We have another update regarding litigation involving the United States Treasury’s Home Affordable Modification Program (“HAMP”). See some of our HAMP related posts here, here and here. As explained in some of our prior posts, the HAMP was created by the federal government to combat the national foreclosure crisis. The program was specifically designed to allow eligible homeowners who are about to default on their mortgages to save their homes by modifying the terms of their loans.
The HAMP was supposed to work in the following way. Under the program, mortgagors seeking to reduce their monthly mortgage payments, make an application to their loan servicer and request a loan modification. After a borrower applies for a loan modification, loan servicers are required under HAMP regulations to determine, based on all financial information submitted by the borrower, whether the borrower is eligible for a loan modification which would reduce the borrower’s monthly loan payment. Before a borrower receives a permanent modification, a loan servicer and a borrower enter into a three-month trial period, during which the borrower makes lower monthly payments towards his/her mortgage.
In most cases, the terms of the trial period are governed by a form trial period payment contract (the “TPP”). The TPP usually explains that the lender will send the borrower a permanent modification agreement if: (i) the borrower’s representations about his financial state continue to be true, and (ii) the borrower complies with the terms of the TPP (including making three timely trial payments). The TPP also states that at the end of the three month trial period the loan servicer will provide the borrower with a permanent modification if he/she is qualified, or will send the borrower a written denial if he/she does not qualify.
Back in May 2012, several plaintiffs filed a putative class action complaint in the Eastern District of Pennsylvania alleging that defendants Saxon Mortgage Services, Inc. (“Saxon”) and Ocwen Loan Servicing, LLC failed to permanently modify their mortgage loans after they fully complied with all of their obligations under the TPP. The complaint included claims for breach of contract, breach of the duty of good faith and fair dealing, promissory estoppel, violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, and Violation of the Fair Debt Collection Practices Act.
In its motion to dismiss, defendant Saxon argued that plaintiffs’ had failed to adequately allege that it had a duty under the TPP to provide plaintiffs and other homeowners with permanent modifications. Based on Saxon’s interpretation of the TPP, it was not obligated to permanently modify plaintiffs’ mortgages until it determined after the trial period was complete that plaintiffs were qualified under the HAMP guidelines.
In an opinion dated May 9, 2013 [an enhanced version of this opinion is available to lexis.com subscribers], the Honorable John Padova rejected Saxon’s argument finding that the TPP obligated Saxon, after it returned the executed TPPs to plaintiffs, to provide plaintiffs with permanent modifications as long as the plaintiffs made all of their trial payments on time and their financial information continued to be true and accurate. In his ruling, Judge Padova stated, “[i]n sum, we conclude that Saxon’s theory that the TPP permitted it to determine whether Plaintiffs qualified under HAMP guidelines after the trial period began conflicts with the plain terms of the TPP.”
As part of Saxon’s motion to dismiss, it also argued that plaintiffs’ alleged damages (i.e. payment of increased interest, longer loan payoff times, higher principal balances, deterrence from seeking other remedies to address their default and/or unaffordable mortgage payments, damage to their credit, additional income tax liability and costs and expenses incurred to prevent or fight foreclosure) were not the result of its refusal to provide plaintiffs with permanent modifications, but instead resulted from plaintiffs’ default on the terms of their original mortgages. The Court rejected Saxon’s argument holding plaintiffs had adequately alleged damages:
If Saxon had provided Plaintiffs with permanent modifications, it is reasonable to infer that they would not have incurred, inter alia, increased principal, interest, and longer loan payoff times that accrued after the end of their trial periods, and may have sought other remedies to address their unaffordable mortgage payments.
Saxon’s motion to dismiss was denied in its entirety and the plaintiffs will now seek class certification.
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