Know Your Rights: Federal Appeals Court Rules That Lender Contractually Obligated to Offer Permanent Modification to Homeowner After Homeowner Fully Complied With Terms of Trial Peroid Plan

In a recent decision that could potentially impact every Oregon homeowner that is currently in or negotiating for a trial period loan modification (also known as a trial period plan or "TPP"), the 9th Circuit Federal Court of Appeals recently ruled that Wells Fargo was contractually obligated to offer a permanent loan modification to a homeowner after the homeowner fully complied with the terms of their HAMP trial period plan. In Corvello v. Wells Fargo Bank, the Ninth Circuit reversed a California district court’s dismissal of the plaintiff's breach of contract claims arising out of Wells Fargo's refusal to offer the plaintiff a permanent loan modification after the plaintiff made all of the required payments under the TPP. Wells Fargo (unsurprisingly) argued that the TPP was not a biding contract. However, the court rejected this argument and looked instead to the approach of the 7th Circuit Court of Appeals in Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir.2012). In Wigod, the court held that banks were “required to offer permanent modifications to borrowers who completed their obligations under the TPPs, unless the banks timely notified those borrowers that they did not qualify for a HAMP modification.”  Citing Wigod, the 9th Circuit reasoned that the bank’s assertion that a TPP was not a contract would allow it to “turn an otherwise straightforward offer into an illusion." In other words, big banks can't treat loan modifications like a carrot on a stick. They can't offer you a loan modification conditioned on a promise that you pay a certain amount of money over a certain period of time, then proceed to take your money, then refuse to offer you a permanent loan modification because, well, they just don't want to do it.

The law simply does not work that way. 

In her concurring opinion, Judge Noonan seemed to echo this sentiment and wrote:

Wells Fargo drafted this document, and Wells Fargo must be held responsible for it. The document promises a substantial benefit to Corvello if he meets its terms. The document then makes these benefits illusory because they depend entirely on the will of Wells Fargo. To say, “I give $100 for your watch but I will decide whether I pay you $100” is not to make a contract but to engage in a flim-flam or, in plain words, to work a fraud. You promise so that the other will perform. You reserve your promise so that the promise is empty while you have gotten what you wanted from the promisee. 

No purpose was served by the document Wells Fargo prepared except the fraudulent purpose of inducing Corvello to make the payments while the bank retained the option of modifying the loan or stiffing him. “Heads I win, tails you lose” is a fraudulent coin toss. Wells Fargo did no better.” 

Wow. Thank you Judge Noonan.

Folks...this is a really big deal. For years, big banks have offered struggling homeowners trial period plans only to pull the plug on a permanent modification for a litany of reasons. Courts are finally calling big banks to the carpet on this practice by adopting the same line of reasoning that foreclosure defense law firms like ours have been asserting for some time....a contract is a contract. If a bank offers you a TPP and promises that you will get a permanent modification if you comply with the perms of a trial plan, then that is a binding promise. 

Bottom line?

If you have been denied a permanent modification after successfully completing a TPP, you should contact us at (503) 846-0707 or visit our dedicated foreclosure defense website. The help you need might be just a telephone call away.