SAN FRANCISCO (Legal Newsline) – The U.S. Court of Appeals for the Ninth Circuit upheld the dismissal of a class action lawsuit last month. The lawsuit questioned fees given during property inspections after the plaintiffs in the case had defaulted on their mortgages.

Ocwen Financial Corp., a loan servicing company in Florida, charged Mary Lou Vega, Tara Inden and Regina Saffold-Sanders for property inspections. The inspections took place after the plaintiffs defaulted on their loans. 

According to Ocwen, the mortgage contracts that the plaintiffs signed specifically stated that they could charge the plaintiffs for property inspections that are necessary to protect the lender’s interest. Those costs would be passed on to the plaintiffs.

Once the plaintiffs defaulted on their loans, Ocwen sent property inspectors to the premises to see if the occupants were maintaining the integrity of the property.

Vega, Inden and Saffold-Sanders sued Ocwen as a result, alleging that the higher ups at Ocwen were conspiring against them to commit fraud. They alleged that the lenders were in violations of RICO (The Racketeer Influenced Corrupt Organizations Act) and the California Unfair Competition Law. The plaintiffs said that the fees were never disclosed to them and that they were done too frequently and never reviewed with them. 

“I was not surprised by the Ninth Circuit’s ruling,” John Raffetto, attorney at Goodwin Law in Washington, D.C., told Legal Newsline. “It is in line with established precedent about what plaintiffs must allege to state fraud claims.”

The Ninth Circuit agreed with the trail court to dismiss the plaintiff’s claims. It ruled that the allegations brought forth by the plaintiffs were not enough to claim fraud. The inspections were in accordance with the clause outlined in Ocwen's mortgage contracts, which was signed by the plaintiffs.

Many circuits throughout the country have seen similar cases to Vega v. Ocwen

“Those cases sometimes involve different claims and different factual allegations, but the heart of those complaints is the same,” Raffetto said. “When those cases involve fraud allegations, courts often have to address the issue that drove the decision in Vega.”

The case will be the blueprint in deciding future cases where defendants are facing fraud claims as it pertains to servicing obligations. 

“Because the Ninth Circuit’s decision addressed a pleading standard, the decision is unlikely to directly affect borrowers, lenders, and loan servicers,” Raffetto said. “Plaintiffs and defendants in similar cases will likely use the Ninth Circuit’s decision to frame their litigation strategies.”

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