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A New York Lawsuit With Promising Implications for Chicago Homeowners
January 6, 2010

Posted In: Foreclosure Defense, In The News, Mortgage Foreclosure Update
By Sulaiman & Associates on January 6, 2010 9:27 AM | Permalink

In November 2009, the Legal Aid Society of New York filed a class action suit against Aurora Loan Services, L.L.C., Timothy Geithner, and other Federal officials. The suit, filed in the U.S. District Court for the District of Columbia, takes an interesting approach.

First and foremost, any individual who is eligible for a loan under the Federal Home Affordable Modification Program (HAMP), and whose loan is serviced by Aurora is likely a member of the class. This means that an untold number of borrowers in Chicago, greater Cook County, and across the state of Illinois may be part of the class. Some of our own clients may very well fall within the class. At some point in the future, those whose loans are serviced by Aurora may very well receive a notice telling them that they may opt-out of the class if they wish to pursue their own lawsuit.

More thoughts on the complaint after the jump.

The complaint itself is fifty-one pages of light reading. In order to spare you the full read, here's our back-of-the-napkin take on what the Legal Aid Society is claiming.

HAMP is a program that stems from the Troubled Asset Relief Program (TARP). Its goal is to get eligible borrowers into trial loan modifications, that ultimately convert to permanent loan modifications. In turn, this allows borrowers to keep their homes. As we've mentioned before, the HAMP program hasn't been a resounding success so far. A very small number of applications actually convert to permanent modifications. According to the Treasury, only 31, 382 mortgages out of 759, 058 trial modifications have converted to a permanent modification.

The Legal Aid Society's complaint places the burden of this failure on lenders like Aurora and Federal officials. It notes that mortgage servicers that participate in HAMP must sign a contract with Fannie Mae "as Financial Agent of the United States Government." (Complaint p. 3-4.) This contract describes the process and guidelines for the HAMP program. Among other obligations, servicers must evaluate non-Governmental Sponsored Enterprise loans for the program, forestall any foreclosure filings for home owners attempting to participate in the program, and must not offer forebearance agreements or require borrowers to waive legal rights. (Complaint p. 3-4). The complaint continues to outline ways in which Aurora allegedly violated its contract.

The complaint also takes Treasury and Fannie Mae officials to task for failing to implement procedures that protect the due process rights of borrowers. It points to a supplemental directive that only took effect on 1 January 2010 as evidence of this lack of procedural protection. Prior to the beginning of this year, servicers that had signed a HAMP contract were not required to provide detailed reasons for denial of a loan modification. This, in turn, has made it difficult for borrowers to challenge such a determination. Given the nature of the contract and the relationship of the parties, the complaint further alleges that all of this activity took place under the color of federal law. This key phrase is how the complaint attaches its due process claims to a private entity (Aurora) and a quasi-Governmental entity (Fannie Mae).

All of this background leads up to what I consider the most interesting and novel approach the complaint takes -- establishing standing for the named plaintiffs and the rest of the class. Since home owners do not sign this HAMP contract, they cannot normally enforce that contract. However, the complaint argues that the home owners are the intended third party beneficiaries of the contract. The contract may provide some benefit to the servicers and Fannie Mae, but the intention of HAMP was to assist home owners. In turn, this makes the home owners intended beneficiaries of the contract. Because the home owners have a vested interest in the benefits of the contract, they also have a right to sue to enforce the contract.

This represents a very interesting legal argument -- something that would likely have been poo-pooed as interesting legal theory, the domain of a student comment in a law review, not the lynch pin of a Federal class action lawsuit. It also begs the question -- what other servicers have signed these HAMP contracts? The complaint mentions that 60 banks have signed up. If this has legs, it is very much worth pursuing on a local level. Suing Federal officials may not ever lead to their personal liability (the immunity of Federal officials is a pretty specific area of Constitutional law), but holding the lenders accountable for their often byzantine approach to the HAMP process may create some leverage for individuals seeking to keep their homes.

Responses

  • Ji
    jIMMYspet Nov 13, 2010

    This has been a fraud from day 1 I'm telling you this is so much $ thrown into these lenders hands on top of your agreed HAMP payment.Tell me YOU DON'T THINK SOME OF THE $ AIN'T FALLEN [BY ACCIDENT I'M SURE]RIGHT DOWN IN TIMMY GEITHNER AND SO ON.You know damn well to lead people on for 7, 8, 9 months then, then, I mean then on say the 7 month WE NEED PROOF OF 9 MONTH UNEMPLOYMENT SEE YOU CLAIM RUNS YEARLY AS MOST OF YOU NO THAT'S THE REASON THESE NO GOOD DIRTY ROTTEN POLITICIANS AND BANKS NEED TO GO WHERE THEIR CROOKED [censor] CAME FROM HELL YOU NO I HAVE VOTED ALWAY'S DEM FOR 20 YEARS AND I NO NOW IT'S NOTHING ABOUT MIDDLE CLASS IT'S ABOUT ME PEOPLE OF AMERICA IT IS LOOKING LIKE NO WIN SITUATION HERE

