Morgan Stanley Unit Reaches $4.5M HAMP Class Action Settlement

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A $4.5 million class action settlement was reached between a division of Morgan Stanley and a group of homeowners in California, who allege they were denied new mortgage terms under the Home Affordable Modification Plan (HAMP), causing some to foreclose on their homes.

The plaintiffs in the class action lawsuit against Saxon Mortgage Services Inc. are asking a California federal court to grant preliminary approval to the class action settlement, which would give almost $1,700 to about 2,700 Class Members, which they say “represents substantial consideration in a difficult case.”

The plaintiffs contend that “this is itself a very good result in light of the legal obstacles to recovering where, as here, borrowers ostensibly had ‘pre-existing duties’ to pay amounts greater than their [Trial Period Payments].”

The class action settlement reached is about 15 percent of approximately $30 million paid in such trial payments paid by the homeowners who are part of the class.

Plaintiff Marie Gaudin had claimed in the class action lawsuit filed in April 2011 against Saxon that the mortgage company had delayed the processing of her mortgage, while she was told to start making trial payments under the HAMP program. However, Gaudin alleges that the permanent loan modification offer was pulled without explanation.

She allleges “that Saxon wrongfully took Class Members’ TPP payments or denied permanent HAMP loan modifications.”

“The settlement fund represents about 30 percent of the [trial payments] made by the 1,365 current Class Members who actually lost their homes to foreclosure (or short sale) after Saxon denied them permanent HAMP loan modifications,” the plaintiffs explain in their motion to have the class action settlement approved.

“The rest of the Class, including 1,099 members who received alternative (i.e. non-HAMP) loan modifications, would have faced additional legal and factual obstacles to recovery,” they add.

Under the class action settlement agreement “all Class Members receive an equal share of a $500,000 ‘Global Award’ (about $184 each).”

However, “the vast majority of the Class will additionally receive much larger ‘tiered’ awards.”

Tier 1 Class Members are those “who lost their homes to foreclosure or short sale without being offered alternative loan modifications.” They will “receive shares of the remaining net settlement fund proportionally based on two months of their actual TPP payments.”

The Tier 2 Class Members are “those who entered into alternative modifications.” They will “receive shares of the same net fund proportionally based on one month’s TPP payment.”

The class action settlement agreement allows for Tier 2 Class Members to “apply for Tier 1 status if they demonstrate through a simple supplemental claims process that they lost their homes because the terms of their alternative loan modifications were inferior to those contemplated by their Saxon TPPs.”

The plaintiffs praised the class action settlement agreement for “the hybrid claims-paid structure,” saying that it “maximizes the distribution to the Class membership, while providing flexibility.”

Once final approval of the class action settlement is granted “each Class member will be sent a check in the mail (no claim form required) for their maximum settlement benefit based on available data.

“During the interim notice period, however, they have the opportunity to submit supplemental claims and otherwise correct errors (or gaps) in the data,” the motion for preliminary approval of the class action settlement says.

The attorneys representing the class are asking for $1.3 million in attorneys’ fees.

The class action settlement is for “California borrowers who entered into a Home Affordable Modification Program (HAMP) Trial Period Plan (TPP) with Defendant Saxon Mortgage Services, Inc. effective on or before October 1, 2009, and made at least three trial period payments, but did not receive HAMP loan modifications.”

The class is represented by Daniel J. Mulligan of Jenkins Mulligan & Gabriel LLP and Peter B. Fredman of the Law Office of Peter Fredman.

Saxon is represented by Laila Abou-Rahme of Morgan Lewis & Bockius LLP and John B. Sullivan and Erik Kemp of Severson & Werson.

The Saxon HAMP Class Action Lawsuit is Marie Gaudin v. Saxon Mortgage Services Inc., Case No. 3:11-cv-01663, in the U.S. District Court for the Northern District of California.