Wigod v. Wells Fargo Bank, N.A.
2012 U.S. App. LEXIS 4714, 673 F.3d 547, 2012 WL 727646 (2012)
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Rule of Law:
A mortgage servicer's Trial Period Plan (TPP) agreement under the federal Home Affordable Mortgage Program (HAMP) can form a binding contract to offer a permanent loan modification. State-law claims for breach of this contract are not preempted by federal law, even if HAMP itself does not provide a private right of action.
Facts:
- In September 2007, Lori Wigod obtained a home mortgage loan from Wachovia Mortgage, which later merged into Wells Fargo.
- Facing financial distress, Wigod applied to Wells Fargo for a loan modification under the federal Home Affordable Mortgage Program (HAMP) in April 2009.
- After Wigod submitted required financial documentation, Wells Fargo determined she was eligible for HAMP and sent her a Trial Period Plan (TPP) Agreement in May 2009.
- The TPP Agreement stated that if Wigod complied with its terms, including making all trial payments and her financial representations remaining true, Wells Fargo 'will provide me with a [permanent] Loan Modification Agreement.'
- Wigod signed the TPP, made all four required trial payments on time, and complied with all other obligations.
- Wells Fargo accepted all of Wigod's trial payments.
- After the trial period ended, Wells Fargo refused to offer Wigod a permanent loan modification and subsequently informed her that she was in default on her original loan.
Procedural Posture:
- Lori Wigod filed a putative class action complaint against Wells Fargo Bank, N.A. in the U.S. District Court for the Northern District of Illinois, a federal trial court.
- Wells Fargo filed a motion to dismiss the complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).
- The district court granted Wells Fargo's motion and dismissed Wigod's complaint in its entirety.
- The district court reasoned that Wigod's state-law claims were premised on Wells Fargo's obligations under HAMP, which does not confer a private right of action, and were thus an impermissible 'end-run' around the federal statute.
- Wigod, as the appellant, appealed the dismissal to the U.S. Court of Appeals for the Seventh Circuit. Wells Fargo is the appellee.
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Issue:
Does a borrower state a viable claim for relief under state law for breach of contract and fraud when a mortgage servicer fails to offer a permanent loan modification after the borrower successfully completes a HAMP Trial Period Plan, and are such claims preempted by federal law?
Opinions:
Majority - Hamilton, J.
Yes. A borrower's state-law claims for breach of contract and fraud based on a TPP are viable and are not preempted by federal law. The court reasoned that the TPP Agreement constituted a valid offer for a permanent loan modification, not merely an agreement to agree. This offer was conditioned on the borrower's performance (making payments, etc.), not on the lender's further discretion. Once Wigod performed her obligations, Wells Fargo was contractually bound to offer a permanent modification. The court found sufficient consideration, as Wigod undertook new legal detriments beyond her original loan obligations. The terms were also deemed definite enough, as HAMP guidelines provided objective standards for calculating the permanent modification. The court also held that Wigod's fraud and Illinois Consumer Fraud Act (ICFA) claims were plausible. Critically, the court rejected Wells Fargo's preemption arguments, holding that state laws of general applicability (like contract and tort law) are not preempted by the Home Owners Loan Act (HOLA) and do not conflict with HAMP's objectives. Instead, enforcing such state-law claims complements HAMP's goals by ensuring servicer compliance. The court forcefully rejected the 'end-run' theory that the absence of a federal private right of action under HAMP forecloses state-law remedies that incorporate federal standards.
Concurring - Ripple, J.
Yes. The concurring opinion fully joins the majority but writes separately to note that the court's task would have been significantly aided if the United States had participated as an amicus curiae. The government's perspective on the statute and its implementation would have been valuable in a case with such national importance. However, the judge acknowledged the limited resources of the government and agreed that prompt resolution of the case was necessary and justified proceeding without delay.
Analysis:
This decision was a landmark ruling for homeowners facing foreclosure during the financial crisis. It established that HAMP Trial Period Plans were not merely preliminary steps but could be legally enforceable contracts, giving borrowers a powerful tool to hold servicers accountable. By rejecting federal preemption and the 'end-run' theory, the court opened the door for thousands of similar state-law lawsuits against servicers who accepted trial payments but then denied permanent modifications. The case significantly altered the litigation landscape for HAMP-related disputes, shifting leverage from servicers to borrowers and creating a circuit-level precedent that state contract law could provide a remedy where federal law was silent.
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