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Court Requires Lender to Offer a Permanent Loan Modification on Completion of Trial Period

Banking Issues, Mortgage Issues, and Real Estate Law by Peter N. Brewer, Esq.

Following in the footsteps of several recent cases, the Third Appellate District of California held that JP Morgan Chase was required to grant a permanent loan modification.  In Bushell v. JPMorgan Chase Bank, the Appellate Court found that because the borrower had successfully completed the trial modification and provided all of the required documentation, Chase was required to modify the loan.


The Bushells obtained a loan from Washington Mutual in 2004.  In May 2009, Chase offered the Bushells a trial modification plan which stated that if the Bushells complied with the plan and qualified under the Home Affordable Modification Program (HAMP), Chase would modify their loan.  In June 2009, Chase sent another letter stating that if the Bushells made three trial period payments and complied with HAMP rules, then Chase would modify the loan.  Accordingly, the Bushells made the three trial payments and contacted Chase about the loan modification.  Chase confirmed that it was processing the paperwork for the modification and instructed the Bushells to continue making payments.  In total the Bushells made 26 payments to Chase before Chase denied the loan modification and proceeded with a foreclosure of the Bushells’ home.


As in the holding in Corvello v. Wells Fargo, which I wrote about here, the lower (trial) court held that the borrowers failed to make any claims against Chase because Chase had no obligation to modify the loan.  However, the Appellate Court reversed this decision because it found that the June 2009 letter was a contract that required a modification if the Bushells made the three trial payments.  In addition, the Appellate Court found that not only did Chase breach the contract, the borrowers also had claims for breach of implied covenant of good faith and fair dealing, promissory estoppel, and fraud based on a false promise, due to Chase’s failure to modify the loan.


This decision follows several recent decisions that have all held that lenders must give a loan modification if a borrower complies with the requirements.  It is important to note that the courts seem to be going out of their way to sanction lenders for their failure to comply with loan modification programs.  In this case the parties had settled the case prior to oral argument and had requested that the court dismiss the appeal.  However, the Appellate Court refused to dismiss the appeal as the case posed “an issue of broad public interest that is likely to recur,” and issued this decision.

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