In a decision today (here), a federal judge assigned to handle 26 class action cases filed in 19 states against Bank of America and is servicing subsidiary BAC Home Loans Servicing LP dismissed claims made by borrowers wanting to obtain loan modifications under HAMP, but allowed claims to go forward for homeowners who entered the HAMP program but were never given a permanent loan modification. Judge Rya Zobel of the United States District Court of Massachusetts presides over the consolidation of cases called “multidistrict litigation” and was faced with a lengthy motion to dismiss the combined case which collectively alleges breach of contract, common law tort, violations of consumer protection statutes and federal law.
The case essentially focuses on the mismanagement of the HAMP program by BofA and BAC, which factually is hard for anyone to dispute. Even the federal coverup agency that systemattically protects the industry called the Office of the Comptroller of the Currency (OCC) had to acknowledge the blunders of their good friends through consent decrees (which contained more empty promises and no penalties of course). Story here. However, given that the financial industry crafted HAMP originally and gave it to the Obama administration essentially as a gift it lieu of real reform, meaningful homeowner assistance, or statutory authority of bankruptcy judges to modify residential loans (judges already can modify loans for second homes, and even boats) — it is no wonder it failed. Moreover, the industry made sure that HAMP gave borrowers little in terms of rights, so crafting legal claims based on program mismanagement would not be easy.
A summary of the decision follows:
Injunction to Prevent Foreclosures of Borrowers in HAMP. The court noted that it had not yet certified any class action members (who would be in the case by definition) and so it would be premature to enjoin BofA and BAC from foreclosing on a class of homeowners engaged in the HAMP program. But the court clearly left that question on the table. Decision at 16.
Two class of plaintiffs: SPA and TPP.
First, [Plaintiffs' propose] a class of homeowners whose mortgage loans have been serviced by one or both defendants, but who were never admitted into the [program] (the “SPA Class”). While not parties to any contract, they reason that they are among the intended beneficiaries of a Servicer Participation Agreement (“SPA”) between [BofA] and the U.S. Treasury. Second, [Plainitffs'] propose 15 statewide classes of homeowners who entered into the [program] but were not given a permanent HAMP [loan] modification or a written notice that their request for permanent modification had been denied (the “TPP Class”).
Decision at 3-4.
SPA Plaintiffs’ Claims Dismissed. The claims made by the homeowners that were never allowed into the program, ie, never given a trial period plan (TPP) did not do well in this case. These claims related to a contract entered between the government and the lender called a Servicer Participation Agreement (SPA) which sets up the HAMP program for that lender. The court held as a matter of law that homeowners could not claim a breach of a contract between the government and BofA, and more specifically held that the contract did not intend homeowners to be able to sue under the contract even if they were incidental beneciaries of the the contract. Of course the financial industry wrote and approved these contracts and made sure a claim like this would fail. The court noted that because there is no contract claim here, there also cannot be a claim for breach of the duty of good faith and fair dealing. Decision at 7. The court further held that the SPA plaintiffs lack standing to bring a promissory estoppel case.
Most of TPP Plaintiffs’ Claims Survived. A borrower in the HAMP program begins the process by applying for assistance from a participating loan servicer. If a servicer such as BofA finds the homeowner qualifies for a modification, it offers the homeowner a trial period plan (TPP) lasting three months and “promise[s] that if the borrower complied with the terms of the agreement and the borrower’s representations on which the offer of a modification was based remained unchanged in all material respects, then the borrower would receive a permanent modification [of the loan] on the same terms.” Decision at 2. The homeownersin the TPP class allege that BofA did not offer permanent loan modifications as promised, or did not explain to the homeowners why they did not get a permanent loan modification. BofAargued two reasons why the contract could not be enforced.
1. Breach of Contract. First, BofA claimed the contract cannot be enforced because there was no “consideration” given to back up the deal. The court rejected BofA’s argument: ”The requirements of the TPP all constitute new legal detriments. See Durmic v. J.P. Morgan Chase Bank, N.A., No. 10-cv-10380-RGS, 2010 WL 4825632, *12 (D. Mass. Nov. 24, 2010) (holding that requirements of TPP constitute valid consideration), and Bosque v. Wells Fargo Bank, N.A., No. 10-cv-10311-FDS, 2011 WL 304725, *20-21 (D. Mass. 2011) (same). The TPP established these conditions, which plaintiffs had no preexisting legal obligation to meet. The complaint adequately alleges valid consideration.” Decision at 10.
Second, BofA claimed the homeowners did not comply with their obligations (“conditions precedent”). The court found the homeowners allegations sufficient and rejected BofA’s argument here as well. Thus, the court’s decision allows the breach of contract claim to go forward in cases where the homeowner has entered into a trial period plan and the lender failed to make it permanent.
2. Promissory Estoppel, Breach of Duty of Good Faith and Fair Dealing. The court rejected BofA’s argument that these claims should be dismissed and thus is allowed to proceed.
Defendants argue that plaintiffs have not adequately pled that BOA acted with any intent of causing them injury, much less with the “dishonest purpose or conscious wrongdoing necessary for a finding of bad faith or unfair dealing.” Schultz v. R.I. Hosp. Trust Nat’l Bank, NA, 94 F.3d 721, 730 (1st Cir.1996) (applying Massachusetts law). However, the complaint states that BOA willfully failed to modify qualifying loans, declined to properly train and supervise its agents, encouraged and/or allowed employees to make inaccurate representations, all “in bad faith and for its own economic benefit.” See CAC ¶¶ 464-465; 523-524. These allegations are sufficient to state a claim.
Decision at 11-12.
3. Consumer Protection Statutes. The court prelimiarily rejected BofA’s arguments and found that the homowners adequately pleaded their case.
Count VI of the consolidated complaint asserts claims by fourteen statewide classes for unfair and deceptive acts under various state consumer protection acts which defendants seek to dismiss on various grounds. First, defendants assert that such claims are an “impermissible end-run” around HAMP’s lack of a private right of action. However, claims under state consumer protection statutes may proceed even in the absence of a private means of recovery if the alleged violation is unfair or deceptive. … The allegations of this complaint are sufficient to withstand the motion to dismiss on this ground. See Bosque v. Wells Fargo Bank, N.A., 10-cv-10311-FDS, 2011 WL 304725, *8 (D. Mass. Jan. 26, 2011). Plaintiffs charge defendants with making deceptive, false or misleading representations regarding their eligibility for a permanent loan modification under HAMP. (See CAC ¶¶ 489-521.) In particular, they state that they were led to believe that they would be entitled to a permanent loan modification or a denial of eligibility so long as they complied with the obligations set forth by the TPP.
Decision at 12-13.
The court did dismiss the TPP Plaintiffs’ claim that BofA violated the Equal Credit Opportunity Act (ECOA) for failing to notify them of adverse action when BofA decided not to make the trial modification plan and permanent one. “Here, notification was not necessary because defendants did not take an adverse action; they did not refuse to grant credit as plaintiffs had requested. Thus, defendants’ motion to dismiss this count is allowed.” Decision at 15.
Undoubtedly, BofA was hoping all the class cases would go away today, and clearly their hopes were dashed. Of course that assumes a corporation can hope, and I have yet to find that a multinational financial corporation feels or cares about anything. I think I can say that BofA’s lawyers are thrilled to be able to bill their client for hundreds and hundreds of more hours of research and writing.
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