Lender’s Offer to Consider Borrower for Foreclosure Avoidance Options Does Not Entitle Borrower to Loan Modification

On November 1, 2016, the North Carolina Court of Appeals issued an opinion, albeit unpublished, clarifying whether a lender’s alleged refusal to modify a mortgage loan is actionable.  The case, McLean v Bank of America, NA,  (NC Court of Appeals Case No. COA16-97), 2016 WL 6440500, involves a lawsuit brought by a homeowner against her former and present mortgage lenders and servicers. The homeowner sought: (1) a declaratory judgment that the current holder may not foreclose and (2) damages for defendants’ alleged violations of North Carolina’s Debt Collection Act, North Carolina’s unfair and deceptive trade practices statute, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, and unjust enrichment.  The crux of the plaintiff’s complaint was that the defendants were liable to her because the defendants repeatedly and erroneously told plaintiff that her loan could be modified under HAMP when the loan was never a candidate for a HAMP modification.  The trial court dismissed the plaintiff’s claims under Rule 12(b)(6).  The NC Court of Appeals affirmed.  

The NC Court of Appeals held that defendants’ actions were not unfair or deceptive for two primary reasons. First, because the lender never affirmatively represented that a loan modification was an option; rather, the lender only communicated that it would be open to discuss the possibility of foreclosure alternatives such as loan modifications.  Second, the court noted that the relationship between the plaintiff and her lender was governed by the mortgage loan documents which imposed no affirmative duty on the lender “to negotiate after a default event.”  Finally, the Court of Appeals held that the plaintiff’s claim for declaratory relief (to prevent the foreclosure) was defeated by the prior pending action doctrine.  In short, the Court found that the parties, subject matter, legal issues, and relief demanded in the plaintiff’s lawsuit were substantially similar to those raised in the lender’s foreclosure action which was commenced beforehand.

Although unpublished, and thus not controlling legal authority, this opinion provides good instruction to mortgage lenders and servicers as to what North Carolina courts expect of them in connection with a borrower’s loan modification requests.