Real Estate Law

Troutman Sanders LLP: Two Federal Appeals Courts Split over Borrowers’ Rights to Sue under HAMP

By John C. LynchDavid N. AnthonyEthan G. Ostroff and Maryia Y. Jones

Courts nationwide have seen a groundswell of lawsuits by borrowers predicated on loan servicers' decisions not to provide loan modification relief under the Home Affordable Modification Program ("HAMP"). Some courts have allowed such claims to proceed, while many others have dismissed them because HAMP does not create a private cause of action.

The United States Courts of Appeals for the Seventh and Eleventh Circuits have recently weighed in on this issue but failed to resolve the current split between district courts. On March 7, 2012, the United States Court of Appeals for the Seventh Circuit held that the absence of a federal private cause of action under HAMP did not prevent consumers from bringing state law claims. Less than two months later, on April 19, 2012, the United States Court of Appeals for the Eleventh Circuit reached an opposite conclusion holding that borrowers lack standing to pursue such claims insofar as they are premised on the loan servicer's breach of HAMP obligations, which does not provide for a private cause of action.

Other than supplying controlling precedent for HAMP litigation in the Seventh and Eleventh Circuits, these decisions leave loan servicers with little guidance on the potential liability exposure in other jurisdictions.

Summaries of these two opinions follow below.

Wigod v. Wells Fargo Bank, N.A. , No. 11-1423 (7th Cir. March 7, 2012)

In Wigod, a putative class action that plaintiff brought on behalf of homeowners who were denied relief under HAMP, plaintiff alleged that she entered into a Trial Period Plan Agreement ("TPP Agreement") with the loan servicer. The TPP Agreement provided that, if plaintiff complied with the loan trial period and the representations regarding her financial situation remained true, she would be provided with a permanent loan modification. Plaintiff timely made all four payments required under the trial plan but the loan servicer declined to offer her a permanent HAMP modification, informing her only that it was "unable to get you to a modified payment amount that you could afford per the investor guidelines on your mortgage." The loan servicer thereafter requested that Plaintiff cure the default that accumulated during the time she was making modified trial payments.

Plaintiff brought various state-law claims, including breach of contract, promissory estoppel, fraud, and unfair and deceptive business practices in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA").

The Court first examined whether plaintiff adequately pled her claims under Illinois law and concluded that she did so for breach of contract, promissory estoppel, fraudulent misrepresentation, and violation of the ICFA. The Court next rejected the loan servicer's arguments that federal preemption doctrine barred the borrower's suit. The Court ruled that no conflict preemption applied because it was possible for loan servicers to comply with both state laws and HAMP regulations because state laws did not stand as an obstacle to the Congressional objectives in enacting HAMP. The Court noted that the Congressional goal was "surely to prevent ... banks from hoodwinking borrowers in the process [of providing foreclosure mitigation assistance]."

Finally, the Court rejected defendant's "novel" argument that plaintiff's state law claims are an impermissible end-run around the lack of a private action under HAMP. The Court opined that the trial court and defendant conflated the existence of a federal private right of action and the federal preemption of state law. If the Court were called to recognize a federal right of action under HAMP, it would likely refuse to do so but the issue in the present case was different. Specifically, the question was whether the federal law displaced remedies otherwise available under state law, i.e., the preemption doctrine, which the Court already found did not apply. Accordingly, the Court held that federal law did not prevent plaintiff from bringing state law claims.

A copy of the court's opinion is attached here.

Miller v. Chase Home Finance, LLC , No. 11-15166 (11th Cir. April 19, 2012)

In Miller, as in Wigod, plaintiff alleged that the loan servicer agreed to temporarily modify the terms of his loan agreement but later notified plaintiff that it would not extend a permanent loan modification to him. Plaintiff sued asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and promissory estoppel.

The United States Court of Appeals for the Eleventh Circuit affirmed the district court's dismissal of plaintiff's claims finding that HAMP did not provide a private cause of action.

After stressing that HAMP does create an express private right of action, the Court examined whether one can be implied under HAMP. The Court answered this question in the negative, holding that HAMP was not passed for the special benefit of struggling homeowners but was designed to provide authority to the Secretary of Treasury to restore liquidity and stability in the financial system. The Court next found that there was no indication of legislative intent to create a private right of action and that providing a private right of action would contravene the purposes of HAMP because it would likely chill servicer participation in the program based on the fear of exposure to litigation.

Finally, the Court concluded that contract and real estate law was traditionally the domain of state law so that it was inappropriate to infer a cause of action based solely on federal law. Consequently, plaintiff lacked standing pursue his claims based on the servicer's alleged violations of its HAMP obligations.

A copy of the court's opinion is attached here.

Troutman Sanders | Financial Services Litigation and Regulatory Compliance Team

Troutman Sanders' Financial Services Litigation and Regulatory Compliance Team is an accomplished and experienced leader in providing litigation and regulatory advice to a broad spectrum of financial services institutions. Our team is comprised of a dedicated group of trial and regulatory lawyers who regularly focus on resolving the array of issues which confront financial institutions. Our lawyers have years of hands-on successful experience in all areas of the trial process, coupled with in-depth banking industry and regulatory knowledge.

If you have any questions or would like additional information, please do not hesitate to contact David AnthonyJohn LynchEthan Ostroff, or Maryia Jones.

© TROUTMAN SANDERS LLP. ADVERTISING MATERIAL. These materials are to inform you of developments that may affect your business and are not to be considered legal advice, nor do they create a lawyer-client relationship. Information on previous case results does not guarantee a similar future result.


.... subscribers can explore/search Real Estate Law resources on or access any of these Mathew Bender Real Estate Law publications:

Non-subscribers can purchase Property Law treatises/resources and Mathew Bender publications from the LexisNexis Bookstore

Non-subscribers can purchase Real Estate Law treatises/resources and Mathew Bender publications from the LexisNexis Bookstore

For more information about LexisNexis products and solutions connect with us through our corporate site.

  • Anonymous
    Extremely informative. I wanted to thank you for this excellent post. I surely enjoyed each little bit of it and I have you bookmarked to check out more new stuff you post in the future.