New Hope for California Homeowners - HAMP LOAN MODIFICATION POST

The housing and banking crisis of 2008 is long over. It’s been a decade since many homeowners woke up to find themselves underwater and owing the banks hundreds of thousands of dollars more than their house was worth. For others, it was worse. They woke up to no job and no ability to get one.


It has taken a decade for many folks to get back on their feet. Some are still struggling and find themselves in a legal limbo. Zombie titles. Countless promises of mortgage modifications that never seem to materialize. For these folks it is constant anxiety and the worry that they may be on the street at any time.


After speaking with hundreds of struggling homeowners and bringing the largest False Claims Act case in history against a bank, our sympathies are with the homeowners.


Sympathy is great but finding a lawyer to actually sue a bank is difficult. Unfortunately, most lender liability lawyers represent banks. They have chosen to go where the money is.


We hold banks responsible for this legal mess. And for the years of pain, anxiety, suffering and economic loss for millions of Americans. Yes, the banks can trot out a few greedy people hoping to game the system for a free house, but most struggling borrowers are victims of a corrupt and dirty banking system.


One of the most heinous acts of the banks during this time surrounded the mortgage modification process. When Uncle Sam (meaning taxpayers) bailed out the banks, the government told banks they needed to spend some of the money on helping homeowners. For most, that meant mortgage modifications.


Uncle Sam developed several modification programs. Names like HAMP and HARP are now household words for many homeowners. While millions of homeowners have benefited from these programs, several greedy banks and mortgage servicers concocted their own schemes to game the system and squeeze more money out of homeowners.


The schemes take two forms. Often the lender or servicer will offer its own proprietary modification instead of an approved government program. Or if they think the property has value they will simply take whatever money they can get from the homeowner and only when there is nothing left, take the property. The servicers never get hurt since taxpayers back most residential loans. That’s right, Fannie Mae, the FHA, Freddie Mac, HUD, the VA… someone is backing the loan meaning the servicer walks away smiling.


For either of these two schemes to work, there must first be a default. Many borrowers never missed a payment despite being underwater and having financial difficulties. And then came the seductive offer from the bank.  Skip a payment so that you qualify for a modification. The promise that with a modification the bank can lower your rates, extend the payments, forgive principal balance… You get the picture.


The key here is the default. As long as you are paying on time you don’t qualify for a modification. After being bombarded with modification pitches and hearing from neighbors how they lowered their payment, the temptation became too great. Many homeowners swallowed the Kool-Aid and skipped a payment.


That missed payment is a default. Once you are in default, the servicer pretty much owns you. They can accelerate the balance, impose legal fees, collection fees, default interest, inspections fees. Within a couple months, it becomes impossible to ever catch up.


If the banks were really helping people modify their loans, there wouldn’t be a problem. Some lenders did offer modifications but others simply coerced borrowers into defaulting so that they could collect exorbitant fees and in sometimes, take the property.


To date, only a few courts have really taken action. Technically, if you skip a payment you are in default and the note allows the servicer to charge a wide variety of fees. Slowly, however, some courts are getting fed up.


California Appeals Court Takes Aim at CitiMortgage


Antoinette Rossetta sued CitiMortgage. Instead of being a victim of big banks and losing her home to foreclosure, she went on the offensive and sued for intentional misrepresentation, negligent misrepresentation, breach of contract, promissory estoppel, negligence, intentional infliction of emotional distress, and unlawful business practices. She says all of this stems from two years of living Hell trying to get her loan modified. Her story is worth telling.


Antoinette purchased a home in Grass Valley, California in 2001. Later she would refinance in 2005. CitiMortgage would subsequently purchase the loan.


In 2010, Antoinette was laid off. Making things worse, she was also diagnosed with breast cancer that same year. Despite severe hardships, she continued to make her mortgage payments.


Like many homeowners, Antoinette called her lender for help. She says that a CitiMortgage representative told her that they couldn’t help her with a modification unless she missed three payments. For anyone reading this, if you have gone through the modification process, these words probably ring true.


After missing several payments, in August of 2010 Citi told Antoinette that she qualified for a HAMP loan modification.


Like many other homeowners, Antoinette was told to make three “trial plan payments” and if she did so, her modification would become permanent. She made the payments but received nothing from the bank indicating her modification was permanent. Instead, they told her to keep making the trial plan payments.


