Government Mortgage Program Allows Recourse Against Lenders For Compliant Homeowners
The Home Affordable Mortgage Program (HAMP) was started in 2009 to help homeowners avoid foreclosure, and its goal is to provide lower monthly payments to borrowers who have defaulted on their payments, or who are likely to default. It has been extended to December 31, 2015 and the requirements relaxed to encourage more applications. A typical HAMP homeowner may be able to reduce the mortgage payment as much as 35%. The biggest problem with the program is it does not reduce the principal amount of the mortgage.
The main obstacle to qualifying is the borrower must be employed, in order to document an ability to make the required monthly payments. Other requirements include a mortgage obtained before January 1, 2009, loans less than $729,750 on a residence, with higher limits on 2, 3 or 4-unit rental property, a financial hardship, and no recent felony conviction. Keep in mind the law is always changing, and if lower payments are needed, an application should be submitted.
In some cases, borrowers are agreeing to a trial period plan (TPP) and making the required payments, and still having the banks deny a permanent loan modification and foreclosing.
However, in the recent decision of West v. JPMorgan Chase Bank, the California Court of Appeal ruled that if the borrower complies with all the terms of a TPP, and the borrower’s representations to get the TPP remain true, the bank or loan servicer must offer the borrower a permanent loan modification. As a party to the TPP, the borrower may sue the lender or loan servicer for its breach of the TPP. The bank’s defense in West that it did not breach the contact because it “reevaluated the application”, an absurd argument only a bank would presume to make, was rejected, because it ignored the bank’s obligations under HAMP and the TPP.
In addition to a cause of action for breach of contract, a borrower may sue for fraud and negligent misrepresentation and punitive damages, promissory estoppel, and unfair competition. The suit can be filed in California’s courts because HAMP does not preempt or otherwise displace state law.
As in most situations involving a potential foreclosure, aggressive efforts to resolve the loan problems should be pursued before the foreclosure, as the options for relief diminish considerably after a foreclosure sale. The mortgage servicer should be contacted to request a HAMP modification, and an experienced attorney consulted, to insure the best results before the foreclosure sale.
For information only by Craig B. Forry, attorney, broker, expert witness/consultant, and no retainer agreement is intended or created.
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