Aurora Loan Services Agrees to $5.3M Mortgage Modification Settlement

According to documents filed in California federal court Thursday, Aurora Loan Services LLC has agreed to a $5.3 million class action settlement over allegations it took advantage of California homeowners facing foreclosure by offering them deceptive mortgage forbearance agreements.

The Aurora mortgage modification class action lawsuit alleged Aurora promised homeowners who were facing foreclosures the opportunity to obtain mortgage modifications through contracts that required them to pay monthly payments and legal fees. The plaintiffs allege that these promises were designed to take advantage of the homeowners who were induced to make payments to Aurora under the false hope that they would be able to cure their arrearages on their mortgage loans. They claim that the mortgage modification agreements were not designed to help vulnerable homeowners keep their homes, but were instead designed to create cash flow from otherwise unperforming loans.

The proposed Aurora class action settlement creates a non-reversionary settlement fund that will be distributed to eligible Class Members. Because Aurora is no longer in operation and no longer services mortgage loans, the class action settlement does not provide any injunctive relief.

Although the plaintiffs have filed a motion seeking certification of the class action lawsuit, the court has yet to certify any classes. The class action settlement agreement proposes the creation of two classes.

The proposed “Rosenthal Act Settlement Class” would consist of all California residential mortgage customers who received a “Workout Agreement,” “Foreclosure Alternative Agreement” or substantively identical correspondence from Aurora on or after June 8, 2009.

The proposed “Restitution Settlement Class” would consist of all California residential mortgage customers who received a “Workout Agreement,” “Foreclosure Alternative Agreement or substantively identical correspondence from Aurora on or after June 8, 2006, and who made the trial payments required by the agreement, did not thereafter enter into a repayment plan or HAMP trial payment plan, were not offered a loan modification by Aurora and were subsequently foreclosed upon.

According to the proposed class action settlement, Rosenthal Act Class Members are likely to receive a modest payment in the range of $25 due to the class action damages cap. However, Restitution Class Members are expected to receive an average of more than $1,600.

“This was a vigorously litigated lawsuit,” the class action settlement documents say. “Likewise, the parties and their counsel have negotiated vigorously with each other and at arm’s length. … Based upon Class Counsel’s investigation, legal evaluation, and taking into account the contested legal and factual issues involved, including the Parties’ assessment of the litigation and the relative benefits conferred upon the potential Settlement Class Members pursuant to this Agreement, Class Counsel have concluded that the [class action settlement] is fair, reasonable, adequate and in the best interests of the Plaintiffs and the Settlement Class Members.”

The plaintiffs are represented by Steve W. Berman and Thomas E. Loeser of Hagens Berman Sobol Shapiro LLP; Ali Abtahi and Idene Saam of Abtahi Law Firm; Andrew Oldham of the Law Office of Andrew Oldham; and T. Christopher Tuck of Richardson Patrick Westbrook & Brickman LLC.

The Aurora Mortgage Modification Class Action Lawsuit is Pinel v. Aurora Loan Services LLC, Case No. 4:10-cv-03118, in the U.S. District Court for the Northern District of California.