By Lorraine Bailey
(CN) — Homeowners can sue Bank of America for claims it feigned compliance with a mortgage assistance plan that was a condition of the bank’s $45 billion bailout in 2008, the 10th Circuit ruled Monday.
Bank of America hired Urban Settlement Services dba Urban Lending Solutions to administer its Home Affordable Modification Program, or HAMP.
The bank was required to participate in HAMP as a condition of receiving a $45 billion bailout from the federal government to shore up the bank’s bad loans during the 2008 financial crisis. The government also guaranteed $118 billion in potential losses at the bank.
HAMP required Bank of America to collect financial information from at-risk borrowers, and evaluate their eligibility for a loan modification that would allow them to pay a lower interest on their mortgage.
The program allowed eligible borrowers to enter a trial period plan to demonstrate their ability to make lower monthly payments, and permanently modified loans if the borrowers made regular payments.
But a class of homeowners led by Richard George say Bank of America and Urban conspired to obstruct and delay their HAMP loan modification applications.
The defendants lied to borrowers, according to a 2013 lawsuit filed in Colorado, denying they had received HAMP application documents that they had in fact received, as proven by FedEx tracking numbers, in order to mislead homeowners about the status of their applications.
The bank was allegedly motivated to feign compliance with the HAMP program in order to keep interest rates high on homeowners struggling to pay their mortgages.
A federal judge dismissed the class’s RICO and promissory estoppel claims, but the 10th Circuit revived them Monday.
“According to the plaintiffs, the enterprise’s dilatory tactics and wrongful denial of HAMP loan modifications defrauded borrowers of money. The plaintiffs specifically allege BOA profited from the fraud by improperly charging fees associated with delinquent loans and by ‘push[ing] homeowners into in-house modifications’ that carried higher interest rates than those associated with HAMP loan modifications,” Judge Nancy Moritz said, writing for the three-judge panel.
The appeals court found homeowners’ allegations sufficiently specific to sustain their racketeering claim against the bank. The judgment notes that plaintiffs identify bank employees by name, specify the dates on which they spoke to said employees, and explain the actions they took based on the misinformation they were allegedly given.
The homeowners’ claim against Urban also passes muster, because the allegations, if true, support a finding that Urban was aware of the overall scheme to defraud borrowers, the 38-page ruling states.
In addition, Moritz found that Bank of America made a promise to homeowners on its website and in documents sent to homeowners explaining the HAMP process, supporting their promissory estoppel claim.
“The language in BOA’s [trial period plan, or TPP] documents clearly and unambiguously promises to provide permanent HAMP loan modifications to borrowers who comply with the terms of their TPPs. And this is true regardless of whether those TPP documents state that promise inversely – i.e., that if the borrowers fail to comply with TPP terms, BOA will not modify the loan,” the judge wrote.