Victory for Borrowers

Posted by kevin on January 28, 2015 under Foreclosure Blog | Comments are off for this article

I have had at least 100 clients or potential clients tell me that they have a great foreclosure defense because their mortgage servicer jerked them around unmercifully when they applied for a temporary modification, and refused to give them a permanent mod notwithstanding that they made three or more payments. Up to last week, the client or potential client in NJ was wrong.

Why? Because modifications are governed by the HAMP program (now MHA of which HAMP is one of the options). HAMP is based on a federal statute in which the federal government gives servicers money if they agree to modify mortgages generally in accord with the guidelines established under the statute. The parties to the agreement are the federal government and the sevicer. Even though borrowers are the reason for the statute and a beneficiary of the statute, they are not a party to the agreement. Federal courts held that borrowers cannot sue under HAMP or MHA (no private right of action).

In 2011 and 2012, certain federal courts got their “common sense” cap on, and concluded that notwithstanding that the borrower was not a party to the HAMP agreement, you cannot have servicers taking money with no intention of granting a permanent modification. One of those courts was the 7th Circuit Court of Appeals in the Wigod case.

Foreclosure defense attorneys in NJ have argued that Wigod is good law in NJ, and the failure to grant a permanent modification is tantamount to a violation of the Consumer Fraud Act or a breach of the implied covenant of fair dealing between parties.

Last week, in a published opinion, the Appellate Division in NJ adopted Wigod but limited the application. It held that if the servicer granted a temporary modification, and the borrower makes the required payments, turns over all required documentation, and his or her representations to the servicer are true and accurate, that borrower is entitled to a permanent modification. Failure to grant a permanent mod gives the borrower a cause of action.

Now, this ruling does not handle all cases involving a modification. If you apply for a mod, and send your documents in, but can never get someone on the phone, or your inquiries are pushed from one person to another none of which can make a decision, or your documents are lost three or four times, or the servicer claims that it never received your application notwithstanding that you have a Fed Ex proof of delivery, or you are asked for updated bank statement until or are pulling your hair out, then you get rejected- you are SOL. That stands for s&%! outta luck. Why, it is the temporary mod which establishes a contractual relationship between the borrower and the servicer which triggers Wigod.

The case in NJ is Arias v. Elite Mortgage Group. A victory in today’s foreclosure defense environment.