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Seventh Circuit Finds State But Not Federal Rights of Action in HAMP Lawsuit - Wigod v. Wells Fargo Bank

March 9, 2012

Vincent Howard and our Riverside loan modification attorneys were extremely interested to see a case involving the Home Affordable Modification Program make it to the federal appeals courts. HAMP is the much-maligned federal loan modification program that has disappointed borrowers and backers by failing to help as many people as predicted. Chief among the borrowers' complaints are allegations that banks turned down their loan modification applications despite the fact that they qualified, a violation of HAMP's rules. That was the allegation in the putative class action filed by Lori Wigod in Wigod v. Wells Fargo Bank N.A.. The district court dismissed Wigod's claims, finding that there was no private right of action under HAMP, but the Seventh U.S. Circuit Court of Appeals reversed in part, finding viable state claims but no federal right of action.

Wigod received a trial loan workout under HAMP in 2009. As with all HAMP modifications, the rules required Wells Fargo to make the loan modification permanent if Wigod met all of her obligations during the trial. The bank signed a document promising this. Nonetheless, after Wigod made all four of the required trial payments, Wells Fargo denied a permanent loan modification, saying only that it was unable to provide a loan modification she could afford. At that time, it demanded that Wigod pay all of the balance that was in forbearance during the trial period, plus late fees. When she couldn't pay, Wells Fargo declared her in default on her loan and began threatening foreclosure. Wigod began numerous calls and letters arguing with this and continued to make the reduced monthly HAMP payments.

In 2010, she filed a putative class action against Wells Fargo, claiming breaches of the HAMP contract and related documents; violation of the Illinois Consumer Fraud Act; and common-law negligent hiring, fraudulent misrepresentation and negligent misrepresentation. The federal district court dismissed most of her claims because it found no right of private action under HAMP; it found the state claims depended too heavily on a federal right. Wigod appealed.

The Seventh Circuit disagreed about the state-law claims. Though it agreed that borrowers cannot use HAMP participants' agreements with the federal government to enforce their rights, the court found that Wigod's claims were based on her signed agreement with Wells Fargo, not that bank's agreement with the federal government. That agreement forms a contract adequate to state a claim for state-law breach of contract, the court found. For similar reasons, it found that Wigod stated a claim for promissory estoppel. It also found valid claims for fraudulent misrepresentation and violatons of the ICFA, finding facts likely supported a scheme by Wells Fargo to defraud. However, it upheld dismissal of her negligent hiring claim, finding no independent duty to hire competent employees, and the fraudulent concealment and negligent misrepresentation and concealment claims. The court then found no preemption by federal law. It thus remanded the surviving counts to the lower court.

The Orange County loan modification lawyers at Howard Law, P.C., are delighted to see such a thorough explanation of borrowers' rights by a federal appeals court. In a footnote, the court does us the great favor of explaining how courts have previously ruled on HAMP cases. According to the footnote, no court has permitted borrowers' lawsuits based directly on the agreements between servicers and the federal government; roughly half have permitted lawsuits by borrowers as third-party beneficiaries. The Seventh found a third way -- lawsuits based on borrowers' signed agreements with servicers -- more legally solid, and that was how Wigod prevailed. This is a clear pathway for Vincent Howard and our San Diego loan modification attorneys to help borrowers protect their rights when they are misled or defrauded by loan servicers. And as this opinion and our own experience suggest, this is alarmingly common among HAMP participants.

If you're struggling to modify your mortgage loans, but your servicer appears to be incompetent or deliberately trying to drive you into foreclosure, don't wait to call Vincent Howard and the team at Howard Law. For a consultation, you can reach us through our website or call 1-800-872-5925.

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