A residential borrower who relies on a lender’s promise to negotiate a loan modification may have a claim against the lender if the lender breaches that promise. In a recent case before the California Court of Appeal, Aceves v. U.S. Bank, the plaintiff homeowner alleged that she filed a petition in bankruptcy to avoid foreclosure of her home. The bank promised to work with the homeowner to reinstate and modify her loan if she agreed not to pursue her bankruptcy. The homeowner agreed and did not oppose the bank’s motion to lift the bankruptcy stay. However, the bank did not negotiate with homeowner. Instead, it proceeded with the foreclosure. According to the homeowner, the only proposal made by the bank was one made the day before the foreclosure to increase her payments by 48%.
The homeowner alleged a variety of claims, including promissory estoppel and fraud. Promissory estoppel exists where one party reasonably relies on an unambiguous promise by another party and suffers some detriment as the result of such reliance. The Court of Appeal held that the homeowner reasonably relied on the bank’s promise to negotiate. The reliance consisted of foregoing her rights in bankruptcy and not obtaining funds (that the homeowner claimed were available) from relatives to develop a plan in bankruptcy to reinstate the loan. The Court rejected the bank’s argument that its alleged oral promise to negotiate a loan modification was unenforceable.
The Court of Appeal further noted that because the homeowner alleged that the bank never intended to negotiate a loan modification with her, the homeowner had stated a claim for fraud.
It is important to note that the Aceves court did not find the bank liable for the homeowner’s claims. The Court only ruled that the homeowner’s allegations, if true, would support viable claims for promissory estoppel and fraud. The truth of the allegations will have to be determined by a trial court.