The United States District Court for the Northern District of California recently dismissed a  complaint alleging that a lender acted negligently in modifying a loan without accounting for a borrower’s impending retirement.  See Johnson v. PNC Mortgage, 2016 WL 861089, at *1 (N.D. Cal. Mar. 7, 2016).  In the case, the borrowers filed a complaint against the lender alleging that the lender had overstated their income because it had modified the loan based on the borrowers’ income at the time of the modification, despite having been informed that one of the borrowers was planning to retire in the near future.  The borrowers claimed that they had informed the lender of the retirement during a phone conversation but that the loan as modified nonetheless required payments that were too high, and that the federal Homeowner Affordable Modification Program (“HAMP”) guidelines required a lender to account for these changes in income.  The lender moved for summary judgment, which the Court granted.  It held that, though HAMP provided lenders with requirements on how to describe changes in income, it did not require that a lender had a duty to determine a borrower’s post-retirement income and adjust a loan accordingly.  Moreover, the Court held that such a policy would be unworkable because it would require that lenders guess future income and potentially be held liable for any miscalculations.  It found that “[w]ere that the rule, lenders would be whipsawed between two poles of liability. The law will not consciously sanction a rule under which actors can do no right.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.