Monday, January 31, 2011
Court Allows Foreclosed-Upon Homeowner to Sue Bank for Fraud
By a MetNews Staff Writer
A foreclosed-upon homeowner can sue the lender for falsely telling her it would help her avoid foreclosure if she did not pursue bankruptcy relief, the Court of Appeal for this district has ruled.
Div. One Thursday reinstated Claudia Aceves’ claims for promissory estoppel and fraud against U.S. Bank, N.A., which were dismissed after Los Angeles Superior Court Judge Michael L. Stern sustained a demurrer.
Aceves borrowed $845,000 from Option One Mortgage Corporation in 2006, secured by a deed on trust on her residence, with an initial mortgage rate of 6.35 percent, adjustable after two years. Option One later transferred its interest to U.S. Bank.
Aceves fell behind in the payments, and the bank recorded a notice of default in March 2008. Aceves then filed for chapter 7 bankruptcy protection, staying the foreclosure proceedings.
In her complaint, filed in 2009, Aceves alleged that she contacted the bank and was told that, once her loan was out of bankruptcy, the bank would work with her on a mortgage reinstatement and loan modification.”
Te bank moved to terminate the automatic stay. When the motion was pending, the mortgage servicing company wrote to Aceves’ bankruptcy lawyer and asked if it could contact her directly “to explore Loss Mitigation possibilities.”
When she contacted the company, she alleged, she was told that they could not speak to her as long as the bankruptcy stay was in effect.
Aceves did not oppose the motion to lift the stay, which was granted by the bankruptcy judge. Five days later, the bank scheduled a foreclosure sale for the following month.
Aceves alleged in her complaint that she then contacted the servicing company and was told that they would not help her avoid foreclosure because the “file” had been “discharged” in bankruptcy, but that the company later said it had been mistaken and would consider a modification.
The day before the sale, however, the bankruptcy lawyer was told that the loan now had a balance of more than $965,000, the new monthly payment would be more than $7,200, and a $6,500 payment was due immediately, the complaint alleged. Aceves also claimed the company refused to put those terms in writing.
The property was sold at auction. Aceves and her husband moved after an eviction complaint was filed.
The plaintiff alleged in her complaint that the bank never intended to work with her on reinstatement, but promised to do so in order to persuade her to forgo bankruptcy protection.
In sustaining the demurrer, Stern said there was “no promissory fraud or anything that deluded [Aceves] under the circumstances.”
But Presiding Justice Robert Mallano, writing for the Court of Appeal, stated claims for both promissory estoppel and fraud. She did so, he explained, by alleging that the bank promised to negotiate a loan modification; that she relied on the promise rather than attempt to convert her bankruptcy to chapter 13, which would have avoided foreclosure; and that her reliance was reasonable and foreseeable.
The jurist rejected the argument that Aceves acted in bad faith by planning to convert her bankruptcy into a chapter 13 proceeding if the bank proceeded with foreclosure. While the bank “makes no attempt to hide its disdain for the protections offered homeowners by chapter 13,” Mallano wrote, the law exists to protect homeowners like Aceves who fall behind in payments but are willing and able to make arrangements to pay the arrearages over time.
By not filing for chapter 13, in alleged reliance upon the bank’s illusory promise, Aceves gave up her right to convert from chapter 7 to chapter 13 at any time, to cure the default, to pay the arrearages over a “reasonable time,” and to avoid foreclosure, Mallano said. The bank’s claim that she could not have afforded the payments under a chapter 13 plan, the jurist wrote, was speculative in light of her allegation—which must be accepted as true for purposes of demurrer—that she and her husband could have come up with enough money, the presiding justice added.
Attorneys on appeal were Dennis Moore and Nick A. Alden for the plaintiff and Michael R. Brooks and Bruce T. Bauer for the bank.
The case is Aceves v. U.S. Bank, 11 S.O.S. 620.
Copyright 2011, Metropolitan News Company