7th Circuit splits in loan modification dispute, rules in bank’s favor

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A 7th Circuit Court of Appeals majority affirmed Thursday the dismissal of a homeowner’s complaint against a bank that he alleged failed to honor a loan-modification offer that could have kept him from foreclosure.

Homeowner Anthony Taylor fell behind on his mortgage payments during the 2008 subprime mortgage crisis and sought help under the Home Affordable Mortgage Program to avoid foreclosure. The first step toward a permanent loan modification was for qualifying borrowers like Taylor to enter into a Trial Period Plan with their lenders and make lower payments on a provisional basis.

Taylor’s lender, JPMorgan Chase, informed him of the HAMP opportunity and sent him a proposed TPP agreement to be signed and returned to the bank. The agreement contained a provision stating that the trial period would not begin until both parties signed the TPP and Chase returned to Taylor a copy bearing its signature.

Although Taylor signed the proposed agreement, Chase never did, and Taylor’s loan was never modified.

But when Taylor sued Chase, contending the bank failed to honor its loan-modification offer, the U.S. District Court for the Northern District of Indiana granted judgment on the pleadings to the bank after finding that the facts as Taylor had alleged them in his complaint and a later proposed amended complaint did not suffice to state a claim.  It also denied as futile Taylor’s request to amend the complaint.

A divided 7th Circuit Court of Appeals affirmed that decision Thursday in Anthony G. Taylor v. JPMorgan Chase Bank, N.A., 17-3019.

Starting with Taylor’s breach of contract claim, the 7th Circuit majority found there was no contract between the parties. Specifically, it noted t the TPP’s language was clear, precise and created a condition precedent that required Chase to countersign the TPP and return a copy to Taylor before the trial modification commenced.

“All agree that Chase never took those steps. With the condition precedent unmet, the proposed TPP agreement never became a contract binding on the parties,” Circuit Judge Michael Scudder wrote for the majority, joined by Judge Diane Sykes.

“The countersignature was not an empty formality but rather, as (Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012)) observed, ‘[Chase’s] opportunity to determine whether [Taylor] qualified’ for HAMP relief,” the majority continued. “For that reason, the TPP reserved for Chase — in the form of a countersignature — a final say before the contract came into existence. The condition precedent was the legal mechanism for that reservation, and Chase was entitled to rely on it.”

The majority then found that Taylor alleged no actions on Chase’s end from which the 7th Circuit could reasonably infer that the bank intended to go through with the trial modification without a countersignature.

Further, Chase’s acceptance of Taylor’s reduced payments did not plausibly establish waiver, Scudder wrote, concluding the bank’s decision to accept Taylor’s trial period payments was not inconsistent with its intent to rely on the countersignature condition precedent.

The court majority likewise found Taylor’s allegations could not support his other claims, including promissory estoppel, fraud and intentional infliction of emotional distress under Indiana law.

“We recruited the Georgetown Law Appellate Courts Immersion Clinic to represent Taylor on appeal, and they provided outstanding advocacy,” Scudder concluded. “In the end, though, we cannot conclude that the district court erred, either in dismissing Taylor’s complaint or denying him the opportunity to amend, so we AFFIRM.”

But Circuit Judge David Hamilton dissented.

In an 18-page dissent, Hamilton said he “would reverse the dismissal of Taylor’s claims for breach of contract and promissory estoppel so that those claims could be decided on the basis of evidence rather than allegations and dueling inferences.”

“Plaintiff Taylor alleged facts that support viable claims for breach of contract and promissory estoppel. In affirming dismissal, the majority opinion departs from the generous standard that applies on a motion to dismiss or for judgment on the pleadings under Rule 12(b)(6) or Rule 12(c), denying plaintiff the benefit of favorable inferences and instead granting them to Chase on several key points,” Hamilton opined.

“The majority opinion errs in two basic ways: failing to consider the rest of the relevant documents, and failing to give Taylor the benefit of reasonable inferences from his allegations, including facts indicating that Chase itself did not treat its own formalities seriously,” he continued. “Taylor should be able to pursue his claims for breach of contract and promissory estoppel, as we found in Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012), and as our colleagues in other circuits have found in similar cases.”

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