HAMP and Section 75-1.1, Part 2
Ellis & Winters
In yesterday’s post, we discussed when a lender’s failure to comply with guidelines under the federal Home Affordable Mortgage Program (HAMP) might violate N.C. Gen. Stat. § 75-1.1 as well. We analyzed a very recent federal decision, Campbell v. CitiMortgage, that refused to dismiss this type of 75-1.1 claim.
Several other district courts, bankruptcy courts, and state courts in North Carolina have considered the relationship between HAMP and section 75-1.1. Although some of these decisions have upheld 75-1.1 claims in this setting, none of them has treated a HAMP violation as a per se (automatic) violation of section 75-1.1.
Here is a summary of the key points from these decisions:
- In re Raynor shows just how complex and intense foreclosure litigation can get. The Raynors contested their foreclosure in state court, asserting that their lender violated HAMP regulations by denying them a loan modification. When the trial court rejected that defense, the Raynors appealed to the North Carolina Court of Appeals.
In the middle of these proceedings, the Raynors filed a separate lawsuit against their lender. They alleged, among many other claims, that the same HAMP violations also violated section 75-1.1. After the lender removed this new lawsuit to federal court, the parties consented to a preliminary injunction that barred further progress on the foreclosure. The Raynors later voluntarily dismissed that lawsuit (presumably because of a settlement).
In the meantime, the state-court appeal proceeded. The North Carolina Court of Appeals held that the events in the federal lawsuit justified claim preclusion against the Raynors’ appeal from the foreclosure.
In its opinion, the Court of Appeals noted that the federal courts of appeals disagree on whether the lack of a private right of action in HAMP bars related state-law claims. Later opinions—mostly from federal courts in North Carolina—have not emphasized this circuit split. This discussion in Raynor might suggest that the North Carolina state courts could be more receptive to a preemption-like defense against 75-1.1 claims than federal courts in North Carolina have been.
- In contrast, Robinson v. Deutsche Bank National Trust Co. illustrates how federal courts in North Carolina have so far rejected the argument that the absence of a private right of action in HAMP bars a 75-1.1 claim. In Robinson, the U.S. District Court for the Eastern District of North Carolina stated that the absence of a private right of action in HAMP “provides no reason to dismiss a claim under a state law just because [that claim] refers to or incorporates some element of the federal law.”
After rejecting that defense, the court held (on a non-per-se basis) that the plaintiff’s 75-1.1 claim plausibly alleged deception or unfairness. The court stressed that “Plaintiff alleges . . . that Defendant Homeward provided her with false information about the HAMP process and the status of the foreclosure sale of her property—including the statement that the foreclosure sale would not go forward while her loan modification application was being processed.”
- In In re Rutledge, the U.S. Bankruptcy Court for the Middle District of North Carolina likewise analyzed HAMP-related 75-1.1 claims as non-per-se claims. Even if the lender misrepresented the borrower’s status under HAMP, the court held, the borrower did not allege any reliance on that misrepresentation. The court went on to decide that “poor communication,” “confusion,” and “the supply of erroneous information” to the borrower did not qualify as unfairness under section 75-1.1.
- Similarly, in Johnson v. J.P. Morgan Chase National Corporate Services, Inc., a borrower alleged that a lender invited him to apply for a HAMP loan modification and then denied his application. The U.S. District Court for the Western District of North Carolina dismissed the borrower’s 75-1.1 claim. In a recommendation that District Judge Cogburn adopted, Magistrate Judge Cayer held that the borrower’s allegations did not “rise to the level of egregious behavior required” under section 75-1.1.
- In In re Hinson, the Bankruptcy Court for the Eastern District of North Carolina denied a motion to dismiss a HAMP-related 75-1.1 claim. The court reached the same conclusions that appear later in Campbell. Indeed, Campbell quotes Hinson at length.
- Finally, in Anderson v. Aurora Loan Services, LLC, the North Carolina Court of Appeals held that HAMP-related 75-1.1 claims were procedurally barred. The court emphasized that the plaintiff had not appealed, or sued to enjoin the foreclosure at issue, within ten days after the foreclosure, as N.C. Gen. Stat.
§ 45-21.16(d1) allows. This procedural default barred the later lawsuit in which the plaintiff tried to invoke section 75-1.1.
In sum, no court in North Carolina has treated the lack of a private right of action under HAMP as a winning defense under section 75-1.1, but the North Carolina Court of Appeals has left the door open for this defense.
As a group, these cases show the complexity that can result when federal law, distraught plaintiffs, and section 75-1.1 collide.
Lauren Golden, as well as law students Noel Anderson, Kathleen O’Malley, and Lauren Travers, contributed to this post.
Author: George Sanderson