Generally speaking, the federal government’s loan modification program has been a bust. The U.S. Department of Treasury launched the Home Affordable Modification Program (“HAMP”) in 2009 to help distressed homeowners with delinquent mortgages. But as the 9th Circuit Court of Appeals recently observed, HAMP has “created more litigation than happy homeowners.”
Stories abound of homeowners submitting their financial packets to their lender time and time again only to hear that the lender never received it. Or that the negotiator no longer works there and the lender has no record of the borrower’s loan modification request. Many homeowners who have embarked on this journey have discovered first-hand Albert Einstein’s definition of insanity: “doing the same thing over and over again and hoping for a different result.”
Today it is common knowledge that an overwhelming majority of loan modification requests are a waste of time. In fact, for this reason most law firms flat out refuse to represent clients in regard to loan modification requests.
Over the past several years many distressed homeowners have resorted to legal action in an effort to hold their lender accountable for bad faith or misrepresentations made during the loan modification process. Much to the dismay of the homeowners, however, the courts have unanimously rejected these claims on the rationale that if a lender isn’t legally obligated to offer loan modifications in the first place, lenders can’t be liable for declining or ignoring loan mod requests.
But recently the federal court’s position on loan modifications began to change. Last year the 7th Circuit held that if the lender issues the homeowner the HAMP trial period plan (“TPP”) and the homeowner performs his obligations under the TPP, the lender must issue the homeowner a permanent modification. See Wigod v. Wells Fargo Bank, NA, 673 F.3d 547 (7th Cir. 2012).
The Wigod decision was a watershed moment for distressed homeowners because prior to Wigod the lenders would routinely issue TPP agreements, accept the trial plan payments from the distressed homeowner, and then inform the homeowner that he doesn’t qualify for the loan modification after all.
Last month our 9th Circuit expanded Wigod’s holding even further: in Corvello v. Wells Fargo, the 9th Circuit held that where a lender offers the homeowner a TPP agreement, as long as the homeowner makes the trial plan payments, the lender must provide the homeowner with a permanent modification (or else notify the homeowner that he’s not entitled to one) – regardless of whether the lender signs the TPP agreement. Corvello v. Wells Fargo Bank, NA, 2013 WL 4017279 (Aug. 2013).
Removing the lender’s signature as a requirement is huge because many lenders argued post Wigod that they had no obligation to provide a permanent modification even if the homeowner made the trial plan payments because the lender failed to sign the TPP agreement. You can almost hear the lenders taunting: “you can’t catch me!”
But now, in light of the 9th Circuit’s ruling in Corvello, thousands of homeowners can enforce civil claims against their lender if the lender fails to honor its promises to the homeowner. Following Corvello, distressed homeowners can bring claims against their lender for breach of contract, breach of the covenant of good faith and fair dealing, and promissory estoppel as long as the homeowner can show that they were offered a TPP agreement and timely made the trial plan payments.
With the recent appreciation Arizona homeowners are enjoying, this encouraging news regarding loan modifications is timely and appreciated.