Challenge to Failure to Modify Mortgages Under Federal Home Affordable Modification Program

Edwards v. Aurora Loan Services, LLC, 09 Civ. 2100 (HHK) (D.D.C.)

Background: In the past year, the United States has faced a devastating economic crisis. As a result of the economic downturn, many homeowners have lost their homes or are at imminent risk of foreclosure. The Obama Administration launched the federal Home Affordable Modification Program (“HAMP”) to stem the escalating tide of home foreclosures with its ruinous effects on families and their communities. HAMP’s purpose is to provide eligible homeowners with permanent loan modifications on terms they can afford, to avoid foreclosure of their homes. The plaintiffs in this class action challenge the failure of a loan servicing company, Aurora Loan Services to fulfill, to fulfill its obligations under HAMP, and the failure of responsible officials in the United States Department of the Treasury and Fannie Mae to implement policies and procedures necessary to protect the procedural due process rights of borrowers.

Nature of Claims: On behalf of themselves and other borrowers in New York State, plaintiffs allege that Aurora has breached its HAMP contract with Fannie Mae by (a) wrongfully denying plaintiffs access to the benefits of HAMP by refusing to evaluate their non-GSE loans for modification; (b) instituting, failing to suspend, or threatening to institute foreclosure proceedings against certain plaintiffs who asked to be considered under HAMP; and (c) offering some plaintiffs forbearance agreements that violate the HAMP program guidelines by not lowering Plaintiffs’ monthly payments, requiring Plaintiffs to waive substantial legal rights, and not guaranteeing a modification even if the plaintiff fully complies with the terms of the forbearance agreement.

The plaintiffs allege that officials at Treasury and Fannie Mae have adopted and implemented procedures for the HAMP program that have been inadequate to protect the due process rights of borrowers. Until a recent supplemental directive, which will take effect January 1, 2010, the HAMP procedures have failed to require that homeowners be notified by their Participating Servicer in writing of the reasons for a denial of their loan modification with sufficient detail to challenge an erroneous determination. Officials at Treasury and Fannie Mae have made no provision to protect homeowners who were harmed by the inadequate procedures currently in place. Additionally, the HAMP procedures continue to provide no viable process to obtain review of the denial of a loan modification before an impartial decision-maker

Current Status: The complaint was filed on November 9, 2009. On January 25, 2010, the defendants filed motions to dismiss the complaint. Responding papers are due on February 25, 2010.

No. Persons Affected: Aurora services over 500,000 loans nationwide, thousands of which were made to borrowers in New York State.

Reported Decisions: None.