by Julia M. Wei, Esq.
Following in the footsteps of Garcia v. World Savings Bank, yet another case where the borrower retains the right to sue a bank for failing to keep its promises to her.
Mrs. Aceves had a loan with U.S. Bank. She filed for Chapter 7 bankruptcy about 2 years into her loan. A chapter 7 is a discharge where the borrower does not intend to pay off his or her debts. However, Mrs. Aceves believed with the assistance of her husband, she could convert her bankruptcy to a Chapter 13, which is a re-organization. A re-organization is a whole different story, where borrowers can try to pay secured creditors, such as their mortgage lender, to keep their house as part of a plan.
Allegedly, US Bank promised Mrs. Aceves that they would work with her on a loan modification if she did NOT convert her bankruptcy. In reliance on the bank’s promise, she did not convert, and then you can guess what happened next—the bank foreclosed anyway.
Mrs. Aceves sued for promissory estoppel, which simply means that the bank made her a promise that she relied on to her detriment—which means she had to give something up (or make a change in position).
Up until the Garcia case and this case, the courts in California had made it pretty clear that oral promises by a bank to postpone a trustee’s sale or otherwise forbear from conducting the sale were totally unenforceable. However, promissory estoppel is a different type of claim, it means that a plaintiff can keep going with her or her lawsuit against the bank for violation of its promise if the borrower’s reliance on the promise was justifiable.
In this case, Mrs. Aceves had demonstrated sufficient contact from U.S. Bank (such as a letter from the bank’s servicer’s attorney requesting permission to contact Ms. Aceves directly, a number of correspondence and conversations with bank “negotiator” representatives) to demonstrate that her reliance on the bank’s promise was reasonable.
The case holding does NOT mean that Mrs. Aceves will win against the bank, but it means that her case will survive long enough to go to trial or a greater evidentiary hurdle such as a motion for summary judgment.
Takeaway lesson for lenders - be careful of what "promises" you are making to borrowers and coordinate your departments. It appears here that the servicer and loan modification negotiator were working at cross purposes.
Takeaway lesson for borrowers - if a bank is making you promises, you better be taking good notes and going to see a lawyer to see what your options are. I do not think that Mrs. Aceves got the full benefit of counsel from her bankruptcy attorney and ended up losing her house as a result. I'm not sure why her attorney did not explain to her that once the bank had relief from the automatic stay to conduct the foreclosure that it had no incentive whatsoever to modify her loan.
Further comment – there is a strong public policy against interfering with a consumer’s right to file bankruptcy or otherwise manage their bankruptcy. Though the court’s opinion did not address this, I am sure that it was a factor in the ruling in favor of the borrower here. [Aceves v. U.S. Bank (Feb. 9, 2011) California Court of Appeal, 2nd Appellate District.]