Ninth Circuit Reinstates HAMP Class Action

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On August 8, the U.S. Court of Appeals for the Ninth Circuit held that HAMP Trial Period Plans (TPPs) create a contractual obligation that the servicer offer a permanent modification to borrowers who complete the TPP. Corvello v. Wells Fargo Bank, N.A., Nos. 11-16234, 11-16242, 2013 WL 4017279 (9th Cir. Aug. 8, 2013). Borrowers seeking to represent putative classes in consolidated actions appealed a district court’s dismissal of their claims that a mortgage servicer breached its contracts when it failed to offer, without prior notice, permanent loan modifications to borrowers who complied with the terms of TPPs offered under HAMP. Citing the Seventh Circuit’s holding in Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012), the Ninth Circuit held that once the servicer determined that a borrower had complied with the TPP and the borrower’s representations remained accurate, then the servicer was required to offer a permanent modification. The Ninth Circuit, like the Seventh Circuit in Wigod, rejected the servicer’s argument that the TPP does not create a contractual obligation because under the TPP there can be no contract unless the servicer sends the borrower a signed modification agreement. The court did not address the merits of the borrowers’ claims, i.e., whether the borrowers actually complied with the terms of their TPPs, and the bank still can offer such a defense on remand. The court reversed the district court’s dismissal and remanded for further proceedings.