D.Mass: Deny Dismissal of HAMP class action for borrowers in Trial Period Plan

A judge in the District of Massachusetts allowed a set of proposed class-action lawsuits involving homeowners who received trial modifications to their mortgages from Bank of America (BOA) under the Home Affordable Modification Program (HAMP) to proceed, but the Court dismissed a different proposed class of mortgage-holders with BOA who did not receive trial modifications. In re Bank of America Home Affordable Modification Program (HAMP) Contract Litigation, No. 10–md–02193–RWZ, 2011 WL 2637222 (July 6, 2011). The judge is a Carter appointee.

In April 2009, Bank of America entered a Servicer Participation Agreement (SPA) with the Department of the Treasury to participate in HAMP, under which the Treasury would provide incentive payments to BOA for modifying mortgages of eligible borrowers. BOA enrolled a number of borrowers in a Trial Period Plan (TPP), which temporarily modified their mortgages and promised to make modification permanent if the borrower complied with the TPP terms and his or her representations underlying the TPP remained materially the same.  To participate in a TPP, borrowers were required to submit financial documentation, and some were “required to open an escrow account and submit additional financial documents [and/or] to undergo credit counseling.” Some homeowners, despite complying with their TPPs, either did not receive a permanent HAMP modification or did not receive written notice that their request for permanent modification was denied.

A number of them sued BOA in federal court in various districts, and the cases were consolidated into the instant case. These homeowners proposed to create fifteen statewide classes (the “TPP class”). Based on BOA’s alleged treatment of TPPs, they alleged breach of contract, breach of the implied covenant of good faith and fair dealing, promissory estoppel, violations of various state consumer protection laws, and violation of the Equal Credit Opportunity Act (ECOA). Also considered in the instant case was a set of homeowners who had mortgages with BOA and were eligible for modification under HAMP but were not invited to participate in a TPP. Arguing that they were the intended beneficiaries of the SPA between BOA and Treasury, they also proposed a represent a class of mortgage holders (the “SPA class”) and sued for breach of contract, breach of the implied covenant of good faith and fair dealing, and promissory estoppel. BOA sought to dismiss all plaintiffs on all counts.

The District Court granted the motion for all counts of the SPA plaintiffs because it found that they lacked enforcement rights as incidental beneficiaries to the government contract. Following Astra USA, Inc. v. Santa Clara County, 131 S.Ct. 1342, 1347-48 (Mar. 29, 2011), the court read the text of the SPA to conclude that the contract did not intend to provide homeowners with a legal cause of action. As a result, the SPA class lacked standing to pursue the breach of contract and promissory estoppel claims, and those homeowners had no contract upon which to base the claim for breach of the duty of good faith and fair dealing.

However, the Court denied BOA’s motions to dismiss for most of the TPP class’ counts. The opinion noted that the plaintiffs provided “consideration in the form of legal representations about the material truth of information provided, promises to undergo credit counseling (if asked), opening new escrow accounts, and provision of financial information and trial payments.” Also, since the complaint alleged compliance with TPP conditions, the Court rejected BOA’s argument that the TPP class did not meet conditions precedent. For the same reason, it allowed TPP plaintiffs’ promissory estoppel claim to proceed. The opinion also declined to dismiss their claim for claim for breach of the duty of good faith and fair dealing because the “complaint states that BOA willfully failed to modify qualifying loans, declined to properly train and supervise its agents, encouraged and/or allowed employees to make inaccurate representations, all ‘in bad faith and for its own economic benefit.’”

The Court then chose to continue adjudicating the consumer protection claims. Notably, it remarked that Massachusetts courts had adopted the principle that such claims may proceed even in the absence of a private right to recovery. The District Court then discussed requirements of individual states’ statutes and decided that BOA’s respective motions for dismissal were either unwarranted or premature. However, the Court did dismiss the TPP class’ ECOA claim. It found that BOA had not taken the “adverse action” of refusing to grant credit, meaning that notification was not required under the statute.

In summary, the SPA class’ claims were all dismissed, while all of the TPP class’ claims other than their ECOA claim were allowed. All the plaintiffs had also requested a preliminary injunction to prevent their homes from being foreclosed while the case remained pending. Noting that BOA had granted a “voluntary foreclosure hold” to the named plaintiffs and that the classes of borrowers had not yet been certified, the Court denied the injunction.

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