In what is good news for homeowners who are still trying to avoid foreclosure via mortgage modification, a federal judge ruled that a New Jersey borrower who fulfilled the terms for a trial modification has an enforceable contract that cannot be unilaterally reversed.
U.S. Judge Freda Wolfson determined Florence Block of Bernards Township had a valid modification claim under a 2014 agreement with Seneca Mortgage Servicing. Neither Seneca nor other companies that serviced or acquired Block's mortgage followed through on the deal, according to suit.
The ruling clarifies financial companies' obligations after offering mortgage modifications. The judge rejected some arguments commonly used by lenders and loan servicers to eliminate modifications even if borrowers successfully complete trials.
Not only does the record suggest that Block made payments required by the trial modification, crafted by Seneca, Wolfson wrote. She also agreed to give up some legal rights, such as not challenging a future foreclosure action, the judge noted. Both constitute "consideration" given to the company in exchange for less onerous mortgage terms, according to the judge.
Block, who died earlier this year, was a former president of the Morris County Chamber of Commerce, a real estate and architectural executive for AT&T and other major firms, founder of a school for autistic children, and New Jersey director of the U.S. Green Building Council, which promotes energy efficiency standards.
Her attorney, Adam Deutsch, described her as "easily one of the most inspirational clients I've ever had." But Block did not live to enjoy the likelihood of keeping her home. In September, she succumbed to complications from cancer, whose onset had contributed to her financial difficulty.
The case continues through her estate. Block served as legal guardian for an adult son, who is autistic and continues to live in the home. Her daughter, Karen Bernarzi, moved back to help her mother and is assuming the guardianship of her half-brother.
Keeping her ailment secret from most associates, Block initially bounced back after surgery and chemotherapy. Meanwhile, "she did everything she was supposed to do" to straighten out her finances, Bernarzi said.
Even the lender that brought the original foreclosure action in 2013, Bank of New York Mellon, appears to have acknowledged that Block “completed all six of her trial modification payments and is going to be reviewed for a permanent modification," Wolfson noted in her ruling.
Citing the modification, the bank initially sought to postpone its foreclosure action. When a state court refused, the bank agreed to dismiss the case, with a provision it could be reinstated if necessary, according to court papers.
Court documents indicate Block paid Seneca a down payment and the required six monthly installments, a total of $32,543, meaning she had "fully performed" her obligations under the trial modification agreement by November 2014, Wolfson wrote.
Although the agreement set forth the lower mortgage cost for which Block could qualify, making the payments did not automatically lower her rate, the judge noted. But the agreement did call for Seneca to "review" Block's mortgage after she made the payments, according to the judge.
Instead, on December 1, 2014, Block's "mortgage loan was sold and servicing of the loan transferred" to Ocwen Loan Servicing, Wolfson wrote. "Seneca did not review Plaintiff for a permanent modification prior to the transfer of loan servicing," the judge found.
The property that sparked the dispute was one of the first units built in the Basking Ridge section of The Hills Development, a sprawling edge suburb at the intersection of Routes 78 and 287 in Bedminster and Bernards Township.
Born to Holocaust survivors in a camp for displaced persons in Germany, Frieda Blacharowicz got her new name courtesy of U.S. Immigration when she arrived at Ellis Island at age six. By 1997, she was divorced and living in New York State. But her job at AT&T frequently took her to the company's offices on Mount Airy Road, and "she just fell in love with this area," Bernarzi said.
"It's one thing to move into a community, but we were there as The Hills got built," Bernarzi said. "There's a tree in the yard that's bigger than the house, but it was a tiny shrub when we moved in. My mom was happy to be an original homeowner, an original neighbor."
But 20 years on, with the house greatly increased in value, Block sought a $580,000 refinancing. In the interim, the American housing market had changed dramatically. Home purchases were no longer the start of a relationship between a borrower and a lender, often a local one. Instead, individual mortgages became investment scraps, sliced, diced, and repackaged into a sausage of "mortgage-backed securities," whose underlying value and ultimate ownership are often murky.
Moreover, loan holders often farm out the administration of mortgage loans and collection of payments, referred to as "servicing." From the perspective of borrowers, especially those trying to avoid trouble or solve existing problems, the result can be confusion about whom to contact.
"As has become de rigueur in the mortgage industry, since origination, Plaintiff’s loan has been sold multiple times and the servicing rights of the loan have been transferred several times," Wolfson wrote.
Her mother needed the money in part because after her youngest son was born with autism, she was a founder of the Somerset Hills Learning Institute in 1998, which opened a permanent facility in 2007, Bernarzi said.
"Every cent my mother had was going to the school," Bernarzi said, except what Block was spending on medical school for her other son.
Already financially stretched, Block suffered a key blow when her second husband stopped paying child support for their autistic son, leaving her $100,000 in the hole. Then, her illness hampered efforts to pursue a solution.
At least Seneca, headquartered in Elma, N.Y., and Atlanta-based Ocwen share a West Trenton address for a New Jersey agent. Yet when Block initially contacted Ocwen, it seemed unfamiliar with the trial modification. Her attorney then provided that company with proof that she had complied with the terms laid out by Seneca.
That was on February 6, 2015, and an Ocwen attorney responded that the firm would send Block documents for a permanent modification, Wolfson wrote. Instead, the judge said, on March 4, 2015, Ocwen transferred the loan servicing to Fay Servicing of Chicago, Wolfson wrote. In June, Fay notified Block that her loan had been sold to investors in ARLP Securitization Trust, Series 2015-1, of Fredericksted, St. Croix.
In July 2015, Fay offered Block another trial modification, with another six months of payments before a review. Block countered with notice of the agreement with Seneca and asserting Ocwen had failed to properly credit her payments under it.
While describing her mother as "tough," Bernarzi said her attempts to negotiate with the various loan servicers took a toll, especially in period when she was undergoing treatment for cholangiocarcinoma, which affects the ducts that drain bile from the liver. Trying to reach the right person to negotiate with, Block grew frustrated as she was shuttled from company to company, her daughter said.
"I just remember her breaking down in tears," Bernarzi said. "A lot of phone calls and a lot of tears."
Faced with the potential renewal of foreclosure proceedings, Block then sued a variety of parties connected to her wandering mortgage note and its servicing. Citing state and federal laws, the suit contends they improperly prevented the modification from becoming permanent, leaving her subject to foreclosure and harming her credit.
Deutsch, one of the few New Jersey lawyers who represents foreclosure defendants, said Block's quandary reflects a pattern in his practice, as mortgage modifications suddenly vanish just when they are supposed to become permanent.
"I have clients who want nothing more than to pay a bank, and a bank that wants nothing more than to not take their money," he said.