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This is a case involving the Home Affordable Modification Program ("HAMP"). The action was brought in Massachusetts state court, but removed to federal court by Wells Fargo on the basis of diversity. The plaintiff sought monetary and injunctive relief on various grounds: Breach of contract (two counts), breach of implied covenant of good faith and fair dealing, negligent and intentional infliction of emotional distress, and a claim under the Massachusetts Unfair Debt Collection Practices Act as well as a stay of the foreclosure action. The U.S. District Court dismissed the case, and plaintiff appealed. The First Circuit Court of Appeals affirmed the dismissal with regard to the to one of the two counts for breach of contract as duplicative, the breach of implied covenant and the emotional distress claims, but vacated the dismissal with regard to the other claims, remanding to the remaining claims for breach of contract, UDCPA and stay of the foreclosure to the district court.

The Court of Appeals noted that while the remaining breach of contract claim was badly pled, that: "[T]he complaint's allegations indicate that defendants breached the contract by failing to provide a permanent modification agreement by the modification effective date, [the plaintiff] has done enough to survive a motion to dismiss."

Editors Notes: From reading the case the bank may have perceived its role as managing an internal workout program instead of being a participant in a federal program. Young's complaint includes a series of miscommunications or misunderstandings which lead to this protracted legal suit.

It started in August 2008 when a $2,600 payment to bring the account current was sent. Shortly thereafter, a notice was posted on her door stating that she was late on her mortgage payment, but instructing her to ignore the notice if she had already made the payments. When Young called Wells Fargo she was told that her payment had been received, but the bank would not process her check and intended to foreclosure. This contradicts the notice. Young then agreed to send an additional payment of $5,628 and Wells Fargo promised to send a forbearance agreement to her. Young was told several weeks later there was no agreement and because Wells Fargo had not processed the $2,600 check she was still past due. A supervisor agreed that had the bank applied that check, the loan would be current. Eventually the forbearance agreement was sent, but the monthly payment was then disclosed to be $800 higher. To try and save her home, Young agreed to the terms but could not make the payments.

Young was then qualified for HAMP and was sent a Trial Period Plan (TPP) packet with three payment coupons for her first three monthly payments. She was to make three payments of $1,368 from November to January to qualify for a permanent loan modification. The three payments were made, but Wells Fargo said they were not timely as required by the agreement and refused the final modification. Young's attorney called and was told that letter was in error and to ignore it. Permanent modification papers would be sent. It was June when the modification papers were actually received and the payment was $300 more than the trial period payment amounts. These were not signed by Young and foreclosure proceeds commenced.

Disputes over the agreement include the fact that the permanent payment was increased over the trial period payment. What was the purpose of the trial period if it was not to determine that Young could make then consistently? Also, after the trial period, why was a permanent modification not done, as Young believed it would be?

Actually, the TPP agreement does state that it is not a modification and that the payment is an estimate. A problem here is that these terms were not discussed with Young and she did not understand what the outcome would be. This continued confusion between the lender and the borrower contributed to the expense of this case. As to the timeliness of modification, the court documents also state that "Defendants respond that we are precluded from considering this argument on appeal because the complaint does not plead a theory of breach based on a failure to tender a permanent modification by a certain date. They are wrong. The complaint states numerous facts related to Wells Fargo's repeated mistakes and delays in offering her a permanent modification, including that the end of the trial period passed without the proffer of a permanent modification agreement."

In the end, the bank failed to explain what was happening to the borrower and to walk the borrower through the steps. The bank failed to process payments timely, to understand its own procedures by making demands and retracting them and the borrower (who the law is intended to protect) did not have a firm grasp on the agreements that were being made. Perhaps the latter was due to the stress of the situation and financial ignorance toward the agreement in general. Had the collections efforts been explained and understood by both parties, years of litigation expenses could have been avoided.

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