Under the federal Home Affordable Mortgage Program (HAMP) when a borrower enters into a trial period plan (TPP), a form of temporary loan payment reduction under HAMP, the borrower and lender enter into a Trial Period Agreement — a written contract enforceable under state law. If a borrower complies with the terms of a TPP, and the borrower’s representations remain true and correct, the loan servicer must offer the borrower a permanent loan modification. If the lender fails to offer a permanent modification the borrower may sue the lender or loan servicer for breach of contract as HAMP does not preempt or otherwise displace state law causes of action. West v. JPMorgan Chase Bank.
The court reasoned that when a lender received public tax dollars under the Troubled Asset Relief Program, it agreed to offer TPP’s and loan modifications under HAMP according to guidelines and directives issued by the Department of the Treasury. Under the United States Department of the Treasury, HAMP Supplemental Directive 09 01, if the lender approves a TPP, and the borrower complies with all the terms of the TPP and all of the borrower’s representations remain true and correct, the lender must offer a permanent loan modification.
The loan modification becomes effective on the first day of the month following the trial period. This is true whether or not the Trial Period Agreement contains language requiring a permanent loan modification following successful completion of the TPP because it is a condition imposed by Directive 09 01 and a contract must be interpreted in a way to make it lawful.
Held: A lender is required to offer a good faith permanent modification to a borrower consistent with HAMP guidelines upon successful completion of the TPP by the borrower.
UPDATE 1: The Ninth Circuit held similarly in Corvello v. Wells Fargo Bank. The panel held that the district court should not have dismissed the plaintiffs’ complaints when the record before it showed that the bank had accepted and retained the payments demanded by the TPP, but neither offered a permanent modification, nor notified plaintiffs they were not entitled to one, as required by the terms of the TPP.
UPDATE 2: In accord is Bushell v. JPMorgan Chase Bank, filed October 22, 2013, which held that plaintiffs adequately alleged that the TPP constituted an enforceable contract under California law, that plaintiffs had performed all conditions precedent to the contract, and that Chase breached the contract by failing to offer plaintiffs a good faith permanent loan modification.
Specifically, the court held plaintiffs had adequately pled causes of action for: 1) breach of contract, including breach of the implied covenant of good faith and fair dealing; 2) promissory estoppel; and 3) fraud based on false promise.
Chase argued that plaintiffs could not allege damage because “all plaintiffs did was to make monthly mortgage payments they were already obligated to make.” The could held plaintiff’s allegations that they: 1) spent considerable time repeatedly contacting Chase and repeatedly preparing documents at Chase’s request; 2) discontinued efforts to pursue a refinance from other financial institutions or to pursue other means of avoiding foreclosure (such as bankruptcy restructuring, or selling or renting their home); 3) had their credit further damaged; and 4) lost their home — adequately alleged damages.
I consult with clients and accept cases involving a lender’s breach of loan forebearance and modification agreements. For other types of cases I accept, please consult the My Practice page. If you are seeking a legal consult or representation, please give me a call at 818.971.9409. – Michael Daymude