May a lender deny a permanent HAMP modification when the lender fails to meet the conditions of the trial period plan?

Facts: A distressed borrower applied for a loan modification under the Home Affordable Modification Program (HAMP). The lender prepared a trial period plan (TPP) stating the borrower will receive a permanent modification if the borrower makes trial modification payments and returns the signed modification agreement to the lender. The TPP also stated the lender must sign and return the modification agreement to the borrower before granting a permanent modification. The borrower successfully made all TPP payments and returned a signed modification agreement to the lender. The lender did not sign and return the modification agreement to the borrower and the home was later sold at a trustee’s sale.

Claim: The borrower sought to void the foreclosure sale and regain possession, claiming the lender was obligated under HAMP to offer a permanent loan modification since the borrower complied with the terms of the TPP agreement, despite the lender’s failure to sign and return the permanent modification agreement.

Counterclaim: The lender sought to validate the trustee’s sale, claiming the conditions for a permanent modification had not been met under the TPP since the lender did not sign and return the modification agreement to the borrower.

Holding: A California court of appeals held the borrower may pursue further action to void the foreclosure sale and regain possession since the borrower complied with the terms of the binding TPP despite the lender’s failure to sign and return the permanent modification agreement. [Barroso v. Ocwen Loan Servicing (2012) 208 CA4th 1001]