510 B.R. 491
Bankr. M.D.N.C.2014Background
- Debtor purchased home in 2002; FHA-insured loan refinanced in 2004 with note of $91,164 and 6% interest; Wells Fargo serviced/held loan during relevant periods
- A 2010 loan modification reduced payments and extended maturity to 2040; unpaid principal balance shown as $84,167.06
- November 2010 forbearance offered; six reduced payments were to be made; forbearance terms later disputed when disclosures were not provided timely
- Debtor sought loss-mitigation options (including FHA-HAMP) starting 2011; Wells Fargo denied FHA-HAMP due to >12 months past due, and information was inconsistently provided
- Insurance proceeds from a fire loss were deposited in Wells Fargo escrow and not applied to debt for about ten months; later Wells Fargo advised proceeds could be applied to bring loan current
- Foreclosure proceedings commenced in May 2012; Debtor filed Chapter 13 in November 2012; Wells Fargo filed a Proof of Claim in March 2013 for $94,521.88 and the Debtor filed this adversary proceeding on May 22, 2013 seeking multiple state-law and related claims
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of contract survives | Rutledge asserts Wells Fargo breached the Deed of Trust by not applying insurance proceeds to the indebtedness and by mishandling loss mitigation | Wells Fargo contends federal FHA/HAMP framework lacks private right and contract claims fail | Count II survives (breach of contract) |
| Breach of the duty of good faith and fair dealing survives | Rutledge alleges implied covenant and statutory duties breached during servicing and loss mitigation | Wells Fargo argues no extra-contractual duty beyond contract; reliance on HAMP framework inappropriate | Count III survives (breach of implied covenant) |
| Fiduciary duty and constructive fraud dismissed | Rutledge contends Wells Fargo owed a fiduciary duty and breached it; constructive fraud alleged | Lender-borrower relationship is not fiduciary; actions are ordinary loan servicing | Counts IV and V are dismissed |
| Fraud claim dismissed | Rutledge claims fraudulent misrepresentation by Wells Fargo personnel | Claims fail under Rule 9(b) and lack of plausible intent/reliance | Count VII dismissed |
| Objection to Wells Fargo’s claim survives/recoupment allowed | Rutledge challenges the claim’s adequacy and seeks recoupment defense | Claim is proper; recoupment is not barred | Count I denied to the extent of relief on the objection; Count X recoupment is permissible |
Key Cases Cited
- Spaulding v. Wells Fargo Bank, N.A., 714 F.3d 769, 714 F.3d 769 (4th Cir. 2013) (re: HAMP-related claims and private rights; context for dismissal/retention of state-law claims)
- Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 673 F.3d 547 (7th Cir. 2012) (HAMP private rights; third-party beneficiary and contract theories; groupings of theories)
- Dallaire v. Bank of America, N.A., 738 S.E.2d 731, 738 S.E.2d 731 (N.C.App. 2012) (NC recognizes fiduciary duty in unusual lender-borrower circumstances)
- Shelton v. Wells Fargo Bank, N.A., 481 B.R. 22, 481 B.R. 22 (Bankr. W.D. Mo. 2012) (HUD regulations can influence contract claims in FHA cases)
- In re Ruiz, 501 B.R. 76, 501 B.R. 76 (Bankr. E.D. Pa. 2013) (HUD rules incorporated into insured mortgage claims; governing law relevance)
- Landmark decision cited (general principles), 978 F. Supp. 2d 552 (W.D.N.C. 2013) (continual effects vs. continuing violations; tolling limitations)