Homeowners in the 7th Circuit can Sue Banks over Mortgage Modification Malfeasance
Written by Emil Fleysher | March 15, 2012 | Foreclosure
Although the Home Affordable Mortgage Program doesn’t allow for private federal actions against banks over their implementation of the program, a homeowner can bring state law claims, the 7th U.S. Circuit Court of Appeals ruled. The Home Affordable Mortgage Program and its enabling statue do not contain a federal right of action, but neither do they preempt otherwise viable state-law claims. Permitting suits such as this will not expose mortgage servicers to multiple and varied standards of conduct. So long as state laws do not impose substantive duties that go beyond HAMP’s requirements, loan servicers need only comply with the federal program to avoid incurring state-law liability.
In this case, Wells Fargo put the plaintiff on a four-month so-called trial period plan. A few months later Wells Fargo sent her a letter stating the bank was unable to adjust the terms of her mortgage due to investor guidelines. She sued the bank on behalf of all U.S. homeowners who signed TPP agreements with Wells Fargo and complied with all the terms but were denied permanent loan modifications. The judge ruled that Wells Fargo had not identified the specific criteria that she had failed to satisfy. And that a reasonable person in her position would read the TPP as a definite offer to provide a permanent modification that she could accept so long as she satisfied the conditions.
This ruling is a major victory for homeowners. It is going to provide hope to millions of homeowners who have been mistreated by all of the major banks. Of the more than 80 cases that have been filed nationwide against banks’ implementation of HAMP, very few have gotten past the pleading stage. Courts that have dismissed these cases stated that the law does not provide a private right of action. But now, the 7th Circuit (which includes Illinois, Indiana, and Wisconsin) says that doesn’t mean state law claims are barred.
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