Leonardo Arias v. Elite Mortgage Group, Inc

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4599-12T1

LEONARDO ARIAS and

RUTH M. PADILLA,

APPROVED FOR PUBLICATION

Plaintiff-Appellants,

January 23, 2015

v.

APPELLATE DIVISION

ELITE MORTGAGE GROUP, INC.,

RAY SALAZAR, W.M.C. MORTGAGE,

CORPORATION, GE MONEY, GE

CAPITAL, and DEUTSCHE BANK,

Defendants,

and

BANK OF AMERICA, N.A., s/h/a

BANK OF AMERICA HOME LOANS,

Defendant-Respondent.

______________________________

Submitted December 9, 2014 – Decided January 23, 2015

Before Judges Reisner, Koblitz and Haas.

On appeal from the Superior Court of New

Jersey, Law Division, Bergen County, Docket

No. L-1316-12

Joseph A. Chang, attorney for appellants

(Mr. Chang, of counsel and on the brief;

Jeffrey Zajac, on the brief).

Reed Smith LLP, attorneys for respondent

(Aaron M. Bender, of counsel and on the

brief).

The opinion of the court was delivered by

REISNER, P.J.A.D.

Plaintiffs Leonardo Arias and Ruth M. Padilla1 appeal from

an April 19, 2013 order granting summary judgment in favor of

defendant Bank of America, N.A. (the bank).

To summarize, this case involves a dispute over a mortgage

securing a loan plaintiffs obtained to purchase a two-family

house.2 Plaintiffs claim that they had a contractual right to a

loan modification under the terms of the Trial Period Plan (TPP)

Agreement they signed pursuant to the federal Home Affordable

Mortgage Program (HAMP), and they assert that defendant breached

the contract. In the alternative, they contend that the bank

violated the covenant of good faith and fair dealing in denying

them the loan modification.

1

Plaintiffs, husband and wife, both signed the mortgage, but

only Arias signed the note. We refer to Arias separately when

discussing documents addressed only to him.

2

There is no dispute that plaintiffs live in one unit and rent

out the other unit. At his deposition, Arias admitted that,

even after plaintiffs entirely ceased paying the mortgage, they

continued collecting between $1200 and $1800 per month from

tenants. There is also no dispute that at some point plaintiffs

stopped paying the taxes on the property, contrary to their

obligation under the mortgage.

2 A-4599-12T1

The motion judge concluded that the TPP Agreement was not a

binding contract to modify the loan. The judge found that

plaintiffs, who are licensed real estate agents, understood that

the Agreement did not give them any such contractual right. The

judge reasoned that the bank was not required to provide

plaintiffs with a loan modification, based on its determination

that they did not qualify for one. The judge also concluded

that plaintiffs had "no viable cause of action" under the

federal HAMP guidelines, or based on the covenant of good faith

and fair dealing.

Our review of a summary judgment order is de novo, using

the same standard employed by the trial court. Gray v. Caldwell

Wood Prods., Inc., 425 N.J. Super. 496, 499-500 (App. Div.

2012). Having reviewed the record, we find there were no

material facts in dispute, and we agree with the trial judge

that defendant was entitled to judgment as a matter of law. See

Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540

(1995). However, we arrive at that conclusion by a slightly

different route than the trial court.

I

Before reviewing the record and setting forth our own legal

analysis, we briefly discuss the most pertinent case law on

which the parties rely. In Wigod v. Wells Fargo Bank, N.A., 673

3 A-4599-12T1

F.3d 547 (7th Cir. 2012), the court cogently explained the

federal HAMP program, which was designed to address the

residential mortgage foreclosure crisis by encouraging lenders

to extend loan modifications to qualified mortgagors. Id. at

556-57; see Emergency Economic Stabilization Act of 2008, 12

U.S.C.A. § 5219(a)(1). The court concluded that, even though

there is no private cause of action under HAMP, a mortgagor may

nonetheless assert a common-law contract claim based on a bank's

failure to honor promises made in a HAMP Trial Period Plan

Agreement.3 The court reasoned that the terms of the TPP

Agreement must be construed as a promise by the bank that if the

debtor complies with its terms, she will be offered a loan

modification. The court thus described the TPP Agreement as

including "a unilateral offer to modify Wigod's loan conditioned

on her compliance with the stated terms of the bargain." Wigod,

supra, 673 F.3d at 562. The court reasoned that "a reasonable

person in Wigod's position would read the TPP as a definite

offer to provide a permanent modification that she could accept

so long as she satisfied the conditions." Ibid.; see also

3

HAMP provides financial incentives for mortgage servicers to

assist debtors to obtain loan modifications. Wigod, supra, 673

F.3d at 556; see also Young v. Wells Fargo Bank, N.A., 717 F.3d

224, 228-29 (1st Cir. 2013). We note that defendant in the case

before us acted as a loan servicer, but for simplicity, we refer

to defendant as the "bank."

