Minnesota court hamstrings foreclosure protection

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In response to the near collapse of the United States financial system, Congress passed the Emergency Economic Stabilization Act of 2008 (“EESA”). EESA authorized the creation of the Home Affordable Modification Program (“HAMP”) by the United States Department of Treasury. Essentially, this program is designed to help homeowners by providing them with mortgage modifications that would decrease their monthly payment, and possibly reduce or eliminate an amount in default.

Unfortunately, the program has been woefully ineffective, falling well short of its stated goals. While HAMP was expected to modify 3-4 million mortgages, only approximately one million mortgages have actually been modified as of June 2012. Meanwhile, the nonpartisan Government Accountability Office blames the mortgage companies for much of HAMP’s failure.

For the individual homeowner at risk of losing their home, HAMP works in a two-step process. The homeowner is first enrolled in a trial modification (assuming the homeowner qualifies.) Once the home-owner successfully completes the trial modification, they are to be enrolled in a permanent modification. This is how it is supposed to work. Unfortunately, many who complete the trial modification are never offered a permanent modification.

Plaintiffs’ attorneys across the country have been battling the foreclosure using a variety of techniques; attempting to enforce the Trial Modification Plan agreement was one among them. For a few years in Minnesota, hundreds of foreclosures were stopped by litigation asking courts to enforce the Trial Modification agreement. Meanwhile, many Minnesota Judges have received a crash-course in the HAMP program and the infamous Trial Modification Agreement.

In August, the Minnesota Court of Appeals finally weighed in on the subject in the case of Trautman v. JPMorgan Chase Bank et. al. (Full-dsclosure: I was one of the attorneys involved in the case). Legalese aside, the Court of Appeals has decided that once a homeowner signs and returns a Trial Modification Plan to the mortgage company and makes trial modification payments and submits to credit counseling at the behest of the mortgage company, the mortgage company can foreclose anyway as long as they never sent a signed agreement back to the homeowner.

Different states have taken different approaches with regard to the problem with Trial Modifications. Because homeowners in Minnesota can no longer challenge the efficacy of their HAMP trials, fewer modifications will result and more foreclosures will come to term.