NJ Supremes Do the Right Thing

Posted by kevin on August 10, 2017 under Foreclosure Blog | Be the First to Comment

Last week, the New Jersey Supreme Court came down with a pro-borrower decision relating to enforcement of a modification agreement. Although this is good news for borrowers, my take is that the decision is driven by the facts of the case and may have limited application especially when applied by trial courts.

In GMAC v. Willoughby, the borrower closed a mortgage loan in February, 2006 and defaulted in June, 2006. Not good facts for a borrower going to court. GMAC foreclosed and received a final judgment. The trial court, however, stayed the sale (scheduled for September, 2009) so that the parties could go to court sponsored foreclosure mediation.

In May, 2010, the parties entered into a settlement. The mediator used the court approved form. The lender’s attorney wrote in the terms which included the borrower would pay $600 down and make trial payments of $1678. Upon payment during the trial period, a permanent modification would be offered which was final upon signing of the permanent mod agreements.

Well all the trial mod payments were made thru the end of May, 2011, but instead of a permanent mod, GMAC sent the borrower a new mod offer with a higher payment required. The borrower refused to sign the new mod, but made the higher payments and protested that the new deal was improper (to no avail). Then, in November, 2011 and then again in May, 2012, GMAC sent the borrower new modification agreements which she initially orally agreed to but she refused to sign the written agreements. However, she continued to make payments. So, GMAC (on behalf of the lender) decided to play hardball. They sent back the August, 2012 payment and the lender foreclosed. The borrower tried to enforce the May 2010 settlement agreement but the trial court said that the May 2010 agreement was provisional and not final, and the property went to sale. Note that the borrower paid over $58,000 on the May, 2010 modification agreement but apparently this fact did not move the trial court. On appeal, the appellate division affirmed the trial court.

Ms. Willoughby took the case up to the Supreme Court. The Supreme Court reversed and ordered the trial court to vacate the sale and reinstate the May 2010 settlement. The legal analysis was straightforward. The Supremes found that the settlement agreement constituted a valid contract. There was an offer and acceptance and the terms were definite. To the extent that any terms were not definite, the Supremes found that since the lender’s attorney filled in the terms, any ambiguity had to be construed against the lender. This is basic statutory construction. Moreover, the agreement stated that it was a final, binding and enforceable agreement. Finally, Ms. Willoughby relied on the finality of the agreement and made over 58K of payments.

I think four factors influenced the Supreme Court’s correct decision. First, GMAC was playing it pretty fast and loose. My experience has been that this is typical of lenders and servicers in many foreclosure situations. Second, the contract terms were pretty straightforward. Third, the borrower paid over 58K, and GMAC not only played games with her but pulled the rug out from under her. Fourth, (and this surprised me), the Supremes put a fair amount of emphasis on the NJ Mediation program as a vehicle for settlement. Reading between the lines, the Supremes seemed offended that the servicer treated the mediation process in such a cavalier manner If this were a straight modification without court sponsored mediation as a vehicle, would the decision be the same.

Factors One and Two should be enough for a victory but, I believe, they did not win the day for Willougby. What clearly was more important was that Willougby, in reliance on the settlement agreement, made over 58K of payments which GMAC glomed. This shows incredible good faith on the part of the borrower (which was totally ignored by the trial and appellate courts). The wildcard in this opinion is that fact that the settlement came out of court sponsored mediation. The opinion spent pages on this fact and the policy behind mediation. Would the decision have been the same if it was a straight modification application made through the servicer? I do not know.

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