Appellate Court Paves Way for Hamp Lawsuits, without Input from Treasury

Article excerpt

Byline: Kate Davidson

WASHINGTON a An appellate court decision earlier this month would provide a new avenue for borrowers to file suit against mortgage servicers that deny permanent modifications under the Home Affordable Modification Program.

The decision may prompt new lawsuits and lead to protracted litigation that could slow down the program and further delay assistance for borrowers. At issue is whether borrowers have the right to sue a servicer for failing to comply with a government program.

But the party responsible for administering that program a the Treasury Department a was notably absent from the debate and has so far stayed out of the fray in the hundreds of similar borrower suits. The administration's unwillingness to weigh in has drawn the attention of some judges.

"In my view, our task of adjudicating this matter would have been assisted significantly if the United States had entered this case as an amicus curiae," Judge Kenneth F. Ripple wrote in his concurring opinion on March 7.

Ripple said the program has been the subject of many cases in the district courts a bank lawyers have estimated them to be in the hundreds, possibly thousands a and he said prolonged litigation is "hardly a catalyst" to the effective administration of foreclosure prevention programs like Hamp.

"Efficient and accurate resolution in this court is important to the effective administration of the legislative program and, in that respect, the views of the executive department charged with the administration of the statute undoubtedly would have been of great assistance," he said.

Ripple acknowledged that the court could have asked Treasury to participate, but doing so would have significantly delayed a final decision.

A Treasury spokeswoman would not comment on the specifics of the case because the litigation is pending. But she said if the court had asked the agency to participate, it would have carefully considered how to proceed depending on the facts and circumstances of the case.

In the meantime, some industry sources said the decision could allow other Hamp lawsuits to move forward, which could slow down the program even further.

"If this creates a legal framework by which servicers can now be taken on individually by borrowers for this, I think that would probably have the unintended consequence of servicers . . . throttling back their participation in Hamp," said Tim Rood, a partner and managing director at the Collingwood Group LLC. "Because this is only a proxy of other actions that could be taken that just haven't been exposed yet. So it's certainly a delicate balance, that's for sure, for the administration."

Lori Wigod sued Wells Fargo & Co. in 2010 when the bank denied her permanent modification under Hamp, after first agreeing to approve the modification if Wigod complied with the terms of a trial period plan.

Many similar cases have been dismissed because courts have found that borrowers do not have a federal private right of action, meaning they don't have the right to sue servicers for violating Hamp.

But the 7th Circuit Court of Appeals in Chicago, which often issues significant consumer protection decisions, overturned a district court ruling and found that Wigod does have the right to bring claims against a servicer for violating state laws.

Among other things, Wigod accused Wells of breach of contact a a claim grounded in state law a for rejecting her modification even though she met the terms of a trial modification.

Although the court did not weigh in on the merits of Wigod's claim, they essentially ruled that she should have her day in court.

Ira Rheingold, the executive director of the National Association of Consumer Advocates, said servicer compliance with Hamp is an ongoing problem, and allowing consumers to enforce the guidelines through lawsuits is essential. …