3 July 2012
What Does Your TPP Say?
Have you reviewed your Trial Period Plan (“TPP”) lately? Can it be read to obligate you to enter into a permanent loan modification even if you do not agree to do so? If your TPP ambiguously conditions the offer of a permanent loan modification or obligates you to sign it and return it to the borrower, you will want to immediately change it. The Seventh Circuit recently found a TPP offered under HAMP created a contract for a permanent loan modification, and allowed a putative class action suit against a lender to proceed.1
The plaintiff sued a lender because it failed to offer a permanent loan modification. After dismissing the claims for Negligent Hiring and Supervision, Fraudulent Concealment, Negligent Misrepresentation and Concealment, the Court permitted the state law claims of Breach of Contract, Fraud, Promissory Estoppel, and for violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”) to continue in the District Court for the Northern District of Illinois.
Whether or not the District Court will find for the borrower on any of these claims remains to be seen, but to avoid the risk of defending such claims in court, review and change your TPP, if necessary. The TPP in this case contained the following language in paragraph 2:
I understand that after I sign and return two copies of this Plan to the Lender, the Lender will send me a signed copy of this Plan if I qualify for the [permanent modification] Offer or will send me written notice that I do not qualify for the Offer.
It also stated in paragraph 1:
If I am in compliance with this Loan Trial Period and my representations in Section 1 continue to be true in all material respects, then the Lender will provide me with a [permanent] Loan Modification Agreement.
The signed agreement coupled with the language that the lender “will” send a signed copy of the TPP and a permanent modification if the debtor is in compliance is enough to allow the claims to continue. This appears to obligate the lender to provide the modification. A crucial fact is that the lender signed the TPP and sent a copy to the borrower.
Other courts have followed this case, and are allowing state law breach of contract, fraud, promissory estoppel, and violation of state law consumer protection claims to be heard. In one case, where one section of the TPP said a loan modification would be offered if the borrower complied with the TPP, and another said a loan modification would be sent only after the borrower qualified, the court resolved it in favor of the borrower.2
A TPP must have clear unambiguous wording about if and when a permanent loan modification will be offered. One court dismissed a complaint for breach of contract and other such claims when a TPP’s paragraph 2, as above, added this sentence: “This Plan will not take effect unless and until both I and the Lender sign it and Lender provides me with a copy of this Plan with the Lender’s signature.”3 If the TPP does not appear to create a contract for a permanent loan modification, there cannot be a breach of contract for failure to provide one. Here, the TPP would not take effect unless the lender signed and returned a copy to the debtor, and it did not require the lender to do so.
Another such complaint was dismissed where the TPP had contingency language. It clearly stated that a permanent loan modification would be offered only after the borrowers submitted necessary documents, the lender determines that the borrowers are qualified, and sends them a fully executed TPP and loan modification agreement.4 If the conditions are not all met, the lender is not obligated to modify the loan. Moreover, the agreement does not require the lender to execute either the TPP or the modification.
To avoid being vulnerable to state law breach of contract and other claims, make sure your TPP conditions the offer of a permanent loan modification and does not obligate you to sign or enter into one.
Footnotes:
1 Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. Ill. 2012)
2 Cave v. Saxon Mortg. Servs., 2012 U.S. Dist. LEXIS 75276 (E.D. Pa. May 30, 2012)
3 Brady v. Chase Home Fin., LLC, 2012 U.S. Dist. LEXIS 72218 (W.D. Mich. May 24, 2012)
4 Soin v. Fannie Mae, 2012 U.S. Dist. LEXIS 51824 (E.D. Cal. Apr. 12, 2012)
The plaintiff sued a lender because it failed to offer a permanent loan modification. After dismissing the claims for Negligent Hiring and Supervision, Fraudulent Concealment, Negligent Misrepresentation and Concealment, the Court permitted the state law claims of Breach of Contract, Fraud, Promissory Estoppel, and for violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”) to continue in the District Court for the Northern District of Illinois.
Whether or not the District Court will find for the borrower on any of these claims remains to be seen, but to avoid the risk of defending such claims in court, review and change your TPP, if necessary. The TPP in this case contained the following language in paragraph 2:
I understand that after I sign and return two copies of this Plan to the Lender, the Lender will send me a signed copy of this Plan if I qualify for the [permanent modification] Offer or will send me written notice that I do not qualify for the Offer.
It also stated in paragraph 1:
If I am in compliance with this Loan Trial Period and my representations in Section 1 continue to be true in all material respects, then the Lender will provide me with a [permanent] Loan Modification Agreement.
The signed agreement coupled with the language that the lender “will” send a signed copy of the TPP and a permanent modification if the debtor is in compliance is enough to allow the claims to continue. This appears to obligate the lender to provide the modification. A crucial fact is that the lender signed the TPP and sent a copy to the borrower.
Other courts have followed this case, and are allowing state law breach of contract, fraud, promissory estoppel, and violation of state law consumer protection claims to be heard. In one case, where one section of the TPP said a loan modification would be offered if the borrower complied with the TPP, and another said a loan modification would be sent only after the borrower qualified, the court resolved it in favor of the borrower.2
A TPP must have clear unambiguous wording about if and when a permanent loan modification will be offered. One court dismissed a complaint for breach of contract and other such claims when a TPP’s paragraph 2, as above, added this sentence: “This Plan will not take effect unless and until both I and the Lender sign it and Lender provides me with a copy of this Plan with the Lender’s signature.”3 If the TPP does not appear to create a contract for a permanent loan modification, there cannot be a breach of contract for failure to provide one. Here, the TPP would not take effect unless the lender signed and returned a copy to the debtor, and it did not require the lender to do so.
Another such complaint was dismissed where the TPP had contingency language. It clearly stated that a permanent loan modification would be offered only after the borrowers submitted necessary documents, the lender determines that the borrowers are qualified, and sends them a fully executed TPP and loan modification agreement.4 If the conditions are not all met, the lender is not obligated to modify the loan. Moreover, the agreement does not require the lender to execute either the TPP or the modification.
To avoid being vulnerable to state law breach of contract and other claims, make sure your TPP conditions the offer of a permanent loan modification and does not obligate you to sign or enter into one.
Footnotes:
1 Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. Ill. 2012)
2 Cave v. Saxon Mortg. Servs., 2012 U.S. Dist. LEXIS 75276 (E.D. Pa. May 30, 2012)
3 Brady v. Chase Home Fin., LLC, 2012 U.S. Dist. LEXIS 72218 (W.D. Mich. May 24, 2012)
4 Soin v. Fannie Mae, 2012 U.S. Dist. LEXIS 51824 (E.D. Cal. Apr. 12, 2012)