Bank of America Loses Bid to Dismiss Homeowner Mortgage-Modification Suit

Bank of America Corp. (BAC) must face claims from homeowners who accuse the biggest U.S. bank of failing to honor agreements for modifying their mortgage loans, a federal judge ruled.

Homeowners who say they met requirements for permanent modifications under contracts with the bank can proceed with their cases, according a decision filed today by U.S. District Judge Rya Zobel in Boston. Zobel dismissed some claims against the bank.

“The complaint meticulously details each plaintiff’s initial and ongoing compliance with all conditions,” Zobel wrote.

The complaint consolidates 26 cases originating in 19 states that were transferred to federal court in Boston, according to Zobel’s decision. The homeowners sought loan modifications from Bank of America under the federal government’s Home Affordable Modification Program, which is aimed to lower payments for borrowers and help them avoid foreclosure.

“BOA’s general practice and culture is to string homeowners along with no intention of providing actual and permanent modifications,” according to the complaint.

Bank of America sought to dismiss the complaint. Shirley Norton, a bank spokeswoman, said in an e-mail that the bank is pleased that four of eight counts in the complaints were dismissed.

‘Second Chance’

“The decision will give hundreds of thousands of families a second chance at permanently lower mortgage payments,” Gary Klein, a lawyer for the homeowners, said in an interview.

The complaint separated homeowners into two groups. One covered homeowners with loans serviced by Bank of America who didn’t get temporary modifications, known as trial period plans, which can lead to permanent modifications. Zobel dismissed their claims, saying they lacked standing.

The second group covers those who obtained trial plans and were entitled to permanent modifications at the end of the three- or four-month period, Klein said. Under the trial agreements, Bank of America is required to offer permanent modifications to borrowers who adhere to the terms, according to the complaint.

“The decision can also be used by families who have lost their homes even though they were entitled to mortgage- modification agreements,” Klein said.

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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