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Ninth Circuit Rules Against Bank of America in HAMP and debt collection case

The Ninth Circuit Court of Appeals (the court which controls federal courts in several western states, including California), ruled that the State of Nevada would have to sue the Bank of America in a Nevada State Court, as opposed to federal court, for the bank's alleged HAMP and debt collection violations. Nevada v. Bank of Am. Corp., 672 F.3d 661 (9th Cir. Nev. 2012).

Nevada alleged that Bank of America misled Nevada consumers about the terms and operation of its home mortgage modification and foreclosure processes, in violation of the Nevada Deceptive Trade Practices Act, Nev. Rev. Stat. §§ 598.0903-.0999. Nevada also alleges that Bank of America violated an existing consent judgment ("Consent Judgment") in a prior case between Nevada and several of Bank of America's subsidiaries, entered in Nevada's Clark County District Court.

The Bank of America attempted to remove (or transfer) this case to federal court. But the Ninth Circuit Court of Appeals in Pasadena, California, agreed with the State of Nevada that the case should remain in Nevada State Court.

The lawsuit was based on complaints the State of Nevada had reviewed and investigated from more than 150 consumers, housing counselors and other industry sources. The lawsuit Complaint alleged that Bank of America had engaged in a pattern of misconduct in which it has and continues to:

a. Mislead consumers with false promises that it will act on their modifications within a set period of time, but keeps them waiting for months, and sometimes more than a year, beyond the promised term;

b. Mislead consumers with assurances that they will not be foreclosed upon while the Bank considered their requests for modifications. However Bank of America has sold the homes of some Nevada consumers and sent foreclosure notices to many more while their requests for modifications were still pending;

c. Misrepresent to consumers that they must be delinquent on their loans in order to qualify for assistance, even though neither Bank of America's proprietary programs nor the federal HAMP program requires that homeowners have missed payments;

d. Mislead consumers with false promises that their initial, trial modifications would be made permanent if and when they made the required three payments on those plans, but then failed to convert those modifications;

e. Tell consumers their modifications were denied for reasons that were untrue, such as that: (i) the owner of the loan refused to allow the modification when Bank of America had full authority to modify the loan without the investor's approval; (ii) the Bank had tried unsuccessfully to reach the consumer, even though the consumer repeatedly called the Bank; (iii) the loan was previously modified when it was not; (iv) the borrower failed to make trial payments, when they made all payments; and (v) the borrower was current on his or her loan, when delinquency is not a condition of a modification;

f. Falsely notify consumers or credit reporting agencies that consumers are in default when they are not;

g. Mislead consumers with offers of modification on one set of terms, and then provide agreements with materially different terms, or inform consumers that their modifications had [*6] been approved, but then tell them that their requests were denied, often months before.

The lawsuit Complaint also alleged Bank of America made violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq. Specifically, the Complaint also alleges that Bank of America's misrepresentations to credit agencies concerning consumers' credit history "violate the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692e(2)(A) & (8), and, as a result, the Nevada Deceptive Trade Practices Act."

The court concluded that the Complaint raised exclusively state law claims and the glancing references to federal laws were insufficient to confer federal jurisdiction. Furthermore, Nevada's strong sovereign interest in enforcing its state laws--and its state-law created consent judgment--in state court weighed in favor of remand to its state court system, as opposed to federal court.