Judge Finds Mortgage Modification Agreement a Valid Contract

Charles Toutant, New Jersey Law Journal

November 1, 2016

A homeowner raised a valid claim for breach of contract when a mortgage holder failed to grant a mortgage modification after the homeowner fulfilled requirements of a trial modification agreement, a New Jersey federal judge has ruled.

A motion to dismiss the homeowner’s breach of contract claim was denied after U.S. District Judge Freda Wolfson of the District of New Jersey found the elements of breach of contract were fulfilled by the plaintiff’s successful completion of the trial modification agreement and the defendants’ subsequent refusal to modify terms of the mortgage.

Wolfson’s Monday ruling in Block v. Seneca Mortgage Servicing, which was designated for publication, could put the lid on a common practice in the mortgage industry, according to plaintiff’s attorney Joshua Denbeaux—a homeowner complies with the requirements of a trial modification agreement, also known as a trial payment plan, only to see the mortgage company refuse to modify the mortgage terms.

Homeowner Florence Block, who defaulted on the $580,000 loan on her Bernards home, was named in a foreclosure action in January 2013. In May 2014, she reached an agreement with Seneca Mortgage Servicing that would lower her monthly payment if she made a deposit and six monthly payments on time. She completed her obligations under the agreement by November 2014, but the next month her loan was sold and the servicing of the loan was transferred to Ocwen Loan Servicing. Ocwen initially refused to provide a modification but said it would do so after Block’s counsel provided proof of her full compliance with the trial modification agreement with Seneca. But Ocwen failed to credit $32,543 in trial modification payments to Block’s loan balance, she claims.

Ocwen never followed through, and in March 2015, a company called Fay Servicing took over for Ocwen. Fay Servicing refused Block’s request for a loan modification but provided a new trial modification agreement requiring a down payment and six monthly payments.

Block filed suit against Seneca, Ocwen, Fay and the mortgage holder, ARLP Securitization Trust, Series 2015-1 in January. She raised breach of contract claims and also raised claims under the Fair Debt Collection Practices Act, Real Estate Settlement Procedures Act and the New Jersey Consumer Fraud Act. The defendants moved to dismiss all four counts.

The motion to dismiss FDCPA claims against Ocwen were granted in part and denied in part. Motions to dismiss RESPA and FDCPA claims against Fay were granted. Wolfson denied the motion to dismiss the Consumer Fraud Act claim against Seneca.

In refusing to dismiss the breach of contract claims, Wolfson found the plaintiff properly alleged a contract between the parties, a breach of the contract, damages flowing from the breach and that the party stating the claim performed its own contractual obligations. She rejected the defendants’ argument that the Seneca trial modification agreement is a valid contract due to lack of proper consideration by the plaintiff.

Plaintiff Block defaulted on the mortgage because she was suffering from cancer, and she died about a month ago, said Denbeaux of Denbeaux & Denbeaux in Westwood, who represented the plaintiff along with the firm’s Adam Deutsch. A mortgage modification would permit her daughter, who moved into the house to care for her mother, to stay there and make the mortgage payments, Denbeaux said.

Wolfson cited cases from the Fifth and Seventh circuits, which found no contract existed and explained why they were wrong, he said. Her ruling that the trial modification agreement is a contract is likely to be cited by other courts, he said.

“There are tens of thousands of people in this situation. The district courts throughout the country have gone in different directions on this issue,” Denbeaux said. “We laid out all the facts and [Wolfson] had a full record in front of her for the first time anywhere in the country as to what happens with this trial modification nonsense.”

Joseph Froehlich of Locke Lord in New York, representing ARLP and Fay Servicing; Jason Kislin of Greenberg Traurig in Florham Park, representing Ocwen; and Steven Penaro of Alston & Bird in New York, representing Seneca, did not respond to messages about the case.

Contact Charles Toutant at ctoutant@alm.com. On Twitter: @ctoutantnjlj.

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