As the financial crisis deepened, Morgan, a marketing executive, realized that he could no longer afford his adjustable rate mortgage loan. He contacted his lender and requested that he be considered for a HAMP loan modification. Morgan's lender informed him that he was not eligible for a HAMP modification, but that it would put him into an in-house trial loan modification program. If Morgan made three trial payments on time, and his financial status had remained stable, he would be offered a permanent loan modification.
Morgan followed the lender's instructions and made his three timely trial payments. After he made his third payment, Morgan contacted his lender to find out whether he would be offered a permanent loan modification. His lender informed him that he would receive a permanent loan modification with payments beginning in the next month. Morgan was instructed to send a check for $50 to cover the cost of overnight delivery of his permanent modification documents. Morgan sent his check to the lender, but never received his permanent loan modification documents. Morgan was afraid that if he didn't start making his new payments on time, he would not be offered another modification.
His lender assured him that the documents were on their way. When the first payment became due, Morgan made it. Morgan continued to pay the modified loan payment for over a year. He was literally horrified when, 13 months after making his first payment, he received a foreclosure summons and complaint. The complaint alleged that Morgan was in default on his mortgage payments from the beginning of his trial modification some 16 months earlier. Morgan explained the situation to his attorney, who filed an answer to the complaint with affirmative defenses and counterclaims, asserting Morgan's constructive contract with his lender. Although Morgan had never executed his permanent modification documents, the fact that his lender continued to accept his payments without notifying him of a problem was evidence that Morgan and the lender had entered into an oral, yet permanent, loan modification agreement.