The 8th Circuit Court of Appeals has ruled that a homeowner has a private right of action to sue their mortgage lender when the bank fails to properly process the application. Topchain v JPMorgan Chase, No. 13-2128 (8th Cir. 2014). This is a significant case because the HAMP laws do not specifically state whether a homeowner may sue their mortgage company when the bank wrongfully refuses to offer a permanent loan modification. Sure, HAMP laws require the banks to modify certain mortgage loans, but what do you do when they refuse to follow the law? According to the 8th Circuit, you may sue them for breach of contract.
Under the Home Affordable Modification Program (“HAMP”), an eligible homeowner receives a Trial Period Plan (TPP) that typically requires the homeowner to make 3 modified payments. If the TPP payments are made on time, the homeowner then receives a permanent loan modification agreement.
In an amazing display of arrogance and bad faith, Chase argued that no contract was ever formed because it did not sign the agreement.
After submitting a HAMP application and making his trial payments, Chase sent Topchain a modification agreement. Topchain signed the agreement and returned it to Chase, but Chase never signed the agreement. In an amazing display of arrogance and bad faith, Chase argued that no contract was ever formed because it did not sign the agreement and thus Topchain could not sue them for breach of contract. The 8th Circuit balked at this defense. First, the court ruled that Chase probably waived the requirement of signing the agreement when they verbally told Topchain that the agreement was accepted. Second, the court ruled that Chase most likely waived the signature requirement by accepting payments provided under the agreement for ten months. Consequently, the case was sent back down to the trial court for litigation on the breach of contact claim.
Homeowners can sue their mortgage lender for not complying with HAMP regulations. A private right of action exists for homeowners. This is a significant victory for homeowners.
Regardless of the outcome in Topchain’s case, the take away is that homeowners can sue their mortgage lender for not complying with HAMP regulations. A private right of action exists for homeowners. This is a significant victory for homeowners.
Other courts have also ruled that HAMP gives homeowners contractual rights to sue their bank when they fail to establish permanent loan modifications for eligible borrowers. See Wigod v Wells Fargo Bank, N.A. 673 F.3d 547 (7th Cir. 2012), Corvello v. Wells Fargo Bank, N.A., 728 F.3d 878 (9th Cir. 2013), Young v. Wells Fargo Bank N.A., 717 F.3d 224 (1st Cir 2013).
Homeowners who are unable to pay their mortgage generally lack the financial resources to sue their mortgage company when their HAMP application has been unfairly denied or delayed. However, Chapter 13 bankruptcy cases offer a forum to litigate HAMP issues with the added benefit of granting protection from foreclosure while that litigation takes place.
Many questions will have to be resolved by the bankruptcy courts now that it is clear that homeowners have contractual rights to obtain HAMP modifications. May a pre-bankruptcy mortgage arrearage be cured through a Chapter 13 Plan calling on the bank to modify the loan? Is the wrongful denial of a loan modification a basis to defend a Motion for Relief from the automatic bankruptcy stay when the homeowner defaults on post-petition payments? May the debtor file an adversary proceeding against the mortgage company when a loan modification is wrongfully denied? This could get interesting.
Image courtesy of Flickr and David Shankbone.