HAMP loan modification wrongfully denied

The Court issued a decision on July 17, 2017 denying a Motion to Dismiss brought by Fannie Mae and PHH Mortgage against a homeowner, represented by our attorney, Andrea Bopp Stark, who filed claims against them that he was wrongfully denied a HAMP loan modification.  In denying the Motion, Judge Levy of the Federal District Court in Maine, also overturned Magistrate Judge Rich's original decision to allow the Motion.  

Misrepresented eligibility and modification denial

As alleged in his complaint, the homeowner applied for a loan modification under the Fannie Mae Home Affordable Modification Program (HAMP) in 2009. He was offered a HAMP trial plan which he completed but, because of a change in income, PHH offered him a non-HAMP, Standard Fannie Mae Modification. He accepted the modification but the monthly payment was much higher than the HAMP trial plan and he was not able to sustain it. He applied again for a HAMP modification in 2012 but PHH told him he was not eligible for a HAMP modification because he had already had one.  That was not true.  The modification he received was not a HAMP, but rather a Standard Fannie Mae.  PHH and Fannie Mae both misrepresented that he was not eligible for a HAMP due to a false conclusion that he had failed a prior HAMP modification.  He was again given a more expensive non-HAMP modification which he was able to pay for almost two years but then could not sustain.  Again in 2015 and 2016, he was denied a HAMP modification for the same inaccurate reason that he had failed a prior HAMP modification.  Again the homeowner found himself unable to maintain the higher monthly payments of a Standard modification.  He was never reviewed for HAMP after 2009 based on PHH and Fannie Mae's misrepresentation that he was not eligible due to a prior HAMP failure. Today the homeowner lives in jeopardy of losing the home he bought for his parents to live out the remainder of their lives with him.  

The Judge found that, taking these allegations as true, the homeowner had stated a claim for violations of the Maine Unfair Trade Practices Act (UTPA), the Real Estate Settlement Procedures Act (RESPA), the Maine Consumer Credit Code (MCCC) and for Fraud and Misrepresentation.  Key findings of the Court were:

If [the homeowner] properly alleges a violation of the UTPA, the lack of third-party beneficiary standing or a private right of action under HAMP itself will not preclude his claim from going forward. See Blackwood v. Wells Fargo Bank, N.A., 2011 WL 1561024, at *4 (D. Mass.Apr. 22, 2011) (noting that consumer protection statute is “the appropriate avenue” for seeking remedy for violation of statute that does not provide for a private remedy).

PHH’s allegedly false representations that [the homeowner] did not qualify for a HAMP modification were material representations that were likely to mislead a reasonable consumer, and therefore qualify as deceptive under the UTPA. The representations are material because it is reasonable to infer that [the homeowner's] decision to accept the standard modifications offered by PHH was influenced by his belief that he did not qualify for a more advantageous HAMP modification. See Weinschenk, 2005 ME 28 at ¶ 17. The representations were likely to mislead a reasonable consumer because PHH controlled all of the information regarding [the homeowner's] eligibility, repeatedly insisted that he was ineligible, and assured him that his applications had been “carefully considered,” see, e.g., ECF No. 16-6 at 1; ECF No. 16-26 at 1. See Weinschenk, 2005 ME 28 at ¶ 17.

The purpose of awarding actual damages to plaintiffs under the UTPA is to put those plaintiffs in the position they would have been in had the violation not occurred. Defendants’ emphasis on [the homeowner's]lack of a private action to enforce HAMP is therefore misplaced. Whether [the homeowner]can sue to obtain the modification does not necessarily answer the question of whether or not he would have received the modification had his application been handled properly. That is, the fact that [the homeowner] does not have a private cause of action to force PHH to give him a HAMP modification does not foreclose the possibility that he would nonetheless have been offered the modification if his application had been properly handled and approved.

It is reasonable to infer from the different outcomes in Bates, on the one hand, and Renfroe and Nunez, on the other, that the Eleventh Circuit interprets Regulation X as having expanded a servicer’s obligations with respect to responding to borrower inquiries under RESPA.

Because Regulation X was promulgated to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act, it is reasonable to interpret the regulation’s added qualification that investigations be “reasonable” as expanding the substantive obligations of servicers under RESPA.

Under Regulation X, servicers have a duty to perform a reasonably thorough investigation in response to a borrower’s Qualified Written Request or Notice of Error, and to provide a reasonably thorough response to a borrower’s questions and concerns.

It is reasonable to infer that the misrepresentations that [the homeowner] refers to in his Complaint include PHH’s inconsistent responses to his Qualified Written Requests and Notices of Error, especially the communications regarding whether he was ever offered or had failed HAMP modification

The Order provides support for homeowners who have gone through the rigorous process of trying to get a loan modification only to be faced with misrepresentations and misinformation about their eligibility for relief.  

The Order in McGahey v. FannieMae and PHH, Civ. No. 2:16-cv-00219-JDL (07/17/17) can be found at: McGahey V. Fannie Mae, PHH Order on Motion to Dismiss