The Court of Appeals for the 4th Circuit affirmed that the Home Affordable Modification Program does not create a private right of action.
The decision ultimately holds that borrowers are not third-party beneficiaries of the HAMP program. The private right allows for lawsuits to be brought to claim redress against the implied action. In this case, now denied, homeowners will have less success in suing HAMP providers when mortgage modifications go bad.
More importantly, this ruling is favorable to creditors and servicers across the 4th Circuit, bringing added clarity and weight to a defense against a frequent claim made by borrowers. Earlier this month, the 9th Circuit ruled that some homeowners arguements against HAMP providers need to be considered in these lawsuits.
Although HAMP participation is voluntary for nongovernment-sponsored entities, loan servicer Ocwen Loan Servicing (OCN) entered into a servicer-participation agreement with the federal government, which incorporates the program guidelines, procedures and supplemental directives.
"We saw a good bit of borrowers trying to recover with an alleged violation or attacking of foreclosure order, and we hadn’t had a lot of instruction by the 4th circuit on how to proceed, but this case spelled out the basis for the court’s decision to dismiss the borrowers’ lawsuit," explained Hunoval Law Firm managing member Christi Hunoval.
She added, "There’s not an explicit right of action in the program and a borrower is not a third party beneficiary — the court’s decision spelled that out very clearly."
In 2005, North Carolina homeowners refinanced their mortgage with a new loan in the amount of $212,000, secured by a deed of trust.
Soon after, the homeowners experienced various financial setbacks and defaulted on their mortgage on multiple occasions, resulting in a foreclosure order.
As a result, the homeowners first sought to enforce HAMP as third-party beneficiaries of the program, but the consensus view is that HAMP does not create a private right to action.
The borrower repealed the North Carolina district court decision and bought it to the 4th Circuit, which affirmed the initial motion to dismiss ruling.
Typically, homeowners have taken three routes to asset entitlement to a permanent HAMP modification, including claiming a private right to sue under HAMP, claiming breach of contract as a third-party beneficiary to a contract between a lender and Fannie Mae and claiming breach of contract based on a loan modification applications.
"This is because borrowers are merely incidental, not third-party, beneficiaries to HAMP contracts. HAMP-participating non-GSEs are not required to modify eligible loans," according to the filing.
The brief continued, "Additionally, a plaintiff may only pursue a breach-of-contract based on the loan-modification application if that cause of action is independent from HAMP."
As a result, the court ruled in favor of Ocwen’s motion to dismiss, claiming that there was no perceivable violation of the 'neutrality provision.'