SEATTLE, WA - Washington homeowners today sued Bank of America (NYSE: BAC) claiming the lending giant is intentionally withholding government funds intended to save homeowners from foreclosure, say attorneys with Hagens Berman Sobol Shapiro. The case, filed in U.S. District Court, claims that Bank of America systematically slows or thwarts Washington homeowners' access to Troubled Asset Relief Program (TARP) funds by ignoring homeowners' requests to make reasonable mortgage adjustments or other alternative solutions that would prevent homes from being foreclosed.
Source: Hagens Berman Sobol Shapiro
"We intend to show that Bank of America is acting contrary to the intent and spirit of the TARP program, and is doing so out of financial self interest," said Steve Berman, managing partner of Hagens Berman Sobol Shapiro.
Bank of America accepted $25 billion in government bailout money financed by taxpayer dollars earmarked to help struggling homeowners avoid foreclosure. One in eight mortgages in the United State is currently in foreclosure or default.
Bank of America, like other TARP-funded financial institutions, is obligated to offer alternatives to foreclosure and permanently reduce mortgage payments for eligible borrowers struck by financial hardship but, according to the lawsuit, hasn't lived up to its obligation.
According to the U.S. Treasury Department, Bank of America services more than 1 million mortgages that qualify for financial relief, but have granted only 12,761 of them permanent modification.
"We contend that Bank of America has made an affirmative decision to slow the loan modification process for reasons that are solely in the bank's financial interests," Berman said.
The complaint notes that part of Bank of America's income is based on loans it services for other investors, fees that will drop as loan modifications are approved. The complaint also notes that Bank of America would need to repurchase loans it services but has sold to other investors before it could make modifications, a cumbersome process.
According to the TARP regulations, banks must gather information from the homeowner, and offer a revised three-month payment plan for the borrower. If the homeowner makes all three payments under the trial plan, and provides the necessary documentation, the lender must offer a permanent modification.
Named plaintiffs and Seattle residents Kamie and Daniel Kahlo contacted Bank of America last year asking to make new arrangements to reduce their monthly loan payments.
According to the complaint, Bank of America told the Kahlos they would not qualify for a home-loan modification unless they were delinquent on payments. Following the bank's direction, the family let payments lapse to meet the bank's requirement. Soon after, they asked Bank of America for a loan modification, providing all necessary documentation requested by the lender.
The suit charges the bank, in turn, issued new terms and conditions to Kahlo's home loan agreement, which the couple honored. Several mortgage payments later the Seattle couple discovered the bank failed to make permanent modifications to their home loan as promised. The Kahlo family also paid an upfront fee of $1,400 to modify their home loan as required by Bank of America. Such fees are prohibited under federal regulations of the Home Assistance Modification Program (HAMP).
"Bank of America came up with every excuse to defer the Kahlo family from a home loan modification, from stating they 'lost' their paperwork to saying they never approved the new terms of the mortgage agreement," said Berman. "And we know from our investigation this isn't an isolated incident."
Bank of America continues to ignore TARP regulations and instead creates more financial pressure on homeowners, the court filing states.
The lawsuit charges that Bank of America intentionally postpones homeowners' requests to modify mortgages, depriving borrowers of federal bailout funds that could save them from foreclosure. The bank ends up reaping the financial benefits provided by taxpayer dollars financing TARP-funds and also collects higher fees and interest rates associated with stressed home loans.