If you are facing foreclosure or trying to get a loan modification and your loan is either owned by Bank of America or serviced by Bank of America you should pay very close attention to a recently filed Class Action lawsuit that was filed in Arizona.

The premise of the lawsuit is that Bank of America accepted federal money and is bound to provide HAMP loan modifications to qualified borrowers. However, as shocking as this will be to no one, Bank of America, according to the lawsuit, is not providing borrowers with these modifications or is providing temporary modifications and not making them permanent.

Here are some highlights of allegations in the lawsuit:

“Though Bank of America accepted $25 billion in TARP funds and entered into a contract obligating itself to comply with the HAMP directives and to extend loan modifications for the benefit of distressed homeowners, Bank of America has systematically failed to comply with the terms of the HAMP directives and has regularly and repeatedly violated several of its prohibitions.”

“Under HAMP, the federal government incentivizes participating servicers to make adjustments to existing mortgage obligations in order to make the monthly payments more affordable. Servicers receive $1,000.00 for each HAMP modification. However, this incentive is countered by a number of financial factors that make it more profitable for a mortgage servicer such as Bank of America to avoid modification and to continue to keep a mortgage in a state of default or distress and to push loans toward foreclosure. This is especially true in cases where the mortgage is owned by a third-party investor and is merely serviced by the servicer such as Bank of America. On information and belief, Bank of America does not own a significant majority of the loans on which it functions as a servicer.”

“Economic factors that discourage Bank of America from meeting its contractual obligations under HAMP by facilitating loan modifications include the following:

• Bank of America may be required to repurchase loans from the investor in order to permanently modify the loan. This presents a substantial cost and loss of revenue that can be avoided by keeping the loan in a state of temporary modification or lingering default.
• The monthly service fee that Bank of America, as the servicer collects as to each loan it services in a pool of loans, is calculated as a fixed percentage of the unpaid principal balance of the loans in the pool.
• Consequently, modifying a loan to reduce the principal balance results in a lower monthly fee to the servicer.
• Fees that Bank of America charges borrowers that are in default constitute a significant source of revenue to the servicer. Aside from income Bank of America directly receives, late fees and “process management fees” are often added to the principal loan amount thereby increasing the unpaid balance in a pool of loans and increasing the amount of the servicer’s monthly service fee.
• Entering into a permanent modification will often delay a servicer’s ability to recover advances it is required to make to investors of the unpaid principal and interest payment of a non-performing loan.
• The  servicer’s right to recover expenses from an investor in a loan modification, rather than a foreclosure, is often less clear and less generous.
• Fixed overhead costs involved in successfully performing loan modifications involve up-front cost to the servicer for additional staffing, physical infrastructure, and expenses such as property valuation, credit reports and financing costs.

1 See Thompson, Diane E., Why Servicers Foreclose When They Should Modify and Other Puzzles of Servicer Behavior, National Consumer Law Center (October 2009). ”

“Rather than allocating adequate resources and working diligently to reduce the number of loans in danger of default by establishing permanent modifications, Bank of America has serially strung out, delayed, and otherwise hindered the modification processes that it contractually undertook to facilitate when it accepted billions of dollars from the United States. Bank of America’s delay and obstruction tactics have taken  various forms with the common result that homeowners with loans serviced by Bank of America, who are eligible for permanent loan  modifications, and who have met the requirements for participation in the HAMP program, have not received permanent loan modifications to
which they are entitled.”

“In addition to its obligations based on its contract with the Treasury Department, Bank of America has entered into written agreements with individual homeowners, including Plaintiffs, for temporary loan modifications that must be converted to permanent loan modifications.  Plaintiffs and a similar class of borrowers have complied with the agreements by submitting the documentation asked of them and, when requested, by making payments. Despite Plaintiffs’ efforts, Defendants have ignored its contractual obligation to modify their loans permanently.”

“Because Bank of America is not meeting its contractual obligations, at least hundreds of Arizona homeowners are wrongfully being deprived of an opportunity to cure their delinquencies, pay their mortgage loans and save their homes. By failing to live up to its obligations under the terms of the agreement it entered into with the Department of the Treasury, and the terms of the contracts it formed with individual homeowners, Bank of America has left thousands of borrowers in a state of limbo – often worse off than they were before they sought a modification from Bank of  America. Defendants’ actions violate their contractual obligations, thwart the purpose of HAMP, and are illegal under Arizona law.”

If you are in the process of trying to obtain a loan modification from most lenders,  you know how difficult the process is. They constantly ask for more paperwork, usually the same paperwork that was provided a month or two ago. They claim they don’t have the paperwork you previously sent, etc. The bottom line is the process of getting a loan modification with most lenders is a long drawn out process that many times seems like it is inefficient on purpose.

The Arizona lawsuit alleges that Bank of America may in fact be acting with a purpose:

” According to at least one former Bank of America employee, Bank of America exhibits a general attitude that it does not need to comply with HAMP and that the HAMP obligations will never be enforced against it.”

Based upon this statement, there appears to be at least one former employee who has provided inside information to the attorneys in Arizona who filed this lawsuit. If this allegation is true, it goes a long way in explaining why the loan modification process is so inefficient and does not seem to be working as the government told us it would.

When dealing with Bank of America or any lender for that matter, be mindful of their obligations under federal law.  Make sure that you provide them with all the documentation they request. When corresponding with their modification departments, make sure to fax and or mail with proof of delivery. You want to have proof of what you sent and when you sent it. When assisting clients with their modifications, I usually fax the information and I number the information to indicate how many times it has been provided, for example:

“5th Fax providing updated pay stubs”

I also provide a copy of the prior fax cover sheet for each of the previous times I sent them the same information. Make sure that you always get a fax confirmation sheet for each time you send them documentation, as this very well might be the proof you need to prove they are not acting in good faith on your modification application.

If you believe they are not acting in good faith contact an attorney to discuss the situation. Unfortunately, it seems that banks, like Bank of America, are not going to do the right thing on their own, it is going to take legal action.

I want to commend the law firm of Hagens Berman Sobol Shapiro LLP who filed this case in Arizona. I am hopeful that their class action will wake up the banks and the federal government to do more to help families keep their homes.

What will the impact of this lawsuit be for homeowners in Florida, that is unclear at this time. If you are in the process of seeking a loan modification or are in foreclosure proceeding with Bank of America keep this lawsuit in mind. The allegations if proven to be true may provide you with possible defenses and/or leverage in your dealings with the bank.  If you have any questions about your specific situation you should contact an attorney for legal advice. Remember every situation is different and what may be true for the homeowners involved in the lawsuit in Arizona may not be true for you. Consult with an attorney to discuss your specific case and options that you may have available to you.

If you would like to read the entire lawsuit for yourself complete the form below and we will send you a copy.

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If you are in Miami-Dade county and would like to set up a consultation with our firm, please call us at (305) 779-4805.

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Matthew E. Mazur, Jr., Esq. Representing individuals and families in Miami-Dade County, Florida
in foreclosure, bankruptcy, and debt relief matters.
For Free information on Bankruptcy visit http://www.miami-florida-bankruptcy-attorney.com
For Free information on Foreclosure Defense visit http://www.floridaforeclosuredefenseattorney.com

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