4 A-4599-12T1

Corvello v. Wells Fargo Bank, N.A., 728 F.3d 878, 883-85 (9th

Cir. 2013); Young, supra, 717 F.3d at 234; Bosque v. Wells Fargo

Bank, N.A., 762 F. Supp. 2d 342 (D. Mass. 2011); West v.

JPMorgan Chase Bank, N.A., 154 Cal. Rptr. 3d 285 (Ct. App.),

rev. denied, 2013 Cal. LEXIS 5801 (July 10, 2013).

The court rejected the bank's argument that there was no

consideration for a promise to grant a loan modification because

the debtor was merely making a partial payment of a debt she

already owed. Wigod, supra, 673 F.2d at 564. The court pointed

out that in entering into the TPP Agreement, the debtor agreed

to provide additional financial information and agreed to attend

debt counseling if asked to do so. Ibid.4; see Seaview

Orthopaedics v. Nat'l Healthcare Res., Inc., 366 N.J. Super.

501, 508-09 (App. Div. 2004) (discussing adequacy of

consideration). The court also rejected the bank's argument

that the TPP Agreement left to the bank's sole and unbridled

discretion whether to actually send the debtor a loan

modification agreement once she complied with her obligations

under the TPP Agreement. The court found that such an

4

In a related point concerning plaintiff's promissory estoppel

claim, the court noted she had refrained from other legal

options she might have pursued, including filing for bankruptcy

or selling her home. Id. at 566.

5 A-4599-12T1

interpretation would render the TPP Agreement illusory. Wigod,

supra, 673 F.3d at 563.

While there are no reported New Jersey cases addressing the

contractual status of a TPP Agreement, case law suggests that an

agreement that purports to bind a debtor to make payments while

leaving the mortgage company free to give her nothing in return

might violate the New Jersey Consumer Fraud Act (CFA), N.J.S.A.

56:8-1 to -195. See Gonzalez v. Wilshire Credit Corp., 207 N.J.

557, 576-78 (2011). Gonzalez involved a different factual

scenario from the one in this case. However, in Gonzalez the

Court strongly signaled its disapproval of post-foreclosure

financing deals that essentially turned debtors into "cash cows"

without ever restoring their mortgages to current status. Id.

at 570, 582-83.

Wigod and Gonzalez were decided in different procedural

postures than the case before us. Wigod involved a motion to

dismiss on the pleadings. Gonzalez involved summary judgment

granted due to a mistaken interpretation of the CFA. In

remanding for trial, the Court noted that there were material

factual issues and plaintiff's factual claims "still must

survive the crucible of a trial." Gonzalez, supra, 207 N.J. at

586. In this case, the undisputed facts permitted the trial

court, and permit us as well, to decide the merits.

6 A-4599-12T1

II

As with all contract claims we begin our analysis by

considering the language of the document in question. See

Cooper River Plaza E., LLC v. Briad Grp., 359 N.J. Super. 518,

527 (App. Div. 2003). The TPP Agreement is captioned "HOME

AFFORDABLE MODIFICATION TRIAL PERIOD PLAN (Step One of Two-Step

Documentation Process)." The first sentence of the Agreement's

text states:

If I am in compliance with this Trial Period

Plan (the "Plan") and my representations in

Section 1 continue to be true in all

material respects, then the Servicer will

provide me with a Home Affordable

Modification Agreement ("Modification

Agreement"), as set forth in Section 3.

In turn, Section 3 provides, in pertinent part, that the

Servicer will determine the amounts of unpaid interest and other

charges to be added to the loan balance and determine "the new

payment amount." This section then repeats that:

If I comply with the requirements in Section

2 and my representations in Section 1

continue to be true in all material

respects, the Servicer will send me a

Modification Agreement for my signature.

[(Emphasis added).]

Significantly, Section 2 of the TPP required plaintiffs to

make three trial period payments of $1860 each, by the specified

due dates of October 1, 2009, November 1, 2009, and December 1,

7 A-4599-12T1

2009. Paragraph 2A notified plaintiffs, in capital letters,

that "TIME IS OF THE ESSENCE under this Plan." Paragraph 2

defined the "Modification Effective Date" as the first day of

the month following the month in which the last payment was due

(in this case, January 1, 2010). Paragraph 2F unambiguously

stated that:

If prior to the Modification Effective Date,

(i) the Servicer does not provide me a fully

executed copy of this Plan and the

Modification Agreement; (ii) I have not made

the Trial Period payments required under

Section 2 of this Plan; or (iii) the

Servicer determines that my representations

in Section 1 are no longer true and correct,

the Loan Documents will not be modified and

this Plan will terminate.

