Wells Fargo Had Duty to Modify Loans, Court Says

     (CN) – The 9th Circuit on Thursday reinstated two federal class actions accusing Wells Fargo of failing to offer permanent loan modifications to distressed homeowners who met the requirements of a trial period.
     The Home Affordable Modification Program, or HAMP, was created in 2009 under the umbrella of the Troubled Asset Relief Program, itself a byproduct of the 2008 financial crisis.
     HAMP was intended to help homeowners who were behind on their mortgage payments avoid foreclosure.
     But the program “seems to have created more litigation than it has happy homeowners,” the three-judge panel in San Francisco noted.
     Lenders like Wells Fargo Home Mortgage Inc. were entitled to $1,000 from the Treasury for each permanent modification they made, so long as they 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.
     Homeowners in 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.
     But the 9th Circuit took the 7th Circuit’s lead in ruling that, yes, the bank was contractually obligated to offer permanent modifications to borrowers who met the trial period plan criteria.
     “The district court should not have dismissed the plaintiffs’ complaints when the record before it showed that the bank had accepted and retained the payments demanded by the TPP (trial period plan), but neither offered a permanent modification, nor notified plaintiffs they were not entitled to one, as required by the terms of the TPP,” according to the unsigned opinion.
     The 9th Circuit noted that its sister circuit in Chicago “rejected the very proposition that Wells Fargo asserts here, and which the district court accepted when it concluded that there was no contract.”
     Other courts have since followed the 7th Circuit’s ruling in Wigod v. Wells Fargo Bank N.A.
     “We believe the reasoning in Wigod is sound,” the 9th Circuit concluded.

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