Byline: Joy Harmon Sperling and Peter E. Lembesis

Within the past few months, borrowers across the country have asserted claims against lenders based on the lenders' alleged failure to honor loan modifications pursuant to the federal Home Affordable Modification Program. Recently a federal district court in New Jersey issued a decision that may provide a sound basis for opposing such claims.

In Papoutsakis v. Bank of America, Judge Susan D. Wigenton held that a failure to honor a modification cannot, without more, form the basis for a consumer fraud claim against the lender.

In Papoutsakis, the plaintiff-borrower alleged he entered into a loan modification with Bank of America, which B of A acknowledged by accepting modified payments for several months. B of A then sent a notice of intention to foreclose.

The plaintiff alleged that, even after B of A issued the notice, he continued to make the payments required by the modification, and B of A accepted the payments.

After B of A refused to cash one of the plaintiff's payments and sent him a letter advising that his loan had been referred to a foreclosure management committee, he initiated suit in state court. He alleged B of A violated New Jersey's Consumer Fraud Act and sought, among other relief, to enforce the modification and prohibit foreclosure; removal of derogatory notations on his credit history; attorneys' fees; and treble damages. After the case was removed to federal court, B of A filed a motion to dismiss. …