BOSTON (CN) – A federal court will hear claims that Bank of America improperly administered the federal Home Affordable Loan Modification Program, costing homeowners their chance to avoid foreclosure.
Mortgagors across the country brought class actions against BoA last year after trying to participate in the HAMP program and avoid foreclosure.
The federal Judicial Panel on Multidistrict Legislation consolidated 26 cases from 19 states and transferred them to Boston Federal Court.
The opinion by U.S. District Judge Rya Zobel summed up the complex situation.
In October 2008, BoA “accepted $15 billion … as part of the Troubled Asset Relief Program (‘TARP’). In January 2009, it accepted an additional $10 billion in TARP funds in connection with its acquisition of Merrill Lynch & Co., Inc., and a partial guarantee against losses on $118 billion in mortgage-related assets. In April 2009, it signed a contract with the U.S. Department of the Treasury agreeing to participate in HAMP, which provided BAC, as the servicing arm of Bank of America, incentive payments for granting to eligible borrowers affordable mortgage loan modifications and other alternatives to foreclosure.”
BAC Home Loans Services is a subsidiary of Bank of America.
“As part of the program, BAC entered into a standard agreement with each plaintiff for a temporary trial modification of that plaintiff’s existing note and mortgage.
Each Trial Period Plan (‘TPP’) promised that if the borrower complied with the terms of the agreement and the borrower’s [situation] remained unchanged in all material respects, then the borrower would receive a permanent modification on the same terms. BAC entered into TPP agreements with several borrowers in Massachusetts.
“Under the TPP, the borrower made reduced mortgage payments based on the financial documentation submitted during the eligibility phase. The homeowner could also be required to open an escrow account and submit additional financial documents and to undergo credit counseling. The trial period lasted three months. As long as the borrower complied with the terms of the TPP and the income representations were verified, the servicer was directed under the terms of the TPP to offer the borrower a permanent modification at the end of the three-month period.
“The named plaintiffs are homeowners who signed TPPs. They contend that the TPP was a binding contract between the parties under which BAC was obligated to offer permanent loan modifications if plaintiffs complied with the TPP’s terms and conditions over a three-month trial period. Although they did fully comply and were eligible, defendants either failed to grant permanent modification or failed to give a written response to their respective applications.”
To make matters more complex, the plaintiffs proposed that they be divided into two classes.
“First, a class of homeowners whose mortgage loans have been serviced by one or both defendants, but who were never admitted into the TPP (the ‘SPA Class’). While not parties to any contract, they reason that they are among the intended beneficiaries of a Servicer Participation Agreement (‘SPA’) between BANA [Bank of America North America] and the U.S. Treasury.”
“Second, they propose 15 statewide classes of homeowners who entered into the TPP but were not given a permanent HAMP modification or a written notice that their request for permanent modification had been denied (the ‘TPP Class’).”
Last week, the court held that the second class lacked standing to bring its claims and dismissed it.
“Nothing in the statute suggests any intent … to benefit these plaintiffs; its terms compel the opposite conclusion,” Judge Zobel wrote.
Nonetheless, the TPP plaintiffs will be allowed to proceed on nearly all of their claims, except those that arise under the Equal Credit Opportunity Act.
Contrary to BoA’s allegations that no valid contracts were formed, “the complaint meticulously details each plaintiff’s initial and ongoing,” Zobel wrote.
Zobel found that the complaint adequately states a claim that BoA dealt with plaintiffs unfairly and in bad faith, by alleging that “BOA willfully failed to modify qualifying loans, declined to properly train and supervise its agents, encouraged and/or allowed employees to make inaccurate representations, all ‘in bad faith and for its own economic benefit.'”
Claims regarding unfair and deceptive acts under state consumer protection acts will also be allowed to stand.
But Zobel rejected the plaintiffs’ application for a temporary injunction “which would bar defendants from foreclosing on their mortgages until a determination on the merits in this case.”
Zobel noted that the named plaintiffs are “already beneficiaries of a ‘voluntary foreclosure hold.'”
Other class members may be out of luck: “an injunction as to these before class certification … would be both improper and unmanageable.”