    0 Votes
  • Ma
    Mary Pitts Jul 31, 2010

    The Gov't. appears to be covering for these fraudulent lenders. Nothing is being done. I was told that the reason foreclosures are skyrocketing was because the lenders were actually profiting from the foreclosures. Say there is a 400, 000 home...it is sold at auction for 200, 000...Aurora is paid 200, 000 and then the Gov't. gives them a bailout of 80% loss...should be 80% of 200, 000, but instead it is 80% of the total original price 400, 000 = 320, 000. Well they just received 200, 000 at auction and now will receive 320, 000 = 520, 000 THAT'S A MAJOR PROFIT!! THIS IS WHY FORECLOSURES ARE GOING THROUGH THE ROOF. If this isn't fraud...with the approval of our ignorant government, I don't know what is.

    0 Votes
  • Th
    T.H. Jun 15, 2010
    This comment was posted by
    a verified customer
    Verified customer

    Join our Facebook page! People Against HAMP!!!

    These lenders (Wells Fargo in particular) are taking advantage of the HAMP program by deceiving customers. They literally lie throughout the entire process so that they can make money off of your foreclosure. The mass media needs to get on this! This is fraud and it is happening to thousands of people nationwide! They put you on a "three month trial" they tell you to if you continue making the modified payments and submitting your paperwork you will be approved for the mod and done. Throughout several months to even years they string you along telling you to just keep making your payments and we will get you on the mod. They did this to us for 10 months, constantly losing our paperwork. They tell you their will be no fee's while you are on the program. What they fail to tell you or simply lie to you about as in our case is that after the 3 month trial period they put you back onto your original payment - while you are making modified payments that they tell you to make they are tacking fee's and penalty after penalty. You find out (in our case $40, 000 later) when you get the sudden foreclosure notice on your door that your loan has been penalized the whole time you were supposed to be on a modification. They then tell you you have been kicked off your modification and you have a few weeks to vacate your home, when it goes to auction. They auction your home at a fraction of the price owed and then are reimbursed for the remaining amount by the government. They then come after you for the back fee's and penalties after everything you have gone through. They are taking advantage and making money off foreclosure's, the more money they get out of the loan, the more money they make from the government. The gov. is encouraging and supporting this. This is pure, outright fraud by the people that are supposed to be protecting us! These lenders are pure criminal. This needs to stop!

    0 Votes
  • Ho
    Hold Aurora Loans Accountable ! Apr 30, 2010
    This comment was posted by
    a verified customer
    Verified customer

    File a complaint with the Federal Trade Commission https://www.ftccomplaintassistant.gov/ If enough people complain maybe they will be held accountable for their awful business practices.

    0 Votes
  • Ci
    Cindy Ghrist Apr 16, 2010
    This comment was posted by
    a verified customer
    Verified customer

    I need help with my Aurora loans services problem!! I live in Lompoc, CA and want to know if any class action suit is happening in the state of California? I read several complaints that are carbon copies of our complaints. They lie and say they did not receive paperwork for remodification of our loan and we have faxed the same paperwork many times and they said never received them and setup a payment plan through Western Union to pay cash 1st day of month and said they would remodify if we paid and we did now they sent back our last payment denied and we found out our house is in second phase of foreclosure ??? We did not receive any certifyed mail about this nothing printed in local paper about our house forclosing and no notice on door about a foreclousre?? How can lenders get away with this and destroy our lives?? I am really struggling right now, really over and over about committing suicide if I lose my house. There is no answer for me at this time why people can be so evil and sleep at night for giving us hope and now taking it away. I am 51 and and work hard for 33 years only to lose everything including my beloved companion dogs to this crisis. I know it's a coward way out but I can't take anymore of this ###. My name is Cindy Ghrist E-mail [email protected]

    0 Votes
  • Tn
    TNIVEKKY Mar 15, 2010

    Does anyone know the outcome of this case? Please post link if you have it. Thanks.

    0 Votes
  • Ho
    HomeLawLawyers.com Jan 31, 2010

    We are looking at this theory in my California office. I'm looking for a handful of test cases. But the key to serving the individual homeowner is not naming the government and litigating under CA state law. The application of third party theory varies in each state. California is a state where this approach could work at least for injunctive relief for the individual who wants a fair shake under the HAMP guidelines. For more details on how state courts may vary in the application of this theory, see this article:

    http://www.nsclc.org/areas/federal-rights/third-party-beneficiary-claims-recent-cases-against-private-parties-and-local-agencies/at_download/attachment

    J. Arthur Roberts, Esq.
    HomeLawLawyers.com

    0 Votes
  • Ma
    marketingOS Jan 23, 2010

    First and foremost we protect your rights. We represent you in either the Foreclosure defense, Loan Restructuring, Bankruptcy or Short Sale. We negotiate with your lender and attempt to get you into a mortgage payment you can comfortably afford without having to refinance. We represent you to make sure you're getting the terms that meet your needs. http://www.u2can-consolidacionenmiami.com

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