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New Jersey: State Supreme Court Finds that Lenders Participating in the Foreclosure Mediation Program may not Unilaterally Modify the Terms of a Mediated Settlement

Posted By USFN, Tuesday, September 12, 2017
Updated: Thursday, August 31, 2017

September 12, 2017

 

by Edward W. Kirn III

Powers Kirn, LLC – USFN Member (New Jersey)

After finding that the lender and the borrower entered into an enforceable settlement agreement through the Foreclosure Mediation Program, the New Jersey Supreme Court reversed the appellate division. The case was remanded to the trial court to craft an appropriate remedy. [GMAC Mortgage, LLC v. Willoughby, __ A.3d __ (N.J. July 31, 2017)].

Background
The borrower and the lender’s attorney participated in two mediation sessions; at the second session in May 2010 the parties entered into an agreement, which was memorialized in a “Foreclosure Mediation Settlement Memorandum,” a form provided by the judiciary. Pre-printed at the top of the settlement memorandum is a preamble stating, “The parties agree that the foreclosure action is resolved upon the following terms, conditions, and covenants.” The lender’s attorney then handwrote the settlement terms in the blank section.

The lender’s attorney wrote that the borrower was being offered a “trial to permanent modification plan contingent on signed modification documents and an initial down payment.” The lender’s attorney also noted the amount of the initial down payment and the date upon which it was due; the amount of the modified principal balance; the length of the modified term; the modified interest rate; and the amount of a non-interest bearing balloon payable upon maturity, refinance, or sale.

Additionally, the settlement memorandum contains a pre-printed statement at the bottom that states, “The parties agree that when executed this mediation settlement memorandum shall be final, binding and enforceable upon all parties.” Both the lender’s attorney and the borrower signed the agreement at the mediation session. The borrower went on to make the initial down payment timely, as well as trial payments for a year.

At the end of the year, the lender sent the borrower a permanent loan modification, which contained different terms than those set forth in the Foreclosure Mediation Settlement Memorandum. The borrower did not sign and return the permanent loan modification but did start making the higher monthly payments. After the borrower’s monthly payment was returned due to her failure to sign and return the permanent loan modification agreement, she filed a pro se motion to enforce the May 2010 settlement. The chancery court denied the borrower’s motion to enforce the May 2010 loan modification agreement, finding that it was a “provisional settlement.” The appellate division affirmed the chancery court’s determination that the May 2010 agreement was provisional.

Supreme Court’s Analysis and Conclusion
The Supreme Court observed that the Foreclosure Mediation Program’s goals “can only be met if our chancery courts enforce mediated settlements,” and that the state’s public policy favors the settlement of disputes through mediation, citing Willingboro Mall, Ltd. V. 240/242 Franklin Ave., L.L.C., 215 N.J. 242, 253-54, 71 A.3d 888 (2013).

A valid settlement agreement requires “offer and acceptance” by the parties, and the terms must be sufficiently definite so that the parties can perform under the contract with reasonable certainty. Weichert Co. Realtors v. Ryan, 128 N.J. 427, 435, 608 A.2d 280 (1992) (quoting West Caldwell v. Caldwell, 26 N.J. 9, 24-25, 138 A.2d 402 (1958)). The Court found it significant that the lender’s attorney handwrote the key provisions on the settlement memorandum. See In re Estate of Miller, 90 N.J. 210, 221, 447 A.2d 549 (1982) (“Where an ambiguity appears in a written agreement, the writing must be strictly construed against the draftsman.”).

The Court then concluded that the settlement memorandum in this case “has all of the indicia of a permanent and binding agreement.” Further, the Court found that the borrower was reasonable in making the payments as set forth in the agreement to save her home. In reversing the appellate court, the New Jersey Supreme Court found that the chancery court, which is sitting as a court of equity, erred by not enforcing the agreement as a permanent modification of the loan.

While the mediation program is currently about to change in New Jersey, the takeaway from this case is that proposed terms should not be disclosed at a mediation session unless they are definite.

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