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Appeals Court Dismisses HAMP-Based Negligence Claim

In a post-foreclosure lawsuit, Santos v. U.S. Bank National Association, et al., 2016 WL 3636049 (Mass.App.Ct. 2016), a borrower ("Santos") alleged inter alia that a foreclosing mortgagee ("U.S. Bank") and its loan servicer negligently handled his applications for a HAMP loan modification.  Santos argued that the defendants "negligently failed to adhere to the HAMP guidelines in processing his loan modification applications." 

HAMP was implemented in response to the 2008 financial and housing crisis.  Congress enacted the Emergency Economic Stabilization Act of 2008, which led to the Making Home Affordable Program introduced by the Secretary of Treasury ("Treasury"), from which HAMP is derived.  HAMP was designed to provide some relief to homeowners facing foreclosure by encouraging loan servicers to offer loan modification agreements that reduce mortgage payments.  For each permanent loan modification completed, the loan servicer receives incentive payments (consisting of $1,000 per modification and other incentives).  If a loan is not owned or guaranteed by the Federal National Mortgage Association ("Fannie Mae), then a loan servicer may elect to participate in HAMP by executing a Servicer Participation Agreement ("SPA") with Fannie Mae, in its capacity as financial agent for the United States.  The Treasury and Fannie Mae issued HAMP guidelines but the enforcement of HAMP is the responsibility of Federal Home Loan Mortgage Corporation ("Freddie Mac").  

In 2009, U.S. Bank executed an SPA with Fannie Mae.  Prior to the foreclosure of his home, Santos applied multiple times for a loan modification under HAMP.  Santos participated in a three-month temporary plan as part of the HAMP application process.  His applications for a permanent loan modification agreement under HAMP, however, were ultimately denied by U.S. Bank and its loan servicer.  Thereafter, the foreclosure sale took place.  While a post-foreclosure summary process (i.e., eviction) action against Santos initiated by U.S. Bank was pending, Santos filed a separate suit against U.S. Bank and the loan servicer.

Santos argued that U.S. Bank and its loan servicer were negligent in handling his loan applications under HAMP.  The Appeals Court rejected Santos' argument.  In doing so, the Appeals Court relied on the well-established principle in the First Circuit that HAMP does not create a duty of care owed by a mortgagee to a borrower, which essentially represents the general consensus among courts across the country that "there is no private right of action under HAMP and that borrowers are not intended third-party beneficiaries of SPAs or similar contract between lending banks and Fannie Mae." 

Since HAMP is a federal program, the Appeals Court recognized that issues related to the interpretation of the HAMP contract, such as a private right of action or intended beneficiary status, are largely controlled by federal law.   The concept of duty of care - the Appeals Court explained - is determined by applying state common law principles.

  Adopting the reasoning and analysis of the majority of courts across the country, the Appeals Court concluded that "under Massachusetts law, HAMP does not impose a duty of care owed by lenders banks and servicers to borrowers."  Consequently, the Appeals Court ruled that Santos' negligence claim fails as a matter of law.

This case should put an end to the borrowers' efforts in Massachusetts to assert, against lending banks, negligence claims based on the HAMP guidelines.

We invite you to learn more about Fitch Law Partners LLP's banking law practice on our website.

In a post-foreclosure lawsuit, Santos v. U.S. Bank National Association, et al., 2016 WL 3636049 (Mass.App.Ct. 2016), a borrower ("Santos") alleged inter alia that a foreclosing mortgagee ("U.S. Bank") and its loan servicer negligently handled his applications for a HAMP loan modification.  Santos argued that the defendants "negligently failed to adhere to the HAMP guidelines in processing his loan modification applications." 

HAMP was implemented in response to the 2008 financial and housing crisis.  Congress enacted the Emergency Economic Stabilization Act of 2008, which led to the Making Home Affordable Program introduced by the Secretary of Treasury ("Treasury"), from which HAMP is derived.  HAMP was designed to provide some relief to homeowners facing foreclosure by encouraging loan servicers to offer loan modification agreements that reduce mortgage payments.  For each permanent loan modification completed, the loan servicer receives incentive payments (consisting of $1,000 per modification and other incentives).  If a loan is not owned or guaranteed by the Federal National Mortgage Association ("Fannie Mae), then a loan servicer may elect to participate in HAMP by executing a Servicer Participation Agreement ("SPA") with Fannie Mae, in its capacity as financial agent for the United States.  The Treasury and Fannie Mae issued HAMP guidelines but the enforcement of HAMP is the responsibility of Federal Home Loan Mortgage Corporation ("Freddie Mac").  

In 2009, U.S. Bank executed an SPA with Fannie Mae.  Prior to the foreclosure of his home, Santos applied multiple times for a loan modification under HAMP.  Santos participated in a three-month temporary plan as part of the HAMP application process.  His applications for a permanent loan modification agreement under HAMP, however, were ultimately denied by U.S. Bank and its loan servicer.  Thereafter, the foreclosure sale took place.  While a post-foreclosure summary process (i.e., eviction) action against Santos initiated by U.S. Bank was pending, Santos filed a separate suit against U.S. Bank and the loan servicer.

Santos argued that U.S. Bank and its loan servicer were negligent in handling his loan applications under HAMP.  The Appeals Court rejected Santos' argument.  In doing so, the Appeals Court relied on the well-established principle in the First Circuit that HAMP does not create a duty of care owed by a mortgagee to a borrower, which essentially represents the general consensus among courts across the country that "there is no private right of action under HAMP and that borrowers are not intended third-party beneficiaries of SPAs or similar contract between lending banks and Fannie Mae." 

Since HAMP is a federal program, the Appeals Court recognized that issues related to the interpretation of the HAMP contract, such as a private right of action or intended beneficiary status, are largely controlled by federal law.   The concept of duty of care - the Appeals Court explained - is determined by applying state common law principles.

  Adopting the reasoning and analysis of the majority of courts across the country, the Appeals Court concluded that "under Massachusetts law, HAMP does not impose a duty of care owed by lenders banks and servicers to borrowers."  Consequently, the Appeals Court ruled that Santos' negligence claim fails as a matter of law.

This case should put an end to the borrowers' efforts in Massachusetts to assert, against lending banks, negligence claims based on the HAMP guidelines.

We invite you to learn more about Fitch Law Partners LLP's banking law practice on our website.

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