$17 million class action settlement approved in Nationstar Mortgage case

Judge Rice has granted final approval of a $17 million settlement in a long-running class action against Nationstar Mortgage. The settlement benefits Washington homeowners who defaulted on their loans with Nationstar and who were locked out of their homes prior to a foreclosure sale.

What was the case about? The case arose from Nationstar’s occasional practice of locking homeowners out of their homes before their properties were formally foreclosed upon. The court ruled that this practice amounted to common law trespass and violated the Washington Consumer Protection Act. The certified class consisted of all Washington homeowners who were subject to this practice from 2008 to 2016.

What are the settlement terms? The settlement calls for Nationstar to pay $17 million into a settlement fund. Roughly $13 million will be distributed to class members in the form of cash payments. The remaining $4 million will be paid to class counsel to cover attorneys’ fees and costs.

Are the settlement terms fair? The million-dollar question! Judge Rice held a fairness hearing and performed a detailed fairness inquiry under Federal Rule of Civil Procedure 23(e). He concluded that the payments to class members were fair and reasonable. He also concluded that the $4 million payment to class counsel was reasonable under the Ninth Circuit’s 25% benchmark approach.

Was there anything unusual about this case? Yes. A significant number of the class members (262) filed for bankruptcy during the class period. Under bankruptcy law, those class members’ claims were assets of their bankruptcy estates. That posed a tricky administrative issue: should those class members’ payments be made to the class members themselves, or to the trustees of their bankruptcy estates?

Judge Rice appointed a special master to tackle this issue. The special master divided the bankruptcy cases into different categories based upon the type of case (Chapter 7, Chapter 11, or Chapter 13), and the amount of unused exemptions that were available to each class member. Notice of the proposed settlement was then provided to the United States Trustees for each of the districts in which the bankruptcies were filed, as well as the bankruptcy trustees responsible for administering the individual cases.

Ultimately, the vast majority of the payments wound up going to the class members themselves. The bankruptcy trustees only claimed the payments in 13 of the cases.

This issue is admittedly a bit dry. But it does matter to the bankruptcy bar. The U.S. Trustee for the Eastern District of Washington, Gary Dyer, will be presenting on the interplay between class action awards and bankruptcy filings at the Eastern District of Washington’s Annual Bankruptcy Seminar and Retreat at Sun Mountain Lodge on June 28-29.

The case is Jordan v. Nationstar Mortgage, LLC, Case No. 14-CV-0175-TOR.

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