Borrower's Failure to Comply with TPPA Justifies Lender's Refusal to Modify Loan

The New Jersey Appellate Division recently issued two opinions holding that language contained in trial period plan agreements issued pursuant to the federal Home Affordable Modification Program (HAMP) did not require lenders to provide a loan modification because the borrowers did not comply with their payment obligations under those agreements. See Miller v. Bank of Am. Home Loan Servicing, No. A-0169-13T2, 2015 N.J. Super. LEXIS 35 (App. Div. Mar. 5, 2015); Arias v. Elite Mortgage Group, No. A-4599-12T1, 2015 N.J. Super. LEXIS 13 (App. Div. Jan. 23, 2015). In so doing, the courts made clear that borrowers are required to fully comply with a trial period plan agreement in order to be considered for a permanent modification of their loans.

In Arias, the opinion upon which Miller relies, the Appellate Division found that the terms of the trial period plan agreement (TPPA) put the borrowers on notice that the agreement was not itself a loan modification and that “failure to strictly comply with the terms of the TPP would result in denial of a loan modification.” Arias, at *7. The facts in Arias were as follows: Leonardo Arias and his wife, Ruth M. Padilla (collectively, the “borrowers”), executed a mortgage to secure a loan Arias obtained to purchase real property. Bank of America (BOA) was the servicer of the loan. When the borrowers were unable to make their regular mortgage payments, BOA offered them a three-month trial loan modification under HAMP, which the borrowers accepted. The terms of the TPPA were expressly conditioned upon, among other things, the borrowers making their three monthly trial payments in full and on time. As a result of the borrowers’ failure to make timely payments, BOA refused to provide them with a loan modification. Consequently, the borrowers brought claims against BOA for breach of contract and breach of the duty of good faith and fair dealing, arguing that the TPPA was a binding contract to modify the loan.