Homeowners have sued Bank of America Corp (BOA) for allegedly reneging on a promise it made to modify troubled mortgages as a condition of accepting $25 billion of federal bailout money.

According to the complaint, Bank of America agreed to take part in the Treasury Department's $75 billion Home Affordable Modification Program, known as HAMP, because it accepted bailout funds from the Troubled Asset Relief Program.

The complaint said Bank of America had an incentive not to modify loans because doing so might cause it to repurchase more loans, collect lower servicing fees, or assess lower default charges because fewer payments would be deemed late.

The plaintiffs sought to modify their mortgage after their annual income fell. They said Bank of America advised them to become delinquent so they would qualify, and that they then signed an agreement to cut their monthly payments almost in half. Nevertheless, they alleged that despite their making the lowered monthly payments, which were cashed, Bank of America served them with a default notice and failed to provide final modification documents.