The U.S. District Court for the Eastern District of Virginia recently dismissed borrowers’ consumer protection claims against lenders in two separate cases where the borrowers failed to give prior notice of the alleged violations and an opportunity to cure them in accordance with the Fannie Mae/Freddie Mac Deed of Trust/Mortgage.

The opinions in these cases, in which Ballard Spahr lawyers Gary C. Tepper and Constantinos G. Panagopoulos provided defense, are the first reported in which a court has dismissed lawsuits for failure to comply with the notice/opportunity to cure provision, incorporated into the Fannie Mae/Freddie Mac Deed of Trust/Mortgage several years ago. The opinions suggest that the notice defense can be effective and should be considered when a lender is sued for violations stemming from the Deed of Trust/Mortgage.

This clause may even be effective in defeating class certification. It would not be typical for all potential class members to have complained and given a lender the opportunity to remedy a problem related to action taken under the Deed of Trust/Mortgage, making it unlikely that enough borrowers would have gone through this dispute resolution process to satisfy class numerosity. (See Anschul v. Sitmar Cruises, Inc., 67 F.R.D. 455, 456 (N.D. Ill. 1974) (refusing to certify class based on the fact that the named plaintiff’s notice of the claim was ineffective to create a cause of action for other members of the putative class), appeal dismissed on other grounds, 544 F.2d 1364 (7th Cir. 1976))

In Johnson v. Countrywide Home Loans, Inc., C.A. No. 1:10-cv-01018-JCC-TCB, 2010 WL 5138392 (E.D. Va. Dec.10, 2010), a borrower sued numerous parties for violations of the Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Debt Collection Practices Act, and Fair Credit Reporting Act and sought to prevent foreclosure proceedings against her home. The lender moved to dismiss the complaint by arguing that the borrower had failed to give notice before commencing judicial action, violating Deed of Trust terms. The court dismissed the case, noting that all of the allegations arose from actions taken pursuant to the Deed of Trust. The same court issued a similar ruling two weeks later in Niyaz v. Bank of America, 1:10cv796-JCC-TCB, 2011 WL 63655 (E.D. Va. Jan. 3, 2011) (on appeal).

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). For more information, please contact Group Chair Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Constantinos G. Panagopoulos, 202.661.2202 or cgp@ballardspahr.com; Daniel J. Tobin, 301.664.6210 or tobindj@ballardspahr.com; or Jonathan C. Lippert, 202.661.2259 or lippertj@ballardspahr.com.

 


 

 

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