Homeowners Can Sue for Breached Trial Modification Plan
Appellate Court Says Homeowner Has Causes of Action for Breach of Contract and Consumer Fraud When Bank Fails to Modify the Loan After Trial Plan Payments Are Made Under HAMP
OverviewIn Arias v. Elite Mortgage Group, Inc., 2015 N.J. Super. LEXIS 13 (App. Div., Jan. 23, 2015), the Appellate Division addressed for the first time whether borrowers completing a Trial Payment Plan under the federal Home Affordable Mortgage Program ("HAMP") have a cause of action for Breach of Contract or under the New Jersey Consumer Fraud Act ("CFA") claim against the bank when the promised Permanent Modification is not offered after the trial period payments are made by the borrower.
Facts Before the CourtThe Arias "Home Affordable Modification Trial Period Plan" ("TPP") expressly stated in Section 1 that a permanent plan would be provided if the trial payments were complied with: "If I am in compliance with this Trial Period Plan (the "Plan") and my representations in Section 1 continue to be true in all material respects, then the Servicer will provide me with a Home Affordable Modification Agreement ("Modification Agreement"), as set forth in Section 3." Arias, 2015 N.J. Super LEXIS 13 at *6. (Emphasis added). The Arias "Home Affordable Modification Trial Period Plan" went on to state that: "If I comply with the requirements in Section 2 and my representations in Section 1 continue to be true in all material respects, the Servicer will send me a Modification Agreement for my signature." Arias, 2015 N.J. Super LEXIS 13 at *7. The three Trial Period Payments of $1,860 were due on October 1, November 1, and December 1 of 2009. Arias, 2015 N.J. Super LEXIS 13 at *7. Two additional provisions under Section 2F and 2G dealt with the consequences of the homeowners failure to abide by and comply with their payment obligations and other obligations under the Trial Period Plan. Those provisions stated: "2F. If prior to the Modification Effective Date, (i) the Servicer does not provide me a fully executed copy of this Plan and the Modification Agreement; (ii) I have not made the Trial Period payments required under Section 2 of this Plan; or (iii) the Servicer determines that my representations in Section 1 are no longer true and correct, the Loan Documents will not be modified and this Plan will terminate. "2G. I understand that the Plan is not a modification of the Loan Documents and that the Loan Documents will not be modified unless and until (i) I meet all of the conditions required for modification; (ii) I receivea fully executed copy of a Modification Agreement; and (iii) the Modification Effective Date has passed. I further understand and agree that the Servicer will not be obligated or bound to make any modification of the Loan Documents if I fail to meet any of the requirements under this Plan." Arias, 2015 N.J. Super LEXIS 13 at *7-*8.
Appellate Division RulingThe Appellate Division found the "Home Affordable Modification Trial Period Plan" to be "a unilateral offer," pursuant to which the bank promised to give plaintiffs a loan modification, if and only if plaintiffs complied fully and timely with their obligations under the TPP, including making all payments timely and providing documentation establishing that the financial representations they made to the bank in applying for the TPP were accurate when made and continued to be accurate. Id. at *8. The Appellate Division found that on the facts of the case, the homeowners had breached the TPP by failing to make the required payments and affirmed the lower court's grant of Summary Judgment. This is an apt lesson for homeowner's lucky enough to be presented with a TPP under HAMP. This is an opportunity to secure valuable rights and to save one's home, so it is critically important to comply fastidiously with the prerequisites to modification and to make all of the trial period payments on time.
Importance of the Arias DecisionArias v. Elite Mortgage Corp. is an important case because of the following analyses undertaken by the Court in reaching its decision: 1. The Appellate Division rejected the bank's argument that it had unbridled discretion under the TPP on whether to offer a modification or not, finding that the debtor agreed to provide additional financial information and attend debt counseling, among other things, which constituted additional consideration for the trial plan. 2. The Appellate Division cited to Gonzalez v. Wilshire Credit Corp., reminding the bank of its decision there which "strongly signaled its disapproval of post-foreclosure financing deals that essentially turned debtors into "cash cows" without ever restoring their mortgages to current status." Interestingly, in reviewing the case, Mary Pat Gallagher of the New Jersey Law Journal cited a statistic that about 63% of homeowners offered a HAMP TPP ultimately secured permanent modifications. Mary Pat Gallagher, "Court Oks Suits Over Denied Mortgage Modifications." (New Jersey Law Journal, Feb. 2, 2015, Pg. 5 and 13).