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Financial Services Law Insights and Observations

New York Federal Court Holds Homeowners Protection Act Preempts State Deceptive Trade Practices Claim

State Issues

On May 11, the U.S. District Court for the Southern District of New York (SDNY) dismissed a borrower’s claim against a service lender upon finding that that the New York Deceptive Trade Practices Act (DTPA) was preempted by the Federal Homeowners Protection Act (HPA). Fellows v. CitiMortgage, Inc., 07 Civ. 2261, 2010 WL 1857243 (S.D.N.Y. May 11, 2010). The lawsuit alleged that the lender wrongfully refused to cancel private mortgage insurance (PMI) and failed to give adequate disclosures about PMI cancellation rights, each in violation of the DTPA. In dismissing this claim, the SDNY ruled that the DTPA was expressly preempted by the HPA and characterized the lawsuit as an attempt to “use the New York DTPA to impose requirements for PMI cancellation and disclosure that are not required by the HPA.” The court also dismissed a related contract claim that proceeded on the theory that the lender’s conduct violated terms of the Fannie Mae Servicing Guide (which the borrower had claimed was incorporated by reference into the mortgage) after failing to see any mention of the guide within the “four corners” of the mortgage at issue.