A California woman got behind on her mortgage, and the Lender recorded a Notice of Default, so the borrower filed a ch 7 bankruptcy. She intended to convert to a Ch. 13 to pay the arrears and save her house. U.S. Bank, trustee for the lender, told her that, once she was out of bankruptcy, the bank would work with her on a mortgage reinstatement and loan modification. In reliance on that promise, she did not convert the case, nor oppose the lender’s motion to lift the automatic stay. She submitted documents to the bank for review.
The bank scheduled the foreclosure sale for January 9, 2009. There was no negotiation, but on the day before the foreclosure sale, the bank’s attorney made an oral offer to modify the loan, but refused to put the terms in writing. The borrower lost the home, received a three-day notice, and served with an eviction action.
The court ruled for the borrower, finding that she materially changed her position based on the bank’s promise- the doctrine of “promissory estoppel.”
The elements are 1) a clear and unambiguous promise; 20 reliance on the promise; 3) the reliance must be reasonable and foreseeable; and 4) the party must be injured by his reliance on the promise. The elements were all present here. The last minute oral offer of a modification was a unilateral offer, but the promise was to negotiate to attempt to reach an agreement. The borrower changed her position by not converting to Ch. 13, instead allowing the motion to lift the automatic stay be granted.
The conduct of the bank, luring a distressed borrower out of bankruptcy before taking their house is not new- I have seen it happen. Finally an California appellate decision is published to support borrowers, and help make their argument in the trial courts.