201710.05
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Trial Payment Plan is not an Enforceable Contract

TRIAL PAYMENT PLAN IS NOT AN ENFORCEABLE CONTRACT WHERE LENDER PROVIDED ADEQUATE BASIS FOR DENIAL OF PERMANENT LOAN MODIFICATION UNDER 12 C.F.R. § 1024.41(d)

The Middle District of the United States District Court recently rendered an order in an action filed by two mortgagors (the O’Steens) against Wells Fargo Bank (“Wells Fargo” or “the bank”) and Rushmore Loan Management Services, LLC (“Rushmore”). O’Steen v. Wells Fargo Bank, N.A., Case No. 6:17-cv-849-Orl-31KRS (M.D. Fla. September 25, 2017).[i] The O’Steens sued Wells Fargo and Rushmore after being advised they did not qualify for a modification of their loan due to unresolved title issues affecting the O’Steens’ property.

The O’Steens took out a mortgage with Wells Fargo in 2005 and defaulted on the loan in 2012. The bank filed a foreclosure action which resulted in entry of a final judgment in favor of the bank in January 2014 and the scheduling of a foreclosure sale of the mortgaged property. Prior to the foreclosure sale, the O’Steens and Wells Fargo entered into a trial payment plan (“TPP”) as the first step toward permanently modifying the mortgage. Pursuant to the TPP, the bank requested the clerk cancel the foreclosure sale. Under the terms of the TPP, the O’Steens were required to make timely payments, submit all requested paperwork and meet “title clearance requirements”. Shortly after entering into the TPP, and a month before their first TPP payment was due, Wells Fargo advised the O’Steens it would be unable to permanently modify their loan unless title issues affecting the property were resolved.

The O’Steens sent in their first payment and continued to make timely payments under the TPP. Wells Fargo cancelled several scheduled foreclosure sales, but continually advised the O’Steens the title issues remained unresolved and would prevent permanent modification of the loan. Finally, in May 2015, Wells Fargo advised the O’Steens it could not permanently modify their loan due to the unresolved title issues. In April 2016, Rushmore began to service the loan. Wells Fargo moved to reschedule the foreclosure sale. Rushmore continued to follow up with the O’Steens for several months regarding “loss mitigation information”, ostensibly unsuccessfully.

In October 2016, the O’Steens filed a complaint against Wells Fargo and Rushmore alleging the lender/servicer breached the TPP and in doing so violated two RESPA regulations which pertain to “duties that arise for loan servicers upon their receipt of loss mitigation applications”.
12 C.F.R. § 1024.41(d) and (g). Specifically, subsection (d) requires a loan servicer provide the borrower with the specific reason for denial if it determines a borrower does not qualify for a permanent loan modification. 12 C.F.R. § 1024.41(d). Subsection (g) prohibits a loan servicer from prosecuting a foreclosure action “under certain circumstances after a borrower submits a complete loss mitigation application to a servicer”.
12 C.F.R. § 1024.41(g).

While the O’Steens’ action remained pending, the clerk rescheduled the sale in Wells Fargo’s foreclosure action. The clerk conducted the sale on May 23, 2016, and a third-party purchaser placed the successful bid at the foreclosure sale. The O’Steens objected to the sale, but the Court overruled their objection and the third-party purchaser became the new owner of the property.

About four months after the foreclosure sale, both Wells Fargo and Rushmore moved for summary judgment in the O’Steens’ case against them. Both entities asserted they did not breach the terms of the TPP and the TPP did not constitute a modification of the loan or an enforceable contract. The Middle District of Florida agreed, finding there to be no genuine issues of material fact on the breach of contract claim. The Court concluded:

“The terms of any potential loan modification were indefinite and uncertain, and, thus they could not possibly be enforced…such [TPP] agreements represent, at best, unenforceable agreements to agree that do not rise to the level of a valid contract.” [ii]

As to the RESPA violations, the Court concluded Wells Fargo did not violate § 1024.41(d) because the “evidence conclusively show[ed]” it advised the O’Steens of the “specific reason for its determination” that it could not permanently modify their loan. The Court went on to explain, “…it appears from the [O’Steens’] Response that they knew exactly why their loan modification was denied, because Christopher O’Steen took ‘the extreme step of filing a bankruptcy petition…to obtain a judicial declaration that judgments…would not affect title [of the property]’.”[iii]

Lastly, the Court concluded it could not resolve the alleged § 1024.41(g) violations on summary judgment without more evidence. The Court explained it needed evidence which conclusively established whether Wells Fargo or Rushmore moved for an order of sale, or conducted a sale and, if so, if they did so while “an appeal by the [O’Steens] was pending.”[iv] The Court noted there was some confusion as to whether the O’Steens’ “Dispute Request Form” constituted an appeal of the loan modification denial for purposes of § 1024.41(g).

The Court’s well-reasoned opinion sets a reasonable precedent, at the district court level, which will promote continued loss mitigation efforts between lenders and borrowers. Although disappointing for the borrowers, who ostensibly made a sincere effort to keep the property, a contrary ruling would have had a stifling effect on settlement efforts harming both lenders and borrowers.

[i] O’Steen v. Wells Fargo Bank, N.A., Case No. 6:17-cv-849-Orl-31KRS (M.D. Fla. September 25, 2017).

[ii] O’Steen, at page 8, quoting, in part, Senter v. JPMorgan Chase Bank, N.A., 810 F. Supp. 2d 1339, 1351 (S.D. Fla. 2011).

[iii] O’Steen, at page 10.

[iv] O’Steen, at page 11.