NJ Supreme Court: If Borrower Abides By Terms Of Settlement Agreement, Lender Must Modify Mortgage

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Mortgage (pd)Lawsuits arising out of foreclosures and mortgage modifications are common. (Even more common than lawsuits about gyms or health clubs if you can believe that.) Nearly every day there is a decision from the Appellate Division arising out of a residential foreclosure. Most of these fall into the same category — borrower defaults and loses home through foreclosure then challenges lender's standing to foreclose after the fact — but some are more interesting. That was the case with GMAC Mortgage, LLC v. Willoughby, a decision released yesterday by the New Jersey Supreme Court involving a mortgage modification agreement entered into to settle a foreclosure lawsuit.

Almost two years ago, I wrote a post about Arias v. Elite Mortgage, a lawsuit over the alleged breach of a mortgage modification agreements. In that case, borrowers entered into a mortgage modification agreement with their lenders that included a Trial Period Plan ("TPP"). As the name suggests, a TPP requires borrowers to make reduced monthly payments in a timely manner for a trial period, after which, if they make the payments, the lender agrees to modify their mortgage. In Arias, the Appellate Division held, as a matter of first impression, that if a borrower makes the trial payments under the TPP, the lender must modify the mortgage, and if it doesn't, the borrower can sue for breach. However, the holding was purely academic because the borrower in that case failed to make one of the trial payments in a timely manner so it could not sue. 

In GMAC Mortgage, the New Jersey Supreme Court faced a similar situation with a much less academic result. 

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Borrower Allowed To Sue Lender For Breaching Mortgage Modificaton Agreement

 

Loan application (pd)

In a decision that all lenders should read carefully, the Appellate Division recently reiterated that a borrower may have a private cause of action against a lender if the lender breaches the terms of a mortgage modification agreement under the Home Affordable Modification Program ("HAMP").

Earlier this year, I wrote about the Appellate Division's decision in Arias v. Elite Mortgage. (In case you forgot, click here to review the post.) In that case, the Appellate Division faced an issue of first impression involving mortgage modifications under HAMP. Specifically, the Appellate Division was faced with the question of whether a borrower could sue a lender if the lender breached the terms of a Trial Period Plan (“TPP”) agreement. As I noted in that post, a TPP is essentially the first step in obtaining a mortgage modification under HAMP. In a TPP agreement, the borrower agrees, among other things, to make reduced monthly payments in a timely manner during a relatively short period. As the name suggests, this is a trial period during which the lender can determine whether the borrower is able to make payments similar to those the borrower would be required to make under a modified mortgage. If the borrower satisfies the conditions of the TPP, including making the monthly payments, then the lender agrees to modify the mortgage. In Arias, the Appellate Division held that a lender could face a lawsuit from a borrower if it failed to hold up its end of this bargain. In that case, however, the borrower had not made the required payments in a timely manner during the trial period — i.e., the borrower failed to hold up its end of the bargain — so the lender did not have to offer the borrower a modified mortgage.

Now, the Appellate Division has returned to the same issue in Aiello v. OceanFirst Bank. In Aiello, plaintiffs entered into a TPP agreement with defendant that required them to provide certain financial documentation, submit to credit counseling if necessary, and make monthly payments of $1,386.75 during the trial period.The TPP agreement stated that it was not a loan modification and that if plaintiffs failed to comply with its terms, no modification would be offered. It also stated that the monthly payment during the trial period was an estimate of the payment that would be required under a modified mortgage, and the actual amount under a modified mortgage might be greater.

Unlike Arias, plaintiffs in Aiello complied with the terms of the TPP agreement. Nonetheless, Fannie Mae initially rejected plaintiffs' application for a modified mortgage because their loan was originated prior to January 1, 2009, a fact, the Appellate Division observed, that defendant was aware of when it first entered into the TTP agreement with plaintiffs. Defendant eventually did offer plaintiffs a modification, but it included monthly payments almost $400 higher than the payments made under the TPP agreement. Plaintiffs rejected the offer and sued defendant for breaching the TPP agreement. Both sides moved for summary judgment. The trial court denied plaintiffs' motion and granted defendant's motion.

 

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New Jersey Urban Transit Hub Tax Credits – Going, Going, Gone?

by:  Katharine A. Muscalino

The Urban Transit Hub Tax Credit program was introduced in 2008 to provide financial incentive to developers, property owners, and tenants to make substantial capital investments in Urban Transit Hubs. Originally endowed with $1.5 billion, the program has evolved considerably since its inception and is nearing exhaustion.

