|April 9, 2012|
Previously published on April 5, 2012
In 2010, Wigod sued Wells Fargo Bank, N.A. (Wells Fargo) on behalf of a putative class alleging violations of Illinois law under common law contract and tort theories and of the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA). In her complaint, Wigod alleged Wells Fargo broke its promise to permanently reduce her mortgage loan payments under the Home Affordable Mortgage Program (HAMP) on a more than $700,000 mortgage after giving her a four (4) month trial modification. Wells Fargo had granted her a trial period plan (TPP), but refused her a permanent plan. Wells Fargo successfully moved to dismiss the complaint under Rule 12(b)(6), and Wigod appealed.
The Seventh Circuit affirmed the dismissal of Wigod’s claims for negligent hiring and supervision and negligent misrepresentation or concealment because the economic loss doctrine barred them. The Seventh Circuit reversed the district court holding as to Wigod’s claims for violations of ICFA, breach of contract, promissory estoppel, promissory fraud, fraudulent misrepresentation and fraudulent concealment. The appellate court held that federal law did not preempt these state law claims. As to the breach of contract claim, the court found there was consideration because when Wigod signed the TPP, she incurred new legal detriments, which included opening escrow accounts and agreeing to undergo credit counseling if required. The ICFA claim was allowed because Wigod’s suit was based on claims that Wells Fargo unfairly refused to extend permanent loan modification plans to eligible homeowners under HAMP.
Wigod is a significant decision because, while no federal cause of action arises if a servicer violates the Federal HAMP statute when it does not modify a home loan, it (HAMP) does not prevent a homeowner from bringing a state cause of action against a servicer when a violation of HAMP occurs, including a claim under a state’s consumer protection law.