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Fifth Dismisses Foreclosure Lawsuit, Saying Banks Exempted From Consumer Protection Law - Truong v. Bank of America

May 3, 2013

Vincent Howard and our Rancho Cucamonga foreclosure defense attorneys were disappointed to see a ruling throwing out a foreclosure lawsuit in part because the defendants, two banks, are exempted from consumer protection laws in Louisiana. In Truong v. Bank of America et al., Glory Truong sued Bank of America, her loan servicer, and Wells Fargo, the trustee for the security her home loan had been bundled into. Truong alleged that Bank of America had misled her about issues related to a loan modification, and that Wells Fargo could not foreclose on her because the note for her home hadn't been endorsed properly. The district court dismissed some of her claims using the Rooker-Feldman doctrine, which prevents federal courts from relitigating issues decided in state courts. Disturbingly, it also held that the servicer is exempted by law from Louisiana's consumer protection law.

Wells Fargo filed a petition to foreclose on Truong's Marrero, Louisiana home in June of 2010. The petition submitted to the court contained an affidavit by Kathy Repka, who testified that Truong had defaulted. In the summer of 2011, Truong applied for a HAMP loan modification with Bank of America. She claims the bank told her the foreclosure process would be stopped while her application was considered, but less than two months later, Truong followed up and discovered that the bank had no record of receiving her application. She submitted a second application and received the same assurance, on whose strength she declined to challenge the state foreclosure proceeding. Less than a month later, her home was sold at a foreclosure sale she claims she was not notified about.

Her December 2011 lawsuit alleged that Wells Fargo could not foreclose because of a missing endorsement; that BofA made false representations to her about the HAMP process; and that Repka's affidavit was robo-signed and thus false. She alleged violations of Louisiana's consumer protection law. The district court dismissed most of her claims under the Rooker-Feldman doctrine, reasoning that they were inextricably entwined with the foreclosure proceeding. On the HAMP-related claim, it also held that BofA was exempted by statute from the Louisiana consumer protection law.

The Fifth Circuit affirmed, but only on the Louisiana statutory grounds. The Rooker-Feldman doctrine is intended to be narrow, it said, and precludes "state-court losers" from attempting to get district court review of their judgments. In this case, the appeals court found that Truong's federal claims were not attempts to overturn the state-court judgment and was not asking for damages arising from that judgment. Although her claims were "inextricable intertwined" with the foreclosure case, the Fifth said, they were sufficiently independent to survive summary judgment. Nonetheless, the Fifth went on to dismiss all of her claims for failure to state a claim under the Louisiana Unfair Trade Practices Act (LUPTA). That law includes a section exempting "any federally insured financial institution," which describes both banks. Truong failed to address this in her opening brief, the court noted, so arguments later raised in her reply brief were deemed waived, although it was also unpersuaded by their merits.

Vincent Howard and our Westminster foreclosure defense lawyers wonder why Louisiana felt it was wise to create this statutory exemption for foreclosing banks (which was enacted in 2006 to negate an appeals court ruling). A lot of predatory lending behavior happened during the real estate downturn. Borrowers are frequently far less well educated on consumer lending than their lenders, and have no power to control important issues like who owns their loans. While this issue ends consumer protection-based foreclosure lawsuits in Louisiana, we do appreciate that the Fifth declined to find that the foreclosure lawsuit precluded any further litigation of the issue. That finding is in line with numerous federal foreclosure decisions. Vincent Howard and our Riverside County foreclosure defense attorneys hope it's useful to future victims of predatory lending.

If you're fighting a foreclosure that you believe was illegal or a loan you believe was predatory, Howard Law, P.C., can help. You can reach us through our website or call 1-800-872-5925 to learn more.

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