In 2009 the Making Home Affordable (MHA) Program was launched by the United States Department of Treasury to deal with the rapid rise in foreclosures throughout the country. Under the MHA there are several programs, including the well known Home Affordable Modification Program (HAMP). The HAMP program has proven successful in helping thousands of homeowners save their home from foreclosure. Over 1.1 million homeowners have received a permanent modification, with California homeowners being among the top beneficiaries of the program. There has also been a combined total of more than $9.6 billion in principal reductions.
While the HAMP program has benefited thousands, what about those who are still getting the run-around from their lender? You know, the "document-request" game that so many homeowners are unwillingly thrust into. For those unfortunate homeowners who have been submitting, and re-submitting, documents only to be told that they were never received, foreclosure remains an imminent threat. California homeowners who have yet to receive confirmation that their loan modification package has been stamped "complete" will not receive the protection offered under the CA Homeowner's Bill of Rights ("HOBR") which prohibits dual tracking and postponement of the foreclosure. Prior to the HOBR, many homeowners fell victim to the lender's dual tracking strategy where they would continue foreclosure efforts even though the borrower had a loan modification application pending review. The HOBR creates a private right of action for homeowners when their lender fails to comply with the statutory guidelines but only when the application is "complete." This means, if the lender fails to postpone the trustee's sale when a complete loan modification is under review, the homeowner can bring a lawsuit against the lender. But again, if the lender claims that any of requested documents, such as bank statements, pay stubs or tax returns, have not been received they are allowed to continue with foreclosure.
So how does the homeowner win at this document-request game? It requires detailed note taking of each and every document sent to the lender (i.e. date & time, method of delivery, fax confirmations, mailing receipts, names of representatives, title of documents sent, etc). When the homeowner has carefully documented their efforts to comply with the lender's document request, and their package is still marked "incomplete," it may give rise to a claim for negligence if the lender has failed to properly process and/or keep track of documents submitted by the homeowner.
Many lender's will argue that they do not owe a duty to the homeowner to properly process their modification application and will rely on the 1991 decision in Nymark vs. Heart Fed. Sav. & Loan Ass’n, 231 Cal. App. 3d 1089, 1096 (1991). In Nymark, the court held that when a lender is acting in its conventional role as lender it does not owe a duty of care to the borrower. Several CA decisions have followed the Nymark decision and held that loan modifications fall within the lender's "conventional role," thus no duty is owed.
However, the 2014 decision in Alvarez v. BAC Home Loans Servicing, L.P., 2014 Cal. App. LEXIS 712 *20 (Cal. App. 1st Dist. Aug. 7, 2014) called into question this theory that loan modifications are a "conventional" lender functionality. The court found that due to the policy considerations prompting the HOBR, lenders do have a duty to exercise reasonable care when processing and/or reviewing a homeowner's application for a permanent modification that would allow the borrower to avoid the harsh consequences of foreclosure. See id. at *16-17.
In response to case law holding lenders to the "reasonable care" standard in the context of loan modifications, the lender's "denial" letters are getting much more detailed. For instance, before lenders would simply send a letter to the homeowner stating that their loan modification was denied for "Failure to Receive Requested Documents." Now, the homeowner will likely receive a 10 plus page letter detailing which documents have been received and the date received, as well as a list of documents requested and the deadline to submit said documents.
For many CA homeowners, a loan modification remains the only means to keep their home. But until the borrower's application has been red stamped "complete," the protections under the HOBR are meaningless and the threat of foreclosure will continue to be a likely result. For those homeowners stuck in the merry-go-round of submitting countless documents, or resubmitting documents to meet the "update" requirements, keeping a detailed account of their efforts will be vital to any claim that their modification application was mishandled. And although most of the major banks have agreed to participate in HAMP, all too often homeowners are denied the benefits of this program because their application was mishandled. Green Tree, for instance, was recently fined $15 million for their failure to honor modifications on recently acquired loans. (http://www.consumerfinance.gov/newsroom/cfpb-and-federal-trade-commission-take-action-against-green-tree-servicing-for-mistreating-borrowers-trying-to-save-their-homes/). The prudent homeowner will be meticulous in documenting all of their efforts to submit their loss mitigation application in hopes that they qualify for a program under MHA, as so many others have in recent years.