Bank of America Asks Court to Throw Out Mortgage Modification Litigation

Bank of America Corp. (BAC), accused in a lawsuit of violating obligations to homeowners seeking to modify mortgage loans and avoid foreclosure, asked a federal judge to throw the case out.

Borrowers say the bank “systematically failed” to comply with a U.S. government program aimed at stemming foreclosures and violated contracts for modifying loans, according to a complaint in federal court in Boston that consolidates cases from across the country.

Bank of America, the biggest U.S. lender by assets, asked U.S. District Judge Rya Zobel at a hearing yesterday to dismiss the complaint. The bank argues that not all homeowners are eligible for inclusion in the government’s Home Affordable Modification Program, or HAMP, and that it isn’t required to permanently modify all loans that are eligible.

“The bank is constantly working on the process, and the Treasury is breathing down its neck to make the process better,” said James McGarry, a lawyer for the bank.

The complaint consolidates 26 lawsuits from around the country with another 10 to be added, Gary Klein, a lawyer for the plaintiffs, said in an interview. If Zobel dismisses the complaint, all the lawsuits would be thrown out, Klein said after the hearing.

Evaluating Borrowers

Bank of America isn’t complying with obligations for evaluating borrowers and modifying loans, the plaintiffs said in court papers. Citing unidentified former employees as for some of its allegations, the complaint accuses the Charlotte, North Carolina-based bank of breaching HAMP requirements, misleading homeowners and putting processes in place to avoid modifying loans because it has financial incentives to do so.

“They have no rights?” Zobel asked Bank of America’s lawyer during the hearing, referring to homeowners. “How long can the bank decide whether or not to give it to them?” she said about loan modifications.

McGarry declined comment after the hearing about allegations in the complaint. Jumana Bauwens, a Bank of America spokesman, didn’t respond to an e-mail seeking comment.

“There’s more here than a simple breach of contract claim,” Klein told Zobel. “It goes to real malfeasance.”

A majority of the plaintiffs received trial modification plans, known as trial period plans, or TPPs, according to court papers the bank filed. Those are part of the application process and not enforceable contracts, the bank said. They also don’t guarantee a permanent modification unless many conditions are met.

Basic Eligibility Requirements

“Not one of the plaintiffs seeking to recover under the TPPs has alleged that he or she met the basic eligibility requirements and/or qualified for the offer of a permanent modification,” the bank said in court papers.

The plaintiffs say customer service workers regularly tell homeowners that modification documents weren’t received by the bank when in fact they were. The bank also encourages borrowers to default and fails to properly credit payments under trial modifications, treating homeowners as delinquent, according to the plaintiffs. One former employee who isn’t named recalled seeing homeowners’ financial records manipulated in the bank’s computer system, according to the complaint.

“BOA’s general practice and culture is to string homeowners along with no intention of providing actual and permanent modifications,” the complaint says. “Instead, BOA has put processes in place that are designed to foster delay, mislead homeowners and avoid modifying mortgage loans.”

The case is In re Bank of America Home Affordable Modification Program (HAMP) Contract Litigation, 10-md-02193, U.S. District Court, District of Massachusetts (Boston).

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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