Thursday, February 24, 2011
Anti-Consumer New Jersey Court Sides with Bank of America
The United States District Court in New Jersey agreed that the actions of Bank of America ("BOA") in refusing to honor a loan modification agreement fail to rise to a level allowing the borrower to sue BOA for violations of New Jersey's Consumer Fraud Act, N.J. Stat. Ann. §56:8-1 to 20 ("CFA"). The decision comes in the case Papoutsakis v. Bank of America.
The facts are simple, and likely common throughout the Country. On March 7, 2009, Plaintiff entered into a loan modification agreement with BOA, and from May through October 2009 made the modified mortgage payments pursuant to the agreement. However, in November 2009, BOA returned the modification payment and included an intent to foreclose. The borrower's attorney immediately sent notices to BOA confirming the terms of the modification and the borrower resumed his monthly payments until February 2010, when his payment was again returned by BOA. As is common, with the returned payment, BOA included documentation advising the borrower that he may be eligible for a loan modification as a remedy to prevent foreclosure! The borrower's attorney again sent a letter to BOA. As described by the Court in the facts of the case:
BOA failed to respond to this letter. Instead, Plaintiff [borrower] received two form letters from BOA: the first advised Plaintiff that he was eligible for the "Home Affordable Modification Program;" and the second advised Plaintiff that BOA was in the process of addressing Plaintiff's questions and concerns.
Thereafter, the borrower through his attorney filed a complaint in New Jersey state court alleging that BOA violated the New Jersey CFA. Mr. Papoutsakis requested that the Court: enforce the modification agreement, accept all payments made pursuant to the modification, remove penalty charges and late fees, prohibit foreclosure, punitive treble (triple) damages, and payment of all borrower's attorney fees.
The state court, on BOA's motion, transferred the case to federal court, where it was dismissed without prejudice.
The federal court ruled that the refusal of BOA to adhere to the modification agreement failed to rise to the level of an "unconscionable commercial practice" giving rise to liability under the CFA. The court did provide a roadmap on how this claim might have been brought to create potential liability under the CFA:
This Court does not make light of the present economic climate in this country and the grave implications that may arise from a breach of Plaintiff's Modification; however, these circumstances alone are not sufficient to establish an unconscionable business practice. Plaintiff does not allege or substantiate that Defendant's [BOA] breach of contract was done in bad faith or lacked fair dealing. As such he has not alleged any adequate substantial aggravating circumstance for his breach of contract claim to "rise to the level of an 'unconscionable commercial practice.'"
Although Florida law differs from New Jersey law, it is likely that more of these types of cases will be filed as banks refuse or forget to honor their modification agreements. Given the ruling in this case, it would appear that the New Jersey Federal Court is biased towards the lenders, however the deficiencies in the pleadings could be overcome to impute liability to BOA. A lesson to be learned by the next person who has BOA breach a valid modification agreement.