Law Review: Hurray! Lender liable for mishandling loan modification application
You loyal readers have seen the Law Review rant on several occasions against large institutional lenders who abused their borrowers following the 2008 financial crisis, while those borrowers did their very best to try and process loan modification applications.
These same giants of the industry, who shall go unnamed, but think: Wells Fargo, Chase and Citi Bank as prime examples, routinely mistreated their borrowers who where struggling with their home payments after the crash of 2008.
LENDERS ABUSING BORROWERS
I’ve worked with hundreds of upside-down borrowers whose loan modification applications were “lost in the mail,” “never received,” “sent to the wrong address,” “Joe doesn’t work here anymore,” “who told you that?” and every other excuse for the lender not to process, let alone approve, a legitimate loan modification application.
At one point, I had three unrelated couples come in and tell me the exact same story with different lenders: They were told by the lender that if they made payments of $$$ a month for three months, they would qualify for a loan modification, and as long as they are processing a loan modification, the bank will not foreclose. In fact, all three couples timely made their payments and were promptly foreclosed upon when the banks said, without explanation, they did not qualify for a loan modification and told my borrower-clients the loan modification department does not speak for the foreclosure department. All three of these banks got away with it because the courts seemed to be sympathetic relying on the fact that the borrowers were behind on their payments (after being told by the lender to stop paying to qualify for a loan modification).
Well Hallelujah, our Third District Court of Appeal just stuck it to lenders and their loan servicers for that same kind of corrupt business practice.
WEIMER V. NATIONSTAR MORTGAGE
The facts and the law in this new case of Weimer v. Nationstar Mortgage are complicated, but the short version is that Weimer owned an expensive home in Carnelian Bay which he refinanced with Bank of America in 2006. For an unknown reason, B of A froze Weimer’s bank accounts and naturally he was unable to pay his mortgage, so he applied for a loan modification in 2009 and as instructed made a $50,000 “down payment” to B of A.
Long story short, Weimer was mishandled and abused by a series of successor banks and loan servicing companies who each lost his documents many times. He was essentially told he would qualify for a Home Affordable Modification Program (HAMP) loan modification and they even sent the HAMP loan modification application to Weimer. Turns out the HAMP loan modification limits were way too low for Weimer to successfully conclude a loan modification. A serious screw-up by the lender. Weimer sued and faced the wrath of the lender’s attorneys who refused to recognize the lenders and servicers at that time were hopelessly incompetent and understaffed to deal with the volume of loan modification requests, so they just made it impossible to complete a loan modification.
LENDERS TAKE IT IN THE CHIN
In the end, the Third District Court of Appeal out of Sacramento, led by Nevada County’s own: acting presiding Justice M. Kathleen Butz — who is one of the best in the business — put it to Nationstar and its loan servicing company finding that because of the commitments made to Weimer there was a “special relationship” which was breached thus entitling Weimer to damages. In case you cannot tell, I support this decision.
I’m afraid we may be facing a large number of loan modification requests because of borrowers’ inability to pay on their loans. Maybe because of this Third District Court of Appeal case, the lenders and service companies will treat their borrowers with respect this time around.
Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee and Tahoe City, California, and Reno, Nevada. Jim’s practice areas include: real estate, development, construction, business, HOA’s, contracts, personal injury, accidents, mediation and other transactional matters. He may be reached at email@example.com or http://www.portersimon.com.
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Kelley R. Carroll, a certified specialist, handles estate planning and will contests in our office with the help of our firm’s litigation department. I do not handle any, be forewarned.