Unfortunately, lenders in West Virginia are routinely faced with lawsuits alleging that, in essence, they may not foreclose on a property before offering a loan modification. Borrowers’ counsel generally alleges breach of contract based upon an “implied contractual duty to act in good faith.” This allegation is routinely based upon an argument that lenders have discretion under their Deed of Trust to modify a loan and must exercise that discretion in good faith by offering modifications rather than foreclosing.
Recently, The U.S. District Court for the Northern District of West Virginia recognized the folly in this reasoning holding: “West Virginia law does not recognize an independent cause of action for a breach of duty of good faith and fair dealing separate and apart from a breach of contract claim”. See Spoor v. PHH Mortgage Corp., 2011 WL 883666, *4 (N.D.W.Va. 2011)(citing Stand Energy Corp. v. Columbia Gas Transmission Corp., 373 F.Supp.2d 631, 644 (S.D.W.Va.2005); Highmark West Virginia, Inc. v. Jamie, 655 S.E.2d 509, 514 (W.Va. 2007)).
Despite Spoor’s attempt to include an independent cause of action for breach of contract, there was no actual allegation that the lender specifically breached any provision of any contract with plaintiff. Although the Court recognized the existence of an implied duty of good faith and fair dealing in every contract, it noted that this duty “extends only to performance of the contract in relation to rights and benefits granted under it.” Id. at *5. The Spoor Court acknowledged that where a standalone claim for breach of good faith and fair dealing is masked as a breach of contract claim, without actually asserting a breach of any contract, that allegation may be dismissed. Id. at *4.
Although some Courts in West Virginia have declined to dismiss in similar instances, we look forward to using the Northern District Court’s reasoning in Spoor as we advocate for our clients.