Recent California Court of Appeals Decision Extends Duties Owed by Banks and Loan Servicers in Processing Loan Modifications
On August 7th, 2014, the California Court of Appeals for the First District, Division Three issued a published opinion in the matter of Arnulfo Alvarez v. Bac Home Loan Servicing, L.P. The Court held that loan servicing companies and banks owe borrowers a duty of care in servicing their loans. The decision also held that the duty of care extended to the processing of loan modifications. This decision is significant because it clearly reinforces that banks and servicing companies can be held responsible if they wrongfully deny a borrower for a loan modification based upon their negligence or failure to properly process a modification application.
Alvarez was a borrower that obtained a refinance mortgage loan in October 2005. The loan was a negative amortization adjustable rate loan and Alvarez claimed that the mortgage lender, that solicited him to take the loan, promised him that he would give him a better loan than the one he had. Alvarez alleged, that to his surprise, after he made the initial payments on the loan the principal balance owed did not get smaller but instead grew larger. Alvarez claimed that this fact was concealed from him and that he was a victim of fraud.
Alvarez also alleged that his bank undertook to review his loan for a HAMP loan modification but that his bank failed to exercise reasonable care in doing so. Specifically, Alvarez claimed that his bank: 1) failed to review the applications timely, 2) pursued foreclosure while the loan was being considered for a modification and 3) wrongfully rejected the modification because it was using incorrect information.
The claims assert by Alvarez are commonplace and his experience is the same that many homeowners face when dealing with their banks. It is not unusual for borrowers to experience incompetence and the mishandling of their loan modification applications and supporting documents. This fact was so well known that the California legislature enacted the California’s Homowner’s Bill of Rights (“HBOR”). The HBOR forbids banks from pursuing a foreclosure while the borrower is being considered for a loan modification and requires that a bank provide a single point of contact to handle loan modification communications and processing.
The Alvarez decision held that there is no common law duty for a bank to give a borrower a loan modification. However, in the event a bank agrees to consider a borrower for a loan modification, it owes the borrower a duty of care in doing so. In other words, a bank or servicing company may be guilty of negligence for their improper handling or misprocessing of a loan modification once they undertake to do so.
If you were harmed by a bank or loan servicer’s improper processing of your loan modification application, you may have a claim for damages. Likewise, if you are currently experiencing a bank or loan servicer’s failure to process your loan modification application properly, you should consult competent counsel to protect your rights. When it comes to real property, your home and a significant asset, you cannot afford to wait and see if the bank “gets it right.” The attorneys at the Piccuta Law Group, LLP have experience in dealing with claims against banks. Our attorneys know the law and can make sure your bank or loan servicer complies with it. If you were a victim of a bank or loan servicer’s incompetence, contact one of our attorneys today for a free consultation.