Closing the HAMPer II: North Carolina Court Allows Common Law Claims to Proceed and There's Some Mention of HAMP in the Decision too
On April 9, 2013, the District Court for the Eastern District of North Carolina joined the District Court for the District of Maryland in allowing a borrower’s common law claims arising out of a bank’s failure to comply with HAMP to survive a motion to dismiss. Robinson v. Deutsche Bank National Trust Co. as Trustee for Argent Securities Trust, Asset-Backed Pass-Through Certificate Series 2006-M1 and Homeward Residential Inc. f/k/a Am. Home Mortgage Servicing, Inc., No. 12-cv-590F, 2013 U.S. Dist. Lexis 50797 (E.D.N.C. Apr. 9, 2013). The Court took the view, as previously expressed by the 7th Circuit, that although HAMP does not allow a private right of action, it also does not preempt state common law claims. See Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012).
The plaintiff Borrower (“Borrower”) alleged that she was working with Homeward Residential Inc. (“Homeward”) on a loan modification. Robinson, 2013 U.S. Dist. Lexis 50797, at *4-9. During the modification review process, Homeward commenced foreclosure proceedings. A foreclosure hearing took place, but the Borrower did not attend, claiming that she believed her only option to keep the home was through a loan modification. The Borrower claimed that she consulted a bankruptcy attorney and was prepared to file Chapter 13 Bankruptcy to “save her home” if a foreclosure sale was imminent. According to the Borrower, sometime after the foreclosure proceedings, Homeward advised her that the sale of her home would take place on June 6, 2012; however, Homeward also instructed her that if she submitted additional loss mitigation paperwork before June 6, 2012 her home would not be sold. The Borrower claimed that she called Homeward on June 4, 2012 to confirm this fact. During the June 4 phone call, the Borrower alleged that a Homeward employee told her that she needed to file additional paperwork, but that no foreclosure sale would take place pending the considerations of her loss mitigation application. After this phone call, the Borrower allegedly contacted her Bankruptcy attorney and canceled an appointment because of Homeward’s representations.
On June 6, 2012, the Substitute Trustee conducted the foreclosure sale. Defendant Deutsche Bank purchased the home at foreclosure sale. The Deed of Trust was transferred to Deutsche Bank on June 20, 2012. The Borrower received a Temporary Restraining Order enjoining her eviction, and filed common law claims including Breach of Covenant of Good Faith and Fail Dealing, Constructive Fraud, Gross Negligence, and a claim under the North Carolina Unfair and Deceptive Trade Practices Act.
Attorneys for Deutsche Bank argued that any state law claims premised upon the bank’s failure to follow HAMP policies must be dismissed. Id. at *31. In essence, Deutsche Bank argued that state law claims based on a bank’s lack of compliance with HAMP serve as an impermissible end-run around the fact that HAMP does not create a private right of action. Id.
Fourth Circuit district courts are divided on this issue. The District Court for the Eastern District of Virginia previously dismissed a borrower’s claims as “nothing more than an attempt to couch a HAMP violation – which provides no private right of action – under a different name.” Monton v. Am.’s Serv. Co., No. 2:11-CV-678, 2012 WL 3596519 at **8-9 (E.D. Va. Aug. 20, 2012). The District Court for the District of Maryland came down on the opposite side of the issue by holding that although HAMP does not create a private right of action, it does not necessarily follow that all state law claims based on violations of HAMP must be dismissed. Legore v. One West Bank, FSB, 2012 WL 4903087, at *4 (D. Md. Oct. 15, 2012).
Here, the Court sided with the District Court for the District of Maryland and allowed the Borrower’s common law claims to go forward. Robinson, 2013 U.S. Dist. Lexis 50797, at *34. The Court cited the 7th Circuit for the proposition that “the absence of a private right of action from a federal statute provides no reason to dismiss a claim under a state law just because it refers to or incorporates some element of the federal law.” Wigod, 673 F.3d at 581. Given divergent opinions within district courts in the 4th Circuit, it may not be long before the Court of Appeals weight in on this issue. Stay tuned.