• Home Owners’ Loan Act of 1933 Preempts Certain State Law Claims Against Federal Savings Banks
  • September 7, 2011 | Author: Stephanie A. Broder
  • Law Firm: Hinshaw & Culbertson LLP - Jacksonville Office
  • The U.S. District Court for the District of Oregon recently dismissed plaintiff debtor’s claims against defendant creditor for conversion stemming from a foreclosure sale based upon federal law preemption. The debtor had executed a deed of trust with a lender as beneficiary of the security agreement. The lender was purchased by a third party, which was then purchased by defendant creditor. The third party served the debtor with a notice of default. When the debtor applied for a loan modification, the third party advised that the foreclosure sale would not go forward during the modification review. Contrary to this assertion, the property was sold.

    The debtor brought a claim for conversion based upon: (1) failure to record the assignment to the creditor; (2) issuance of an invalid notice of default; and (3) failure to honor an alleged oral representation regarding the stay of the foreclosure sale. The creditor moved to dismiss, arguing that the debtor’s conversion claim was preempted by federal law—specifically, the Home Owners’ Loan Act of 1933 (HOLA).

    HOLA was enacted to create central regulation of federal savings and loan associations according to nationwide “best practices.” The debtor argued that HOLA does not apply to foreclosure actions. The court disagreed, noting Thomas v. OneWest Bank, FSB, 2011 WL 867880 (D. Or. Mar. 10, 2011). In Thomas, the court found that HOLA preempted claims against a bank for fraud and equitable estoppel for allegedly improper interest rate adjustments. The court also noted Parcray v. Shea Mortgage, Inc., 2010 WL 1659369 (E.D. Cal. Apr. 23, 2010), in which the U.S. District Court for the Eastern District of California held that HOLA preempted plaintiff’s allegations that defendant was not a beneficiary under the deed of trust and that the note was unenforceable by the loan servicer.

    The court in the case at issue determined that HOLA preempted each of the debtor’s theories of recovery. It held that although the creditor was not a federal savings bank, the action was nonetheless governed by HOLA because the loan originated with a federal savings bank, and thus was subject to HOLA requirements. Finally, the court found that preemption did not violate the Tenth Amendment.