Residential Mortgage Foreclosure Mediation Program is Meant to Produce Enforceable Settlements, and the Supreme Court Enforces Such a Settlement

GMAC Mortgage, LLC v. Willoughby, 230 N.J. 172 (2017).  In 2008, recognizing the effects of the financial crisis on New Jersey homeowners, our Supreme Court established the Residential Mortgage Foreclosure Mediation Program.  The Program was intended to foster mediated resolutions that would result in restructuring loans to avoid foreclosure.  Today’s opinion by Justice Albin focuses on a case that went through mediation under the Program, resulting in a signed settlement agreement that stated that it was “final, binding and enforceable.”  Despite that, the Chancery and Appellate Divisions declined to enforce that resolution against the lender, GMAC Mortgage.  The Supreme Court reversed that result and enforced the settlement.

The settlement was embodied in a handwritten agreement that GMAC’s counsel prepared at the successful mediation.  The settlement terms stated that defendant was “being offered a trial to permanent modification plan contingent on signed modification documents and an initial down payment.”  If the down payment and subsequent trial modification payments were made, the modification would become permanent.  Despite the “final, binding and enforceable” language quoted above, the mediator filed a report regarding the mediation in which a box labeled “Provisional Settlement- No Need to Reschedule Mediation (Case Not Dismissed)” was checked.  That report also stated “Loan Modification.”

Defendant signed the modification documents and made the required down payment and the trial modification payments.  Despite that, GMAC sent defendant multiple new modification agreements that were inconsistent with the result of the Program mediation.  When defendant would not accept those modifications, GMAC referred the matter back to foreclosure.  Defendant sought to enforce the Program settlement, but the Chancery Division declined to do that and instead ordered the parties back to mediation, at which GMAC offered another modification.  Seeing little choice, defendant paid the down payment under that proposal, and orally agreed to the rest of the proposal, though she never signed anything confirming that.

The Chancery Division then denied her motion to enforce prior Program settlement, finding it “provisional” (in part because defendant had agreed to the subsequent proposal).  Defendant’s home was ultimately sold at a sheriff’s sale for $100.  The Appellate Division affirmed, but today the Supreme Court reversed the lower courts and enforced the original Program settlement and remanded to the Chancery Division to “craft an appropriate remedy” given the sale of defendant’s home in the interim.

Since the issue was one of interpreting the Program settlement, a contract, Justice Albin applied the de novo standard of review.  “Although the Agreement in this case is not free of all ambiguity, the terms are nevertheless sufficiently definite and detailed to indicate, with reasonable certainty, that the parties intended a permanent loan modification.”  This was especially true given that GMAC’s counsel was the one wrote out the terms, implicating the rule of construing contracts against their drafters.  Nothing in the agreement even hinted that GMAC, after defendant had made the trial payments over a period of many months, “could unilaterally demand that Willoughby agree to a new loan modification on different terms than those that appeared in the Settlement Memorandum [from the original Program mediation].”

Nor was there a novation by virtue of defendant’s subsequent oral (but not written) agreement to GMAC’s new terms at the second mediation.  Justice Albin noted that a novation requires an intent to “extinguish the old contract,” and defendant never had any such intent.  Indeed, before the sheriff’s sale, defendant (who by that time had obtained counsel) continued to try to enforce the Program settlement.

Finally, Justice Albin adopted a suggestion from one of the several amici in the case:  adding a check-box to the form of mediator’s report titled “Final Settlement (Case Not Dismissed).”  That language would fit the circumstances of this and similar cases better than “Provisional Settlement ….”