After a few more months she received a letter saying her modification was denied because there was missing documentation. (This is another common tactic where lenders simply throw out applications or deliberately understaff their modification departments so that no one can ever complete the application on time.)


After months and months of runaround, Antoinette Rossetta had enough. She filed suit against CitiMortgage and its successor, Fay Servicing LLC.


CitiMortgage immediately filed a demurrer. That is the California legal term for a motion to dismiss. Unfortunately, the trial judge agreed and tossed Antoinette’s complaint. In dismissing her lawsuit, the judge said, “As argued by the defendants, forbearance plans do not create a binding contract for modification.”


Most people would have given up. Not Antoinette. After surviving the loss of her job and surviving a recurrence of breast cancer, she vowed to fight.


On December 18, 2017, a three-judge panel of the California Court of Appeals agreed with her.


The court properly noted that under current law, lenders don’t generally owe borrowers a duty of care. That may be shocking but it’s the law… law that bank lobbyists have helped put in place.


The Court of Appeals wasn’t done with their analysis, however. They noted that the general rule only applies when lenders act in their traditional role as a “mere lender of money.” They found that lenders and servicers don’t have a duty “to offer, consider, or approve a loan modification, to offer foreclosure alternatives, or to handle loans so as to prevent foreclosure.”


So, what happens when the bank tells someone to skip payments? Keep reading!


The court ruled that Antoinette and CitiMortgage entered into a new phase of their relationship when the bank voluntarily undertook to renegotiate her loan.  In other words, they were no longer acting as a mere lender of money.


In the court’s words, “We do not hold that a duty of care arises merely because a lender receives or considers a loan modification application. Nor do we hold, as the concurring opinion suggests, that a duty of care may arise solely by virtue of the parties' changing relationship…”


But here the court found “CitiMortgage allegedly refused to consider Rossetta's loan modification application until she was three months behind in her mortgage payments. By making default a condition of being considered for a loan modification, CitiMortgage did more than simply enhance its already overwhelming bargaining power; it arguably directed Rossetta's behavior in a way that potentially exceeds the role of a conventional lender.”


Although there was no guarantee that Antoinette would qualify for the modification, CitiMortgage’s alleged missteps in processing her application deprived her of any opportunity to get relief.


Can I Sue My Bank?


The case against CitiMortgage is far from over. We suspect that Citi will quickly settle rather than lose at trial, however. Settlements can be kept confidential.


We are often asked how much they can collect from a lawsuit against the bank and whether they may be entitled to punitive damages. Although we have extensive experience in these claims, in 99% of the cases we can’t disclose the settlement amounts.


We can say, however, that as a general rule, if you can shepherd your case through the motion wars and survive, the bank will pay.


Motion wars? Banks know they don’t well in front of juries. The scars of 2008 are still new. Most jurors know someone who lost their home and who fought the banks for years before losing the war and their home.


Instead of taking their chances with a jury, banks litigate by filing a barrage of motions to dismiss, summary judgment motions and other procedural ploys. They hope they can win on technicalities and by winning a war of attrition. They have more money and more lawyers than homeowners.


Lender Liability Lawyers and Suing Banks


Most lender liability lawyers represent banks. Not us. We sue banks, mortgage companies, loan servicers, special servicers and other financial institutions.


Our practice is nationwide although we rarely take homeowner cases. It is simply impossible to take smaller cases nationwide. The travel costs alone are prohibitive.


Our practice is primarily geared to commercial borrowers and CMBS loans. Most cases are handled on an hourly or hybrid basis.


So why did we write this post about Antoinette Rossetta and her battle against one of the biggest banks in the nation? Antoinette’s story is published on our blog as general information. Our goal is to offer hope that sometimes the average Joe (or jane) wins and big banks lose.


Several times a year we consider residential cases in which the behavior of the banks was particularly egregious. If you have a true wrongful foreclosure or punitive damages case, write to us at [hidden email]. We do not take phone calls from prospective new clients with residential loan defaults, foreclosures or modification issues. If we can help you, we will write back promptly. All inquiries are screened by a lawyer.


To insure your inquiry is given proper consideration, please make sure you tell us where the home is located, why the lender believes you are in default, your theory of the case and why your case warrants punitive damages. To date we have handled cases in almost 40 states although the more distant from the Midwest, the more egregious the bank’s misconduct must be for us to consider the case.


You can also visit our Home Foreclosure Defense page for tips that you might not find elsewhere.

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