Corvello v. Wells Fargo Bank

Under the Home Affordable Modification Program("HAMP"), when a mortgage servicer offers a Trial Pay Period ("TPP") to determine candidacy for a modified mortgage, they must notify the homeowner if they do not qualify, of if the homeowner complies with the TPP, the mortgage servicer must offer a modified mortgage.

Phillip Corvello and Karen and Jeffrey Lucia separately filed actions against Wells Fargo alleging Wells Fargo was in breach of an agreement to modify their individual mortgages. By way of background, the treasury department through the congressional authorized Troubled Asset Relief Program ("TARP") began offering Home Affordable Modification Program ("HAMP") to distressed homeowners through their mortgage servicers. Mortgage servicers, such as Wells-Fargo, would receive a monetary reward for every distressed mortgage they modified. The mortgage servicer would give the homeowner a Trial Pay Period ("TPP") to determine the level of modification required for the homeowner to retain their home. If the homeowner successfully completed the TPP then the mortgage servicer was required, through HAMP, to offer a mortgage modification; however, if the homeowner failed the TPP or did not qualify, the mortgage servicer was required to inform the homeowner and pursue other means of mortgage relief. Corvello and the Lucias were never offered mortgage modification despite each reaching an agreement with Wells-Fargo stating that if they complied with the TPP they would be offered a mortgage modification and would be notified if they did not satisfy the terms of the TPP. Wells Fargo, in both situations, defended their action saying that language within the contracts protected from offering HAMP relief despite the homeowners TPP compliance. The Ninth Circuit relied primarily on the Seventh Circuit's decision in Wigod v. Wells Fargo Bank, N.A. in holding Wells Fargo was required to send a notification that the homeowners qualified. In Wigod, the court ruled against Wells-Fargo because of similar contractual language where the mortgage servicer could avoid their HAMP obligations if they did not send the actual TPP contract; the court found that injustice could be prevented by requiring the mortgage servicer to communicate if the homeowner does not qualify for HAMP to avoid the homeowner from complying with the terms of the TPP when they do not otherwise qualify. The panel found the reasoning in Wigod to be persuasive and applied California contract law as well. The panel found that Wells-Fargo had a specific responsibility to notify the TPP applicant if they qualified and could not shield themselves from responsibility by simply not sending the applicant a completed copy of the TPP contract and/or failing to notify the homeowner that he does not qualify. REVERSED AND REMANDED.