In a per curiam opinion believed to be the first decision on point issued by an appellate court, the U.S. Court of Appeals for the Fourth Circuit held that a borrower must give a mortgage lender prior notice and an opportunity to cure before suing. Although Niyaz v. Bank of America was not a class action, the opinion could potentially be very helpful in defeating class certification.

That potential is significant because Fannie Mae and Freddie Mac have not permitted mortgage lenders to include arbitration provisions in their mortgages or deeds of trust, and the Dodd-Frank Wall Street Reform and Consumer Protection Act prohibits mortgage lenders from using pre-dispute arbitration provisions. The inability to use arbitration provisions means mortgage lenders cannot take advantage of the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, which held that the Federal Arbitration Act preempts state laws making class action waivers unenforceable. Now, the Fourth Circuit’s decision may provide an alternative weapon for mortgage lenders interested in defeating class action litigation.

In Niyaz, to prevent foreclosure on his home, the borrower sued Bank of America for various violations, including violations of the National Housing Act, failure to provide notice of default, failure to comply with applicable pooling and servicing requirements, illegal charges, and lack of good faith and fair dealing in loan servicing. Ballard Spahr lawyers Gary C. Tepper and Constantinos G. Panagopoulos successfully moved for summary judgment on behalf of the lender, asserting that the borrower had failed to give notice before commencing judicial action, violating terms of the deed of trust. The deed of trust required the borrower to give the lender prior notice and an opportunity to cure before suing. In affirming the entry of summary judgment for the lender, the Fourth Circuit agreed with and adopted the reasoning of the district court.  (Click here to read the district court’s opinion.)

The Fourth Circuit opinion, along with a similar ruling 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), in which Mr. Tepper and Mr. Panagopoulos also successfully represented the lender, suggests that the notice defense can be effective and should be considered when a lender is sued for violations stemming from a deed of trust or mortgage. The defense may also be a means to defeat class certification because there are unlikely to be enough borrowers who had given the lender notice and an opportunity to cure to satisfy class numerosity.  See, e.g., 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)).

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; Daniel J. Tobin, 301.664.6210 or; or Jonathan C. Lippert, 202.661.2259 or

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