Unenforceable Loan Modification Agreement

In Vargas v. Deutsche Bank Nat. Trust Co., 3D11-554 (Fla. 3d DCA, Nov. 28, 2012), Rogelio Vargas (“Defendant”) appealed an order approving a general magistrate’s report and recommendations which denied his “Motion to Enforce Loan Modification Agreement Enter Into in Open Court.”

Deutsche Bank National Trust Company (“bank”) received a final judgment for foreclosure against the Defendant. The property’s sale date was rescheduled twice at the bank's request. During this time, Ocwen Loan Servicing, LLC (“servicer”) made a written offer to modify the mortgage loan. The offer required an initial down payment and acceptance of the offer by October 24, 2008, its expiration date. The Defendant did not accept the offer before the expiration date. The Defendant then filed two motions. In both motions, the Defendant acknowledged his refusal to accept the offer in its original form and requested the trial court to compel the bank to make an offer that the Defendant would accept. The motions were denied.

The Defendant then filed a third motion alleging that at the hearing on the second motion, the parties agreed “in open court” to the terms of the offer with only one issue pending and that he signed the offer “in open court,” attaching the initial payment. Soon after, the Defendant filed for bankruptcy. While the bankruptcy was pending, the Defendant sent monthly checks to the servicer in the amount stated in the offer. Some checks were accepted and others were returned with notices stating that the checks sent did not cure the Defendant’s default. Ultimately, all of the checks were returned after the bankruptcy proceeding terminated. The Defendant made the same allegations in a fourth motion. At an evidentiary hearing on the fourth motion, no transcript of the hearing on the second motion was entered, only the Defendant testified. The general magistrate issued a report and recommendation stating that the Defendant failed to offer any credible evidence to support his claim that the parties had agreed to a loan modification at the hearing on the second motion. On appeal, The Third District Court of Appeal (“Court”) agreed.

The Court held, in part, that the lower court had no authority to consider the Defendant’s motions to enforce a loan modification agreement after the foreclosure judgment became final because the foreclosure judgment did not mention a loan modification agreement or a forbearance package or require the bank to provide the Defendant with a forbearance package, as the Defendant alleged. The foreclosure judgment merely determined the amount of principal and interest due through the judgment date, the amounts due for other costs associated with the property and the foreclosure action and ordered the property to be sold at a public sale to satisfy the total amount due to occur no sooner than 90 days from the judgment date.

In its reasoning, the Court discussed basic contract law. Under basic contract law, the offer expired on October 24, 2008; therefore, nothing existed for the Defendant to accept. Furthermore, the Defendant twice made outright rejections of the offer in his first two motions, stating that he could not agree to the offer unless the “unreasonable terms” were modified. Nor was there evidence that the servicer or the bank modified the offer or agreed to be bound by the offer at the hearing on the second motion.

Finally, the Court held that the Defendant’s claim that he entered into a loan modification agreement “in open court” was barred by the statute of frauds. The Florida Statute § 687.0304(2), required that the loan modification agreement be in writing, express consideration, set forth the relevant terms and conditions, and be signed by the creditor and the debtor in order for the loan modification agreement to be actionable. The loan modification did not conform to the requirements of the statute of frauds. Furthermore, the loan modification agreement could not be removed from the statute of frauds by partial performance – the payments made by the Defendant – because “the acts done in furtherance of partial performance must be referable exclusively to the oral contract sought to be enforced and nothing else.” Here, all of the documents in evidence indicated that the assigned loan number remained the same at all relevant times, and the payments made were returned with letters referencing only the original loan.

To read the entire opinion, click here.