‘on both sides of the agreement,’ “ Seeley wrote.
In 2003, the Morrows, who were from South Carolina, bought 50 acres in Meagher County, about 20 miles from White Sulphur Springs. They built a house three years later and planned to spend summers of their retirement years there.
In April 2008, the Morrows entered into a mortgage-refinancing loan with Quicken Loans. They borrowed $291,200 and agreed to make monthly payments of $2,301 over 15 years at an interest rate of 4.99 percent. A month later, Countrywide Home Loans bought their note and loan from Quicken and began servicing it.
Two months later, Bank of America acquired Countrywide.
The Morrows intended to finance their retirement and pay for their Montana house by selling two South Carolina businesses to another couple there for $620,000 in September 2007. However, the other couple later defaulted on one business and filed for bankruptcy on the other.
As a result, the Morrows lost more than $10,000 in anticipated monthly income in early 2009, their attorneys said.
Despite their financial setbacks, the Morrows didn’t miss a mortgage payment on their Montana home until November 2009.
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The Morrows said they missed that payment only because they contacted the bank about their changing finances and were told over the phone by a Bank of America representative — one of 40 different ones they dealt with — that they could be considered for a loan modification plan if they missed a monthly payment. It was the federal government’s Home Affordable Modification Program. The bank said no written record of that conversation exists.
In December 2009, Morrows said a different bank representative told them they were “locked” for a loan modification with monthly payments of $1,240 and a 2 percent interest rate.
The bank said that representative later testified that “locked” meant the software was locked, not that the bank had approved or completed a loan modification.
After missing the one payment, the Morrows paid monthly payments of $1,240 in December and for the next 14 months.
“The Morrows, seeking to lower their monthly payments in an anticipated reduction of income, were instead unwittingly put into the morass of BOA’s (Bank of America’s) loan ‘modification program,’ ” their attorneys, David K.W. Wilson of Helena, and John Heenan of Billings, wrote in a brief. “Under BOA’s direction, the Morrows were induced to skip a mortgage payment in order to qualify for the program. Next, BOA told them that they qualified for a loan modification and told them to make a reduced payment.
“Although the Morrows made and BOA accepted their modification payments for 14 months, BOA never honored the modification agreement, instead, and while accepting their reduced payments, declared the Morrows in default and sought to foreclose on their home.”
In response, Bank of America called the case an attempt by the Morrows “to enforce a purported oral contract to modify their mortgage loan,” its lawyers, Kenneth Lay and Christopher Oliveria of Helena, said in their brief.
Nothing in writing exists to establish any purported modification of their contract, the bank’s lawyers said.
“Rather, appellants’ (Morrows’) numerous admissions establish that they knew they were merely applying for a modification that was pending and had not been approved,” the bank’s brief said. “Moreover, appellants could not have been deceived and never could have qualified for the requested modification, because they did not occupy the property as their principal residence (an express requirement of the modification they sought).”
Throughout 2010, Bank of America said the Morrows received regular written correspondence repeatedly confirming they were “merely under review for a modification,” the bank said.
In January 2011, Bank of America’s records show the Morrows’ loan modification was rejected. The bank said the Morrows were ineligible for the program because they didn’t occupy the Montana home as their principal residence.
The bank said it initiated foreclosure proceedings in March 2011, after denying the Morrows’ modification application. A court injunction has blocked that foreclosure.
Filing friend-of-the-court briefs in support of the Morrows were the Montana Department of Justice, National Association of Consumer Advocates and Montana Legal Services Association.
The Montana Bankers’ Association filed in support of Bank of America.