In a win for borrowers the Ninth Circuit Court of Appeals recently held that Wells Fargo was required to grant a permanent loan modification to qualified borrowers. In Corvello v. Wells Fargo, the borrower successfully met the requirements of a trial loan modification offered by Wells Fargo. However, at the end of the trial period, Wells Fargo failed to approve or deny the loan modification. The federal appellate court found that pursuant to the Home Affordable Modification Program (“HAMP”), Wells Fargo was required to grant the borrowers a loan modification.
Facts
The case was actually two separate cases in federal court that were consolidated due to the similarity of facts and law. In each case, Corvello and Lucia, the borrowers applied for a loan modification through Wells Fargo. In order to determine if the borrowers qualified for a loan modification, Wells Fargo offered them a trial plan pursuant to HAMP. This plan essentially stated that if the borrowers successfully made all three payments as required and accurately provided all of the financial information requested by Wells Fargo, Wells Fargo would be required to either approve or deny the borrowers. However, in both cases, at the end of the trial period Wells Fargo failed to approve or deny the loan modifications. In fact, in the Lucias’ case, Wells Fargo foreclosed on the home without ever issuing a decision on the loan modification.
Holding
The lower court held that the borrowers failed to make an actionable claim as Wells Fargo was not contractually required to provide a loan modification because the TPP stated that a loan modification was only effective when Wells Fargo issued a permanent one.
However, the Appellate Court reversed this decision because it found that the Trial Period Plan was a contractual agreement with the borrower that required Wells Fargo to make a decision. Because the borrowers had performed as required, Wells Fargo could not evade its contractual obligations through the ambiguous language. The Court held that Wells Fargo’s argument essentially rendered the contract illusory and would controvert the intent of the contract.
Takeaway
This decision, along with a similar decision in the Seventh Circuit Appellate Court (Wigod v. Wells Fargo Bank, 673 F.3d 547), will likely cause lenders to strongly reconsider their timing and response policies on borrower loan modification applications. Here, Wells Fargo could have either determined that the borrowers did not qualify for a loan modification or could have granted one. However, failing to do either was unacceptable.
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