Real Property – Foreclosure – Civil Practice – Collateral Estoppel – Tort/Negligence – Banks & Banking – Debt Collection

Hacker v. Wells Fargo Bank, N.A. (Lawyers Weekly No. 002-026-16, 16 pp.) (W. Earl Britt, S.J.) 4:15-cv-00163; E.D.N.C.

Holding: Plaintiff claims that defendants misled her and mistreated her when she applied for the Home Affordable Modification Program; however, many of her claims fail because she did not contest or appeal the foreclosure on her property.

Defendants’ motion to dismiss is granted in part and denied in part.

To the extent that plaintiff’s claims under North Carolina’s Debt Collection Act and Unfair and Deceptive Trade Practices Act are premised on defendants’ conduct in the course of the foreclosure proceeding – namely the initiation, continuation and completion of the foreclosure proceeding with the knowledge that the loan had been modified – these allegations implicate plaintiff’s default and/or the validity of the debt, issues which the clerk of court determined. Thus, plaintiff is collaterally estopped from relitigating these issues.

Plaintiff’s fraud claim rises and falls on her contention that defendant CitiFinancial Services, Inc., misrepresented the fact that plaintiff’s 2006 loan would be modified by her execution of an “Adjustment of Terms Agreement” and her November 2012 payments. Resolution of that claim depends on the validity of the debt. The clerk of court decided that issue, and plaintiff is estopped from relitigating it.

The complaint sets out claims for intentional and negligent infliction of emotional distress. Concerning the emotional distress she allegedly suffered, plaintiff claims that her communications with representatives of defendant Residential Credit Solutions, Inc. (RCS) “often left her visib[ly] and emotionally upset, causing her severe emotional distress relating to the Property and her financial position.” She further alleges as a result “particularly” of CitiFinancial’s and RCS’s conduct, she suffered “mental anguish, which manifested itself physically through sleep loss, headaches, and other physical symptoms.” Further, she contends that she “has incurred severe and grievous mental and emotional suffering, anguish, shock, nervousness, and anxiety.”

To state a valid emotional distress claim, a plaintiff must allege severe emotional distress, which has been defined as any emotional or mental disorder, such as neurosis, psychosis, chronic depression, phobia, or any other type of severe and disabling emotional or mental condition which may be generally recognized and diagnosed by professionals trained to do so. Plaintiff’s conclusory allegations do not meet this standard, so her emotional distress claims will be dismissed.

In support of her negligence claim, plaintiff cites G.S. § 25-4-103(a), which prohibits a bank and its customer from disclaiming by agreement the bank’s responsibility for its failure to exercise ordinary care. Just because a bank might owe its customer a duty to exercise ordinary care does not mean the bank owes that same duty to a person to whom it lends money. The court will not find a lender owes a borrower a general duty of care.

Plaintiff also suggests that the North Carolina Secure and Fair Enforcement Mortgage Licensing (S.A.F.E.) Act creates a duty of care. The S.A.F.E. Act’s predecessor was held to have created a duty of care sufficient to support a claim for negligent misrepresentation. The court denies defendants’ motion to dismiss plaintiff’s negligence claim without prejudice to the extent the claim is based on duties under the S.A.F.E. Act. Otherwise, the court will dismiss the negligence claim.

Plaintiff also seeks a declaratory judgment. However, the alleged wrongs for which plaintiff seeks declaratory judgment have already occurred, and there is no threatened future action. On her surviving claims, plaintiff can be awarded damages. Under these circumstances, declaratory judgment is not appropriate.

Motion granted in part and denied in part.