NCLC Class Action Litigation To Challenge Lender’s Failure To Convert Trial HAMP Loan Modifications To Permanent Ones

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The question is this: can you sue to enforce a trial loan modification? Until now, the answer has been no. You can’t. A contract is a contract. It’s binding. And banks have no legal obligation to change your mortgage terms. Yes, they do it all the time for qualified homeowners and to avoid taking back foreclosed property the lenders don’t really want. But legally the lenders cannot be compelled to modify in state or bankruptcy court.

But what happens if they offer you a trial mod? They lower your payments for 3 months. Does that obligate them to offer you a permanent mod? I don’t think so. But the National Consumer Law Center in Massachusetts is trying to find out in several class actions designed to test this theory under that State’s common law . . .

NCLS has brought four class action suits on behalf of Massachusetts residents to challenge the failure of Wells Fargo Bank , Bank of America , J.P. Morgan Chase Bank and IndyMac Mortgage Servicers/OneWest Bank to honor their agreements with borrowers to modify mortgages and prevent foreclosures under the United States Treasury’s Home Affordable Modification Program (“HAMP”). The complaints are filed with the United States District Court for the District of Massachusetts and assert claims for breach of contract, breach of the implied covenant of good faith and fair dealing and promissory estoppel under Massachusetts common law arising from the financial institution’s alleged failure to keep its promises to modify eligible loans to prevent foreclosures against homeowners who have lived up to their end of the bargain as required by HAMP.

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It will be interesting to see where this suit goes as it may open up new doors for homeowners in other states. It could create persuasive, although not binding precedent in New York, for homeowners to now “enforce” their rights under a trial loan mod. Or, it could have the opposite effect under what we call The Law Of Unintended Consequences. If the Courts suddenly say that completion of the terms of a trial loan mod now mean that a lender must (not “may”) give a permanent loan mod as a result, I’d expect there to be a lot less trial mods offerred. This remains to be seen.

Here is another related and recent out-of-state article about loan modifications.

My firm is actively representing New York property owners who want a lawyer to assist them with the loan modification process. Call or email us if you want help or fill in our free consult link on this page.

If you are considering this, beware of non-attorney scammers who call themselves “consultants.” They are doing and advertising loan mod services illegally and may make your already difficult situation worse. I am still shocked when I hear these ads on tv and radio for what is basically practicing law without a license – which is a crime in New York (a misdemeanor).