- Servicer's Alleged Failure to Honor HAMP Trial Modification Plans Can Form Basis for Common Law Breach of Contract Claim
- February 17, 2011 | Author: Maura K. McKelvey
- Law Firm: Hinshaw & Culbertson LLP - Providence Office
In Durmic v. J.P. Morgan Chase Bank, N.A., borrowers claimed that they were persuaded by a servicer to participate in the Home Affordable Modification Program (HAMP), wherein they were required to submit proof of current income, make representations regarding their finances, and make three monthly payments pursuant to a Home Affordable Modification Trial Period Plan (TPP). The borrowers claimed that they satisfied those requirements, but that the servicer never offered them a permanent modification as promised.
The borrowers sued the servicer based on its alleged violation of the TPP modification agreement. Their claims included breach of contract, breach of the implied covenant of good faith and fair dealing, promissory estoppel and violation of the Massachusetts consumer protection statute (Mass. Gen. Laws ch. 93A). The borrowers sought certification of a class of all Massachusetts borrowers who had entered into a TPP with the servicer, as well as a permanent injunction enjoining the servicer from foreclosing on their mortgages or the mortgages of any member of the proposed class. They further sought an order requiring the servicer to "appropriately train" its employees to perform their "duties" under the HAMP; an order for specific performance of the servicer's alleged contractual obligations under the TPP; and actual or statutory damages, multiple damages, and attorneys’ fees and costs. The servicer moved to dismiss all claims based on lack of a valid contract.
The court rejected the servicer's argument that no consideration existed for the TPPs, holding that the borrowers met the requirements described above in the first paragraph. By complying with the TPP requirements, the borrowers provided valid "consideration" because it can consist of "a legal detriment to the promisee that entails even the slightest trouble or inconvenience." The court also rejected the following arguments that were proposed by the servicer: (1) that the borrowers failed to allege cognizable damages (because, the court held, at the motion to dismiss stage plaintiffs "are not required to specifically plead general damages"), and (2) that the TPP is not a valid contract (because, the court held, it constitutes, at most, a contingent agreement in the future). Further, the court specifically declined to accept the servicer's argument that the borrowers' claims attempted an "end-run around” the HAMP's lack of a private right of action by bringing claims based in common law breach of contract.
The court denied the borrowers’ motion for preliminary injunction on behalf of the class. But it deferred judgment on the motion to dismiss the Chapter 93A count and the issue of class certification.
The court's finding that consideration existed for the TPP will limit servicers' defenses to HAMP-based claims, and will likely result in additional litigation costs and exposure related to the modification process. It is ironic that the TPP form utilized by the servicers was a Fannie Mae/Freddie Mac "Uniform Instrument" and that servicers' reasoning for declining to offer a permanent modification generally results because they must adhere to the HAMP guidelines. Further, the court's deferral of the class certification issue is concerning because it leaves open the possibility of a class being certified.