7th Circuit: Bank avoids breach of contract claims in HAMP loan modification offer

Courts Appellate Seventh Circuit Mortgages HAMP Consumer Finance

On April 30, in a split opinion, the U.S. Court of Appeals for the Seventh Circuit issued a decision affirming a district court order holding that a consumer’s claims against a bank failed because the bank never counter-signed the Trial Period Plan (TPP) it offered the consumer in connection with the Home Affordable Mortgage Program (HAMP). According to the opinion, the consumer signed his name to the TPP and returned the TPP to the bank along with what the consumer believed to be the other required documents and the first of this three payments. However, the bank never returned a fully executed copy of the TPP to the consumer. Instead, it sent the consumer multiple notices stating that necessary documentation was still missing. Ultimately, the consumer made all three payments required by the TPP, but never received a permanent modification of his loan. On that basis, the consumer filed suit, alleging breach of contract, fraud, and intentional infliction of emotional distress due to the bank’s alleged failure to honor its loan-modification offer. The district court granted judgment on the pleadings for the bank and denied the plaintiff’s request to amend the complaint, concluding, among other things, that the consumer failed to state a plausible claim for relief.

On appeal, the majority agreed with the district court, holding, among other things, that the bank never actually agreed to modify the consumer’s mortgage under HAMP. Specifically, the majority stated that “[i]f an offer contains a conditional precedent, a contract does not form until the condition is satisfied,” referencing language in which the bank reserved the right not to send the consumer a counter-signed copy of the Trial Period Plan (TPP) if the borrower did not qualify for HAMP relief. Because the TPP never went into effect, it imposed no contractual obligations on the bank.