June 3, 2014

HAMP Denials – The Decision to Grant Modification Rests With Mortgagee

frustrated mortgageeThe 11th Circuit Court of Appeals in Florida recently issued a decision affirming the foreclosure in Bloch v. Wells Fargo Home Mortgage , where a couple sought to challenge the bank’s denial of the federal Home Affordable Modification Program.

The problem with HAMP eligibility is that while the basic requirements are spelled out by the government, the ultimate decision of whether to grant a modification rests with the mortgage servicer. Over the last few years, there have been many complaints about wrongful denial of home loan modifications.

In cases of HAMP denials, our South Florida foreclosure lawyers want to make sure borrowers understand they have only 30 days in which to challenge a denial. If you haven’t already involved an attorney by that point, now is the time to do so.

There are many reasons why a borrower could be denied a loan modification. Those reasons could include:

  • Failure to send requested documents in a manner considered timely.
  • Debt-to-income ratio is too high.
  • Insufficient income to make even an affordable mortgage payment.
  • Negative NPV (Net Present Value).
  • Modification outside investor guidelines.

There are other possible reasons too, but it’s important to at the very least have the loan modification denial reviewed by a foreclosure attorney, who can help you determine whether there is anything improper about it.

In the Bloch case, the plaintiff argued that the denial of the modification amounted to a negligent misrepresentation by the mortgage servicer, insisting they had been “promised” that they were eligible. Had they known that the bank, in this case Wells Fargo, had not intended to modify their loan, they would have worked more aggressively to sell their home at the outset, or sought a bankruptcy in the alternative. This, they said, would have saved them the trouble of enduring the modification process.

The couple in this case had taken out a $324,000 loan in 2002, and Wells Fargo was the servicer. In 2007, the couple defaulted by failing to make payments. A foreclosure action was filed the following year, but when the couple entered a mortgage restructure/loan modification, the foreclosure action as voluntarily dismissed by the bank.

Within a year, the couple had defaulted on that loan as well. At that time, the bank sent a letter to the couple inviting them to apply to participate in HAMP. The couple completed the application and submitted it a short time later.

The two then made four trial payments of $2,200 each while awaiting a decision regarding whether they qualified for HAMP. However, after reviewing the information, the bank determined that they did not qualify for assistance under HAMP.

The four payments the couple had made were credited to the outstanding balance they owed to the bank.

The borrowers entered into a forbearance agreement, but that didn’t mean the bank waived the right to collect the remaining balance of the loan. The couple never made any further payments.

They then sued the bank, alleging that the bank had misrepresented their chances of obtaining a modification, causing them to lose out on the opportunity to seek another alternative.

However, the 11th Circuit ruled that the letter sent by the bank offering a modification clearly indicated that they might be eligible under HAMP, and as such, this was not a binding promise. Further, the court found no evidence of false representation by the bank, and in any case, the alleged injury was speculative. In these cases, the alleged injury has to be concrete – not based on conjecture.

Challenges to HAMP denials must be handled swiftly and carefully. We can help.