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There's No Private Right of Action Under HAMP

By Robyn Hagan Cain on April 20, 2012 | Last updated on March 21, 2019

It’s okay for a borrower to whine and complain if a bank denies his request for a mortgage loan modification, but doesn't mean that he has a claim that can withstand a 12(b)(6) motion.

This week, the Eleventh Circuit Court of Appeals ruled that the federal Home Affordable Modification Program (HAMP) does not give a homeowner a private cause of action against a bank.

A HAMP mortgage loan modification can limit monthly mortgage payments to less than one-third of an eligible borrower's monthly pre-tax income. HAMP eligibility is limited to those with a balance of less than $730,000 on a primary residence who can demonstrate financial hardship and other factors.

In February 2009, Jason Miller requested a mortgage loan modification from Chase on a parcel of real property in Hiawassee, Ga, citing financial difficulties. Chase agreed to temporarily modify the terms of Miller's loan agreement, but in August 2010, Chase notified Miller that it would not extend a permanent loan modification to him.

Miller sued, alleging that Chase failed to comply with its obligations under HAMP by declining to issue him a permanent loan modification. According to Miller, Chase's failure gave rise to claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and promissory estoppel.

The district court granted Chase's 12(b)(6) motion and dismissed Miller's complaint, finding that HAMP does not provide a private cause of action.

The Eleventh Circuit Court of Appeals affirmed dismissal, noting that HAMP provides neither an express nor an implied right of action for borrowers against loan servicers.

The court further concluded that the following factors disfavored the implied right of action:

  • There was no discernible legislative intent to create a private right of action under HAMP.
  • Providing a private right of action against mortgage servicers would contravene the purpose of HAMP -- to encourage servicers to modify loans -- because it would likely chill servicer participation based on fear of exposure to litigation.
  • Contract and real property law are traditionally the domain of state law.

Because none of the relevant factors supported the implied right of action, the Eleventh Circuit Court of Appeals held that that no such right exists.

We get it. The real estate market is volatile and property owners become upset when financial institutions don't help them, but a lawsuit isn't necessarily the answer. If you have a prospective client who wants to challenge a bank's decision to deny a permanent loan modification, you'll have to be creative; the Eleventh Circuit does not recognize a private right of action under HAMP.

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