Inertia Is Not An Option: Massachusetts Court Rules Lender May Be Liable For Dragging Heels On HAMP Loan Modification

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Richard D. Vetstein, Esq. talks about the very important case of Parker v. Bank of America. This is one of the first court rulings siding with a borrower on a lender’s liability for rejecting a HAMP loan modification application.

Parker asserted a number of different claims against BofA, but the two which stuck, according to the judge, were her claims for fraud and breach of contract. The judge went through a lengthy history of the recent subprime crisis, the TARP bailout plan, and the HAMP program, concluding that BofA’s actions against Parker were unfair under these consumer protection programs.

In a great line, the judge said that “inertia is not an option” when a lender considers a borrower’s legitimate request for a HAMP loan modification. Under HAMP, there are strict deadlines by which lenders must respond to a borrower’s application, and foreclosure activity must stop during the consideration period. The judge lamented that federal regulators had failed to pass enforcement mechanisms to protect borrowers from lenders such as BofA dragging their heels on loan modifications. Noting that borrowers have no other forum in which their claims may be heard and adjudicated other than the courts, Judge Billings held that Parker could claim “third party beneficiary” status of BofA’s participation in the TARP/HAMP program–diverging from several colleagues opinions to the contrary.

Clearly, this particular judge is well-educated on what’s been going on with the mortgage crisis and was likely fed up with lenders’ shoddy treatment of some borrowers. But is his legal reasoning correct? The judge can certainly be accused of legislating from the bench here, as the vast majority of other court rulings have rejected his reasoning. (At least 6 opinions by my count, mostly from federal court).

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