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A federal appellate court ruled that Wells Fargo Bank must face a Massachusetts consumer protection law claim that entails possible triple damages, plus additional claims, for its conduct toward a homeowner under a federal loan modification program.

A unanimous U.S. Court of Appeals for the First Circuit ruling in Young v. Wells Fargo Bank N.A. revived Susan Young’s District of Massachusetts case.

Young sued Wells Fargo and American Home Mortgage Servicing Inc., now part of Atlanta’s Ocwen Financial Corp., after she tried to avail herself of protections under the Home Affordable Modification Program (HAMP). She tried to modify a $282,000 mortgage she obtained from Wells Fargo in 2006. American Home was the servicer.

"This conduct dates back to August 2008, when defendants mistakenly posted a notice on her door stating that she was in arrears on her mortgage payments, and continued to supply her with misinformation about her obligations under the mortgage," Senior Judge Kermit Lipez wrote, joined by Judge Jeffrey Howard and Senior Judge Norman Stahl. The court released the opinion on Tuesday.

"Defendants’ handling of her loan modification process under [HAMP's trial period plan] was only the culmination of a prolonged period of unfair conduct," he continued.

Lipez noted that the complaint claims that Wells Fargo’s repeated mistakes during the forbearance and loan modification process caused Young to lose equity in her home and hurt her credit ratings."She accordingly incurred economic damages that adversely affect her now and will continue to affect her in the future."

The panel affirmed Chief Magistrate Judge Leo Sorokin’s March 2012 dismissal of three of Young’s claims. It agreed that her breach of contract claim under the Housing and Economic Recovery Act of 2008 was duplicative. It held that her breach of the implied covenant claim and fair dealing claim failed because she didn’t show that "defendants’ behavior was motivated by a desire to gain an unfair advantage."

The panel rejected her negligent and intentional infliction of emotional distress claim because she didn’t show the defendants’ acted with that intent.

Young’s lawyer Anthony Alva in Barnstable, Mass., said, "Young has been through a really difficult and traumatic period."

The survival of case and the possibility of recovering multiple damages could serve as a warning to banks that have gotten away with behavior that regulators wouldn’t tolerate in smaller businesses, he said."If banks know they’re more accountable, it’s very helpful for this case and future cases," Alva said.

Wells Fargo referred questions to Ocwen, where spokeswoman Susan Fitzpatrick said the company does not comment on pending litigation.

Lawyers at the Boston office of Chicago’s Hinshaw & Culbertson represented the defendants.

Sheri Qualters can be contacted at squalters@alm.com.

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