November 26, 2014
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Another Complaint To Throw In The HAMP-er: Fourth Circuit Makes Ruling Under Home Affordable Modification Program
In a previous post, we discussed a decision by the U.S. District Court for the District of Maryland that has recently been affirmed by the Fourth Circuit, Spaulding v. Wells Fargo Bank, No. 12-1973 (decided April 19, 2013). The Fourth Circuit, once again, did not preclude state law claims brought under the Home Affordable Modification Program (“HAMP”). However, the Court affirmed dismissal of these claims. In sum, plaintiffs may bring these claims, but they may still not be able to overcome the motion to dismiss hurdle.
The Plaintiffs in Spaulding alleged five state law claims in response to Wells Fargo’s denial of their application for a mortgage modification under HAMP. Id. at 8. The District Court dismissed Plaintiff’s complaint in its entirety. Id. The Fourth Circuit affirmed. Id.
Regarding the first count, breach of implied-in-fact contract, the Court held that the conduct alleged by Plaintiff, which focused on Wells Fargo’s agreement with the U.S. Treasury to participate in HAMP and sending “HAMP Starter Kits” to distressed homeowners, did not constitute the “meeting of the minds” necessary to demonstrate the existence of a contract, implied-in-fact or otherwise. Id. at 12. The Starter Kit expressly states that the bank determines if the borrower qualifies. Such qualifying language made clear that further action was required by Wells Fargo before an offer to Plaintiff would be extended. Id. at 13. Where no offer is made, no contract exists. Id.
The second count (negligence) failed because Wells Fargo did not owe Plaintiff a tort duty. In Maryland, the Court explained, the relationship between a bank and borrower is “contractual, not fiduciary.” Id. at 14 (citing Kuechler v. Peoples Bank, 602 F. Supp. 2d 625, 633 (D. Md. 2009)). Consequently, absent special circumstances, courts resist imposing additional fiduciary duties on a bank that are not provided in the contract or loan agreement between the bank and its customer. Id.
Plaintiffs also could not impose a duty to process their loan modification application under HAMP because Plaintiffs could not demonstrate the “intimate nexus” required where the failure to exercise due care creates a risk of economic loss only. Id. (citing Jacques v. First Nat’l Bank of Md., 515 A.2d 756, 759 (Md. 1986)). The nexus required under Maryland law is satisfied by contractual privity or its equivalent. Id. (citing Jacques, 515 A.2d at 759-60.) The Court concluded that the nexus did not exist here and distinguished the case from Jacques on the grounds that Wells Fargo never promised Plaintiffs anything and Plaintiffs never provided any consideration to Wells Fargo. Id. at 16.
Plaintiffs submitted two weeks of pay stubs with their application for a mortgage modification. Id.at 17. Wells Fargo informed Plaintiffs that it needed more documentation and provided a specific deadline for receipt of this documentation. Id. Plaintiffs sent the paystubs to Wells Fargo eleven days after they were due. Id. at 17-18. As a result, Plaintiffs’ claims under the Maryland Consumer Protection Act (Count III) and Count IV (negligent misrepresentation) failed because Wells Fargo did not make a false representation by requesting additional documentation (paystubs) from Plaintiffs and then later informing Plaintiffs that they failed to provide Wells Fargo with the documents requested because the paystubs were not received by the deadline. Id. at 19-20. Count IV also could not stand because, as previously noted, Wells Fargo did not owe a duty of care to Plaintiffs. Id. at 20.
Finally, regarding Plaintiffs’ fraud claim, the Court held that Plaintiffs failed on every element of that claim. Id.
The Fourth Circuit opinion:
Bob Gaumont co-authored this post.