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The 2 Most Significant Foreclosure Cases for 2018

1) GMAC v. Willoughby, 230 N.J. 172 (2017) – Supreme Court Case Enforcing Modification Agreement Against GMAC

A frustrating facet of mortgage modifications is that far too often lenders offer a Trial Modification, but then for a variety of reasons fail to follow through.  What is a borrower’s recourse in such a case?  The different reasons a lender would do this are: (1) the loan changes hands after the modification is issued; (2) the lender claims to not receive one of the trial period payments when they have; and (3) the final modification paperwork doesn’t arrive after the three trial period payments are made.

Today, thanks to a recent Supreme Court decision decided a year ago, on March 17, 2017, borrowers can rest assured that such agreements will be enforced.  In GMAC v. Willoughby, 230 N.J. 172 (2017), the Supreme Court of New Jersey enforced a mortgage modification agreement GMAC entered into with Willoughby.   During a mediation session the parties settled the foreclosure by agreeing to a "trial to permanent modification plan contingent on her signed modification documents and an initial down payment."  The downpayment amount was $6,000 and the monthly payments were set at $1,679 per month for the following year.  The agreement further stated that if all trial payments were made, plaintiff would "make modification permanent," but "if defendant missed any payments, plaintiff would "continue with foreclosure."  Mrs. Willoughby made the downpayment and all of the required payments for a full year.

However, instead of providing the promised “permanent modification,” GMAC sent Willoughby a letter that “a wholly new modification offer” was being offered because “she successfully completed the requirements of [her] Special Forbearance Program.”  Two additional different modification agreements were provided, but Mrs. Willoughby stood her ground and refused to sign these agreements, having now paid over $58,000 to modify her loan.  GMAC threatened to refer the matter back to foreclosure.  The case proceeded to Sheriff’s Sale, but Mrs. Willoughby pursued the bank on a Motion to Enforce the settlement agreement. The Supreme Court reversed the Sheriff’s Sale and held that the modification must be enforced, noting further noted that "nothing in [the] Agreement suggested that, after a period of twelve months, [plaintiff] could unilaterally demand that [defendant] agree to a new loan modification on different terms that those that appeared in the [original agreement]."

The Supreme Court was struck by the fact that Mrs. Willoughby had lost her home and did not know what remedy would be appropriate.  The Supreme Court noted that defendant would not be entitled to specific performance -- i.e., the return of her home -- if her home was sold to a bona fide, good faith purchaser. But, she might be entitled by damages. The Supreme Court thus left "to the sound discretion of the chancery court the determination whether [defendant] suffered financial damages and, if so, the amount."

This case follows on a line of cases where the Courts fell short of agreeing to enforce a modification against a bank, despite the fact that Chancery Judges routinely hold banks to these agreements prior to an Appeal.  In Arias v. Elite Mortgage, 439 N.J. Super. 273 (App. Div. 2015), the Appellate Division opined that a lender must modify a loan when a borrower accepts a Trial Period Plan (“TPP”), made all the trial payments, and complied with other modification terms.  But, in that case, the Appellate Division ultimately backed Bank of America, determining on a mixed record that the borrower actually failed to make their payments, and thereby forfeited their rights in the settlement.

Takeaway: Negotiate in good faith, settle on a modification, follow through, and the court will enforce the modification if the bank plays any games.

2) U.S. Bank Nat’l Assc’n v. Curcio, 444 N.J. Super. 94 (App. Div. 2016) – Court Upholds Default Against Homeowner Who Tried to Make Failure of Service Arguments Despite Living at the Property

In U.S. Bank Nat’l Assc’n v. Curcio, 444 N.J. Super. 94 (App. Div. 2016), the Appellate Division courts reiterated that a homeowner who lives in a property with a delinquent mortgage cannot avoid a foreclosure judgment by avoiding personal service—and personal service is not required where the bank makes “diligent inquiry” to put the homeowner on notice of the filing of the foreclosure action.

Curcio defaulted on a promissory note, which had been assigned to plaintiff, U.S. Bank National Association.  The bank initiated a foreclosure against Curcio.  Three attempts at personal service at the mortgaged property were made—and failed.  The bank relied on N.J. Court Rule 4:4-3(a), which permits service by certified/regular mail if “diligent effort” is first made to locate the defendant.  US Bank employed a private investigator, conducted a skiptrace, requested address change of service information from the US Postal Service, checked with the Dep’t of Motor Vehicles, inquired with the Tax Assessor’s Office, and talked with neighbors. 

All indications were that Curcio still lived at the property.  The bank then mailed the Summons & Complaint by certified and regular mail and the certified mail was returned “unclaimed,” but the regular mail was not returned.  The bank detailed these efforts in court papers and filed for default judgment, which proceeded up to the point of a Sheriff’s Sale.

At the last minute, Curcio finally appeared, making a motion to vacate default judgment, which was denied, and while the property went to Sheriff’s Sale, Curcio appealed.  Notably, during the proceedings, Mrs. Curcio admitted residing at the premises uninterrupted for a period of 35-years.

Takeaway: Don’t try to play games with service.  If you stopped paying your mortgage, that is enough for you to be on notice a foreclosure lawsuit is coming—don’t gamble with your home—address the case head on.