Part 2 – HAMP Enforcement: Are Courts Trending Toward a Private Right of Action? (12/17/15, orig. 8/13/14)

Please see Part 1 also.


In Sutcliffe v. Wells Fargo Bank, N.A. (2012 N.D. Cal.) 283 F.R.D. 533, the lender sent the borrowers a TPP agreement stating that the lender would notify the borrowers if they qualified for a loan modification. The borrowers complied with the TPP, but were never informed whether they qualified for a modification. The borrowers sued for breach of contract under California law to enforce the TPP. The court noted that there was a split in authority regarding whether the TPP created an enforceable contract, and found more persuasive the reasoning of cases finding that the TPP created an enforceable contract. Relying heavily on Wigod, the court in Sutcliffe held that the TPP must be interpreted to require the lender to modify the borrower’s loan once the borrower has complied with the TPP.


Also relying on Wigod, the California Fourth District Court of Appeal in West v. JP Morgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, recently held that a borrower who complied with the TPP could bring state law contract and tort claims against her lender. In West, the lender sent the borrower a letter stating that if she complied with all of the terms of the TPP, the lender would “consider” a loan modification. The lender later sent the borrower a letter denying the borrower a loan modification based upon the lenders Net Present Value (“NPV”) determination regarding the loan. The letter also described a procedure by which the borrower could contest the accuracy of the lender’s NPV calculation. The borrower alleged that she timely requested a re-evaluation of the NPV determination and continued to make the TPP payments while awaiting the results. The complaint alleged the lender later told the borrower that no foreclosure sale had been scheduled, but two days later the home was sold at a trustee’s sale.


The court in West interpreted the TPP to require the lender to offer a permanent loan modification. The court reasoned that because Department of the Treasury Directive 09-01 and HAMP guidelines required lenders to offer a permanent modification if the borrower complied with the TPP agreement, the lender was required to offer a permanent modification to the borrower that was consistent with HAMP guidelines. (West, at 798) In addition the court held that the lender’s letter providing for an appeal of the lender’s NPV calculation was a modification of the TPP agreement which could be enforced by the borrower.


Notably, both the Wigod and West courts found that regardless of the actual language used by the lender, the TPP agreement had to be interpreted in a manner consistent with the requirements of the HAMP guidelines. In short, the courts made the HAMP guidelines part of the TPP agreement and allowed borrower enforcement of the program guidelines through state law breach of contract claims.


A Thorough Review of Agreements and Forms Would Be Wise.


The decisions in Wigod, Sutcliffe and West may signal a shift in the courts favoring enforcement of HAMP claims under state law when the borrower has otherwise complied with a TPP agreement. West, in particular, demonstrates that communications between lenders and borrowers may also give rise to state law contract and tort claims against lenders. Loan servicers should be careful in their borrower communications to emphasize that no promises are being made that the borrower will qualify for a loan modification and that a permanent modification can only be granted if the borrower has entered into and fully performed under the TPP and satisfied all other program requirements. Also, loan servicers should make sure that TPP agreements are only made after a full review of the borrower’s financial information and completion of the NPV analysis. Finally, servicers should be willing to enter into a permanent loan modification if the borrower fully performs under the TPP agreement.

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