The 9^th District U.S. Court of Appeals in San Francisco may have opened the door for a rash of lawsuits by homeowners who were not offered the permanent mortgage modifications they felt they had qualified for under the Home Affordable Modification Program (HAMP.) The three-judge panel ruled that HAMP requires participating banks to offer the permanent modifications to homeowners who have met the terms of a required trial modification period.

Two separate lawsuits, Corvello v. Wells Fargo Bank NA, 11-16234 and Lucia v. Wells Fargo Bank were brought to the court on appeal last March after a lower court had dismissed the suits on the grounds the homeowners failed to state a claim for breach of contract and unfair debt collection practices. Plaintiffs had accused the bank of offering temporary loan modifications without the intention of making them permanent

In arguing the case, attorney's for both plaintiffs relied on an earlier appellate court ruling, Wigod v. Wells Fargo, which ruled that, if trial period plan conditions are met, the loan servicer must offer a permanent loan modification. Corvello's attorney argued on appeal that her client had fulfilled his obligations under the trial period requirements and had qualified for a permanent loan modification but that the bank, which had agreed to let Corvello know within 30 days of his written application for a permanent modification if he did not qualify instead let him make two subsequent mortgage payments which they kept but did not give him the modification nor respond within the 30 days. In the earlier case Wells Fargo signaled to the borrower that they qualified, the attorney said. Here they didn't respond within 30 days as required which therefore communicated that the borrower was OK.

The second plaintiff, Karen and Jeffrey Lucia, claimed to have complied with the terms of an oral plan. They later lost their home to foreclosure.

Wells Fargo had argued that it was only bound if it had actually offered the borrowers a fully executed copy of the permanent modification. Its attorney said the lower courts dismissal "required common sense." "Borrowers can't be offered modifications if they don't qualify," she said. According to Bloomberg the panel specifically rejected that claim, saying the terms of the trial period plan "cannot convert a purported agreement setting forth clear obligations into a decision left to the unfettered discretion of the loan servicer." One judge said allegedly commented, "The program (HAMP) seems to have created more litigation than it has happy homeowners."

As of June servicers working under the HAMP program have initiated 2.03 million trial modifications and converted 1.19 million of those to permanent status. There is no information publicly available as to how many borrowers may have successfully completed the trial modification period but did not receive permanent modifications at the option of the servicer.