Northern District Of California Decision Highlights Growing Divide Within Ninth Circuit Over HOLA Preemption


On January 14, the U.S. District Court for the Northern District of California held that the federal Home Owners’ Loan Act (HOLA) preempts all of a borrower’s state law claims related to a loan originated by a thrift but held by a national bank at the time the suit was filed. Kenery v. Wells Fargo, N.A., No. 13-2411, 2014 WL 129262 (N.D. Cal. Jan. 14, 2014). In this case, a delinquent borrower sued a national bank loan servicer after the bank allegedly wrongly denied the borrower’s loan modification application and moved to foreclose on the property. The servicer argued that all of the borrower’s state law claims were preempted by HOLA, which provides for preemption of state laws purporting to impose requirements regarding the terms of credit of a loan and the processing, origination, sale, or servicing of mortgages. The borrower asserted that HOLA preempts state laws only with regard to thrifts and does not apply to the activities of the current note holder national bank, notwithstanding that the loan was originated by a thrift. The court explained that the Ninth Circuit has yet to provide clear guidance on the issue, and district courts within the circuit have diverged, holding that (i) HOLA  preemption applies to all conduct related to the loan, whether by a federal thrift or a national bank, (ii) HOLA preemption does not apply to national banks, or (iii) HOLA preemption depends on whether the action at issue was taken by the federal thrift or the national bank, with only claims deriving from thrift actions subject to federal preemption. Here, the court, based on prior Northern District of California decisions, held that HOLA preemption applies to all conduct related to a loan originated by a thrift and dismissed the borrowers state law claims, with leave to amend certain of those claims.

Topics:  Banks, Borrowers, HOLA, Mortgages, Preemption

Published In: Civil Procedure Updates, Conflict of Laws Updates, Finance & Banking Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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