The Tenth Circuit Court of Appeals has reversed a Colorado federal court’s dismissal of class claims against Bank of America Corp. (BofA) and others involving the federal Home Affordable Modification Program (HAMP). The appeals court found that homeowners sufficiently proved a possible Racketeer Influenced and Corrupt Organization (RICO) Act enterprise. A three-judge panel disagreed with the lower court’s finding that the homeowners did not sufficiently plead a case for their RICO claims against BofA and Urban Settlement Services or for their promissory estoppel claim against BofA. The homeowners had alleged that the two companies teamed up to fraudulently deny HAMP loan modifications to qualified homeowners and specifically that the bank had broken written promises to do so.

As a recipient of Troubled Asset Relief Program (TARP) funds from the U.S. Department of the Treasury, BofA was required to participate in HAMP and follow guidelines that it collect financial information from at-risk borrowers, evaluate their eligibility for HAMP modifications, allow them to show they can make lower monthly payments then permanently modify loans for qualified borrowers.

The four named Plaintiffs, each of which had a mortgage through BofA and applied for a HAMP modification, sued the companies in July 2013, saying they formed a RICO enterprise with the common goal of denying HAMP modifications to qualified homeowners. The companies furthered the scheme by saying they received no application documents when they did and by misleading borrowers about their applications’ status, the court said. BofA argued that the alleged RICO enterprise was only its own employees and that the homeowners never said the bank conducted any affairs other than those of the bank itself, thus rendering it not a RICO enterprise.

The homeowners claimed that BofA and Urban, two separate entities, joined together and with others to form the alleged enterprise. Then this group conducted its own affairs – including handing out as few HAMP modifications as possible – rather than BofA acting alone as a bank. The Tenth Circuit found that the lower court mischaracterized Urban as an outside contractor with no official position in the RICO enterprise. Although Urban had no position in BofA, the bank alone was not the alleged enterprise. It was further found by the court that the homeowners adequately showed that BofA and Urban engaged in a pattern of racketeering, even though the lower court declined to decide this issue.

The homeowners had alleged that BofA and Urban committed several acts of mail and wire fraud while conducting the RICO enterprise’s affairs by making false statements and promises to borrowers. The homeowners had alleged specifically that when Urban employees answered calls from customers, they identified themselves as working for BofA.

Finally, on the promissory estoppel claim, the appeals court said the homeowners alleged that BofA reneged on its promises to provide permanent HAMP modifications for eligible borrowers and that the homeowners relied on the bank’s false statements.

The homeowners are represented by Kevin K. Green and Steve W. Berman of Hagens Berman Sobol Shapiro LLP. The case is George et al. v. Urban Settlement Services et al., in the U.S. Court of Appeals for the Tenth Circuit.


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