A homeowner can stop foreclosure when the lender does not grant a loan modification that should be granted. This situation often arises when the homeowner makes the required payments under a temporary loan modification agreement with the lender, but the lender then refuses to offer a permanent modification. In Maryland (and most jurisdictions), if the homeowner files an appropriate motion to bring these facts to the court’s attention, the court must stay any sale and dismiss the foreclosure proceedings, or enter an appropriate order to allow the lender to grant the modification.
A Lender’s Failure To Grant Loss Mitigation That Should Be Granted Is A Valid Defense To Stop Foreclosure
In Maryland, a mortgage servicer’s failure to grant loss mitigation that should have been granted is a valid foreclosure defense that challenges the right of the lender to pursue foreclosure. Wells Fargo Home Mortg., Inc. v. Neal, 398 Md. 705 (2007). Indeed, the Maryland Court of Appeals’ Standing Committee on Rules of Practice and Procedure proposed, and the Court adopted, a Committee note that accompanies Maryland Rule 14-211(e), which provides, “If the court finds that the plaintiff has no right to foreclose in the pending action because loss mitigation should have been granted, the court may stay entry of its order of dismissal . . . so that loss mitigation may be implemented.”
This situation arises when the homeowner enters into a temporary loan modification agreement with the lender that requires the lender to offer a permanent modification if the homeowner satisfies his obligations under the temporary agreement. One such agreement is a Trial Period Plan (TPP) under the Home Affordable Modification Program (HAMP). A little background on HAMP is appropriate.
Loss Mitigation Under HAMP
The U.S. Department of the Treasury implemented HAMP pursuant to its authority under the Troubled Asset Relief Program (TARP) to incentivize lenders to offer “loan modifications to prevent avoidable foreclosures.” 12 U.S.C. § 5219(a)(1). The modification process under HAMP consists of two stages. Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 557 (7th Cir. 2012). First, if the lender determines a homeowner is eligible, it may offer a TPP. Id. The TPP is a temporary loan modification that lasts three or more months. Id. Second, if the homeowner complies with the terms of the TPP, including the obligation to make all of the required payments, “the servicer ha[s] to offer a permanent modification.” Id.
Most Jurisdictions Recognize That A Lender Is In Breach Of Contract If It Fails To Grant A Permanent Modification Once The Homeowner Completes A TPP Under HAMP
In Wigod, the servicer, Wells Fargo, offered a TPP, and the homeowner made the required monthly payments and otherwise met her requirements under the TPP. Id. at 561. Nevertheless, the servicer refused to offer a permanent modification. Id. The court held that these facts gave rise to a claim for breach of contract. Id.
Initially, the court held that “[o]nce Wells Fargo signed the TPP Agreement and returned it to Wigod, an objectively reasonable person would construe it as an offer to provide a permanent modification agreement if she fulfilled its conditions.” Id. at 563. Valid consideration existed because, under TPP agreements, a homeowner “agree[s] to open new escrow accounts, to undergo credit counseling (if asked), and to provide and vouch for the truth of [their] financial information,” and these agreements are “above and beyond [the homeowner’s] existing legal duty to make mortgage payments.” Id. at 564. Lastly, the court recognized that TPP agreements are enforceable because, despite the fact that servicers may have “some limited discretion to set the precise terms of an offered permanent modification,” they are “certainly required to offer some sort of good-faith permanent modification.” Id. at 565.
Numerous other courts have held that, once a homeowner complies with his obligations under a TPP, the servicer must offer a permanent modification. George v. Urban Settlement Servs., 833 F.3d 1242 (10th Cir. 2016); Topchian v. JPMorgan Chase Bank, N.A., 760 F.3d 843 (8th Cir. 2014); Corvello v. Wells Fargo Bank, N.A., 728 F.3d 878 (9th Cir. 2013); Young v. Wells Fargo Bank, N.A., 717 F.3d 224 (1st Cir. 2013); Allen v. CitiMortgage, No. CCB-10-2740, 2011 WL 3425665 (D. Md. Aug. 4, 2011).
When The Lender Is In Breach Of A Temporary Loan Modification Agreement, The Homeowner Should File A Motion To Stay And Dismiss The Foreclosure Proceedings
Most states allow a homeowner to use a lender’s breach of a loan modification agreement as a defense to stop foreclosure. In Maryland, a homeowner may file a motion asserting the defense under Rule 14-211.
When a homeowner files a motion to stay and dismiss that states, on its face, a valid defense that challenges the right of the lender to foreclose in the pending action, “the court shall set the matter for a hearing on the merits.” Md. R. 14-211(b)(2)(C). The court must enter an order staying any foreclosure sale if the hearing cannot be held before the sale date. Md. R. 14-211(c)(1).
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