Can a Lender’s “Robo-Signing” of a Loan Document be the Basis for an Unfair or Deceptive Trade Practice Claim?

The financial crisis of 2008 and the subsequent wave of mortgage foreclosures brought to light certain lenders’ practices of “Robo-Signing.” Robo-Signing was a term coined to refer to bank employees’ alleged practice of “robotically” signing mortgage loan documents without reviewing them.

A recent decision from the Middle District of North Carolina explores in some depth whether the alleged robo-signing of a mortgage assignment provides a basis for a borrower to make a N.C. Gen. Stat. § 75-1.1 claim. 

In Tobias v. Nationstar Mortgage, LLC, the plaintiffs were borrowers who took out a mortgage loan. To secure the loan, the borrowers executed a deed of trust on their residence. Several years later, Bank of America purported to assign the loan to Nationstar Mortgage. A written assignment was recorded in the appropriate county register of deeds.

The borrowers then applied for a loan modification with Nationstar. Nationstar denied the loan modification. Nationstar maintained that the borrowers failed to timely submit documents to Nationstar.

After the denial of the loan modification, the borrowers filed a complaint against Nationstar and other related entities. The borrowers asserted claims for violations of federal lending regulations and section 75-1.1. As a basis for their 75-1.1 claim, the borrowers contended that the assignment was “fraudulent and/or forged” because it had been robo-signed.

Besides seeking treble damages for the 75-1.1 violation, the borrowers sought as a separate state-law remedy to void and cancel the assignment. The borrowers asserted that the defendants’ conduct harmed the borrowers’ ability to market and sell their residence.

The defendants moved to dismiss the borrowers’ cause of action to cancel the assignment and the 75-1.1 claim. The defendants argued that the borrowers could not void the assignment and maintain a 75-1.1 claim because the borrowers lacked standing to challenge the assignment. As an alternative ground, the defendants argued that the North Carolina Debt Collections Act is the exclusive remedy for debt collection actions that allege unfair and deceptive practices.

The Court dismisses the 75-1.1 claim, but on an alternative basis

The Court agreed with the defendants that the borrowers lacked standing to void the assignment. The borrowers were not a party to the assignment, did not allege that they were a third-party beneficiary of the assignment, and did not allege that they could be the subject of double liability if Nationstar enforced the assignment. The borrowers, therefore, could not show a particularized injury stemming from the alleged robo-signing.

The Court also found that the complaint failed to state a claim for unfair and deceptive trade practices.  But not for the reasons defendants advanced. Although they lacked standing to void/cancel the assignment, the Court found that the defendants had standing to maintain the 75-1.1 claim because they alleged that the assignment clouded title to their residence.   

The Court agreed with the defendants that the NCDCA is the exclusive remedy under North Carolina law for unfair debt collection practices. The court did not, however, dismiss the 75-1.1 claim on that basis because the borrowers were not challenging the defendants’ debt collection procedures.

The defendants caught a break, however because rather than allowing the 75-1.1 claim to proceed, the Court dismissed the claim on a basis that the defendants had not briefed.

The Court found that the borrowers failed to allege sufficiently an actual injury proximately caused by the defendants’ conduct. The borrowers’ complaint affirmatively alleged that the borrowers obtained a mortgage loan memorialized by a recorded deed of trust. The borrowers also attached a copy of the deed of trust to the complaint.

The borrowers did not dispute the validity of the deed of trust. The court recognized that the undisputed terms of the deed of trust allowed the holder to assign its interest without notice to the borrowers.  After reviewing language in the assignment, the Court found that was exactly what happened—Bank of America assigned and conveyed the loan to Nationstar. 

The Court also found that the borrowers’ allegations regarding the property’s marketability and their ability to sell it were conclusory and unsupported by any other factual allegations. The Court also noted the absence of allegations of any unfair or deceptive conduct on Nationstar’s part.

The takeaway—linking conduct to injury is important

Why did the Court go out of its way to dismiss the 75-1.1 claim? Perhaps the Court was uncomfortable with imposing treble damages for possible misconduct that did not appear to cause the borrowers’ injury.

The Tobias decision thus shows that a defendant’s misconduct—standing alone—may not be a basis for 75-1.1 liability. A 75-1.1 claimant should show with particularity how the misconduct alleged to be either unfair or deceptive caused a particularized injury, or risk summary dismissal of the claim.

Special thanks to Lauren Golden, who made substantial contributions to the writing of this blog post.

Author: George Sanderson

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