Law360 - April 22, 2015
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, the plaintiffs claimed that they had a contractual right to a permanent loan modification under the terms of a HAMP TPP, and the defendant breached the TPP when it did not give them a loan modification. They also argued that the 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 the defendant, but it did so for different reasons than the trial court. After acknowledging that there were no reported New Jersey cases on this issue, the Arias court opined that current case law suggests that an agreement that binds a debtor to make payments while leaving the mortgage company free to give nothing in return may violate the New Jersey Consumer Fraud Act. In its analysis, the court relied heavily on Wigod v. Wells Fargo Bank NA, 673 F.3d 547 (7th Cir. 2012), which held that, even though there was no private right of action for a borrower under HAMP, a borrower may still assert a common law contract claim for a lender’s failure to honor the terms of a HAMP TPP.
The Arias court rejected the defendant’s argument that there was no enforceable promise to modify the plaintiffs’ loan because there was no consideration given and that the lender had sole and unbridled discretion whether to give a modification, where the borrower complied with the payment terms and other requirements of the TPP. The court reviewed the language of the TPP and noted that, even though the TPP notified borrowers that it was not a loan modification, it also contained language stating that ‘if”...
