In State Court with a Federal Savings Association? Sometimes you can say “adios” to HOLA

Federally chartered savings associations, such as Wachovia, are regulated by HOLA (Home Owners Loan Act). HOLA authorizes the Office of Thrift Supervision (OTS) to issue regulations prescribing the operation of federal savings associations according to the best practices of thrift institutions.

There is no question that HOLA preempts any state law that purports to regulate the lending activities of federal savings associations. Specifically, the Code of Federal Regulations states that the OTS occupies the entire field of lending regulation for federal savings associations. However, in a recent case decided by the Fourth Appellate District, the Court tackled the issue of whether HOLA applies to basic contractual obligations voluntarily undertaken by a federal savings association.

In the case of Harris v. Wachovia Mortgage, the borrowers alleged in their complaint that Wachovia failed to apply plaintiffs’ payments to their account, causing their account to go into default. Plaintiffs and Wachovia thereafter entered into a settlement agreement, whereby Wachovia agreed to credit plaintiffs’ account with the disputed amount and to modify the loan. In return, plaintiffs dismissed their complaint. However, Wachovia failed to bring plaintiffs’ loan account current and failed to modify the loan as agreed.

Plaintiff thereafter filed a new complaint that included a cause of action for breach of contract. The trial court sustained Wachovia’s demurrer on the breach of contract cause of action on the grounds that it was preempted by HOLA. The appellate court reversed, holding that the case was a matter of ordinary contract law and thus had no effect on Wachovia’s lending activities. As such, HOLA did not preempt the breach of contract cause of action.

In making this decision, the court relied on the on the Code of Federal Regulations § 560.2 and Wells v. Chevy Chase Bank, F.S.B. (2003) 832 A.2d 812, which state that the OTS does not intend to preempt basic state laws such as the uniform commercial code and state laws governing real property, contracts, or torts.

Therefore, if you plan on suing a federally chartered savings association, do not automatically assume you must bring the action in the federal court. Plaintiff must look to the nature of the causes of action, and determine if they are to do with the savings association’s lending activities, or basic real property, tort, or contract issues. If it is the latter, consider whether it is advantageous to file in state court.


Simon Offord, Esq., is a California real estate attorney with Brewer Offord & Pedersen LLP, in Palo Alto, California. The firm serves the legal needs of homeowners, real estate and mortgage brokers, agents, title companies, developers, investors, and other real estate professionals and their clients. Mr. Offord and his firm also represent clients in debt collection, creditor representation in bankruptcy proceedings, breach of contract matters, and other litigation and transactional work. The firm’s clients include homeowners, brokers and lenders, and other real estate professionals throughout Northern California. Peter N. Brewer also contributed to this article.

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