The 9th District U.S. Court
of Appeals in San Francisco may have opened the door for a rash of
lawsuits by homeowners who were not offered the permanent mortgage
modifications they felt they had qualified for under the Home
Affordable Modification Program (HAMP.) The three-judge panel ruled
that HAMP requires participating banks to offer the permanent
modifications to homeowners who have met the terms of a required
trial modification period.
Two separate lawsuits, Corvello v.
Wells Fargo Bank NA, 11-16234 and Lucia v. Wells Fargo Bank were
brought to the court on appeal last March after a lower court had
dismissed the suits on the grounds the homeowners failed to state a
claim for breach of contract and unfair debt collection practices.
Plaintiffs had accused the bank of offering temporary loan
modifications without the intention of making them permanent
In arguing the case,
attorney's for both plaintiffs relied on an earlier appellate court
ruling, Wigod v. Wells Fargo, which ruled that, if trial
period plan conditions are met, the loan servicer must offer a
permanent loan modification. Corvello's attorney argued on appeal
that her client had fulfilled his obligations under the trial period
requirements and had qualified for a permanent loan modification but
that the bank, which had agreed to let Corvello know within 30 days
of his written application for a permanent modification if he did not
qualify instead let him make two subsequent mortgage payments which
they kept but did not give him the modification nor respond within
the 30 days. In the earlier case Wells Fargo signaled to the
borrower that they qualified, the attorney said. Here they didn't
respond within 30 days as required which therefore communicated that
the borrower was OK.
plaintiff, Karen and Jeffrey Lucia, claimed to have complied with the
terms of an oral plan. They later lost their home to foreclosure.
Wells Fargo had
argued that it was only bound if it had actually offered the
borrowers a fully executed copy of the permanent modification. Its
attorney said the lower courts dismissal "required common sense."
"Borrowers can't be offered modifications if they don't qualify,"
she said. According to Bloomberg the
panel specifically rejected that claim, saying the terms of the trial
period plan "cannot convert a purported agreement setting forth
clear obligations into a decision left to the unfettered discretion
of the loan servicer." One judge said allegedly commented,
"The program (HAMP) seems to have created more litigation than it
has happy homeowners."
As of June servicers
working under the HAMP program have initiated 2.03 million trial
modifications and converted 1.19 million of those to permanent
status. There is no information publicly available as to how many
borrowers may have successfully completed the trial modification
period but did not receive permanent modifications at the option of