[(Emphasis added).]

Paragraph 2G further put plaintiffs on notice that the TPP

itself was not a loan modification and their failure to strictly

comply with the terms of the TPP would result in denial of a

loan modification:

I understand that the Plan is not a

modification of the Loan Documents and that

the Loan Documents will not be modified

unless and until (i) I meet all of the

conditions required for modification, (ii) I

receive a fully executed copy of a

Modification Agreement, and (iii) the

Modification Effective Date has passed. I

further understand and agree that the

Servicer will not be obligated or bound to

make any modification of the Loan Documents

if I fail to meet any one of the

requirements under this Plan.

8 A-4599-12T1

[(Emphasis added).]

Based on our reading of the TPP Agreement, we conclude that

it was "a unilateral offer," pursuant to which the bank promised

to give plaintiffs a loan modification, if and only if

plaintiffs complied fully and timely with their obligations

under the TPP, including making all payments timely and

providing documentation establishing that the financial

representations they made to the bank in applying for the TPP

were accurate when made and continued to be accurate. See

Wigod, supra, 673 F.3d at 562; Young, supra, 717 F.3d at 234.

Thus, plaintiffs were required to demonstrate that, despite

their inability to make their regular mortgage payments, they

were at least financially reliable enough to make timely

payments in the reduced amount stated in the TPP Agreement.

And, they were required to document the representations they had

made to the bank, showing that they had the other necessary

qualifications for a modified loan.5

5

As Wigod noted, in 2009, the HAMP program allowed servicers to

extend TPP agreements without initially verifying the

applicants' representations as to their financial circumstances.

The verification would then take place during the trial period.

Wigod, supra, 673 F.3d at 557. In 2010, the program was

modified to require the servicers to verify the applicants'

financial qualifications before giving them a TPP agreement.

Id. at 557 n.2.

9 A-4599-12T1

The summary judgment record clearly establishes that

plaintiffs failed to comply with the payment schedule set forth

in paragraph 2 of the TPP Agreement. The bank's account records

show that instead of making three $1860 payments by the first of

the month in October, November and December 2009, plaintiffs

made a payment of $1860 payment on October 15, 2009, and a $930

payment on November 17, 2009. They paid nothing in December.

Thus, they almost immediately breached the terms of the TPP

Agreement by failing to make either timely or sufficient

payments. Indeed, for the three month period alone, their

payments were short by $2790. They failed to make any payment

in January. Assuming the trial period continued in January,

they were required to pay another $1860 on January 1, 2010,

making a total of $4650 then due and owing.

On January 20, 2010, the bank sent Arias a letter informing

him that the bank had not received all of the required TPP

payments, and had not received certain required financial

documentation. The letter gave him until thirty days from the

date of the letter or January 31, 2010 "whichever is later," to

make the required payments and submit the missing documents,

failing which he would "not receive a Home Affordable

Modification."

10 A-4599-12T1

Thus, arguably, the letter extended the trial period to

February 20, 2010. The bank's records show that on February 16,

2010, plaintiffs submitted a payment of $3720, which was not

even equivalent to what they owed as of January 1, 2010.

Indeed, by February 1, plaintiffs owed yet another $1860,

bringing the total they owed to $6510.

On April 27, 2010, the bank sent Arias a letter notifying

him that his loan was "not eligible for a Home Affordable

Modification" because he "did not make all of the required Trial

Period Plan payments by the end of the trial period." Even

assuming that the TPP had been extended to February 20, 2010,

the April 27, 2010 notice was entirely correct. Plaintiffs had

engaged in a pattern of non-payment and inadequate payment which

constituted a breach of the TPP Agreement and justified the bank

in refusing to give them a loan modification.6 On these facts,

we find neither a breach of contract nor a breach of the duty of

good faith and fair dealing. The duty of good faith and fair

dealing "does not 'alter the terms of a written agreement.'"

6

We are unimpressed with plaintiffs' reliance on unpublished

opinions involving debtors who faithfully made their TPP

payments but were denied a loan modification. Plaintiffs

attempt to gloss over their breach of the Agreement, contending

that they made payments after receiving the April 27 letter

denying them a loan modification. However, even after being

denied a loan modification, they had a continuing obligation to

pay the mortgage and the bank had a right to accept those

payments.

11 A-4599-12T1

Glenfed Fin. Corp. v. Penick, 276 N.J. Super. 163, 175 (App.

Div. 1994) (citation omitted), certif. denied, 139 N.J. 442

(1995). Consequently, we affirm the order on appeal.

Affirmed.

12 A-4599-12T1