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Noncompliance with HAMP Guidelines as an Affirmative Foreclosure Defense?

posted by Adam Levitin

To date, homeowners have not met with any real success in bringing suits alleging private rights of action under HAMP or, for that matter, alleging that denial of HAMP modifications is an a violation of their 5th Amendment due process rights. But it's one thing to bring an a suit offensively; it's another to raise an argument as a defense. (This is old hat to our lawyer readers, but I recognize that it isn't intuitive to non-lawyers that there are different standards regarding whether an argument can be raised offensively or defensively, with generally more lenient standards regarding defenses). 

Which brings me to the Indiana Court of Appeals' ruling in Lacy-McKinney v. Taylor, Bean & Whitaker Mortg. Corp., 937 N.E.2d 853, which was graciously brought to my attention by a Credit Slips reader. (I'm not able to reply individually to every email, but I do read them.)  The Indiana Court of Appeals held (citing a number of precedent rulings) that a compliance with servicing guidelines is a condition precedent to a foreclosure that can be raised as an affirmative defense.   

This raises an interesting question:  can a servicer's failure to comply with HAMP guidelines provide an affirmative defense to foreclosure?  

I have trouble seeing any principle that would distinguish HAMP guidelines (or GSE guidelines) from FHA guidelines. That is to say, if one accepts the principle that a failure for a servicer to follow servicing guidelines should be an affirmative defense, it really oughtn't matter whose guidelines those are, so long as the servicer is contractually bound to follow them.  Given that the homeowner is a third-party beneficiary with a much, much stronger interest in ensuring compliance with the servicing guidelines than any government agency or GSE, there is a logic to allowing a foreclosure defense of non-compliance with servicing guidelines.

Thoughts on this?  On HAMP litigation generally? Comments are open. 


Here is one list of judicial foreclosure decisions regarding whether failure to comply with HAMP may be asserted as a defense to foreclosure: http://www.nclc.org/issues/recent-trial-court-decisions-on-hamp-enforceability-as-foreclosure-defense.html.

Oops - remove the period at the end of the URL and it works.

Professor, would this not fall under an argument for promissory estoppel?

Couple of cases to examine in general -
U.S. Bank Natl. Assn. v Mathon (2010 NY Slip Op 52082(U))

"Defendants have appended a plethora of documents dating from April 30, 2010 through July 28, 2010 evidencing their application for a new modification (which appears to be a HAMP
modification identical to the one that Plaintiff had just rejected) as well as their cooperation
with the demands of Plaintiff regarding the same. Even so, while Defendants were
assiduously attempting to re-negotiate a modification, Plaintiff was instructing its counsel to continue prosecution of the foreclosure action. It is painfully obvious to this Court that Defendants relied upon representations made by Plaintiff and acted affirmatively based upon those representations, all to their serious detriment..."

Here, the Court has serious and grave concerns regarding Plaintiff's conduct in this matter, which appears to be rife with bad faith. This can be amply seen by the acceptance of
multiple payments following the three trial payments, the promise albeit unfulfilled of the
permanent modification and the verbal assurances that the modification had been approved
juxtaposed with the vague denial issued one year after the trial agreement, the spurious claims of non-cooperation by Defendants, the seeming offer of a "new" modification and the withdrawal of the motion for judgment in an apparent attempt to divest this Court of jurisdiction to deal with this Order To Show Cause."

Ultimately, "Huxtable" appears to have been abandoned, but the arguments and reasoning presented was interesting...
Case No. 09cv1846 BTM(NLS)

On [*2] September 21, 2009, Defendants National City Bank and PNC Financial Services Group, Inc.
(“Moving Defendants”) filed a motion to dismiss the Complaint for failure to state a claim. For the following reasons, the motion is DENIED.


Marques v. Wells Fargo Home Mortgage Inc. d/b/a America's Servicing Co.
Civil No. 09-cv-1985-L(RBB)


"Next, Defendant argues that the contracting parties could not have intended to give third
parties the right to sue because the Agreement gives the right to determine compliance to Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the right to enforcement in the event of default to Fannie Mae. The court disagrees..."

