Lesson. Assorted counterclaims filed by borrowers arising out of alleged failings by lenders to modify mortgages following defaults generally will be dismissed.
Legal issue. Whether the borrower’s counterclaims for negligence, constructive fraud and intentional infliction of emotional distress should have been dismissed for a failure to state a claim.
Vital facts. Borrower defaulted on her residential mortgage loan. Borrower and lender entered into discussions about the possibility of modifying the mortgage based upon the federal government’s Home Affordable Modification Program (“HAMP”). The loan mod never occurred, and borrower contended that lender “intentionally did not dedicate the resources to HAMP modifications that were necessary to properly comply with the federal program.”
Procedural history. Lender filed a Trial Rule 12(B)(6) motion to dismiss borrower’s counterclaims, which motion the trial court granted. Borrower appealed.
- When parties have, by contract, arranged their respective risks of loss, tort law should not interfere. One cannot negligently breach a contract.
- Contractual relationships do not give rise to a fiduciary relationship creating a duty. Generally, the relationship between a bank and a customer is insufficient to establish a constructive fraud claim.
- Intention of infliction of emotional distress claims require proof that the defendant: (1) engaged in extreme and outrageous conduct, (2) which intentionally or recklessly, (3) caused, (4) severe emotional distress to another.
Holding. The Indiana Court of Appeals affirmed the trial court’s dismissal of borrower’s tort claims against lender.
Policy/rationale. The Court in Jaffri referred to the widely-recognized rule that alleged violations of HAMP do not give rise to a private right of action. In other words, HAMP does not establish a duty of care owed by a lender to a mortgagee seeking a modification. The Court said: “We cannot perceive that by enacting HAMP, the federal government intended for persons rejected for HAMP assistance to have a private cause of action against the mortgage lender or servicer, unless a contract actually was entered into under HAMP.”