Of the $1.5 billion dedicated to the Urban Transit Hub Tax Credit program, $250 million has been earmarked for residential projects. As of February 14, 2012, New Jersey’s Economic Development Authority (“EDA”) has already allocated $219.6 million to individual residential applicants, and just extended an additional $17.7 million to Pennrose, a developer proposing to demolish Trenton’s Miller Homes public housing project with low-rise residences. Because so few tax credits remain for residential projects, the EDA has announced it is no longer accepting applications for residential Urban Transit Hut Tax Credits. The remaining unassigned residential tax credits will be allocated to previously approved “ready-to-go” residential projects that have applied for amendments to their Urban Transit Hub Tax Credit applications to increase their credits to up to 35% of their project financing. The Pennrose project, originally approved for tax credits equaling 25% of its project financing and now approved for credits for 35% financing, is one such “ready-to-go” project whose tax credits have been increased by the EDA.

Of the $1.3 billion of tax credits that have not been set aside for residential projects, $100 million has been dedicated to Offshore Wind projects by the Offshore Wine Economic Development Act (expiring January 2013) and $200 million has been set aside for the Grow NJ program (expiring July 2014). An additional $696.5 million has been allocated to individual commercial projects, leaving just $253.5 million available for commercial projects in Urban Transit Hubs. Developers, owners, and tenants of commercial property in an Urban Transit Hub should submit their tax credit applications as soon as possible to insure they don’t miss out.

Residential projects in the Urban Transit Hubs need not abandon hope altogether yet. The EDA has directed that in September 2012, the agency will undertake an evaluation of the commercial projects in its “pipeline,” meaning those that have already submitted an application and are waiting to be approved, as well as the progress of approved projects. Depending on its conclusions following this review, the EDA may recommend that any remaining commercial allocations, as well as the $100 million earmarked for the Offshore Wind project, be reallocated to new residential projects in Urban Transit Hubs and to Grow NJ projects. The EDA will make its final determination as to the reallocation of the Offshore Wind $100 million following the program’s January 2013 sunset, and may introduce a competitive process for the award of any remaining tax credits.

A Look At What The Occupy Wall Street Protesters Are Really Occupying

by: Peter J. Gallagher

The Wall Street Joural Law Blog had an interesting article — "Private Owners Of Public Spaces In 'Occupy Wall Street's' Wake" — on the property that the so-called 99%ers are actually occupying in the Wall Street area. Parks like Zucotti Park are known as "privately owned public spaces" or POPS, which are "part of New York’s incentive zoning program, under which buildings are granted additional floor area or related waivers in exchange for providing these spaces."  (Zucotti Park, formerly known as Liberty Plaza Park, is actually named for the chairman of the entity that now owns the park.)  The owners of Zucotti Park claim that they have not been able to clean the park since the day before the protests began.  This has led some to call for the Department of City Planning to create new rules for POPS that would allow the private owners to close the parks at a set time, which Stephen Spinola, head of the Real Estate Board of New York, claims would “add to security and allow maintenance.”  As a practical matter, the article notes, this might be difficult because each of the 516 POPS in New York City has its own contract with the City and its own rules.  Moreover, changing the rules governing the City’s POPS to allow the private owners to control access, even for seemingly benign purposes, would surely spark protests of its own.

You Got A Better Idea?!? Government Opens Suggestion Box For Ideas On How To Rent Out Foreclosed Properties

by:  Peter J. Gallagher

  The New York Times is reporting that the government is soliciting ideas for turning its glut of vacant, foreclosed houses into rental units that could be managed by private parties or sold in bulk  ("U.S. Seeks Ideas On Renting Out Foreclosed Property").  The goal of the program would be to "stabilize neighborhoods where large supplies of empty, foreclosed properties have hurt property values" and "clear the nation’s balance sheet of real estate holdings that, because they have been difficult to sell individually, have hung over the housing market and stunted sales of existing homes and new construction."  The request for ideas comes from the Federal Housing Finance Agency, the Department of Housing and Urban Development, and the Treasury Department, and you can click here to submit your ideas.

As the article notes, the percentage of homes owned by the government that are currently in foreclosure is somewhat staggering:

Of the 248,000 homes owned by Fannie Mae, Freddie Mac and the F.H.A. at the end of June, 70,000 were listed for sale, said Corinne Russell, a housing finance agency spokeswoman. The remainder were not yet on the market or the agencies had already received an offer from a prospective buyer.

But it is possible that hundreds of thousands of more homes that are now in the foreclosure process could come into the possession of the federal government in the next few years, housing experts say.

The government is now looking for a few good men ideas for how to deal with this crisis.  Among those already proposed are "rent-to-own programs, in which previous homeowners or current renters could lease properties as a path to ownership, and ways in which the properties can be used to support affordable housing."

If you have any thoughts, be sure to let us know when you let the government know.