"That the Agreement does not expressly state that it was entered into for the borrowers’ benefit (see Agreement ¶ 11(E)) is not fatal to Plaintiff’s claim because the analysis of intended beneficiary status is not conditioned on such “formalistic recitals.”Astra, 588 F.3d at 1246 n.8.

Reading the Agreement in its entirety evinces a clear intent to directly benefit eligible borrowers.

The Agreement expressly provides, “Servicer shall perform the loan modification and other foreclosure prevention services (collectively, the ‘Services’) described in” other documentation, including Program Guidelines. (Agreement ¶1(A) (italicized emphasis added."

"Based on the foregoing, the Agreement unambiguously directs Defendant to modify loans, identifies criteria to determine which loans are eligible for modification, and specifies how to modify them. (Guidelines at 2-10, 16-17.) Other provisions explain in detail the compensation for Defendant, investors and borrowers under the Program, information keeping requirements, and other particulars. (Guidelines at 1-17; Financial Instrument ¶3 (information
keeping and reporting requirements).) Upon a fair reading of the Agreement in its entirety and
in the context of its enabling legislation, it is difficult to discern any substantial purpose other than to provide loan modification services to eligible borrowers. See Astra, 588 F.3d at 1246.

Defendant does not offer any other purpose for the Agreement. The Agreement on its face expresses a clear intent to directly benefit the eligible borrowers."

Here the HUD regs were written into the note; would HAMP regs be HUD regs such that they fit the terms of the note?

The Indiana case presents another interesting issue(s) as it relates the the myriad of purchase demands made by the GSEs and its effect on the borrower's loan after purchase or repurchase has been consumated.

As we all know our politicos in their "wisdom" bet the US Treasury on the GSE's MBSs. In exchange for this guarantee the GSE vendors and contractors, including servicers, must make represenatation and warranties ensuring the safety and soundness issues presented in the MBSs.

If the GSE's demand purchase at par as a result of the protections built into the GSE Business Model, is only the GSE protected and not the borrower?

Should the borrower be given a "Satisfaction of Mortgage" from the GSE?


As you point out, there is an excellent analogy between HAMP non-compliance as a defense and other loss mit regulations as a defense.

There are a few lines of pre-HAMP cases that allowed a borrower to raise the servicer's failure to abide by loss mitigation as an affirmative defense, usually in equity. Here are some cases where the plaintiff's failure to abide by pre-HAMP FHA loss mit guidelines gave plaintiff unclean hands:

Federal National Mortgage Association v. Moore, 609 F. Supp. 194 (1985)

Fleet Real Estate Funding Corp. v. Smith, 366 Pa. Super. 116, 530 A.2d 919 (1987)

Wells Fargo Home Mortgage, Inc. v. Neal, 398 Md. 705, 922 A.2d 538 (2007)

Here are other older-vintage cases outside the FHA loss mit context with similar outcomes:

Federal Land Bank v. Overboe, 404 N.W.2d 445 (1987) (equitable defense exists where plaintiff failed to follow loss mit guidelines set out by Farm Credit Act)

Prudential Ins. Co. of America v. Jackson, 270 N.J. Super. 510, 637 A.2d 573 (1994) (equitable defense exists where plaintiff failed to follow loss mit guidelines for VA loans)

In nearly all of these cases, the court found no private right of action, but allowed the borrower to raise servicer loss mit failures as an affirmative defense.

