Bank of America's (BAC) persistent failure to modify home loans has resulted in the inevitable: a consumer class action.

Last week, Susan Fraser of Missouri filed suit on behalf of herself and all similarly situated Missouri homeowners: People who Bank of America failed to give permanent loan modifications to, even though the homeowners were qualified. Fraser's story, detailed on pages 20 through 24 of the complaint, includes all the features now common in modification horror stories.

As of publication, BofA had not returned a request for comment on the suit.

UPDATE: Shortly after publication of this article, BofA replied via email to DailyFinance's request for comment: "Given that we have just become aware of this lawsuit, we don't have a comment on it. Generally, Bank of America has helped 746,000 customers achieve more affordable and sustainable payments through modified loans since January 2008, and more than a quarter million modifications have been completed by Bank of America so far this year."

Bank Told Her to Default

According to the complaint, Fraser reached out to BofA while she was still current on her mortgage, but falling behind seemed inevitable. Her employer was doing poorly in the recession, and her income was down sharply. Her son had been diagnosed with cancer, triggering unexpected financial costs. Finally, she had recently divorced, increasing her costs of living. But since she was still current on her mortgage, BofA told her to default and then ask for a modification.

According to the complaint, she skipped two payments and then resumed paying her mortgage. Fraser was told she qualified for a modification, but never received the paperwork for one. For the next several months, Fraser called BofA and got nowhere. Instead, she began to received default and foreclosure notices. Six months after seeking the modification and being told to by the bank to default, a BofA rep told Fraser that nothing had been done with her file to get her a modification. Shortly thereafter, she received notice that foreclosure was imminent.

According to the complaint, a few weeks after that, she got a trial modification agreement, which she signed and returned. Over the next year, she consistently made the modified payments, but continued to receive disturbing notices from BofA saying she was in default, and reflecting her original payment amount. Each time she asked, BofA told her to make the modified payments and ignore the notices. Eventually, she was told she would have to execute a new trial agreement, which she did and has complied with. BofA still has not made the trial modification permanent, however.

The Class Claims

The lawsuit charges that Bank of America has "serially strung out, delayed and otherwise hindered the modification processes" and has "left thousands of borrowers in a state of limbo -- often worse off than they were before they sought the modification." The complaint accuses BofA of having "put processes in place that are designed to foster delay, mislead homeowners and avoid modifying mortgage loans." For example, the suit says BofA commonly encourages or requires borrowers to resubmit financial information every time they call to ask about the modification's status, and any changes in that information, even small ones, trigger BofA to "restart the application process."

The suit claims BofA teaches its customer service representatives to lie to the customers. BofA allegedly instructs its representatives to tell borrowers that documentation was late or not received, even when it was received in a timely manner, and to say documents were sent to borrowers when they weren't. BofA also allegedly fails to update its computer system to reflect the modifications, so that loans are treated as delinquent and foreclosures pursued when they shouldn't be.

One tactic, says the lawsuit, is to apply the modified payments to accumulated fees, so that the remaining payment is deemed "insufficient," and to otherwise misaccount for the payments so that homeowners making timely modification payments are treated as if they continue to be delinquent.

Claims Align With Anecdotes

Other anecdotes beyond Fraser's suggest that these claims aren't baseless. As I've reported, one judge was so frustrated with Bank of America's failure to permanently modify a mortgage in Vermont that he ordered BofA to do it. That case showed how poor BofA's loan data is: An email from the bank's attorneys supposedly about the homeowner's trial modification history was wrong in every detail.

Countless stories beyond my reporting detail homeowners unable to get straight answers from their banks, including BofA -- stories of having to repeatedly resubmit paperwork, and of homeowners being foreclosed on despite being current with their modified loan payments.

Challenging Legal Road

Even if every claim against BofA is true -- and they essentially boil down to BofA intentionally pretending to be willing to modify mortgages in order to milk thousands of additional dollars from struggling homeowners before foreclosing on them as it had always intended to do -- Fraser and the others won't get anything unless the bank's behavior violates the law.

One legal basis asserted by Fraser for the suit is BofA's violation of the terms of its contract with the Treasury Department to do HAMP modifications. Because Fraser and other homeowners weren't signatories of that contract, the only way they can sue to enforce it is if the judge decides the contract is specifically for their benefit. A California judge has already made a similar ruling, as colorfully discussed on the blog MandelmanMatters, but that doesn't mean every judge will see things the same way.

Plaintiffs also point to the trial modification agreements and claim BofA's conduct violates those contracts. Presumably, that's an easier case to make, but if it was so easy, I'm not sure that plaintiffs would offer two theories of how the contract formed -- which they do.

Finally, the plaintiffs make a variety of common law and state law claims. Perhaps those will be straightforward to prove.

In any case, filing this complaint is just the start of a long road. Surely BofA will try to get the suit dismissed. If that succeeds, and plaintiffs see a path forward, surely they will refile. If they survive the next motion to dismiss, BofA will respond to the complaint, then seek another dismissal, and so on and so on for years.

A Revolution in the Making?


The plaintiffs are, of course, asking for monetary damages but also for the judge to order changes to BofA's practices that would revolutionize the loan modification process. Should that occur, it would be much more likely that homeowners could modify their loans, stay in their houses and protect neighborhoods and states from an even higher toll of mass foreclosures.

If only it didn't require a revolution to make BofA comply with its own trial modification agreements and the federally mandated terms of the HAMP program.



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