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Valparaiso Univ. Law School

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Tuesday, September 17, 2013

A Win for Homeowners in the Ninth Circuit

In Corvello v. Wells Fargo Bank, the issue before the Ninth Circuit was whether Wells Fargo was contractually obligated under the Federal Home Affordable Modification Program (HAMP) to offer plaintiffs a permanent mortgage modification after they had complied with the requirements of the trial period plan (TPP).  

Mortgage-Rates-Historical

The Treasury set out procedures that mortgage servicers were to follow under HAMP in order to qualify for payments of $1000 per mortgage modification.  HAMP required that servicers provide permanent modifications to borrowers to made all their payements under the TPP and whose representations provided as part of the TPP process remained accurate.  If the servicers were to deny modifications, they are obligated to inform borrowers in writing.  

Plaintiffs alleged that they complied with all requirements of their TPPs but that Wells Fargo neither notified them of their ineligibility nor modified their mortgage loans.  Plaintiffs sued seeking permanent modifications and other relief.  The District Court granted Wells Fargo's motion to dismiss  based on language in the TPP suggesting that Wells Fargo's obligation to grant a modification was conditioned on its provision of a "fully executed copy of a Modification Agreement." Since Wells Fargo provided no such Modification Agreement, the District Court reasoned, the condition was not met. 

Subsequent to the District Court's decision, the Seventh Circuit decied Wigod v. Wells Fargo Bank, which held that bank are required to offer permanent modifications to borrowers who complete their obligations under the TPPs unless the banks timely notify those borrowers that they do not qualify for a HAMP modification.  The Ninth Circuit followed Wigod and reversed the District Court.  Both Circuit Courts rejected Wells Fargo's position "because it made teh existence of any obligation conditional solely on action of the bank and conflicted with other provisions of the TPP," including the bank's obligation to send a Modification Agreement if the borrower qualified for a modification.  Although Wigod was decided under Illinois law and California law applied in Corvello, the Ninth Circuit found "no material difference" in the laws of the two jurisdictions.  

Plaintiffs thereby survived a motion to dismiss, with the Ninth Circuit accepting as true all of the allegations of the complaints.  The Court remanded the case for further proceedings. 

Judge Noonan concurred.  The money quote:

No purpose was served by the document Wells Fargo prepared except the fraudulent purpose of inducing Corvello to make the paymetns while the bank retained the option of modifying the loan or stiffing him.

[JT]

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