Here are some recent HAMP cases that hold that HAMP non-compliance gives rise to an affirmative defense that is independent of contract law or estoppel:

Wells Fargo Bank, NA v. Kendall (Linn County, Iowa, EQCV069052, May 4, 2010) (unclean hands defense surived summary judgment)

Wells Fargo Bank, NA v. Wright (Linn County, Iowa,
EQCV066090, Oct. 13, 2010) (unclean hands defense surived summary judgment)

BAC v. Olson (Linn County, Iowa, EQVC068952, August 30, 2010) (unclean hands defense surived summary judgment)

Here are cases where HAMP non-compliance was successfully raised as a defense, but it is unclear to me whether the defense sounded in equity or at law:

Wells Fargo Bank, NA v. Michaels (Jackson County, Iowa, EQCV026737, Oct. 13, 2010) (unelaborated HAMP-defense surived summary judgment despite denial of third-party beneficiary claim)

BAC v. Bates (Butler County, Ohio, CV 2009 06 2801) (borrower raised HAMP defense in equity and at law, summary judgment denied)

Deutsche Bank National Trust Co. v. Hass (Macomb County, Michigan, 2009-2627-AV) (HAMP survived as affirmative defense to eviction)

It seems to me that although courts usually deny the contract-based defenses of borrowers, they allow the equitable defenses in judicious baby-splitting fashion.

The HAMP decisions are probably difficult to locate. I have them on file if interested.

The tenor of these comments leads me to believe that most contributors are speaking from an academic,or philosophical viewpoint. Without really knowing what is taking place here. While the parallel foreclosure holocaust, previously called a manufactured default,is charging ahead in 98% of the so-called HAMP modifications, the regulatory agencies'(and DOJ and state AGs)silence on the matter is deafening. I would assume that everyone posting here, or reading here, knows in their gut that; regarding foreclosures, there are no trusts holding notes, that MERS is a sham/scam/ponzi scheme, that all the assignments of mortgage just prior to, and in many cases after the NOD, are illegal in the eyes of both NY trust law (and thereby the PSAs)and the IRS, and of course, our pathetic SEC. By violation of the IRS-mandated REMIC rules, the "investors" of said MBS and their derivative-based income streams are in fatal violation of IRS rules and will therefore need to relinquish approx. 12 years of gains at a tax penalty of 100%. And,of course, those "investors" would be cities,counties,states,pension funds,unions,401Ks,IRAs etc. So here's a New Year's toast to the TBTF banks charging off non-existent losses, taking Fed and Treasury handouts,paying it out in bonuses,lying about it all with impunity, knowing that they will never be held responsible, and laughing all the way to the offshore bank. And that's the way it is.

I concur with Ian regarding Parallel Foreclosure HOLOCAUST.

Read my article, The U.S. Government may be using HAMP to swindle homeowners out of their homes.


Which brings me to another point. What do we make of a president who hires wall street mavens to be in his inner circle, yet creates the Consumer Protection Financial Agency as well.

Is this the ultimate con job? Give both sides what they want so nobody has the heart to impeach our president over HAMP?

When the US Government guaranteed the GSEs MBSs, was adherence to the GSE "Guides" a condition prescedent to foreclosure?

Best quote yet:

Those criticizing BofA’s settlement, which has been described as a “gift” and a “backdoor bailout,” included California Rep. Maxine Waters (D-L.A.).

“I’m concerned that the settlement between Fannie Mae, Freddie Mac and Bank of America over misrepresentations in the mortgages BofA originated may amount to a backdoor bailout that props up the bank at the expense of taxpayers,” Waters said in a statement Jan 4. “Given the strong repurchase rights built into Fannie Mae and Freddie Mac’s contracts with banks, and the recent court setback for Bank of America in similar litigation with a private insurer, I’m fearful that this settlement may have been both premature and a giveaway.”

If Joseph Sant reads this, I would be interested in copies of the HAMP cases. sm.rutigliano@gmail.com Thanks.

Mr. Sant: I am also be interested in copies of the HAMP cases if you don't mind. Thank you. patterson.rebstock@gmail.com

Mr. Sant,

We are in the middle of a HAMP nightmare that has been going on for almost 2 years. I'm sure numerous violations have occured. I may have to answer this pro se' or legal aid. If you could share the HAMP cases it would be greatly appreciated...


thanks, Todd.

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