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Lawsuit Against Home Mortgage Company, Residential Refinancing Transaction, Operation Advertised "3.95% 30 Year Mortgages"
The following cases were examined in previous issues of Advertising Compliance Service and involved a lawsuit against a home mortgage company, breach of the duty of good faith and fair dealing stemming from a residential refinancing transaction, and an Internet operation that advertised "3.95% 30 Year Mortgages" that was barred from violating federal lending and privacy laws.
Disclaimers in Mortgage Application
Preclude False Advertising Claim: Court
Plaintiff sued the defendant home mortgage company for breach of contract, false advertising, fraud, misrepresentation, and breach of the duty of good faith and fair dealing stemming from a residential refinancing transaction. Plaintiff alleged that, after receiving several solicitations from Defendant, he formally applied for refinancing and submitted the required application fee. Plaintiff apparently believed that the completed application constituted an enforceable agreement, without any further action on his part. However, Plaintiff never received a letter of approval from Defendant. A month later, Defendant sent a notice to Plaintiff asking him to complete another application. Although Plaintiff believed he had already been approved for the loan, he again submitted an application.
Despite the completion of the second application, Plaintiff's closing date was cancelled. Plaintiff contacted Defendant's sales agent and notified her that Defendant was not acting in conformity with the parties' agreement because it had not provided his refinancing as promised. The agent promised Plaintiff that, because there had been a misunderstanding with Plaintiff's loan approval, she would again lock Plaintiff in to the interest rate that had been previously offered. However, Plaintiff did not receive an approval or any loan documents from Defendant, and he eventually filed suit. Defendant filed a motion for summary judgment seeking to dismiss Plaintiff's case, on the grounds that:
- no enforceable loan agreement ever existed between the parties;
- Plaintiff's state law false advertising claims were preempted by the federal Lanham Act; and
- in any event, Plaintiff's complaint fails to properly plead the elements of a false advertising claim.
The court first considered whether the parties had entered into a "clear, unambiguous and fully integrated contract" to refinance Plaintiff's loan. In so doing, the court examined "whether there was offer, acceptance and a meeting of the minds" between Plaintiff and Defendant on the essential terms of the agreement. After examining the mortgage loan application, the court determined that it did not satisfy the elements of a binding contract, in large part because it contained the following disclaimer:
"This is not a loan approval or a loan commitment. Any program described above may not be available for Applicant. The Lender will not close the loan unless, among other things, it approves the Applicant's loan application, including employment, income, assets, credit and property, and all conditions of such approval are satisfied prior to loan closing."
In the court's view, this disclaimer "show[ed] ... that Defendant did not intend to make a binding offer through the application." On the other hand, a transcript of a phone conversation between Plaintiff and Defendant's agent may have been sufficient to form an agreement, as it contained statements by Defendant "which impl[ied] that a new loan already exist[ed] and that it w[ould] inevitably fund." According to the court, "[t]his affirmative language reasonably led Plaintiff to believe" that, following the phone call, "he may have been approved for the refinancing." Given this ambiguity, the court concluded that a question of fact existed as to whether a binding agreement was ever reached. The court therefore denied Defendant's motion for summary judgment on Plaintiff's breach of contract claim.
On the other hand, the court granted Defendant's motion with respect to Plaintiff's false advertising claim, finding that Plaintiff had not adduced evidence that:
- Defendant's solicitations were false;
- Plaintiff or others who received the mailing relied to their detriment on the ads; or
- any injury occurred.
In so doing, the court again relied on multiple disclaimers in defendant's solicitations and application package which "clearly state[d]" that the materials were simply a "request" and not an actual loan. The court granted summary judgment to Defendant on Plaintiff's misrepresentation and fraud claims for this same reason.
(Osuji v. Countrywide Home Loans, Inc., Civil No. 05 C 4758, United States District Court for the Northern District of Illinois, 2006 U.S. Dist. LEXIS 63171, August 17, 2006; see also Advertising Compliance Service, Tab #2, General Articles, Article #554).
Mortgage Spam Scam Operators:
FTC Prescribes $1 Million Bonds
An Internet operation that advertised "3.95% 30 Year Mortgages" was barred from violating federal lending and privacy laws. As part of a settlement, the operation's principals agreed to settle FTC charges that the alleged scheme violated federal law. The settlement deal requires the principals to post $1 million bonds before sending spam in the future.
(30 Minute Mortgage, et al., Civil Action No. 03-60021-CIV-Lenard-Simonton, December 9, 2003; see also Advertising Compliance Service, Tab #2, General Articles, Article #565.)
Mortgages, Refinances - Cases and Articles
- Mortgage Brokers Benefited from Spammer Actions: Two cases that were examined in previous issues of Advertising Compliance Service. They involved mortgage brokers who benefited from "spammer" actions and a Department of Justice (DOJ) Complaint that a mortgage services company violated FTC's Telemarketing Sales Rule (TSR) while marketing mortgage products and services.
- Mortgage Loan Advertised: Was Really Adjustable Rate Mortgage. Full text of "FTC: Mortgage Broker’s Deceptive Claims Tricked Consumers Looking for a Good Rate," dated June 2, 2004. This FTC case involved issues concerning refinancing (i.e., loan refinance) and false advertising.
- Home Mortgage Refinance Services: Full text of FTC News Releases, "Colorado Mortgage Broker Barred from Making Deceptive Claims," dated March 28, 2005.
- Home Mortgage Refinance Services: Article adapted from an article appearing in Issue #568 of Advertising Compliance ServiceÔ at Tab #2, General Articles, Article #512 as part of the "Washington Roundup: A Review of Ad Actions Involving FTC."
- Home Mortgage Company: Lawsuit Against Home Mortgage Company, Residential Refinancing Transaction, Operation Advertised 3.95% 30 Year Mortgages - Articles.
- Telemarketer Selling Mortgage Loans, Refinancing and Other Products; "Spam Merchants" Who Allegedly Sent E-Mails Hawking Mortgage Opportunities.
- Home Loans, Mortgage Loans, Refinance: Variety of Online Resources and Links.
Home Loan Advertising & Credit-Related Web Sites
You will experience many potential borrowing pitfalls when you initiate your search of the Internet for home loans, loan refinance information, or the best mortgage loans that's available. The following websites contain a lot of information that can help you shop for a mortgage, avoid home equity scams, obtain information on reverse mortgages, and more:
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