Spaulding v. Wells Fargo Bank, N.A.

• Decision Date: 19 April 2013
• Docket Number: No. 12–1973.,12–1973.
• Citation: 714 F.3d 769
• Parties: Josephine H. SPAULDING; Dale E. Haylett, Jr., Plaintiffs–Appellants, v. WELLS FARGO BANK, N.A., d/b/a America's Servicing Company, successor by merger to Wells Fargo Home Mortgage, Inc., Defendant–Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

714 F.3d 769

Josephine H. SPAULDING; Dale E. Haylett, Jr., Plaintiffs–Appellants,

v.WELLS FARGO BANK, N.A., d/b/a America's Servicing Company, successor by merger to Wells Fargo Home Mortgage, Inc., Defendant–Appellee.

No. 12–1973.

United States Court of Appeals, Fourth Circuit.

Argued: March 20, 2013.

Decided: April 19, 2013.

Jason Ostendorf, Law Office of Jason Ostendorf, LLC, Owings Mills, Maryland, for Appellants. Virginia Wood Barnhart, Treanor, Pope & Hughes, Towson, Maryland, for Appellee.

Before DAVIS and THACKER, Circuit Judges, and MARK S. DAVIS, United States District Judge for the Eastern District of Virginia, sitting by designation.

Affirmed by published opinion. Circuit Judge DAVIS wrote the opinion, in which Judge THACKER and District Judge DAVIS joined.

OPINION

DAVIS, Circuit Judge:

Faced with financial hardship and a monthly mortgage payment they could not afford, Appellants Josephine Spaulding and Dale Haylett applied for a mortgage modification under the Home Affordable Modification Program (“HAMP”). Their mortgage servicer, Appellee Wells Fargo Bank, N.A., denied their application. Feeling aggrieved by Wells Fargo's actions, Spaulding and Haylett filed suit, alleging five state law claims. The district court concluded that Appellants had failed to state a claim upon which relief could be granted and therefore granted Wells Fargo's motion to dismiss. For the reasons that follow, we affirm.

I.

A.

HAMP was part of Congress's response to the financial and housing crisis that struck the country in the fall of 2008. It provided an incentive for lenders to modify mortgages so that struggling homeowners could stay in their homes. See “Emergency Economic Stabilization Act of 2008,” Pub L. No. 110–343, 122 Stat. 3765 (2008), codified at 12 U.S.C. § 5201 et seq.¹

The Seventh Circuit recently explained the Emergency Economic Stabilization Act and HAMP's role in it:

The centerpiece of the Act was the Troubled Asset Relief Program (TARP), which required the Secretary of the Treasury, among many other duties and powers, to “implement a plan that seeks to maximize assistance for homeowners and ... encourage the servicers of the underlying mortgages ... to take advantage of ... available programs to minimize foreclosures.” 12 U.S.C. § 5219(a). Congress also granted the Secretary the authority to “use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.” Id.

Pursuant to this authority, in February 2009 the Secretary set aside up to $50 billion of TARP funds to induce lenders to refinance mortgages with more favorable interest rates and thereby allow homeowners to avoid foreclosure. The Secretary negotiated Servicer Participation Agreements (SPAs) with dozens of home loan servicers, including Wells Fargo. Under the terms of the SPAs, servicers agreed to identify homeowners who were in default or would likely soon be in default on their mortgage payments, and to modify the loans of those eligible under the program. In exchange, servicers would receive a $1,000 payment for each permanent modification, along with other incentives. The SPAs stated that servicers “shall perform the loan modification ... described in ... the Program guidelines and procedures issued by the Treasury ... and ... any supplemental documentation, instructions, bulletins, letters, directives, or other communications ... issued by the Treasury.” In such supplemental guidelines, Treasury directed servicers to determine each borrower's eligibility for a modification ...:

[T]he borrower had to meet certain threshold requirements, including that the loan originated on or before January 1, 2009; it was secured by the borrower's primary residence; the mortgage payments were more than 31 percent of the borrower's monthly income; and, for a one-unit home, the current unpaid principal balance was no greater than $729,750....

Where a borrower qualified for a HAMP loan modification, the modification process itself consisted of two stages. After determining a borrower was eligible, the servicer implemented a Trial Period Plan (TPP) under the new loan repayment terms it formulated using the waterfall method. The trial period under the TPP lasted three or more months, during which time the lender “must service the mortgage loan ... in the same manner as it would service a loan in forbearance.” Supplemental Directive 09–01. After the trial period, if the borrower complied with all terms of the TPP Agreement—including making all required payments and providing all required documentation—and if the borrower's representations remained true and correct, the servicer had to offer a permanent modification. See Supplemental Directive 09–01 (“If the borrower complies with the terms and conditions of the Trial Period Plan, the loan modification will become effective on the first day of the month following the trial period....”).

Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 556–57 (7th Cir.2012) (footnote omitted). As generally described in Wigod, Wells Fargo entered into a Servicer Participation Agreement (“SPA”) with the Secretary of the Treasury (“the Secretary”). The SPA expressly incorporated the HAMP guidelines, procedures, and supplemental directives issued by the Secretary.

The law gave the Secretary authority to issue directives and other guidelines for each mortgage servicer participating in HAMP. See12 U.S.C. § 5219a. The Federal Home Loan Mortgage Corporation (“Freddie Mac”) is the sole compliance agent responsible for enforcing HAMP. See John R. Chiles & Matthew T. Mitchell, HAMP: An Overview of the Program and Recent Litigation Trends, 65 Consumer Fin. L.Q. Rep. 194, 197 (Spring/Summer 2011). Freddie Mac conducts on-site reviews of participating servicers' HAMP-related operations and performs off-site analyses of the HAMP-related documents the servicers provide on a regular basis. Id.

Perhaps not surprisingly, given the large stakes for financially stressed homeowners, and in light of widespread media reports of bureaucratic bungling (and worse) on the part of lenders, mortgage servicers, and their myriad agents, HAMP has given rise to a large number of civil claims by mortgagors against financial industry firms. The claims here arise with that general background.

B.

Spaulding and Haylett purchased their home in Glenelg, Maryland, in March 1997. In January 2006, they refinanced their mortgage with Fremont Investment & Loan of Fullerton, California, which later assigned servicing rights to Wells Fargo. At that time, Appellants owed a principal balance of $361,610, and they refinanced to take out a new mortgage of $418,000. The new mortgage was an adjustable rate 30–year mortgage with an initial rate of 6.95%. At that rate, Appellants' initial monthly payment was $2,582. The interest rate remained at 6.95% for two years, when it was then eligible to change every six months, keyed to the London Interbank Offered Rate (“LIBOR”). The mortgage rate, however, would never exceed 12.95% or fall below 6.95%.

In early 2010, Appellants suffered financial hardship and became unable to make their full monthly mortgage payments. On February 24, 2010, they wrote a “hardship letter” to Wells Fargo, explaining the reasons for their difficulties in making their payments. J.A. 80. The letter stated that Spaulding suffered from collagenous colitis, which caused her stomach pains and diarrhea and, combined with other physical ailments, prevented her from working full-time. The letter also stated that Haylett had lost work hours because of the recession and the “bad Maryland weather,” an apparent reference to the major snowstorms that struck the state in February 2010. J.A. 80. Haylett's occupation is not stated, but his pay stubs are from Integrated Electrical Services of Houston, Texas. The Appellants included two of Haylett's weekly pay stubs with their mortgage modification application—one, dated February 12, 2010, showing gross pay of $1,714.40, and one dated February 19, 2010, showing gross pay of $342.88. They also reported earning $450 a month in rental income and a monthly disability payment for Spaulding of $165.

Wells Fargo responded a week later, in a letter dated March 1, 2010, stating that it had received Appellants' “inquiry regarding your mortgage loan” and that in order to process the request for a loan modification the bank needed additional proof of income. J.A. 92. Specifically, the bank asked for two additional weekly pay stubs for Haylett reflecting pay-dates either after February 19, before February 12, or one of each. The letter further stated that if the information or a request for an extension was not received within ten days, the modification request would be considered cancelled. The Appellants submitted the additional proof of income by fax on March 22, eleven days past the deadline set in the March 1 letter.

It appears that nowhere in the record have Appellants offered any explanation or otherwise attempted to account for their delay in responding to Wells Fargo's March 1 letter containing the ten-day deadline. To the contrary, as we discuss infra, Appellants have insisted, alternatively, that Wells Fargo did not need to see additional pay stubs and/or that its receipt of the additional pay stubs after the deadline was sufficient to qualify them for HAMP relief.²

In any event, Wells Fargo sent a delinquency notice on April 5, 2010, asserting the Appellants owed $4,779. Wells Fargo sent a second HAMP introduction letter and application packet on July 2. Additional delinquency notices were sent on July 6 and July 18. A “Notice of Intent to Foreclose” was sent on July 18. On August 11, 2010, Wells Fargo sent Appellants a denial of their HAMP application, citing their failure to provide the requested documents within the specific time period. Appellants continued to apply for a HAMP modification after that, but were denied each time.

Another foreclosure notice was sent on ...