UPDATE 2-U.S. judge rejects BofA mortgage modification class action
Sept 5 (Reuters) - A lawsuit accusing Bank of America Corp 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 they were too different to justify allowing a single, nationwide lawsuit.
Wednesday's decision is a setback for homeowners accusing the second-largest U.S. bank of failing to comply with the Home Affordable Modification Program (HAMP), a 2009 government program that encouraged banks to help struggling borrowers keep their homes.
It also marks the latest fallout from a 2011 U.S. Supreme Court ruling involving Wal-Mart Stores Inc that made it harder to sue companies as a group. Class actions can result in larger recoveries and more far-reaching remedies at lower cost.
The 2010 lawsuit against Bank of America was led by 43 individuals and couples from 26 U.S. states who said the bank failed to help them obtain loan modifications to which they were entitled. They had sought to certify 26 classes, one per state.
Their case gained notoriety in June when several former bank employees made sworn statements, which the bank called false, accusing the bank of offering perks such as $500 bonuses and gift cards to Target Corp and Bed Bath & Beyond Inc to lie and to stall HAMP applications, because foreclosures or in-house loan modifications were more profitable.
"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 individual plaintiffs, 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."
"THE COURT GOT IT WRONG"
Steve Berman, a partner at Hagens Berman Sobol Shapiro representing the plaintiffs, in an email called Zobel's findings "a disappointing decision for tens of thousands of homeowners," and said an appeal is planned.
"We think the court got it wrong," he said.
Lawrence Grayson, a Bank of America spokesman, did not immediately respond to requests for comment.
Many of the Charlotte, North Carolina-based bank'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 housing crisis, but critics have called it ineffective.
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 called allegations that it gave incentives to workers to thwart HAMP modifications "demonstrably false," and were ignorant of the bank's actual practices and the "obvious administrative challenges" of complying with HAMP.
While admitting that "blitzes" did occur, Bank of America said they were done to find information to evaluate HAMP applications and help more homeowners qualify for the program.
Bank of America was among five companies in 2012 to reach a $25 billion settlement with regulators to address foreclosure abuses. The attorneys general of New York and Florida have since accused the bank 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.