HAMP and Section 75-1.1, Part 1
Ellis & Winters
In a recent article, Matt Sawchak explained per se violations of section 75-1.1. When courts recognize a per se violation of section 75-1.1, they are saying that violating a separate source of law—a separate statute, a regulation, or a tort doctrine—automatically violates section 75-1.1 as well.
Often, though, courts use reasoning that heads toward a per se violation of section 75-1.1, but stops short. Decisions like these pose two challenges:
- They often don’t say how much (or how little) another source of law might help a party establish a 75-1.1 violation.
- Later readers need to read these decisions especially carefully to avoid misunderstanding them—in particular, to avoid perceiving a per se violation when the courts have not recognized one.
Recent decisions on the relationship between the federal Home Affordable Mortgage Program (HAMP) and section 75-1.1 illustrate these challenges.
The HAMP program and HAMP-related litigation
During the recent mortgage crisis, Congress created HAMP to stabilize the housing market by helping homeowners avoid foreclosures. HAMP calls on lenders to try to work out mortgage modifications with financially distressed homeowners. If lenders set up mortgage-modification programs under HAMP, those programs have to meet extensive guidelines from the Treasury Department.
To try to stave off foreclosure, some homeowners have sued their lenders, accusing them of violating HAMP guidelines. Some of these complaints allege, for example, that a lender has orally promised a loan modification, but has foreclosed instead of carrying through on that promise.
HAMP doesn’t include a private right of action. Therefore, most borrowers who have alleged HAMP violations have done so through state-law claims, such as claims for unfair or deceptive practices. A number of courts have held, however, that the lack of a private right of action in HAMP bars all claims—even state-law claims—that are based on HAMP violations.
This brings us to the big question: Does a violation of the HAMP guidelines show a violation of section 75-1.1?
Several courts in North Carolina have addressed the relationship between section 75-1.1 and HAMP. None of these courts has treated a HAMP violation as a per se violation of section 75-1.1. At the same time, none of these courts has treated the absence of a private right of action under HAMP as dispositive. Instead, these cases occupy a difficult middle ground between a per se violation and a dispositive defense.
The latest word: Campbell v. CitiMortgage
A few weeks ago, in Campbell v. CitiMortgage, the U.S. District Court for the Middle District of North Carolina recommended denying a motion to dismiss a 75-1.1 claim that was based on HAMP violations. The court, however, did not say that violating the HAMP guidelines is a per se violation of section 75-1.1.
In Campbell, CitiMortgage started foreclosure proceedings against the Campbells’ home. A month later, CitiMortgage gave the Campbells a chance to modify their mortgage through a program that was designed to comply with HAMP. The Campbells gave CitiMortgage financial information to help it assess a potential loan modification. CitiMortgage, however, went ahead and completed the foreclosure, repossessed the home, and sold it to a third party.
The Campbells alleged that CitiMortgage engaged in a “dual-track” process by foreclosing while it was still reviewing their loan modification request. They argued that these acts violated CitiMortgage’s HAMP participation agreement with the Treasury Department.
The Campbells also claimed misrepresentations: they alleged that during discussions on a loan modification, CitiMortgage misled them about the chances that they would lose their home. They alleged that these misrepresentations caused them to forgo other remedies that could have saved their home from foreclosure.
CitiMortgage moved to dismiss. In a recommendation to Chief Judge Osteen, Magistrate Judge Auld recommended that the court dismiss all of the Campbells’ claims except their claim under section 75-1.1.
The recommendation specifically holds that “violations of a statute designed to protect the public, and violations of established public policy, may constitute unfair and deceptive practices under state law, even where the violated statute does not provide for a private right of action” (emphasis added).
Note well: This passage in Campbell does not hold that a HAMP violation is a per se violation of section 75-1.1. It holds only that the absence of private right of action under HAMP does not bar a section 75-1.1 claim. Matt Sawchak’s recent article, on pages 1905 to 1909, discusses similar passages in earlier opinions—passages that later courts often misunderstand.
After reaching these conclusions, the recommendation analyzes the Campbells’ 75-1.1 claim as a deception claim, and it finds that claim plausible. The recommendation stresses that according to the complaint, CitiMortgage made representations to the Campbells while their loan modification request was pending, yet acted inconsistently with those representations.
Neither side in Campbell filed objections to Judge Auld’s recommendation. Under those circumstances, Chief Judge Osteen still must rule on CitiMortgage’s motion to dismiss, but he is not required to review Judge Auld’s recommendation de novo.
Several other district courts, bankruptcy courts, and state courts in North Carolina have considered the relationship between HAMP and section 75-1.1. We will review those decisions in a related post tomorrow.
Lauren Golden, as well as law students Noel Anderson, Kathleen O’Malley, and Lauren Travers, contributed to this post.
Author: George Sanderson