Bank F'closes After Double-Cross Dupes Homeowner Into Abandoning Bkptcy Filing; Court Nixes Voiding Sale, But Says Estoppel, Fraud Claims Can Proceed

The following facts, as alleged in a lawsuit by a foreclosed homeowner, are taken from a recent court ruling from a California Appeals Court:

• Homeowner, a married woman, obtained an adjustable rate loan from a bank to purchase real property secured by a deed of trust on her residence.

• About two years into the loan, she could not afford the monthly payments and filed for bankruptcy under chapter 7 of the Bankruptcy Code.

• She intended to convert the chapter 7 proceeding to a chapter 13 proceeding and to enlist the financial assistance of her husband to reinstate the loan, pay the arrearages, and resume the regular loan payments.

• Homeowner contacted the bank, which promised to work with her on a loan reinstatement and modification if she would forgo further bankruptcy proceedings. She alleged that she was told that, once her loan was out of bankruptcy, the bank "would work with her on a mortgage reinstatement and loan modification." She was asked to submit documents to U.S. Bank for its consideration.

• In reliance on that promise, homeowner did not convert her bankruptcy case to a chapter 13 proceeding or oppose the bank's motion to lift the bankruptcy stay.

• While the bank was promising to work with homeowner, it was simultaneously complying with the notice requirements to conduct a sale under the power of sale in the deed of trust, commonly referred to as a nonjudicial foreclosure or foreclosure.

• The bankruptcy court lifted the stay. But the bank did not work with homeowner in an attempt to reinstate and modify the loan. Rather, it completed the foreclosure.

• The bank then served the homeowner with a three-day notice to vacate the premises and, a month later, filed an unlawful detainer action against her and her husband. Apparently, Aceves and her husband vacated the premises during the eviction proceedings.

• Homeowner subsequently filed a lawsuit against the bank, alleging a cause of action for promissory estoppel, as well as causes of action for quiet title, slander of title, fraud, and declaratory relief.

• It also sought to set aside the trustee's sale and to void the trustee's deed upon the sale of the home.

• She argued the bank's promise to work with her in reinstating and modifying the loan was enforceable, she had relied on the promise by forgoing bankruptcy protection under chapter 13, and the bank subsequently breached its promise by foreclosing.

• The lower court dismissed the case.

On appeal, the California appeals court reinstated the homeowner's lawsuit with regard to the claims of promissory estoppel(1) and fraud.(2) However, it affirmed the trial court's dismissal with regard to the claims of quiet title, slander of title, and declaratory relief, and refused to set aside the foreclosure sale or void the trustee's deed.(3)

For the ruling, see Aceves v. U.S. Bank, (2011) ___Cal.App.4th____ (Cal. App. 2nd Dist., Div 1, January 27, 2011) (Certified for Publication) (when link expires, TRY HERE or TRY HERE).

See also, San Francisco Chronicle: Bank legally bound by loan-modification promise.

See Court: "Promissory Estoppel" Could Make Lender’s Verbal Agreement To Halt F'closure Sale Enforceable, Even Absent Consideration For Promise To Stall for an earlier post on the application of this doctrine when a loan servicer dupes a desperate homeowner into doing something she/he wouldn't have otherwise done by making phony loan modification promises.

Thanks to Deontos for the heads-up on this court ruling.

(1) With regard to the promissory estoppel claim, the court stated:

• We conclude (1) plaintiff could have reasonably relied on the bank's promise to work on a loan reinstatement and modification if she did not seek relief under chapter 13, (2) the promise was sufficiently concrete to be enforceable, and (3) plaintiff's decision to forgo chapter 13 relief was detrimental because it allowed the bank to foreclose on the property. Contrary to the bank's contention that plaintiff's use of the Bankruptcy Code was ipso facto bad faith, chapter 13 is "`uniquely tailored to protect homeowners' primary residences [from foreclosure].'" (In re Willette (Bankr. D.Vt. 2008) 395 B.R. 308, 322.)

(2) With regard to the fraud claim, the court stated:

• The elements of fraud are similar to the elements of promissory estoppel, with the additional requirements that a false promise be made and that the promisor know of the falsity when making the promise. (See McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th 784, 792-794 [discussing elements of fraud].) Aceves has adequately alleged those facts.

(3) With regard to the the balance of the claims, the court stated ([alterations] added; bold text is my emphasis, not in the original text):

• [A] promissory estoppel claim generally entitles a plaintiff to the damages available on a breach of contract claim. (See Toscano v. Greene Music (2004) 124 Cal.App.4th 685, 692-693.) Because this is not a case where the homeowner paid the funds needed to reinstate the loan before the foreclosure, promissory estoppel does not provide a basis for voiding the deed of sale or otherwise invalidating the foreclosure. (See Garcia v. World Savings, FSB, supra, 183 Cal.App.4th at p. 1047, distinguishing Bank of America v. La Jolla Group II (2005) 129 Cal.App.4th 706, 711-714.)

***

• Aceves's other claims and requests for relief lack merit as a matter of law. All of them are based on alleged irregularities in the foreclosure process. We see no irregularities that would justify relief. [...]