Page 11 - John Hundley 2012

Sharp Thinking

No. 61 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. April 2012

Affordable Mortgage Program Is Enforceable

Through State Causes of Action, Court Rules

By John T. Hundley, 618-242-0246, Jhundley@lotsharp.com

The Obama Administration’s Home Affordable Mortgage Program (“HAMP”) does not contain a
federal private right to sue for violation of its terms, but it also does not preempt otherwise viable state-
law claims which incorporate terms and standards of the federal program, a federal appeals court in
Chicago ruled last month.

Rejecting most of the arguments of a mortgage servicer which accepted the plaintiff for a trial
program but failed to offer her a permanent mortgage modification, the court relied heavily on HAMP
program terms and documents in finding that the plaintiff stated causes of action for breach of
contract, promissory estoppel, fraudulent misrepresentation and violation of the Illinois
Consumer Fraud & Deceptive Business Practices Act, 815 ILCS 505 (“ICFDBPA”). Wigod v. Wells
Fargo Bank, N.A., No. 11-1423, __ F.3d __, 2012 WL 727646 (7th Cir. March 7, 2012).

Program Outlined. In response to the financial crises of 2008, Congress enacted the
Emergency Economic Stabilization Act, P.L. 110-343, 122 Stat. 3765, which, as part of its “Troubled
Asset Relief Program”, required the Treasury Secretary to implement programs to assist homeowners
and minimize foreclosures. As a result, Treasury set aside $50 billion as incentives for lenders to
refinance troubled mortgages to allow homeowners to avoid foreclosure. HAMP was the resulting
program, and it set standards for refinancing under a two-step plan. The borrower was first given a trial
period plan, upon successful completion of which a permanent modification was to be offered.

Contract Claim Sustained. Defendant attacked plaintiff’s contract claims, arguing it had not
made a legally enforceable offer, that the alleged contract lacked certainty, and that it was not
supported by consideration. The “offer” attack was based on alleged discretion
defendant had as to whether to accept a successful trial participant for a permanent
modification. The court rejected that argument, finding that under the temporary
program Wells Fargo’s opportunity to determine whether the debtor was qualified
was when it accepted her into the temporary program. That the program had
conditions which she had to fulfill to get a permanent modification did not prevent it
from constituting a valid offer, the court said; “[o]nce Wells Fargo signed the
[temporary program] Agreement and returned it to Wigod, an objectively reasonable person would
construe it as an offer to provide a permanent modification agreement if she fulfilled its conditions.”

Similarly, the court rejected defendant’s argument that the “contract” was too indefinite to be
enforceable, incorporating the criteria and terms of the HAMP program and finding that any variation
from “estimates” included in the temporary program had to be made in conformance with those terms.
The court also rejected the argument that debtor gave no consideration because she paid less under

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