On January 27, 2011, the Second Appellate District of the California Courts of Appeal reversed the trial court's granting of U.S. Bank's demurrer to homeowner Jacqueline Aceves' causes of action for promissory estoppel and fraud, holding that Aceves had alleged facts sufficient to proceed on these claims. (Aceves v. U.S. Bank (2011) 192 Cal.App.4th 218)
Aceves fell behind in her mortgage payments and filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code. She intended to convert her bankruptcy to a Chapter 13 case and "save her home" with her husband's financial assistance. She contacted her lender, U.S. Bank, which promised to work with her on a loan reinstatement and modification if she would forgo further bankruptcy proceedings. Relying upon U.S. Bank's promise, Aceves did not convert her bankruptcy to a Chapter 13 proceeding, and she did not oppose the Bank's motion to lift the automatic stay against legal proceedings against her.
Despite its promise, U.S. Bank was simultaneouly complying with the notice requirements to conduct a trustee's sale of Aceves' home. Five days after the bankruptcy court granted the Bank's motion to lift the stay, the Bank scheduled Aceves' home for sale, without contacting her to negotiate reinstatement of the loan or its modification, as it had previously promised.
Aceves alleged that U.S. Bank never intended to negotiate the loan with her; rather, the Bank just wanted to induce her into dropping her bankruptcy proceedings so the Bank could foreclose on her home. The Court of Appeal held that Aceves' allegations were sufficient to state claims against U.S. Bank for promissory estoppel and fraud.
As this case shows, if a lender makes a specific promise to reinstate a loan, to modify a loan, or to proceed with some other loan workout remedy, such as a short sale, forebearance, or deed in lieu of foreclosure, but secretly proceeds with foreclosure, the homeowner may have a case against the lending bank. In addition to showing the false promise, the homeowner must also show that his or her reliance on the bank's promise was foreseeable, reasonable, and resulted in harm to the homeowner.
A false promise is evident when the bank promises to do one thing and then does another. The promise, however, must be false at the time it was made; that is, the promise was made with no intention of keeping it, as in this case where U.S. Bank said it would negotiate with Aceves to reinstate her loan, yet it was simultaneously proceeding with all the legal prerequisites to foreclose on her home.