Thursday, March 15, 2012

Recent Federal Appeals Court Ruling Opens Major Can Of Worms For Banksters Violating HAMP Rules When Jerking Around Homeowners On Loan Modifications

From a press release Issued by the Chicago, Illinois law firm Edelson McGuire announcing their recent big win in Wigod v. Wells Fargo Bank, N.A., in which the U.S. Court of Appeals for the 7th Circuit ruled that, while no Federal cause of action arises when a loan servicer violates the Federal HAMP statute when it fails to modify a home loan, there is nothing in the Federal statute that prevents a homeowner from bringing a state cause of action against a servicer when a violation of HAMP occurs where said violation may constitute a violation of an existing state law, including a state consumer protection law(1) (the consumer protection law at issue in Wigod was the Illinois Consumer Fraud and Deceptive Business Practices Act - "ICFA"), or otherwise gives rise to a state law claim.(2)

  • In a landmark decision that promises hope for millions of distressed homeowners across the Country, the United States Court of Appeals for the Seventh Circuit has held that borrowers have enforceable rights under their Home Affordable Modification Program ("HAMP") Trial Plan Agreements. Wigod v. Wells Fargo Bank, N.A., Appeal No. 11-1423 (7th Cir. Mar. 7, 2012).

  • Reversing the dismissal of a putative class action complaint challenging Wells Fargo's HAMP modifications, the Court found that Plaintiff Lori Wigod – a Chicago homeowner who had alleged that Wells Fargo breached her HAMP Trial Plan despite her full compliance with its terms – could proceed on her claims for breach of contract and promissory estoppel.

  • In the words of the Court, "In short, Wells Fargo's interpretation of the [Trial Plan] turns an otherwise straightforward offer into an illusion." The Court further upheld Wigod's claims for statutory and common law fraud against the bank, stating "Wigod alleges that Wells Fargo made and broke promises of permanent modifications to her and to thousands of other potential class members as well. If true, such a widespread pattern of deception could reasonably be considered a scheme under Illinois law and thus actionable as promissory fraud."

  • Although over 80 lawsuits had been filed nationwide challenging the HAMP modification practices of several major banks, relatively few had made it beyond the pleadings, with District Courts dismissing cases in light of the HAMP's lack of a private right of action. The Wigod panel rejected such arguments, finding that no "end run" theory prohibited the claims and that Wigod's claims were not preempted.

  • "This is an incredibly important decision for homeowners who have been subjected to Wells Fargo's home loan modification abuses," said attorney Steven L. Woodrow of Edelson McGuire LLC, who represents the Plaintiff/Appellant, Lori Wigod. "For tens of thousands of homeowners like Ms. Wigod it's been nothing but a nightmare of lost paperwork, endless hours on the phone with the bank, inconsistent explanations, and, ultimately, unjustified denials followed by threats of foreclosure," he said. "The Court should be commended for standing up for the rights of borrowers." Woodrow is the Chair of Edelson McGuire's Banking and Financial Services Practice Group.

  • The Court itself acknowledged the far-ranging impact of its decision. As expressed in the concurring opinion of Senior Circuit Judge Kenneth Ripple, "Prompt resolution of this matter is necessary not only for the good of the litigants but for the good of the Country."(3)

For the press release, see SEVENTH CIRCUIT: Homeowners May Enforce Rights Under Home Affordable Modification Program ("HAMP") Trial Plan Agreements.

(1) See National Consumer Law Center: CONSUMER PROTECTION IN THE STATES: A 50-State Report on Unfair and Deceptive Acts and Practices Statutes for an overview of state consumer fraud, unfair/deceptive trade practices statutes throughout the states.

(2) The three-judge appellate panel found that the "allegations support garden-variety claims for breach of contract or promissory estoppel" and that the homeowner "also plausibly alleged that Wells Fargo committed fraud under Illinois common law and engaged in unfair or deceptive business practices in violation of the ICFA."

(3) The binding effect of this court ruling by the 7th Circuit Court of Appeals is limited to all lower Federal courts in the states of Illinois, Indiana, and Wisconsin, but may be considered for its persuasive effect by other courts. To find out which Federal appeals court has jurisdiction over appeals from the lower Federal courts in your state, you can check the U.S. Circuit Court of Appeals Map.

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