To help stave off the catastrophic wave of foreclosures that is developing in the aftermath of the subprime mortgage crisis, Congress passed a law in 2009 called the Home Affordable Modification Program (referred to as HAMP). Under HAMP, a homeowner who can’t pay his mortgage can get a temporary reduction in payments (a “temporary modification”) while negotiating for a permanent lower payment (a “permanent modification”) that would allow him to keep his home. In exchange for participating in HAMP, the banks get federal bailout money under the TARP program. Not long after the program was initiated, however, homeowners began to report that banks were cheating the system by using a series of unfair tactics to make it nearly impossible to get a permanent modification. For example, many homeowners complained that each of their calls to their bank were transferred to a different account representative who would then claim that the application was lost or never received. As a result, some homeowners were forced to fax their applications over and over again.
These and other complaints were so common that they attracted the attention of the Attorneys General of Arizona and Nevada which filed separate consumer fraud suits against several large banks. That grew into a single suit joined by 49 states and the federal government which resulted in an agreement by the banks to cease these practices.
More recently, on July 2, 2012, California enacted legislation known as the Homeowners’ Bill of Rights (AB 278 and SB 900) which prohibits the strategies that banks had been using to undermine homeowners’ ability to get relief under HAMP. Among other things, this law requires a “single point of contact” to prevent the telephone runaround tactic described above.
Finally, there are currently thousands of private lawsuits based on state consumer fraud statutes pending across the nation in which individuals are asserting the same fraud theories. However, federal trial courts have yet to agree on whether to allow these cases. So far, the federal courts in Massachusetts are allowing these cases (see eg.Morris v. BAC Home Loans Servicing, L.P., 2011 WL 1226974, at 3-6 (D.Mass. Apr. 4, 2011)) while at least one federal trial court in New Jersey is not (see e.g. Keosseian v. Bank of Am., Civ.A. 11-3478 JAP, 2012 WL 458470 (D.N.J. Feb. 10, 2012). Plaintiffs made great progress however, when the 7th Circuit in Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012) held that the claims are permissible. The issue is presently on appeal in the Third Circuit.