The Home Affordable Modification Program ("HAMP") was designed to help distressed homeowners avoid a foreclosure by offering them a path towards loan modification. HAMP's goal was to provide qualifying homeowners with a more affordable loan. That meant that ideally homeowners could get principal reductions, interest rate reductions, and have the life of the loan potentially extended to 40 years.
To qualify for HAMP, the homeowner had to meet certain income requirements, so that the total monthly payment (principal, interest, taxes, and insurance) on the modified loan would be set at 31% of the borrower's monthly income. The homeowner was to send in a financial packet. If that person's income fit the program's guidelines, he or she could pay 3 monthly trial payments and then receive a permanent modification.
The early years of the HAMP program were an undeniable failure. The banks were rarely granting permanent modifications. When they offered trial modifications, the banks inexplicably had borrowers running on a treadmill of perpetual trial payments without ever providing the borrower with the permanent modification promised by the program. Many borrowers also were denied permanent modifications without any explanation, even if the borrower paid all three trial payments. And often, the bank never provided any sort of denial--instead the bank dropped all communication after the third and final trial payment.
In recent days, I believe the HAMP program has cleaned up a bit. More people are receiving modifications and situations where the banks are giving homeowners the runaround are becoming less frequent. I think that the federal government's recent settlement with many of the large banks has brought about a good deal of this change. However, the banks are still screwing up the HAMP process. For example, banks will often pursue a foreclosure judgement and sale while the borrower is participating in the HAMP program. Any experienced foreclosure attorney has seen this scenario time and time again--the left hand does not know what the right hand is doing.
Luckily, a growing body of law is developing which suggests that banks have to give the homeowner a permanent loan modification once they make the third trial payment under HAMP. That is what the Seventh Circuit seems to be saying in Wells Fargo v. Wigod. Under Wigod, the court reasons that a bank's proposal for three trial payments is a unilateral offer. (At the risk of oversimplifying) That offer becomes a binding contract once the homeowner performs the terms of the offer - submitting the three trial payments.
Before Wigod, the courts were split on the issue as to whether HAMP created an enforceable contract between the borrower and the bank. It was a common battle between what the law says and the law's economic implications. In much of current foreclosure law, there has been a willingness to relax the general principles and rules of the law, because following it strictly by the letter would impose too many costs on the banks. That powerful economic argument made Wigod all the more surprising, and it stuck out like a sore thumb when you look at all the previous cases that had litigated other HAMP-related issues. Wigod turned that tide somewhat.
In Florida's huge sea of foreclosure cases, there seems to be little Florida case law that governs the issues decided in Wigod. In Wigod, the court reversed a lower court's dismissal of the homeowner's count for a state-law breach of contract action against the bank. The state laws (Illinois) regarding unilateral offers and contracts to which the court in Wigod cited, are not all that different than Florida. That raises all sort of interesting implications in the state law arena. Is this contract a settlement agreement? Can it be enforced as a settlement agreement in a foreclosure case? Can one file an independent breach of contract action for specific enforcement?
I believe that if a borrower pays three payments during a foreclosure case, the bank has a contractual duty to provide a permanent modification and the court should consider the case settled. If the bank's counsel does not agree to enter an order settling or dismissing the case, the homeowner should seek to get an evidentiary hearing as to whether there was a settlement agreement and whether the court should enforce the settlement agreement.
If the third payment happens after the court enters a judgment, the case for a settlement agreement becomes weaker. There is a strain in Florida law that dislikes enforcing post-judgment settlement agreements. This suggests that the homeowner's best bet, then, would be to file an independent lawsuit for breach of contract with a claim seeking specific enforcement. The trick would be asking the court to stay the foreclosure sale while until the independent suit had been fully litigated and decided.
I hope all of you readers are looking for some case law. I became interested in these HAMP issues back in 2011. That interest lead to an appeal with briefs here and here. Enjoy.
