An agreement is an agreement: JPMorgan Chase tries to rescind permanent loan modification agreement

The Eighth Circuit Court of Appeals recently held that JPMorgan Chase (“Chase”) could be sued for breach of a permanent loan modification even though Chase never signed the modification. The case has been sent back to the district court for trial that will likely occur sometime in 2015.

In 2009, a Missouri homeowner who had fallen behind on his mortgage payments sought to take advantage of the Home Affordable Modification Program (“HAMP”). To qualify, the homeowner had to make all of the payments during a Temporary Trial Period (“TPP”). At the conclusion of the TPP the homeowner would be offered a permanent loan modification.

The homeowner in this case made the TPP payments, making the last payment in December 2009. As a result, Chase offered him a permanent modification which reduced his mortgage payments to $957 per month. The homeowner signed the modification, and mailed it back to Chase before the January 14, 2010, deadline.

A week later the homeowner called Chase to find out if Chase received the modification. Chase assured him it was being processed. In March 2010, the homeowner made his first modified monthly payment. Chase rejected the payment, so the homeowner called Chase. Chase informed him that it had not received the modification agreement, so the homeowner sent a second copy to Chase. Chase blamed the problem on its recent merger with Washington Mutual Bank.

Concerned that he had not received any confirmation of Chase’s acceptance, the homeowner requested that Chase send back a signed copy of the modification agreement once someone at Chase executed it. Chase informed the homeowner that he would not receive any confirmation, so the homeowner made his March and April mortgage payments. Both the March and April payments were accepted.

The homeowner continued making payments until December 2010 when Chase contacted him and requested additional information for the HAMP paperwork. In January 2011, Chase told the homeowner to stop making payments while Chase resolved some paperwork issues. In August 2011, Chase sent the homeowner a letter denying his request for a loan modification. Chase then attempted to foreclose on the homeowner twice.

The homeowner filed a lawsuit in federal court without the assistance of a lawyer. Fundamentally, the homeowner argued that Chase breached an agreement with him. Chase argued, successfully, to the district court that the homeowner’s case should be dismissed for failing to meet federal rules of procedure. The district court dismissed the homeowner’s case, but the court of appeals reversed that decision.

The court of appeals concluded that the homeowner, after describing the facts above, had set forth a claim for breach of contract against Chase. The court of appeals did not, however, opine as to whether Chase is actually liable for breach of contract. Instead, the court remanded the case to the district court for a trial.

Had this case arisen in Iowa, it may have turned out differently. Iowa law has a statute that may have supported Chase’s argument and allowed Chase to successfully defend the case before the court of appeals.

Regardless, most banks probably won’t behave the way Chase did in this case. However, this case is still important for all banks. The lesson from this case is that the courts will take time to look at the nature of a plaintiff’s claims where a bank is alleged to have committed a wrong. Even when a plaintiff fails to follow procedural rules, if the courts can discern legal basis for the plaintiff’s claims then the courts will allow the case to proceed.