California Federal Court Finds No Private Right of Action Under HAMP, National Housing Act

On June 15, the U.S. District Court for the Eastern District of California held that the Home Affordable Modification Program (HAMP), the National Housing Act (NHA) and the California Perata Mortgage Relief Act (PMRA) do not create private rights of action. Zendejas v. Wholesale Mortgage Corp., No. 1:10-CV-00184, 2010 WL 2490975 (E.D. Ca. June 15, 2010). In Zendejas, the plaintiff debtors borrowed $220,500 from the lender to refinance their home mortgage. The debtors defaulted on the loan and requested a loan modification from the lender, who was a participant in HAMP. The parties were unable to come to an agreement on the loan modification due to the debtors decreasing income, and the property was subsequently foreclosed. The debtors brought suit, claiming the lender failed to offer them an acceptable loan modification or any other satisfactory options prior to foreclosure. More specifically, the debtors, in addition to various other claims, alleged the lenders failed to (i) conform to the provisions of HAMP, which require the lender to offer certain loan modification and foreclosure prevention services, (ii) comply with the notice requirements of the NHA, which required the lender to advise the debtors of any home ownership counseling they may be eligible for, and (iii) contact the debtors prior to default and foreclosure as required by the PMRA. The debtors also claimed that the failure to provide a loan modification constituted unfair or fraudulent business practices, in violation of California state law. The lenders rejected these claims and filed a motion to dismiss, which the court granted in its entirety. The court found that the debtors did not have standing to sue under HAMP, reasoning that HAMP does not create a private right of action. The court noted that a "borrower to a HAMP agreement would not be reasonable in relying on [it] as manifesting an intention to confer a right on him because the [HAMP] does not require a servicer to modify eligible loans." Likewise, the court stated that the NHA did not create a cause of action because the NHA gives a borrower no claim in the event that the lender "fail[s] to follow the statute or its implementing regulations." The court additionally found that California legislature did not intend to create a private right of action for borrowers for violations of the PMRA. Finally, the court rejected the state unfair or fraudulent business practice claim on the basis that no law required the lenders to provide a loan modification.