Action Item: To avoid possible state law claims related to denial of loan modifications, trial modification offers should clearly define the requirements a borrower must fulfill to receive a loan modification, and lenders and servicers should provide timely written notification to borrowers when they fail to comply with the terms of a loss mitigation agreement.
It is well-established that the federal Home Affordable Modification Program ("HAMP") does not offer borrowers a private right of action to allege a lender or servicer violated HAMP. However, the New Jersey Appellate Division recently held that borrowers may pursue state law claims that a lender or servicer engaged in the modification process in bad faith or otherwise breached the terms of a HAMP Trial Period Plan ("TPP").
In Arias v. Elite Mortgage Group, Inc., et al.,1 the first reported New Jersey case on this issue, the Appellate Division held that a written TPP, which allowed the borrowers to make three reduced monthly mortgage payments as a condition of the TPP, constitutes a unilateral offer by the lender to modify a mortgage loan if the borrowers completely and timely comply with their obligations under the TPP.
In Arias, the plaintiff borrowers appealed from an order granting summary judgment to the defendant servicer. On appeal, Plaintiffs claimed that they had a contractual right to a permanent loan modification under the terms of a HAMP TPP, and defendant breached the TPP when it did not give them a loan modification. They also argued that defendant breached the covenant of good faith and fair dealing when it denied them the loan modification.
The Appellate Division upheld the grant of summary judgment to defendant, but it did so for different reasons than the trial court. After acknowledging that...
