Summary:
The Debtor, after various alleged inconsistencies and shenanigans by Wells Fargo in application of her payments and insurance proceeds, as well as failures in the review of her loan modification application, filed bankruptcy and brought suit alleging, among other causes of action, breaches of contract and duties of good faith & fair dealing and fiduciary duty, fraud and constructive fraud, and violations of the North Carolina Unfair and Deceptive Trade Practice Act. Wells Fargo sought dismissal for failing to state a claim. Following Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012), the bankruptcy court examined the treatment of allegations of state law violations arising from failures under federal regulations related to the providing and servicing of mortgages, finding that the cases fell into three categories: 1. Courts that have rejected state law claims “because HAMP does not create a private federal right of action for borrowers against servicers.” Id. at 559 n.4. 2. Courts that have rejected state law claims where the debtors attempted to assert their status as third-party beneficiaries of their loan servicers, whose Servicer Participation Agreements (“SPAs”) with the United States required the servicers to refinance mortgages and help Debtors avoid foreclosure under the HAMP guidelines. See Astra USA, Inc. v. Santa Clara County, -- U.S. --, 131 S. Ct. 1342, 179 L.Ed.2d 457 (2011)(Health care facilities covered by § 340B of the Public Health Services Act could not sue as third-party beneficiaries of drug price-ceiling contracts between pharmaceutical manufacturers and the government because Congress did not create a private right of action under such Act.) 3. Courts that have allowed state law claims based on contract, tort and consumer fraud statutes, based on the trial period plan entered into as a prerequisite to a formal loan modification under HAMP as a state law breach of contract. In regards to the breach of contract claim, the bankruptcy court, stating that “it is appropriate for the Court to look at HUD regulations in dealing with FHA-insured mortgage loans, held that the alleged failure by Wells Fargo to timely credit funds to the balance of the loan provided sufficient basis for allowing the claim to go forward. Additionally, the court, following Robinson v. Deutsche Bank Nat’l Trust Co., 2013 WL 1452933 (E.D.N.C. Apr. 9, 2013) and Hinson v. Countrywide Home Loan, Inc. (In re Hinson), 481 B.R. 364 (Bankr. E.D.N.C. 2012), found plausible allegations sufficient “to show that an implied duty of good faith and fair dealing existed in connection with the original deed of trust and that duty was breached in the actions of the lender leading up to foreclosure.” The Debtor’s recoupment claim, asserted defensively in objecting to the arrearage claim made by Wells Fargo, for claims that might otherwise have been barred by the Statute of Limitation, was also allowed to go forward. The claims for a breach of fiduciary duty, however, failed as under North Carolina law, more is needed for such an obligation to arise than merely a debtor-creditor relationship. In order to support the various fraud claims, the Debtor was required to alleged that there was (1) a false representation or concealment of a material fact (2) that is reasonably calculated to deceive (3) made with intent to deceive (4) which does in fact deceive and (5) results in damage to the injured party. Charlotte Motor Speedway, LLC v. County of Cabarrus, 748 S.E.2d 171, 178 (N.C. Ct. App. 2013). Here, however, the any misrepresentation made by Wells Fargo regarding the denial of a loan modification did not meet the requirement of reliance by the Debtor, because the Debtor was working on a loan modification and her damages did not “proximately flow from such reliance.” Additionally, in order to show the intent to deceive, the Debtor must show more that a “sheer possibility” of such intent. The claim of that by failing to notify her that she would still be delinquent at the conclusion of a forbearance agreement, did not constitute a negligent representation, which “requires an affirmative misrepresentation under North Carolina law, not just a negligent omission of information. See Breeden v. Richmond Cmty. College, 171 F.R.D. 189, 202-03 (M.D.N.C. 1997); Harrold v. Dowd, 561 S.E.2d 914, 919 (N.C. Ct. App. 2002). The elements for a unfair trade practice under both N.C.G.S. § 75-1.1 and §75-50 et seq. (with the later having additional elements not in dispute here) are: (1) an unfair or deceptive act or practice, or an unfair method of competition, (2) in or affecting commerce, (3) which proximately caused actual injury to the plaintiff or to his business. See Spartan Leasing Inc. v. Pollard, 400 S.E.2d 476, 481-82 (N.C. Ct. App. 1991). This does not require fraud, bad faith or deliberate deception, but instead only “ must show that the acts had a tendency or capacity to mislead or created the likelihood of deception.” Id. at 482. Opposed to a breach of contract claim, however, “a disagreement with a loan servicer over terms and payments of a mortgage, must also allege egregious or aggravating circumstances to constitute an unfair or deceptive act under § 75-1.1. See Harty v. Underhill, 710 S.E.2d 327, 332 (N.C. Ct. App. 2011). The miscommunication between the parties did not rise to this egregious level. The bankruptcy court found that Debtor’s unfair trade practice failed due to a lack of “detrimental reliance”, which requires as showing that “if it were not for the misrepresentation, the plaintiff would likely have avoided the injury altogether.” Bumpers v. Cmty. Bank of N. Va., 747 S.E.2d 220, 224 (N.C. 2013).
For a copy of the opinion, please see:
Rutledge v. Wells Fargo Bank, N.A.- State Law Claims for Failure Related to HAMP Modification
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