Lesson. Statements by Lender’s employees about the status of a HAMP loan modification, coupled with Lender’s acceptance of reduced payments during the period of negotiations, should not result in a waiver of the countersignature condition precedent.
Case cite. Taylor v. JPMorgan Chase Bank, 958 F.3d 556 (7th Cir. 2020)
Legal issue. Whether lenders waive the HAMP countersignature requirement through statements made by their employees and acceptance of borrowers’ reduced payments.
Vital facts. Today follows-up last week’s post, which I recommend you read for context: Seventh Circuit Rejects Borrower’s HAMP Contract Breach Claim: Part 1 of 2.
Borrower claimed that employees of Lender told him that Borrower’s loan mod document submissions were “in receipt for processing” and that they “did not know of” Lender ever returning fully-executed copies of TPP’s to customers (despite the contract requirement). Also, Lender accepted Borrower’s reduced payments during the application period.
Procedural history. The U.S. District Court for the Northern District of Indiana granted Lender’s motion for judgment on the pleadings and dismissed Borrower’s breach of contract claim.
Key rules. As mentioned last week, the Taylor opinion has an informative introduction to HAMP. If you’re not familiar with the program, please read the case for background.
In Indiana, “a party who benefits from a condition precedent can waive it.” The waiver does not have to be in writing but “can be inferred if the waiving party shows an intent to perform its obligations under the contract regardless of whether the condition has been met.”
Holding. The Seventh Circuit affirmed the district court’s order dismissing the contract claim.
Policy/rationale. The Court found that Borrower failed to allege any action on Lender’s part from which the Court could reasonably infer that Lender intended to proceed with the trial modification without a signature by Lender. First, the alleged statements by Lender’s employees did not promise eligibility. “[Borrower’s] discussions with bank personnel cannot reasonably be viewed as binding [Lender]—with no accompanying writing of any kind—to each of the terms and conditions otherwise part of the TPP or, by extension, any agreement for a permanent mortgage modification.”
Second, as to the interim payments, the Court reasoned:
By its terms, the TPP proposal made plain that [Borrower] would need to keep paying on his mortgage. More specifically, the TPP stated that [Lender] would accept the modified and reduced payments whether or not [he] ultimately qualified for permanent loan modification. Indeed, the Frequently Asked Questions document appended to the TPP application explained that if the bank found him ineligible for HAMP, [Borrower's] first trial period payment would "be applied to [his] existing loan in accordance with the terms of [his] loan documents." So [Lender's] decision to accept [Borrower's] trial period payments was not inconsistent with its intent to rely on the countersignature condition precedent and cannot establish waiver.
Because there was no agreement for a loan modification, there was no claim for breach in Taylor. But, remain mindful that the Court dismissed the case based upon the allegations in Borrower’s complaint. It’s conceivable that a different set of facts could have caused a different result. Having said that, the language in these HAMP and TPP documents is awfully clear in terms of what needs to happen before a HAMP loan mod will occur.
In my next post, I'll discuss Borrower's promissory estoppel theory.
Related post. Lender’s Acceptance Of Partial Payments Did Not Waive Default
My practice includes representing lenders, as well as their mortgage loan servicers, in connection with consumer finance litigation. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at email@example.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.