Law Blog

FORECLOSURE DEFENSE: Bank Appeals Crushing Loss

Recently, our firm won a foreclosure trial by arguing a bank cannot simply renege on a loan modification agreement whenever it chooses, even if it was a “trial loan modification.”  This new precedent is dangerous for lenders because several of them have been guilty of arbitrarily yanking modifications even when homeowners make all the “good-faith” trial plan payments.  So, after losing at trial, the bank is now throwing everything it has at this crucial foreclosure appeal.

It has been very common for lenders to offer a trial modification plan as a precurser to permanent modification of a home loan.  The idea, supposedly, is to see if the homeowner can really afford the loan payments.  In other words, what would be the point of allowing a homeowner to modify the mortgage if there is just going to be a new default in the near future?  However, if the homeowner makes three trial period payments, then there is hope the modification might be successful and the lender will offer a permanent modification.  For many people, however, it has not worked out that way at all.

The Posti case was decided and is now on appeal in Palm Beach County, Florida (Trial Case No. 502009CA024722XXXXMB/Appeal No. 4D14-0419).  Like many others, Mr. Posti received paperwork from his lender for a trial modification plan, and he accepted the offer.  Supposedly, all he had to do was sign and return the agreement and make the three trial payments.  Mr. Posti did so but, after three months of making payments, no permanent loan modification package appeared.  Assuming there had been an oversight or that the lender was simply backlogged, Mr. Posti made a fourth monthly payment and contacted the lender to request the permanent modification paperwork. The bank told him to wait for the final package and keep making payments in the meanwhile.  He did so — for a fifth month, a sixth month, and a seventh month.

Mr. Posti finally stopped making “good-faith” monthly payments because, instead of receiving a permanent modification, he was served with a FORECLOSURE complaint.  Unfortunately, this experience has been the rule, not the exception.  A lot of people of been double-crossed [1] in similar fashion.  The lender offers a trial modification, accepts several months of payments[2] and then reneges by (i) denying the modification, (ii) sending a permanent modification with much worse terms, and/or (iii) foreclosing after the homeowner gets tired of making payments with no sign of a permanent modification.

As it turns out, Mr. Posti had maintained careful documentation and records of all communications with his lender, which lent credibility to his testimony at the FORECLOSURE trial.  Our firm presented two key foreclosure defenses.

First, no matter what label you put on it, the trial modification offer is a contract that is binding if accepted and the homeowner makes the payments.  Lenders include disclaimer language, which supposedly permits cancelation of the modification whether or not the homeowner complies with the terms.  However, that is not how contract law works.  We argued the trial plan agreement meets all the criteria of a contract, and lenders cannot change the rules through a few vague disclaimers.  The term “trial” is a misnomer.  The LOAN is modified and the parties have a new agreement.

Second, we argued the lender is estopped from foreclosing.  After all, it was the lender that breached the contract, not the homeowner.

The trial judge was convinced by the foreclosure defense.  We won, and the court entered an unprecedented order.  First, the order requires the lender to issue a permanent loan modification agreement consistent with the terms of the trial modification.  Second, the order requires the lender to remove derogatory information sent to the credit bureaus in connection with the supposed default.  A crushing defeat no matter how you look at it.

Now, the issue is before Florida’s Fourth District Court of Appeal.  Among the states that have judicial foreclosures, Florida’s courts are the most influential.  And, as it happens, within Florida, the Fourth District leads the way in setting FORECLOSURE case law.

Many lives will be affected by the outcome of this appeal.


  ~ Jeff Harrington, Esq.


[1] Or, servicing company.

[2] Well beyond the 3-month trial plan period.