Imagine no longer being able to afford the mortgage you’ve paid for years because you lost your job. As a result, foreclosure is right around the corner. The good news, like many banks, you qualify for federal assistance geared to help you stay in your home. The bad news, you are unable to use the federal assistance due to the bank’s or mortgage servicer’s misconduct.
Federal assistance is available thanks to the Emergency Economic Stabilization Act and American Recovery and Reinvestment Act (ARRA). These acts were enacted in part to “protect home values” and “preserve homeownership”. Under the Troubled Asset Purchase Program (TARP), the Treasury Secretary can purchase troubled assets from financial institutions. But, the Treasury Secretary should also consider the “need to help families keep their homes and to stabilize communities”. Banks accepted billions in taxpayer dollars to “help” families out of the mire left by the Great Recession. But that is old news.
The Making Home Affordable programs paid banks for “assisting” homeowners with mortgage modifications. This includes other alternatives under buzzword programs like HAMP, HARP, and HAFA, to name a few. The goal: incentivize banks to offer mortgage loan modifications, home price decline protection, and foreclosure alternatives. Options include short sales or deeds in lieu of foreclosure. In short, the banks complete a modification program for a borrower and then collect money from the Feds. That is also old news. Unfortunately, courts have time and time again denied homeowners a remedy when banks violate the program guidelines. Essentially, courts end up denying federal assistance to those who qualify.
However, there is NEW news and it is good.
In Montana, borrowers can hold banks’ feet to the fire when those banks violate agreements under the federal programs. In Morrow1, the plaintiffs received conflicting information from “customer service representatives”. They were told to skip payments, ignore notices, and pay reduced amounts for a trial period. The bank also told them they were approved for a federal modification. In the end, the bank denied their modification plan and scheduled a trustee’s sale of their property. The plaintiffs paid various amounts for 18 months under the guise they were keeping their house. Then, the house was sold out from under them.
The borrowers’ claimed the bank misrepresented the modification process, provided them conflicting information, and delayed the eligibility determination. The Montana Supreme Court held that the bank owed the borrowers a duty to manage the modification process. The bank must do so in a manner that would not cause loss or injury. The Montana Court analyzed the HAMP guidelines to determine whether the borrowers alleged a breach of that duty.
The federal guidelines under the various programs may be used to determine whether a bank breached its duty. Ineffectual implementation of these guidelines may be sufficient to state a claim under the Montana Consumer Protection Act (MCPA). Material misrepresentations or outright fraudulent representations concerning federal assistance may be actionable. A borrower’s application status under these programs may also be actionable under state law. Good news for Montana consumers!
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1Morrow v. Bank of Am., N.A., 2014 MT 117.
Photo by Jeff Turner used under Creative Commons License