Two new court cases may help California homeowners avoid foreclosure, but banks are trying to stop it. If you have completed a trial modification and the bank has refused to modify your loan permanently, read on. If you were in the middle of a loan modification, and the bank gave you the run-around, read on.
The first case says that banks must offer permanent loan modifications to homeowners who have completed a trial modification plan. The case is Genevieve West v. JPMorgan Chase Bank, N.A., No. G046516, Court of Appeal of the State of California (4th Dist. Div. 3, March 18, 2013). The second case says that banks can have an obligation to take care when handling a loan modification. The case is Scott Call Jolley v. Chase Home Finance, LLC, No. A134019, Court of Appeal of the State of California (1st Dist., Div. 2, February 11, 2013).
In West, the homeowner, Ms West, had completed a trial plan, and made all her trial plan payments on time. The financial information she had provided to her bank was still correct. Nonetheless, the bank, Chase, decided to go back on its word and deny her a permanent loan modification. It’s a familiar story. One would think that when a person had made an agreement with their bank, and met the terms, that a bank would have to meet its obligations. However, in the past, Chase and others have argued that the trial modification plans are not contracts, and that therefore, they don’t have to honor the trial plans. Unfortunately, in the past, courts have agreed with the banks, and decided that homeowners have no right to bring a lawsuit.
The West case is noteworthy because the court has sided with the homeowner and compelled the bank to do something very simple– to live up to the terms of a contract it entered into with a homeowner. It is sad that it has taken this long for the appellate court to make a ruling like the one in West, because many people have successfully completed trial plans only to have the rug pulled out from under them at the last minute, and only to face courts that deny them all redress. The West decision, then, is a step in the right direction. West means that when a person has completed a trial plan successfully, the bank has to offer a permanent modification. This is good news.
In the Jolley decision, the court ruled that a “duty of care” applies in a loan modification transaction. In plain English, it means that banks have an obligation to try to do the loan modification correctly, and if they fail, the homeowner/borrower can sue. In the past, that wasn’t the case. The facts in Jolley are as familiar as they are infuriating. Mr. Jolley took out a construction loan with Chase. After he ran into some difficulties, Chase promised him that it would work out a modification. Based on those promises, Jolley borrowed additional money from friends and relatives to finish construction. While Jolley was negotiating with Chase for the modification, Chase foreclosed on the property. Chase had “dual tracked” him, a common practice wherein a bank claims to be working on a modification, while simultaneously foreclosing on the borrower.
Jolley is an especially interesting case for homeowners, because two of the factors the court looked at were the “moral blame” associated with Chase’s conduct, as well as the “policy of preventing future harm.” The court found that Chase had moral blame for essentially leading Mr. Jolley on while simultaneously foreclosing on him. The court also identified “a rising trend to require lenders to deal reasonably with borrowers in default to try to effectuate a workable loan modification.” The Jolley case is important because too many homeowners have suffered from the modification maze of false promises, “lost” documents and sudden foreclosure. The ruling in Jolley makes it possible for homeowners to strike back against abusive and “incompetent” loan modification practices that lead to unnecessary foreclosures.
Despite the finance sector’s public relations shills, it is evident that the foreclosure crisis is ongoing. The legislature and courts have started to realize that as the public outcry has become deafening. It is about time that the legislature and courts respond to the public outcry, if indeed they want to retain the consent of the governed. What we are facing as citizens is a financial sector that seeks nothing less than total control. In that light, the banks’ response to the Jolley and West decisions is not surprising. The rumor is that they are trying to get the courts to publish decisions that would nullify Jolley and West.
Thus, it is important for people to do two things: 1) spread the word about the favorable decisions and 2) file legitimate suits based on the two new cases. Spreading the word makes it harder for the courts to overturn the decisions, especially when it would look like a gimme to the banks. Filing legitimate suits also makes it harder to overturn the decisions.
In summary, California homeowners now have some strong support for holding the banks accountable for bad behavior in loan modifications. People should move quickly to protect their rights under the new decisions.
Timothy Y. Fong focuses his practice on foreclosure defense, real estate and consumer bankruptcy.
He has extensive experience in foreclosure litigation, representing homeowners and small real estate developers. Mr. Fong writes extensively on politics and foreclosure issues, and among other places has been published on one of the top finance blogs, Naked Capitalism.
Mr. Fong is a graduate of the University of San Francisco School of Law, and completed his undergraduate education at UC Berkeley.
There is a case in Washington State: Barrus v. Bank of America where the court, in a motion before trial upheld that the bank acted in bad faith by offering a loan mod and not honoring it, and foreclosing on the borrower who was not delinquent until the bank TOLD them to stop making payments to MAKE it delinquent so that they could do a loan mod. GOOD CASE. Court also allowed Consumer Protection and Estoppel. Going to trial soon, THIS MONTH.