Class Action Alleging Denial of Loan Modifications under HAMP (Home Affordable Modification Program) Violate Constitutional Right to Procedural Due Process Unlikely to Succeed on the Merits because Federal Regulations did not Create Property Right in Loan Modifications so Plaintiffs’ Request for Preliminary Injunction Denied Minnesota Federal Court Holds
Plaintiffs filed a putative class action against various defendants – including various banks and federal government agencies – seeking a preliminary injunction. Williams v. Geithner, ___F.Supp.2d ___ (D. Minn. November 9, 2009) [Slip Opn., at 1-2]. The allegations underlying the class action complaint concern the federal Home Affordable Modification Program (HAMP), which “is aimed to financially assist three to four million homeowners who have defaulted on their mortgages or who are in imminent risk of default by reducing monthly payments to sustainable levels.” Id., at 4. The federal government “defin[ed] the class of borrowers who are eligible for a loan modification” and, through HAMP, provides “financial incentives to participating mortgage servicers to modify the terms of eligible loans.” Id. (footnote omitted). (The district court opinion summarizes HAMP in detail. See id., at 4-7.) The gravamen of the class action is that plaintiffs became delinquent on their home loans and sought loan modifications under HAMP, but their requests were denied. They then filed this class action complaint, which alleges that denial of the loan modifications constitutes “a violation of their constitutional right to procedural due process.” Id., at 9. The class action purports to represent (1) “people who are delinquent on their mortgage payments, have applied for and been denied a loan modification, but whose loan servicers have not yet taken foreclosure action,” and “people who are delinquent on their mortgage payments, have applied for and been denied a loan modification, and whose homes have been sold at a foreclosure sale and whose statutory right of redemption period has not yet expired.” Id., at 8-9. Under plaintiffs’ theory, “Congress intended to provide a particular benefit to homeowners facing foreclosure, and, therefore, Defendants are required to provide that benefit in accordance with Plaintiffs’ constitutional rights. Specifically, Plaintiffs contend that Defendants’ failure to provide written notification of an adverse decision and an opportunity for appeal deprives them of due process of law in violation of the United States Constitution. Plaintiffs seek an injunction of all foreclosures by Defendants in Minnesota until the HAMP’s constitutional infirmities are resolved.” Id., at 9. Plaintiffs sought a preliminary injunction in furtherance of their claims, but the district court denied such relief.
In the Eighth Circuit, issuance of a preliminary injunction requires that the district court “balance four factors: (1) the likelihood of the movant’s success on the merits; (2) the threat of irreparable harm to the movant in the absence of relief; (3) the balance between the harm to the movant and the harm that the relief would cause to the other litigants; and (4) the public interest.” Williams, at 9 (citing Dataphase Systems, Inc. v. C L Systems, Inc., 640 F.2d 109, 114 (8th Cir. 1981)). The district court focused on the first test – the likelihood of success on the merits – and concluded that “the regulations at issue here did not intend to create a property interest in loan modifications for mortgages in default.” Id., at 11. We do not summarize the numerous grounds relied upon by the federal court in reaching this conclusion; they are set forth at pages 10 through 14. Central to the court’s reasoning, however, was its determination that loan modifications were not a “right” or an “entitlement,” see id., at 11-12, and that discretion existed in determining whether to grant such modifications,. see id., at 12-13. The district court therefore concluded at page 14, “Plaintiffs do not have a legitimate claim of entitlement to a loan modification. Thus, the HAMP does not provide Plaintiffs with a ‘protected property interest,’ the denial of which must comport with due process protections.” Accordingly, the court denied plaintiffs’ motion for preliminary injunction. Id., at 15.