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» VISIT US ONLINE @ DSNEWS.COM COVER STORY REGIONAL SPOTLIGHT INDUSTRY INSIGHTS failed to address certain crucial distinctions that must be considered before applying this seemingly all-encompassing rule. In doing so, the court in West appears to have overstepped its bounds. Blurring the Lines REGIONAL SPOTLIGHT As readily admitted by the court, the opinion in West was based almost exclusively on the Seventh Circuit's decision in Wigod v. Wells Fargo Bank, N.A. (7th Cir. 2012) 673 F.3d 547.2 As in Wigod, West applied the U.S. Department of the Treasury, HAMP Supplemental Directive 09-01 (April 6, 2009) as a means to create a duty upon a lender or servicer to provide a permanent modification upon the successful completion of a trial period plan. Citing Directive 09-01, the court reasoned that under HAMP guidelines, "If the borrower complies with the terms and conditions of the [TPP], the loan modification will become effective on the first day of the month following the trial period." As a result, West interpreted this as an affirmative directive mandating a permanent modification when a borrower "complies with the terms and conditions" of a trial plan. Yet what the West court fails to address is that 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. Contrary to the ruling in West, Directive 09-01 does not automatically mandate that a borrower must be granted a permanent modification if his or her simply complies with the terms of a trial period plan. Rather, in the alternative to determining a borrower's eligibility up front, Directive 09-01 expressly authorized a loan servicer to provide a borrower with a trial plan prior to any actual evaluation of their eligibility.3 Subsequently, after the trial plan's acceptance, if the borrower did not meet the eligibility standards upon a review of his or her financials, the servicer was obligated to "promptly" notify the borrower of the denial.4 Therefore, under Directive 09-01, a servicer was expressly authorized to deny a permanent modification after the issuance and acceptance of POINT— COUNTERPOINT According to the holding in West v. JPMorgan Chase Bank1, a loan servicer is obligated under HAMP guidelines to offer a permanent modification when a borrower complies with the terms of a trial plan and his or her representations remain true and correct. Therefore, because the servicer had a duty to modify upon the successful completion of the trial plan, the court held that the plaintiff had stated valid causes of action for damages and breach of contract, where the defendant foreclosed rather than offered a permanent loan modification. At first glance, West can easily be misinterpreted (and undoubtedly will be misinterpreted by borrowers and counsel alike) as a blanket ruling that all completed trial plans under HAMP must result in the offering of a permanent modification. However, this is not always the case. In fact, upon closer examination, the West decision BEST PRACTICES W ith the enactment of such edicts as the California Homeowner Bill of Rights (HBR), the tide has officially begun to turn in favor of the California borrower, and the days of routinely dismissing foreclosure actions are nearing an end. On March 18, in keeping with the pro-borrower movement, the California Court of Appeal provided homeowners with yet another avenue of recourse in an area largely invalidated by the federal circuit: a sustainable claim for breach of a trial period plan (TPP) under the Home Affordable Modification Program (HAMP). THE BIG PICTURE California court rules servicers must convert HAMP mods from trial to permanent when borrowers pay on time, but many critics decry its all-inclusive decree. 1 West v. JPMorgan Chase Bank (March 18, 2013) --- Cal.Rptr.3d ----, 2013 WL 1104739 (Cal.App. 4 Dist.); 2 West, supra, 2013 WL 1104739 at *1 ("Core to our decision is the court's conclusion in Wigod …"); 3 See Supplemental Directive 09-01, page 5 and 15 ("Servicers may use recent verbal financial information … to prepare and send … an offer of a trial period plan. When the borrower returns the trial period plan and related documents, the servicer must review them to verify the borrower's financial information and eligibility"; "the servicer should instruct the borrower to return the signed trial period plan, together with … income verification documents …, and the first trial period payment ...") (emphasis added); 4 See Supplemental Directive 09-01, page 15 ("If the servicer determines the borrower does not meet the underwriting and eligibility standards of the HAMP after the borrower has submitted a signed trial period plan …, the servicer should promptly communicate that determination to the borrower in writing …") (emphasis added); 67

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