Homeowners, finally fed up with unfulfilled promises of HAMP modifications, have filed suit against Wells Fargo in the U.S. District Court in Massachusetts.  As is common across the county, lenders are placing homeowners in HAMP trial period plans and even after the homeowner complies with all of the terms of the plans they are denied a permanent modification. 

A HAMP modification consists of two stages.  First, a participating servicer is required to gather information and, if appropriate, offer the homeowner a Trial Period Plan.  The Trial Period Plan consists of a three-month period in which the homeowner makes mortgage payments based on a formula that uses the initial financing information provided. 

There used to be a written Trial Period Plan Agreement that was executed by the homeowners and the servicer.  The agreement described the homeowner's duties and obligations under the plan and promises a permanent modification once the homeowner successfully completes the trial period.  Currently, it seems as though the written agreement has been abandoned and in its place homeowners simply receive a letter that they have been approved for the trial period plan - making the first required trial period payment is considered acceptance by the homeowner.

Unfortunately, very few trial period plans actually make it to the permanent modification stage - despite the homeowners' compliance with all of their requirements under the plan.  Often times, these plans drag out for several months beyond the three-month trial period to the detriment of the homeowner.  What many homeowners fail to realize is that while they are making reduced payments under the plan, their delinquency continues to grow.

The lawsuit alleges that by failing to offer the permanent modifications, homeowners are left in limbo, wondering if their homes can be saved" and "preventing them from pursuing other avenues of resolution, including using the money they are putting toward Trial Period Plan payments to fund bankruptcy plans, relocation costs, short sales or other means of curing their default."

The first cause of action alleges breach of contract.  Essentially, that the Trial Period Plan Agreement constitutes a valid offer and that by executing the agreement and returning it along with the supporting documentation, Plaintiffs accepted the offer.  Alternatively, the argue that return of the agreement by Plaintiffs constituted an offer and that it was accepted when Wells Fargo accepted payments thereunder. 

It is also claimed that the payments constituted valid consideration because in doing so, Plaintiffs "gave up the ability to pursue other means of saving their homes."

Thus, a binding contract was formed and the failure to offer a permanent modification when the homeowners completed the plan constitutes a breach of contract.

In the second cause of action, it is alleged that Wells Fargo breached the implied covenant of good faith and fair dealing.  Implied in every contract is a duty of good faith and fair dealing.  "The purpose of the covenant is to guarantee that the parties remain faithful to the intended and agreed expectations of the parties in their performance."  It is alleged that Wells Fargo breached this duty by:

• failing to perform loan servicing functions consistent with its responsibilities;
• failing to properly supervise its agents and employees including without limitation, its loss mitigation and collection personnel and its foreclosure attorneys;
• routinely demanding information already in its files;
• making inaccurate calculations and determinations of the homeowners' eligibility for HAMP;
• failing to follow through on written and implied promises;
• failing to follow through on contractual obligations; and,
• failing to give permanent modifications and other foreclosure alternatives to qualified homeowners.

I expect that more of this type of litigation will be used across the country. It is appalling to see what lenders, and their servicers, are doing to homeowners.  Under the guise of a federal program, they are promising modifications and taking many months of additional payments from homeowners and then continuing with foreclosure.  This amounts to a windfall to the lenders who are collecting those payments that they otherwise would not get.  Homeowners could be using that money to relocate, file bankruptcy, or seek other avenues to save their homes. 

I agree with the Plaintiffs in this case.  It is a breach of contract and a breach of the duty of good faith and fair dealing.  When homeowners accept a Trial Period Plan and do everything they are asked to do under the agreement and are denied a permanent modification, they should have some redress in a court of law. 

Unfortunately, foreclosure mills continue to ram homeowners through the foreclosure process without a care.  Because many homeowners do not seek representation, they lose their home despite their best efforts to workout a modification.  This really amounts to giving away money to the lenders who fail to live up to their duties under the HAMP Trial Period Plan agreement. 

As I am now representing homeowners in foreclosure, I will be keeping a close eye on this case and any others that may pop up. 

Robert A. Franco
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