DS News - Digital Archives

Both the timing of the trial period plan and the circumstances surrounding its issuance to the borrower are key in determining whether the HAMP guidelines mandated a permanent modification. a trial plan if a borrower did not meet the HAMP underwriting and eligibility standards upon later review, regardless of whether he or she made the required trial payments. Effective June 1, 2010, though, in order to alleviate borrower confusion and promote a higher trial-to-permanent modification conversion rate, the Treasury changed this policy, allowing servicers to offer trial plans only after reviewing a borrower's documented financial information to determine eligibility beforehand.5 In West, the court found an obligation to modify reasoning that "[w]hen Chase Bank received public tax dollars under the Troubled Asset Relief Program, it agreed to offer TPPs and loan modifications under HAMP according to guidelines, procedures, instructions, and directives issued by the Department of the Treasury. Under . . . HAMP Supplemental Directive 09-01 . . . , if the lender approves a TPP, and the borrower complies with all the terms of the TPP and all of the borrower's representations remain true and correct, the lender must offer a permanent loan modification."6 However, West dealt with a trial period plan that was offered in July 2009. Thus, at that time, Chase Bank was fully authorized by Directive 09-01 to offer the plaintiff a trial plan prior to the receipt of any financial documentation and prior to evaluating her eligibility. It was not until June 2010 that the Treasury required a complete verification of a borrower's eligibility before offering a HAMP trial plan. Timing Is Everything This key distinction in the timing of a trial plan is briefly addressed in Wigod, which also involved a pre-June 2010 trial period plan. As referenced by the Wigod court, the "Treasury modified its directives on the timing of the verification process in a way that affects this case. Under the original guidelines that were in effect when Wigod applied for a modification, a servicer could initiate a TPP based on a borrower's undocumented representations about her finances."7 The court noted at the time of the plaintiff's trial plan that the "Treasury's original guidelines were still in force, so Wells Fargo could choose whether (A) to offer Wigod a trial modification based on unverified oral representations or (B) to require her to provide documentary proof of her financial information before commencing the trial plan."8 Along these lines, Wigod recognized that the borrower in that case had "allege[d] . . . Wells Fargo took option (B)" and "[o]nly after Wigod provided all required financial documentation did Wells Fargo, in mid-May 2009, determine that [she] was eligible for HAMP and send her a TPP agreement."9 Because it was alleged that Wells Fargo had already determined Wigod's eligibility prior to offering the trial plan, the court reasoned that an obligation to modify under HAMP still existed, or at a minimum, Wells Fargo was "required to offer some sort of good-faith permanent modification to Wigod consistent with HAMP guidelines."10 Based on this rationale, however, had Wells Fargo not verified Wigod's eligibility for a HAMP modification up front, there would have been no obligation under Directive 09-01 to offer a permanent modification if she was determined ineligible after a review of her financial documentation, even if she had accepted the plan and complied with its terms. Thus, the Wigod ruling has no application to HAMP trial plans offered by a servicer prior to June 2010 where the borrower's eligibility was not determined beforehand. Ruling Gone Wrong? Applying these same principles to the West opinion, before determining whether a permanent modification was required, the appellate court was obligated to first determine the circumstances of the trial plan's offering as in Wigod (namely, at the demurrer stage, the allegations made by plaintiff to support the theory that HAMP guidelines mandated a permanent modification). No such review or analysis took place. In fact, based on the plaintiff's allegations relied upon by the court, the West ruling may have been in error. In West, the trial period plan offered in July 2009 was accompanied by a letter stating that "[s]ince you have told us you're committed to pursuing a stay-in-home option, you have been approved for a trial plan agreement."11 The plaintiff also alleged that "in January 2010 and again in March 2010, Chase Bank confirmed receipt of documents that West had submitted in support of her request for a permanent loan modification under HAMP."12 Shortly thereafter, in April 2010, it was alleged that Chase Bank notified West that she did not qualify for a modification through HAMP "based on a calculation of West's 'net present value' (NPV) under a formula developed by the Department of the Treasury."13 These allegations, taken in isolation, indicate that West was offered a trial plan under HAMP in July 2009 without any prior verification of her assets, income, or eligibility. If so, per Directive 09-01, Chase Bank was thereby authorized to deny West a permanent modification based on her ineligibility determined after the fact regardless of whether or not she complied with the trial plan's terms. In the end, Wigod itself, the very case that was "core" to the court's ruling in West, does not support the conclusion reached by the Fourth District, Court of Appeal. Todd E. Chvat, Esq., is an attorney with the law firm Wright, Finlay & Zak, LLP, in California, representing clients in mortgage banking as well as general business and real estate matters. T. Robert Finlay, Esq., is a firm partner whose practice areas include mortgage banking, loan servicing, general business and real estate matters, bankruptcy, and eviction. 5 See HAMP Supplemental Directive 10-1 (January 28, 2010), page 3 ("Within 30 calendar days following receipt of an initial package or complete verification documents, the servicer must complete its verification and evaluate the borrower's eligibility for HAMP and, if the borrower is qualified, send the borrower a trial period plan notice.") (emphasis added); 6 West, supra, 2013 WL 1104739 at *8 (citations omitted); 7 Wigod, supra, 673 F.3d at 557.; 8 Id. at 558; 9 Id.; 10 Wigod, supra, 673 F.3d at 565; 11 West, supra, 2013 WL 1104739 at *3; 12 Id.; 13 Id. 68

• Cover