That’s a question that increasingly needs to be answered as the foreclosure crisis worsens, spreading to cities like Seattle, Houston and Chicago that until recently have been relatively free from the worst effects of the housing bust.
One big time lender discovered last week that it may be liable after not coming through on a promise to modify a homeowner’s mortgage.
That decision came in a lawsuit brought by Claudia Aceves against U.S. Bank.
Aceves obtained a loan from Option One Mortgage Corporation in 2006. The loan was secured by a deed of trust on Aceves’s home in Los Angeles, California.
Aceves borrowed $845,000 at an initial rate of 6.35 percent. After two years, the rate became adjustable. The term of the loan was 30 years and Aceves’s initial monthly payments were $4,857.
Option One later transferred its entire interest under the deed of trust to U.S. Bank.
By January 2008, Aceves was in trouble and could no longer afford her monthly payments. She filed for Chapter 7 bankruptcy shortly after nonjudicial foreclosure proceeding were commenced in March 2008.
The automatic stay on the foreclosure proceedings got U.S. Bank’s attention. Aceves claims that, when she contacted U.S. Bank after filing for bankruptcy, she was told that the bank was willing to work with her on loan modification.
The offer of help was conditional, according to Aceves. She alleges that the bank told her its assistance would be forthcoming only once her loan was out of bankruptcy.
Aceves had intended to convert her case to Chapter 13 and use her husband’s resources to save her home. But with U.S. Bank’s alleged promise to modify her loan, Aceves did not oppose the bank when it filed a motion in the bankruptcy court to lift the stay.
In December 2008, the bankruptcy court lifted the stay and U.S. Bank moved quickly to schedule Aceves’s home for public auction.
On January 9, 2009, Aceves’s home was sold at a trustee‘s sale to U.S. Bank. Aceves and her husband vacated their home during subsequent eviction proceedings.
What of U.S. Bank’s alleged promise to modify Aceves’s loan?
According to Aceves, once the automatic stay was lifted in her bankruptcy case, U.S. Bank’s promise to work with her went up in smoke and she was never contacted about loan modification.
In fact, Aceves thinks that U.S. Bank never intended to work with her, offering to help only to convince Aceves to forgo further bankruptcy proceedings and permit the bank to lift the automatic stay and foreclose on her home.
Feeling played, in April 2009 Aceves sued U.S. Bank in California court. She filed claims for fraud and promissory estoppel, wanting to set aside the trustee’s sale of her home.
The trial court dismissed the lawsuit, but Thursday the California Court of Appeal decided that Aceves had a viable claim for promissory estoppel.
“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,” the court said. (Aceves v. U.S. Bank)
– Pat Murphy