Homeowners May Not Claim Negligent Processing of HAMP Applications, Says Massachusetts Appeals Court

HAMP loan modification negligenceHomeowners in Massachusetts may not use the legal theory of negligence to sue their banks for faulty processing of their loan modification applications. So says the Massachusetts Appeals Court in a recent decision that many consumers may find counter intuitive.

In this case, the homeowner sued his mortgage holder, U.S. Bank, for negligently handling, and denying, his loan-modification application under the Home Affordable Modification Program (HAMP). The mortgage was serviced by Wells Fargo.

The homeowner had defaulted on his mortgage in 2008, and then applied several times for a loan modification pursuant to HAMP from 2009 to 2010. U.S. Bank and Wells Fargo never provided him with a permanent loan modification. The house was foreclosed on in 2010.

When he sued U.S. Bank and Wells Fargo for negligent processing of his HAMP loan modification application, a lower court dismissed the case.

The Massachusetts Appeals Court affirmed lower court’s dismissal. It reasoned that HAMP, on its own, does not create any legal duty to a homeowner. A legal duty is required for there to be negligence. “Neither HAMP nor the relationship between a borrower and her servicer/lender imposes any duty of care owed by lending banks and servicers to borrowers,” wrote the court.

The decision goes against what many people would think is common sense. Banks have agreed to accept millions of federal dollars — or in some cases even billions — in return for their promise to consider at-risk homeowners for loan modifications. The banks’ agreement to do so appears to create a duty to process those loan-modification applications.

This decision, however, undercuts that assumption.

How This Affects Homeowners

What does this case mean for homeowners whose loan-modification applications have been mishandled? Fortunately, there are still other legal theories that may be used. The Massachusetts Consumer Protection Act provides a basis for a lawsuit if a loan modification has been handled in an unfair or deceptive manner. The legal theory called negligent misrepresentation may be used if a bank or mortgage servicer misstates a borrower’s eligibility for a loan modification.

The decision is here: Santos v. U.S. Bank and Wells Fargo

Culik Law has used many legal theories to hold banks and mortgage servicers accountable for wrongdoing related to HAMP loan modifications. If you feel you’ve been mistreated, contact us to see if we can help.

Josef Culik

Josef Culik

Attorney Joe Culik has built his reputation on helping people and has dedicated his practice in Boston, Massachusetts to consumer protection, employee rights, and small business and franchise law.