Several recent cases may signal an increased willingness by the courts to allow borrows to bring claims against lenders who fail to provide them with a permanent loan modification. Lenders would be wise to review their procedures, form agreements and form correspondence to borrowers seeking HAMP modifications to minimize their exposure for liability.
The HAMP Modification Process
The Home Affordable Mortgage Program (“HAMP”) is part of the Emergency Economic Stabilization Act enacted by Congress in 2008 in response to rapidly deteriorating market conditions. The Secretary of the Treasury negotiated Servicer Participation Agreements (“SPA”) with lenders which required them to identify homeowners who were at risk of foreclosure, and modify the loans of eligible homeowners. A qualified borrower under HAMP must first compy with a Trial Period Plan (“TPP”) in which the borrower made trial payments to the lender in the amount of the proposed modification. If the borrower complies with all the terms of the TPP agreement, and the borrowers representations to the lender remain true, the lender is required under the SPA and HAMP guidelines to offer the borrower a permanent modification.
Inevitably, after HAMP was implemented, borrowers who were denied permanent modifications sued their lenders. Some courts rejected these claims because the HAMP legislation did not provide for a private right of action to enforce its loan modification requirements. These courts found that the borrowers lacked standing to bring any claim against their lender, and held that borrowers had no right to enforce TPP agreements against their lenders.1
The Beginning of a Trend Toward Private Enforcement of HAMP?
However, several cases have found that the TPP agreements and correspondence from lenders to borrowers were sufficient to provide the borrowers with enforceable rights against their lenders. In Wigod v. Wells Fargo Bank, N.A. (2012 7th Cir.) 673 F.3d 547 the Seventh Circuit Court of Appeals held that the borrower could bring claims against the loan servicer arising out of the loan servicer’s refusal to modify the borrower’s loan. In Wigod, the servicer provided the borrower with a TPP agreement that stated that the borrower wouldbe provided with a loan modification if the borrower complied with all terms of the TPP. The servicer refused to provide the borrower with a permanent modification because it could not modify the loan so that it would be consistent with its investor guidelines.
The Wigod court found that the language of the TPP created a valid offer and that the borrower’s agreement to open a new escrow account in furtherance of the TPP, among other things, was sufficient consideration for the TPP to be enforceable. The Wigod court also held that because any permanent modification provided to the borrower was required to be consistent with HAMP guidelines, the terms of the TPP were sufficiently definite to form an enforceable contract.
The service argued that the borrower’s claims were HAMP caims “in disguise,” and had to be dismissed because there was no private right of action to enforce HAMP. The Wigod court rejected this argument, concluding that the borrower’s state law claims were not subject to dismissal just because they referred to, or incorporated some element of HAMP.
1. See, Grajeda v. Bank of America, N.A. (2013 S.D. Cal.) 2013 WL 2481548 borrowers lacked standing and had no claim as third party beneficiary of HAMP; and Juarez v. Suntrust Mortgage, Inc. (2013 E.D. Cal.) 2013 WL 1983111; Nungary v. Litton Loan Servicing LP(2011) 200 Cal.App.4th 1499 and Lucia v. Wells Fargo Bank, N.A.(2011 N.D. Cal.) 798 F.Supp.2d. 1059 rejecting borrowers argument that TPP agreement created an enforceable contract.