A lawsuit accusing Bank of America Corp (BAC.N) of reneging on promises to help distressed homeowners modify their mortgage loans, and instead driving them into foreclosure, cannot proceed as a class action, a federal judge has ruled.
While expressing sympathy for borrowers facing a "Kafkaesque bureaucracy" and saying their claims "may well be meritorious," U.S. District Judge Rya Zobel in Boston said the claims were too different to justify allowing a single, nationwide lawsuit.
Wednesday's decision is a blow for homeowners accusing the second-largest U.S. bank of failing to comply with the Home Affordable Modification Program (HAMP), a 2009 federal program that gives incentives to mortgage servicers to encourage loan modifications and help people keep their homes.
It also marks the latest fallout from a 2011 U.S. Supreme Court ruling involving Wal-Mart Stores Inc (WMT.N) that has made it harder to sue companies as a group. Class actions can lead to larger recoveries and more far-reaching remedies at lower cost.
"It's a sad outcome for many thousands of homeowners trying to obtain loan modifications," said Gary Klein, a partner at Klein Kavanagh Costello, representing the plaintiffs. "Very, very few of them will be able to pursue these issues on their own. Their one hope for justice was through the class mechanism."
Forty-three individuals and couples from 26 U.S. states accused Bank of America in the three-year-old lawsuit of failing to help them obtain loan modifications to which they were entitled. They had sought to certify 26 classes, one per state.
'VAST FRUSTRATION' OF HOMEOWNERS
The case gained notoriety in June when several former employees, in sworn statements the bank called "demonstrably false," accused the bank of offering $500 bonuses and gift cards to Target Corp (TGT.N) and Bed Bath & Beyond Inc (BBBY.O) to lie and to stall HAMP applications, because foreclosures or in-house loan modifications were more profitable.
One former employee also said the bank would twice a month conduct a "blitz" to clear out hundreds of files from its HAMP backlog solely because the documents were more than 60 days old, even if all required documents were submitted. Bank of America said "blitzes" were used to find documentation for applications.
"This case demonstrates the vast frustration that many Americans have felt over the mismanagement of the HAMP modification process," Zobel wrote. "Plaintiffs have plausibly alleged that Bank of America utterly failed to administer its HAMP modifications in a timely and efficient way; that in many cases it lost documents, or pretended it had not received them, or arbitrarily denied permanent modifications."
Still, Zobel said class certification was improper because of a "nearly endless series of individual questions" affecting the various borrowers, amid a "Kafkaesque bureaucracy that decided which documents were required of which borrowers."
She said these questions included whether borrowers provided accurate documentation to verify their incomes, lived in their homes as their principal residences, obtained credit counseling, made trial payments on time, "and so on, and so on, and so on."
Steve Berman, a partner at Hagens Berman Sobol Shapiro also representing the plaintiffs, said an appeal is planned.
"We think the court got it wrong," he said.
Bank of America spokesman Rick Simon said: "We respect the court's decision. We have successfully completed more HAMP modifications than any other servicer and will continue to improve delivery of this and other programs to support our customers in need of assistance."
The bank has under HAMP completed 227,000 permanent loan modifications through July, Simon added.
DAMAGES TO ANSWER FOR
Danielle Kelley, a Tallahassee, Florida, lawyer representing mortgage borrowers, said other judges might still prove receptive to claims by individual borrowers.
"Borrowers have been told they would get a modification if they did certain things, mailed and faxed documents, made trial payments," she said. "So there are damages that the banks will have to answer for."
Many of Charlotte, North Carolina-based Bank of America's mortgage problems stem from its 2008 purchase of Countrywide Financial Corp, once the largest U.S. mortgage lender.
That purchase cost just $2.5 billion, but has saddled Bank of America with tens of billions of dollars of costs for litigation, loan buybacks and other mortgage expenses.
HAMP was part of the Obama administration effort to address the nation's housing crisis.
Through June, just over 1.2 million borrowers had received permanent loan modifications, according to the Treasury Department, below the original goal of 3 million to 4 million.
Bank of America was among five companies in 2012 to reach a $25 billion settlement with regulators to address foreclosure abuses. Attorneys general of New York and Florida have since accused Bank of America of violating terms of that settlement.
The case is In re: Bank of America Home Affordable Modification Program (HAMP) Contract Litigation, U.S. District Court, District of Massachusetts, No. 10-md-02193.