New York City homeowners have filed a class action lawsuit alleging that Aurora Loan Servicing has systematically breached its contract with Fannie Mae to receive subsidies in return for modifying mortgages under the Home Affordable modification program (HAMP). The lawsuit raises a number of interesting legal questions, including whether homeowners can sue as intended third-party beneficiaries of the contracts between Fannie and mortgage servicers, and how to apply contracts that call for one party, the U.S. government, to modify and add terms by directives (i.e. by fiat.) The complaint also alleges that homeowners have a sufficient property interest in HAMP assistance to require servicers, Treasury and Fannie Mae to provide due process before denying assistance.
A preliminary injunction was denied in a similar lawsuit filed in July in Minnesota, on the basis that plaintiffs were not likely to prevail on the merits, because the court found that HAMP did not create protected property interests. These will be interesting cases to watch.
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