Tuesday, December 28, 2010

Federal Cases Citing the HAMP and an Illinois Judge's Power to Stay Foreclosure Proceedings

*** As an introductory note, the information below was drafted by me for work. I have removed all identifying information to maintain confidentiality. The memo below covers the effect of legislation passed in Illinois in July 2010 that closes the loop hole that the HAMP created. Please note that no Illinois cases dealing with the HAMP were cited because at the time this was drafted, I could not find any. Enjoy!

Federal Cases Citing the HAMP and an Illinois Judge’s Power to Stay Foreclosure Proceedings

You have asked me to find federal cases that specifically cite the Home Affordable Modification Program (HAMP) and to determine whether a judge has the power to stay foreclosure proceedings while a mortgagor is in the process of loan modification. I have reviewed case law in California and Florida, and have consulted the Illinois Compiled Statutes.

In the case of Phu Van Nguyen v. Bac Home Loan Servs., L.P., 2010 U.S. Dist. Lexis 105704 (N.D. Cal., Oct. 1, 2010), the judge cited the HAMP and laid out what qualifies an individual for the program in detail. Id. at 6. The plaintiff in Phu Van Nguyen alleged that the mortgagee had breached its implied covenant of good faith by not notifying the plaintiff of the plaintiff’s HAMP eligibilities or HAMP guidelines. Id. at 11-12. The court went on to say that, “…numerous courts have considered claims…and concluded that mortgage loan borrowers do not have standing as ‘intended beneficiaries’ of HAMP [Servicer Participation Agreement, or] SPAs.” Id. at 13, citing Escobedo v. Countrywide, 2009 WL 4981618 (S.D. Cal. Dec. 15, 2009) at 3. The Escobedo court went on to say that, "…a qualified borrower would not be reasonable in relying on the [HAMP] Agreement as manifesting an intention to confer a right on him or her because the [HAMP] Agreement does not [mandate] that a [loan servicer] modify eligible loans." Escobedo, 2009 WL at 3. What this means for the client is that he has no guaranteed protection under the HAMP and is not guaranteed a loan modification under HAMP, so the bank can proceed with the foreclosure if it wishes.

Florida federal courts have ruled similarly. For example, in Zoher v. Chase Home Fin., 2010 U.S. Dist. Lexis 109936 (S.D. Flo., Oct. 15, 2010), where the court found that, “[t]he purpose of the program is to delay or avoid foreclosures by offering incentives to servicers to modify home loans…” and that,” [f]inding an implied private right of action for mortgagors would discourage servicers from participating in the program because they would be exposed to significant litigation expenses.” Id, at 9 -10. Under Florida precedent, the client has no redress available to him under federal law if Countrywide does not approve his loan modification.

Turning to Illinois law, a client may have relief under 735 ILCS 5/15-1508(d-5), effective as of July 23, 2010, which provides in pertinent part that, “ …the court that entered the judgment shall set aside a sale … upon motion of the mortgagor at any time prior to the confirmation of the sale, if the mortgagor proves by a preponderance of the evidence that (i) the mortgagor has applied for assistance under the Making Home Affordable Program … and (ii) the mortgaged real estate was sold in material violation of the program's requirements for proceeding to a judicial sale.” What this means for the client is that if the bank does go through with the foreclosure proceeding to where the judge orders a judicial sale, the client can go back to court and stop the sale from going through.

While a judge does not specifically have the power to stay a foreclosure proceeding, the client may file a Motion to Stay Judicial Sale, but he must be in the process of refinancing his home with a loan modification that will cover the existing mortgage and costs and be able to provide sufficient proof when the judge orders a judicial sale. In the end, the client will most likely have to continue with the foreclosure proceeding before he can take action to prevent the sale of his home.

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