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The foreclosing lender’s promise was not a binding contract, but was binding anyway- the doctrine of Promissory Estoppel.

A lender was foreclosing on a house in Southern California, and the owner was arranging financing to avoid foreclosure. They were down to the wire, and the owner’s broker was in contact with the foreclosure officer. The foreclosure sale had been postponed to August 30, but they needed more time. The foreclosure officer said the property ” won’t go to sale because I have the final say-so and as long as I know that you could close it the first week of August [sic], I’ll extend it.”

Of course, he didn’t extend it. The owner closed on the new loan, incurring the costs and debt of a new loan. But, unknown to them, the lender foreclosed, and a lawsuit ensued.

The court found that the lender’s statement did not establish a contract, because the owner suffered no detriment, and provided no consideration. All the owner did was agree to pay the debt, which the owner was obligated to do anyway. The court contrasted this with a case in which an owner, by agreement with the lender, found a new buyer for the property who paid off their loan. The court found that locating a new buyer was not something they were obligated to do, and thus this was sufficient consideration to support a contract. But merely paying off the loan one agreed to pay is not consideration.

All was not lost for the owner- they still had promissory estoppel. “Under this doctrine a promisor is bound when he should reasonably expect a substantial change of position, either by act for forebearance, in reliance on his promise, if injustice can be avoided only by its enforcement.”

In this case, the foreclosure officer’s statement that he would postpone the sale led the owner to obtain a high cost, high interest loan using other property as security. They detrimentally relied on his representations, and this supports promissory estoppel.

The matter was sent back to the trial court level to proceed on the promissory estoppel claim alone. The key with promissory estoppel is that the person raising the claim must really do something (or not do something they would have done) significant, which ends up to their detriment. As always, a fax or email to the lender saying, “thanks for agreeing to postpone another week, so we could close the loan,” would make it so much easier.
Garcia v. World Savings FSB (2010) 2nd District # B214822; 2010 WL 1408927.

Law Office of James J. Falcone