The HAMPer Is Getting Full

Add this case to the laundry list of Home Affordable Modification Program ("HAMP") complaints that the United States District Court for the District of Maryland has thrown in the HAMPer.  Rhodomoyer v. Wells Fargo Bank, RDB 12-3806 is useful because it cites the numerous cases which have, in the Court's words, "uniformly held that relief cannot be granted to private plaintiffs alleging HAMP violations."  We have reported on some of these cases previously as these decisions have been rendered, and they include Goss v. Bank of America, CCB-12-2680 (Jan. 8, 2013); Farasat v. Wells Fargo Bank, N. A., WDQ-12-1276 (Dec. 19, 2012); Legore v. OneWest Bank, FSB, L-11-0589 (Oct. 15, 2012);  Spaulding v. Wells Fargo Bank, N.A.; GLR-11-2733 (July 23, 2012); Stovall v. Suntrust Mortg., Inc., RDB-10-2836 (Sept. 20, 2011); Allen v. CitiMortgage, Inc., CCB-10-2740 (Aug. 4, 2011).

What makes this case different?  This decision makes clear that while HAMP does not create a private right of action, it does not preclude such claims either and that "state law claims involving agreements made as part of HAMP" can theoretically be brought.  The problem, of course, is that such state law claims are founded in diversity, not federal question, jurisdiction and plaintiffs seem to be challenged in either pleading a prima facie state law claim or (as in this case) pleading damages that exceed the $75,000 federal diversity jurisdiction requirement. 

Mr. Rhodomoyer (who is pro se) was a little creative and alleged medical costs resulting from a "stress induced illness" that he purportedly obtained while dealing with the bank in its modification program.  Less creative (but perhaps more plausible) he alleged damages resulting from closing costs and home improvements he purportedly made in reliance on HAMP.  Not enough, sir.  The HAMPer is getting fuller by the day.

Another Complaint To Throw In The HAMP-er

                                               Photo: http://www.homedecorators.com/P/Rattan_Elephant_Hamper/

Bob Gaumont co-authored this post. 

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: 

http://www.ca4.uscourts.gov/Opinions/Published/121973.P.pdf

Closing the HAMPer II?



Photo By: The Container Store

 By: Matt Cherep

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).

Facts:

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.

Analysis:

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.

North Carolina Supreme Court Gives Stamp, Its Stamp of Approval



Photo By: sodahead.com

 By: Matt Cherep

On March 8, 2013, the North Carolina Supreme Court overturned the Court of Appeals and held that a stamp alone can serve as a valid indorsement of a promissory note. In Re Foreclosure of Bass, No. 554PA11, 2013 WL 865408 (N.C. Mar. 8, 2013). The Supreme Court also held that a signature serving as an indorsement is entitled to a presumption in favor of validity. Id. at *5. Therefore, a party contesting the validity of the signature purporting to be an indorsement bears the burden of producing evidence to “support a finding that the signature [was] forged or unauthorized.” Id. at *4.

In Bass, the Borrower executed a promissory note with Mortgage Lenders Network USA, Inc. (the “Note”). The Note was transferred several times and eventually ownership was transferred to U.S. Bank. Id. at *1.  The Borrower defaulted on her obligations under the Note and in March 2009 U.S. Bank filed a foreclosure action.  Id. at *2. Following U.S. Bank’s showing of the statutory elements necessary to prove foreclosure in North Carolina, the Clerk of Superior Court entered an order permitting foreclosure to proceed. Id.; see generally N.C. Gen. Stat. § 45.21.16(d) (2011).

The Borrower appealed, alleging that a stamp on the Note purporting to show transfer of ownership was insufficient to show intent or authority to negotiate the Note. The Superior Court sided with the Borrower, holding that the Note “was not properly [i]ndorsed and conveyed;” therefore, U.S. Bank was not the rightful holder of the Note and lacked standing to foreclose. Id. The Court of Appeals affirmed, holding that “the facial invalidity of th[e] stamp is competent evidence from which the trial could conclude the stamp is ‘unsigned’ and failed to establish negotiation.” Id. (citing In re Foreclosure of Bass, 720 S.E.2d 18, 27 (2011)).

The contested stamp reads:

Pay to the order of:
Emax Financial Group, LLC
Without recourse
By: Mortgage Lenders Network USA, Inc.

The Supreme Court held that under the UCC the contested stamp was a valid indorsement. Id. at *4.  The Supreme Court noted that “the UCC defines ‘signature’ broadly” as including a “symbol [that] may be printed, stamped or written” as long as “the symbol was executed or adopted by the party with the present intention to adopt or accept the writing.”  Id. at *3 (quoting N.C. Gen. Stat.  § 25-1-201 cmt. 37 (2011)). Thus, the stamp itself constituted a valid signature. Id. at *4. The Supreme Court noted that the stamp “indicates on its face an intent to transfer the debt from Mortgage Lenders to Emax.” Id.

Finally, the Supreme Court held that under the UCC, a “signature is presumed to be authentic and authorized [. . .] until some evidence is introduced which would support a finding that the signature is forged or unauthorized.” Id. at *4 (quoting N.C. Gen. Stat.  § 25-3-308 cmt. 1 (2011). The Borrower failed to overcome the presumption of authenticity of the signature, and therefore U.S. Bank was not required to prove the signature was valid.

The ruling represents a victory for financial institutions who were concerned that a ruling in favor of the Borrower would call into question the ownership of countless promissory notes.

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