Can I Sue For Denial Of HAMP Loan Modification?

by 03 Sep 2012

“Can I sue for denial of a HAMP loan modification?” is a question we frequently hear. Some lenders (Bank of America, Citi, Wells Fargo) seem to run borrowers through the wringer only to ultimately deny them a mortgage modification. That’s a shame, since Congress authorized the Home Affordable Modification Program as part of the economic stimulus legislation. Luckily, it is often possible to sue your lender if wrongfully denied a modification. [Ed. note: We can only provide general guidance, and are not able to dispense legal advice by a blog post. The law on suing for modification denial changes weekly and varies from state to state – and sometimes even within a state!]

HAMP was rolled by the Treasury Department in 2008 as part of a larger federal stimulus package. That law, the Emergency Economic Stabilization Act of 2008, gave billions to Wall Street and big banks but also set aside something for struggling homeowners unable to keep up on mortgage payments. Congress wanted to “maximize assistance for homeowners” and “minimize foreclosures.”  $50 billion was set aside to induce lenders to lower interest rates or monthly payments.

On paper, the program seemed ideal. In reality, however, the program was and continues to be a disaster. Some homeowners who are down on their luck simply can’t make any payments. For them, a modification just isn’t going to work. For many, however, a small reduction or reprieve may make the difference in allowing a family to remain in their home.

Lenders are supposed to offer modifications to borrowers who qualify. Often those modifications require the homeowner to supply documentation to establish eligibility for the program, and then to make a few trial payments to ensure that they can make the minimum payments necessary to avoid foreclosure. The intended practice is far different from reality, however.

We are contacted daily by homeowners who try to make their trial payments only to have them refused, who make all the payments and are subsequently denied, who keep sending in their documents over and over only to be told they were not received and, in a few instances, given telephone numbers to call that are either disconnected or never answered!  We could write a book on the problems encountered by homeowners trying to get a modification.

It’s incredibly demoralizing, considering the bank first holds out a carrot and then pulls it away for no reason.

People who are wrongfully denied a HAMP modification may be able to sue their lender, however. That’s a dirty little secret the banks don’t want you to know.

The only federal appeals court to consider the issue is the 7th Circuit which covers Wisconsin, Illinois and Indiana (Wigod v. Wells Fargo). The 7th Circuit Court of Appeals said that although Congress didn’t include a provision allowing lawsuits for denial of HAMP modifications, their intent was certainly clear in wanting to minimize foreclosures and promote maximum assistance. A subsequent Treasury directive also acknowledged state law. The court also said that state claims against lenders for breach of contract and deceptive business practices were not pre-empted by the federal law.

Not all courts agree with the 7th Circuit, including courts in California where the mortgage crisis is particularly acute. Prior to the appeals court decision in Wigod, California courts had already decided there was no claim for denial of a modification, but there is some evidence that suggests California courts are rethinking that pro-lender position. Just a few months ago a federal bankruptcy court judge refused to throw out a claim against CitiMortgage based on a HAMP denial.

In order to bring a case for denial of HAMP modification, it’s important that you keep an accurate phone log and copies of all your correspondence. That includes any messages or letters you receive from the lender. Often these cases turn on who is the better record keeper, and you shouldn’t assume that the bank will provide everything. After all, many of these claims are those brought by homeowners alleging that they sent requested documents to the banks three and four times – only to be told they were denied for not sending in the requested documents (our record thus far is a whopping 42 times!).

Don’t be afraid to record conversations either. You should check local laws first, however. The Reporters Committee for Freedom of the Press has a pretty comprehensive website for that. We don’t know how often they update it, but they do have a state-by-state list.

In our opinion, many of the larger banks and servicers only pay lip service to the HAMP law. Unless you complain (and sometimes sue), you may find yourself with no modification and still facing foreclosure.

About the author. Brian Mahany is a partner at Mahany & Ertl, a nationwide boutique law firm that sues lenders for predatory and abusive foreclosure practices, HAMP denials and wrongful lockouts. Brian welcomes questions and comments and can be reached at or by telephone at (414) 704-6731. If you are facing an immediate foreclosure, contact your local bar association lawyer referral service.


  • by William Matz | 9/5/2012 2:54:01 PM

    As a 30-yr CA atty, I concur with the comments above. Wigod was a huge borrower victory. Before, more state and Federal court decisions held that borrowers had no private right of action, as they were not designated as third party beneficiaries of HAMP. But the Wigod court noted that if borrowers could not enforce HAMP, no one would. [Certainly, the lack of effective government enforcement has been all too obvious.]

    In two potentially more far-reaching cases, an OR appeals court and the WA Supreme Court have recently held that MERS mortgages cannot utilize non-judicial foreclosure (trustee sale) unless they record all transfers. If this becomes a trend in other states, borrowers will gain massive negotiating leverage due to the well-documented lack of ownership papers for the securitized mortgages. Maybe "show me the note" will finally become a reality, instead of the myth that has misled so many borrowers and attorneys.

    It is important to remember that evenif borrowers do have a right to sue after Wigod et al, borrowers must still pass a NPV test to get a mod. A legitimate negative NPV remains valid grounds for denial of a mod, such as is often the case when a borrower has lost his job.


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