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On July 28, 2009, two Minnesota homeowners sued the government alleging that the administration of the federal foreclosure prevention and loan modification program violated their procedural due process rights.  Specifically, the Home Affordable Modification Program did not require the government to provide written notice of the specific reasons for a denial and notice of a right to appeal, a uniform procedure for appealing an adverse decision, and a method to undo a foreclosure that was done in violation of program guidelines or otherwise unlawful.

HAMP is part of a $50 to $75 billion government effort to prevent foreclosures.  In administering this large government program, HAMP needs transparency and accountability.  The lawsuit was a class action on behalf of all Minnesota homeowners who are eligible for HAMP and have similarly been denied due process.  It is modeled after a series of successful lawsuits in the early 1980s, in which farmers obtained a moratorium until the government promulgated adequate rules and regulations related to its farm foreclosure prevention program.

On November 9, 2009, Judge Ann D. Montgomery refused to enjoin foreclosures in Minnesota and dismissed a lawsuit filed by a group of homeowners.  The lawsuit alleged that the government’s loan modification program violated procedural due process, failing to require mortgage loan servicers to provide a meaningful notice and an opportunity to correct errors when homeowners were denied access to the government program.

When the lawsuit was originally filed on July 28, 2009 there were little, if any, procedural protections for homeowners.  A month after filing the lawsuit, the Treasury Department issued a guideline requiring denial data to be collected by servicers.  On October 8, 2009, the Treasury Department required servicers to provide a written notice of denial to a homeowner within ten days.  Then, on November 3, 2009, the Treasury Department required that servicers stop foreclosure when a homeowner challenges the denial and also required specific denial information to be provided to homeowners, including some of the data used to determine whether a modification was sustainable and in the best interest of the government, borrower, and lender.

“Significant progress was made, but problems remain,” Mark Ireland, attorney for the plaintiffs, said.  “Nothing is helping the thousands of people who slipped through the cracks.  Homeowners are still not told the value of their house that servicers are using when deciding whether to modify a loan.  The specific formula the government and servicers are using to make the determination remains a secret, and much of the appeal process remains unclear, at best.”

Documents Related To The Lawsuit

General Accountability Office Report, Treasury Actions Needed to Make the Home Affordable Modification Program More Transparent and Accountable (July 2009)

HAMP Supplemental Directive 09-01 (April 6, 2009)

Senator Dodd Letter to Treasury Secretary Expressing Concerns About the Administration of HAMP