The Supreme Court of New Jersey recently held that a lender could not unilaterally alter the terms of an agreement reached via the state’s Residential Mortgage Foreclosure Mediation Program. In its unanimous decision in GMAC Mortgage, LLC v. TamiLynn Willoughby, the court held that because the homeowner satisfied all the terms of the loan modification agreement, it was enforceable and binding.
New Jersey Foreclosure Action and Loan Modification
In February 2006, defendant TamiLynn Willoughby obtained a mortgage from plaintiff GMAC Mortgage, LLC (GMAC). After she defaulted, GMAC filed a foreclosure complaint and obtained a final judgment. Prior to a Sheriff’s sale of the property, the chancery court allowed the parties to participate in New Jersey’s Residential Mortgage Foreclosure Mediation Program. New Jersey launched the program in response to the economic crisis that resulted from the collapse of the housing market. It was intended to provide a neutral forum where parties could attempt to reach mutually agreeable terms for restructuring loans in order to avoid foreclosures and bring finality to disputes.
In May 2010, Willoughby and GMAC reached an agreement (Agreement), which was memorialized in a “Foreclosure Mediation Settlement Memorandum,” a form document provided by the court. GMAC’s attorney handwrote the terms of the Agreement, including that Willoughby was “being offered a trial to permanent modification plan contingent on signed modification documents and an initial down payment.” Per the terms of the Agreement, Willoughby would pay a $6000 down payment by June 7, 2010, followed by monthly payments of $1678.48. In the event all trial payments were made, GMAC agreed to “make modification permanent,” but if Willoughby missed any payments, it would continue with the foreclosure. The parties agreed that the Agreement was “final, binding and enforceable[.]”
Willoughby paid the down payment and proceeded to make the required monthly payments. On June 7, 2011, GMAC’s loan servicing agent sent Willoughby a new loan modification agreement with different terms, including increased monthly payments. Willoughby did not sign the new agreement but began making the increased payments. In December 2011 and May 2012, Willoughby received two more, which she did not accept. On August 20, 2012, GMAC returned her monthly payment and advised that the loan would be referred to foreclosure because she failed to sign the May 2012 agreement. Willoughby had made $58,790.69 in payments under the May 2010 Agreement.
The chancery court denied Willoughby’s attempt to enforce the May 2010 Loan Modification Agreement, concluding that it was only a “provisional settlement.” Her home was subsequently sold to GMAC at a Sheriff’s sale for $100. The Appellate Division affirmed the chancery court’s determination that the May 2010 Agreement was unenforceable. It held that because Willoughby never signed a permanent modification agreement, the parties never achieved a meeting of the minds for an enforceable agreement.
NJ Supreme Court Rules Loan Modification Enforceable
The New Jersey Supreme Court concluded that the lower court should have enforced the agreement as a permanent loan modification. “Willoughby satisfied all contingent terms of the May 2010 Agreement, rendering the Agreement permanent and binding,” the court held. “Despite being compelled to engage in subsequent mediations and negotiations in an effort to save her home, Willoughby did not voluntarily abandon the May 2010 Agreement.”
The court highlighted that the parties “[did] not dispute whether they entered a settlement; they dispute[d] whether it was a provisional or permanent loan modification agreement.” It further held that “[a]lthough the Agreement in this case [was] not free of all ambiguity, the terms [were] nevertheless sufficiently definite and detailed to indicate, with reasonable certainty, that the parties intended a permanent loan modification.”
In reaching its decision, the court noted under the plain language of the Agreement, if Willoughby made all trial payments, GMAC agreed to make the modification permanent. Accordingly, it reasoned that because Willoughby “carried out her part of the bargain,” GMAC was required to make the modification agreement permanent. As Justice Barry Albin further highlighted in the court’s opinion, "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 than those that appeared in the [original agreement]."
The court further concluded that GMAC's repeated modifications of the terms of the original agreement violated the. “Willoughby has endured years of litigation, ending with the loss of her home,” Justice Albin wrote. “She is entitled to the benefits of the agreement for which she had bargained. The program's salutary goals can only be met if our chancery courts enforce mediated settlements.”
The New Jersey Supreme Court remanded the case back to the Chancery Division in Monmouth County to devise a remedy. While the justices agreed that the most equitable resolution would be for Willoughby to get her house back, they acknowledged that it may be impossible if it has already been purchased in good faith by another buyer.