Appeals Court Rules Against Wells Fargo in HAMP Case

The 9^th District U.S. Courtrnof Appeals in San Francisco may have opened the door for a rash ofrnlawsuits by homeowners who were not offered the permanent mortgagernmodifications they felt they had qualified for under the HomernAffordable Modification Program (HAMP.) The three-judge panel ruledrnthat HAMP requires participating banks to offer the permanentrnmodifications to homeowners who have met the terms of a requiredrntrial modification period. </p

Two separate lawsuits, Corvello v.<bWells Fargo Bank NA, 11-16234 and Lucia v. Wells Fargo Bank werernbrought to the court on appeal last March after a lower court hadrndismissed the suits on the grounds the homeowners failed to state arnclaim for breach of contract and unfair debt collection practices. Plaintiffs had accused the bank of offering temporary loanrnmodifications without the intention of making them permanent </p

In arguing the case,rnattorney’s for both plaintiffs relied on an earlier appellate courtrnruling, Wigod v. Wells Fargo, which ruled that, if trialrnperiod plan conditions are met, the loan servicer must offer arnpermanent loan modification. Corvello’s attorney argued on appealrnthat her client had fulfilled his obligations under the trial periodrnrequirements and had qualified for a permanent loan modification butrnthat the bank, which had agreed to let Corvello know within 30 daysrnof his written application for a permanent modification if he did notrnqualify instead let him make two subsequent mortgage payments whichrnthey kept but did not give him the modification nor respond withinrnthe 30 days. In the earlier case Wells Fargo signaled to thernborrower that they qualified, the attorney said. Here they didn’trnrespond within 30 days as required which therefore communicated thatrnthe borrower was OK.</p

The secondrnplaintiff, Karen and Jeffrey Lucia, claimed to have complied with thernterms of an oral plan. They later lost their home to foreclosure. </p

Wells Fargo hadrnargued that it was only bound if it had actually offered thernborrowers a fully executed copy of the permanent modification. Itsrnattorney said the lower courts dismissal “required common sense.”rn “Borrowers can’t be offered modifications if they don’t qualify,”rnshe said. According to Bloomberg thernpanel specifically rejected that claim, saying the terms of the trialrnperiod plan “cannot convert a purported agreement setting forthrnclear obligations into a decision left to the unfettered discretionrnof the loan servicer.” One judge said allegedly commented,rn”The program (HAMP) seems to have created more litigation than itrnhas happy homeowners.”</p

As of June servicersrnworking under the HAMP program have initiated 2.03 million trialrnmodifications and converted 1.19 million of those to permanentrnstatus. There is no information publicly available as to how manyrnborrowers may have successfully completed the trial modificationrnperiod but did not receive permanent modifications at the option ofrnthe servicer.

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