California district court deepens split on whether California Homeowner’s Bill of Rights is preempted by the National Bank Act

The Plaintiff in McFarland v. JP Morgan Chase Bank, EDCV 13-01838-JGB, (C.D. Cal. Apr. 28, 2014) brought suit under the California Homeowner’s Bill of Rights, (CHBR) against her mortgagee and loan servicer. Plaintiff alleged that after she fell into default she made a loan modification deal but after three years of making trial payments she did not receive a permanent loan modification. She was forced to file bankruptcy and while still working with the servicer on a permanent solution, the mortgagee recorded a Notice of Default and later a Notice of Trustee’s Sale. She contended that this amounted to dual tracking prohibited by Section 2923.5 of the CHBR which prohibits a mortgage servicer or mortgagee from recording a notice of default until thirty days after initial contact with the borrower in person or by telephone in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure. The Plaintiff brought suit under for monetary and injunctive relief. Defendants moved to dismiss the CHBR claims on several grounds, including the argument that the mortgagor’s claim under the CHBR was preempted by the National Bank Act (NBA). While dismissing several of the claims for pleading insufficient facts, the court rejected the preemption argument entirely. Defendants asked the court to analogize the preemption that federal savings associations enjoy under the Home Owners Loan Act (HOLA) with the NBA because HOLA’s preemption language is identical to that contained in the NBA. Defendants contended that because courts have found that HOLA preempts Section 2923.5, then the NBA should preempt the entirety of the CHBR as well. The court followed another recent district court decision which found that the analogy between the NBA and HOLA was flawed. Unlike the NBA, which contains only a conflict preemption clause, HOLA contains a broad field preemption clause. Thus, the distinction between HOLA’s field preemption, on the one hand, and NBA’s mere conflict preemption, on the other, renders cases construing HOLA preemption inapposite to the question of whether NBA preemption applies. The court snubbed decisions from other district courts that found that the NBA preempts Section 2923.5. Those courts found that [t]he extent of Federal regulation and supervision of Federal savings associations under the Home Owners’ Loan Act is substantially the same as for national banks under the national banking laws, a fact that warrants similar conclusions about the applicability of state laws to the conduct of the federally authorized activities of both types of entities. _See, Acosta v. Wells Fargo Bank, N.A_., C 10-9910JF (PVT) (N.D. Cal. May 21, 2010 _Maynard v. Wells Fargo Bank, N.A_., 12CV1435 AJB JMA, (S.D. Cal. Oct. 15, 2012).

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