Circuit to Rehear Wells Fargo Class Action Fight

SAN FRANCISCO (CN) - Wells Fargo will face a limited appeals rehearing related to claims that it denies qualified homeowners permanent loan modifications, the 9th Circuit said Monday.

Congress created the Home Affordable Modification Program, or HAMP, in 2009 under the umbrella of the Troubled Asset Relief Program, itself a byproduct of the 2008 financial crisis.

Lawmakers intended for HAMP to help homeowners avoid foreclosure when they were behind on their mortgage payments.

In reviving two class actions against Wells Fargo last month, a three-judge panel of the 9th Circuit noted that the program "seems to have created more litigation than it has happy homeowners."

Wells Fargo had been entitled like other lenders to $1,000 from the Treasury for each permanent modification it made, so long as it followed certain guidelines and procedures.

To apply for HAMP, distressed homeowners would supply information about their finances and their inability to pay their current mortgage to the lender. Borrowers who appeared eligible would then submit documentation of their financial status and begin making trial payments of the modified amount.

Lenders are then supposed to notify the borrowers if they do not qualify for HAMP and consider them "for another foreclosure prevention alternative," according to the Treasury's directive.

The homeowners in the two class actions claimed they made all their modified payments, but the bank never offered them permanent mortgage modifications. Instead, it allegedly foreclosed on their homes and sold them.

A federal judge dismissed the lawsuits based on one paragraph of the trial period plan, which states that the loan would not be modified "unless and until" the borrower received a "fully executed copy of a modification agreement."

Because Wells Fargo never sent a signed modification agreement, the judge reasoned, it was not required to offer a permanent modification.

Noting that the 7th Circuit in Chicago found differently in the case Wigod v. Wells Fargo Bank N.A. , a three-judge panel of the 9th Circuit reversed in August.

"We believe the reasoning in Wigod is sound," the court had said.

That decision said the bank was contractually obligated to offer permanent modifications to borrowers who met the trial period plan criteria.

The court noted Monday, however, that it granted a petition for a limited rehearing.

Judge John Noonan also withdrew his concurrence from the earlier filing.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit