Recently, the Seventh Circuit reversed a U.S. District Court ruling that had previously dismissed a Plaintiff’s lawsuit brought against Wells Fargo Bank. As background, the case involved the Home Affordable Mortgage Program (HAMP), which is a federal program implemented to help homeowners avoid foreclosure on their homes.
The facts of the case are fairly straight-forward. Wells Fargo held the mortgage on Plaintiff’s home. Plaintiff requested a loan modification under HAMP. Around 2009, Wells Fargo issued Plaintiff a four-month “trial” loan modification, under which it agreed to permanently modify the loan if she qualified under HAMP guidelines. Plaintiff alleged she was qualified. Wells Fargo stated that she didn’t qualify and refused to permanently modify her loan. In addition, Plaintiff alleged that Wells Fargo deliberately misled her during discussions during the loan modification.
Plaintiff brought various legal claims against Wells Fargo, including state law claims under the Illinois Consumer Fraud and Deceptive Business Practices Act. The U.S. District court dismissed Plaintiff’s cause of action stating that Plaintiff’s claims were premised on Wells Fargo’s obligations under HAMP and HAMP does not confer a private federal right of action for borrowers to enforce its requirements. In other words, since Wells Fargo was reviewing the loan modification under the federal HAMP guidelines and due to the fact that the HAMP guidelines did not allow for a right to sue under those guidelines, Plaintiff’s claims were not allowed.
The issue of the case was whether the Plaintiff’s state law claims under Illinois law were preempted or barred by federal law through HAMP due to the fact that HAMP does not contain a federal right of action for borrowers to sue lenders.
In review, the Seventh Circuit reversed the District Court’s ruling and held that while HAMP does not contain an enabling statute for a federal right of action, borrowers are still able to bring state law claims against their lender for alleged illegal actions under viable state law claims. In other words, just because the lender was working under a federal program (HAMP) to modify the loan, that federal program will not protect the lender from state law claims brought by the borrower.
While this case is important, it’s effects should not be overstated. The Plaintiff only won the appeal to continue her case and past summary judgment. With that said, the Seventh Circuit ruling does reinforce borrowers’ rights against lenders and ensures a state law private right of action.