Timing is Everything

Appellate Court upholds dismissal of Debtor’s claims due to failure make timely payments outlined in a loan modification plan

They say that there’s a time and a place for everything in life. For a while, the North Carolina courts were having quite a time deciding when a loan modification agreement amounted to a mere offer from the lender, and when the agreement became a contract that bound both parties. Recently, a North Carolina Court held that a debtor could not make up for lost time with tardy payments, and dismissed her claims seeking specific enforcement of a loan modification agreement. 

In McDonald v. Bank of New York Mellon Trust Company, N.A. (WL 2207920)(2018) the debtor filed suit against a note holder, servicer, and substitute trustee alleging breach of contract, breach of good faith and fair dealing, unfair and deceptive trade practices, and seeking the specific performance of a loan modification agreement. In McDonald, the debtor fell behind on her obligations under a promissory note, and applied for loss mitigation assistance. The debtor and the servicer agreed upon a trial repayment plan for a period of three months, with the first installment being due on October 01, 2012.

The debtor failed to make the first payment on time, instead providing the funds to the servicer two weeks late, on October 15, 2012. The servicer returned the payment stating that the loan was not modified. The debtor attempted to submit payments in November and December in conjunction with the loss mitigation agreement, and the servicer returned the payments with the same reasoning. A foreclosure ensued, the clerk entered an Order authorizing a foreclosure sale and the property was sold on the courthouse steps. The debtor filed suit seeking enjoin the foreclosure sale’s confirmation, and the lender filed a motion seeking dismissal of the debtor’s lawsuit.

In the complaint, the debtor alleged that the servicer breached the terms of the loan modification provided to the debtor, and further asked the Court to compel the lender to adhere to the loan modification agreement’s terms. Based on the alleged breach of contract, the debtor brought additional claims for breach of good faith and fair dealing, as well as, unfair and deceptive trade practices.

The Cumberland County Superior Court sided with the lender and dismissed the case in its entirety. In its ruling, the Court reasoned that there must be a valid contract for a breach of contract to take place. While recognizing that a loan modification was offered to the debtor, the Court noted that the loan modification agreement’s specific terms required payments to be received on or prior to the first day of the month and that receipt of payments in a timely manner was of the essence. 

Since the debtor failed to keep her side of the bargain by submitting payments in a timely manner, a binding contract was never created, and therefore there could be no breach of contract. Moreover, the Court could not force the lender to honor a contract that was never formalized by a timely payment. The unfair and deceptive trade practice claim based itself on the existence of a valid loan modification and the lender’s failure to accept late payments, so it in turn was dismissed for the same reason. The debtor filed an appeal; however the Appellate Court upheld the trial court’s ruling. While loan modification agreements allow both the lender and debtor to buy time and avoid foreclosure, it would be prudent to make payments ahead of time, as waiting until crunch time can invalidate a loss mitigation agreement in next to no time.     
 

Published by John A. Mandulak on July 31, 2018.