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Mortgage ModificationSan Francisco, CA- For a troubled homeowner a mortgage modification is their only hope to keep a bank from seizing their home, but major banks denied many qualified homeowners this opportunity. Wells Fargo was one of those banks, but borrowers scored a victory against the large lender earlier this month when the U.S. Appeals Court for the Ninth Circuit said they could sue the bank for denying them a mortgage modification.

The Home Affordable Modification, which was enacted in 2009 in the midst of the foreclosure crisis, required mortgage lenders to offer struggling homeowners loan modifications once they successfully completed a trial period. In exchange for offering loan modifications the Treasury would then give the lender $1,000 for agreeing to the modification.

However, Wells Fargo and other lenders denied qualifying borrowers loan modifications. Two California homeowners, who were denied modifications after completing the trial program, filed a lawsuit against Wells Fargo stating they did not meet their legal obligations under the HAMP program.

An initial decision from a district court said that Wells Fargo did not err when they refused the loan modifications, stating that the homeowners did not have the right to file a civil suit because they never received the loan modification paperwork, as Wells Fargo argued.

The appeals court rejected the claims that a bank is only obliged to offer a loan modification after sending the homeowner a Modification Agreement. The appeals court called Wells Fargo’s argument “suspect” since it would allow “banks to avoid their obligations to borrowers merely by choosing not to send a signed Modification Agreement, even though the borrowers made both accurate representations and the required payment,” Bloomberg reported.

The court said it would give banks “unfettered discretion” to deny loan modifications “for any reason whatsoever – interest rates went up, the economy soured, (or) it just didn’t like the borrower,” Reuters reported.Their decision paves the way for civil lawsuits in the 9th district.

The HAMP program has had its share of problems and has spawned more legal problems than it has helped homeowners. Critics of the program say that many of the borrowers who received a loan modification are in default. While the policy was intended to help struggling homeowners, major banks have been repeatedly accused of denying qualified homeowners for the sake of profit.

Testimony in a recent federal lawsuit against Bank of America accused the bank of cajoling its employees to delay or deny mortgage modifications requests and documents. Whistleblowers claim that Bank of America offered their employees financial bonuses and gift cards in exchange for giving homeowners the run around.

Bank of America employees claim  they were encouraged to lie to customers about their modification applications and delay paperwork so the modification period would expire. Employees said if they didn’t meet the bank’s demands they could be fired.

Bank of America denied the whistle blowers’ claims, but the lawsuits filed against them and Wells Fargo demonstrates their unwillingness to offer help to struggling homeowners. It is more profitable for them to seize a home than offer them an alternative.