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Connecticut: Solicitation for Loan Modification Brings Litigation

Posted By USFN, Tuesday, January 05, 2016
Updated: Tuesday, January 19, 2016

January 5, 2016

 

by Jeffrey M. Knickerbocker
Bendett & McHugh, P.C. – USFN Member (Connecticut, Maine, Vermont)

The borrowers have sued a servicer for sending a solicitation that indicated the borrowers could be eligible for a modification. The borrowers allege that they should not have been solicited for another loan modification when a previous loan modification precluded any further modifications on their loan. In the case of Hansen v. Wells Fargo Bank, N.A., Docket No. FBT-CV-14-6042087, 2015 Conn. Super. LEXIS 1940 (Aug. 10, 2015), the court struck several of the servicer’s defenses. The case remains pending and is scheduled for trial on September 13, 2016.

In this matter, the borrowers had entered a loan modification in 2010. They were unable to meet the payment obligations of the loan modification and the servicer started a second foreclosure action. The borrowers elected to participate in the court mediation program. During the mediation program, the borrowers allege that the servicer repeatedly asked for new and different financial documents, and that these requests for documents went on for almost three years. The borrowers further assert that after three years of mediation the servicer revealed, for the first time, that the borrowers were ineligible for a loan modification because they had a previous loan modification. The borrowers claim that they suffered damages as a result of the delay. Moreover, they allege that soliciting them for a modification that would never occur constituted negligent misrepresentation, negligence, an unfair trade practice, and unjust enrichment.

The servicer contended that it was required by various settlement agreements, federal guidelines, and federal regulations to make the solicitation. The court disagreed. The servicer first raised that the terms of the National Mortgage Settlement (NMS) required solicitation regardless of whether the loan qualified for a loan modification. The court disagreed that this could be a defense when the solicitation misrepresented that a loan modification was possible. The court further found that the NMS specifically states that it is subject to “federal, state, and local laws, rules and regulations.”

The servicer also maintained that under the federal guidelines for the Home Affordable Modification Program (HAMP), the servicer was required to solicit the borrowers. The court pointed to Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 555 (7th Cir. 2012), to find that HAMP guidelines do not preempt state law. As the statements in the solicitation that the loan could be eligible for a modification were not accurate, the court found that HAMP guidelines did not shield the servicer from liability.

The servicer also asserted that the Consumer Finance Protection Bureau regulations and the National Banking Act preempted state law. However, the court looked at both the statute and the regulations and found that the borrowers’ allegations were not preempted. Therefore, the court struck this defense.

It appears that the situation in Hansen may have been avoided by alerting the borrowers at the outset that their loan was not eligible for a modification. This case highlights the importance of providing as many facts as possible to the borrowers concerning their loan.

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