If I have an Option ARM Loan, do I have a Case against my Bank for Fraud?

Depending on what the loan documents say, homeowners with Option Arm loans may have a case against their lender for fraud. Loan documents which fail to clearly disclose that making the scheduled monthly payments will result in negative amortization may be deceptive and fraudulent. (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4^th 230).

Last week the Court of Appeal held in Boschma, that loan documents were deceptive in stating negative amortization could occur rather than stating negative amortization would certainly occur as a result of making the scheduled monthly payments. The Court believed that stating only the possibility of negative amortization as opposed to its certainty was inaccurate and a half-truth. Plaintiffs alleged that if the lender had disclosed to them the amount they would have to pay each month to avoid negative amortization, then they would not have entered into the loan. The Court accepted this allegation as sufficient for pleading the intent to defraud element of a fraud claim.

Homeowners with similar loan documents now have a precedent for a fraud claim against their lender. Thus, borrowers should take a closer look at their loan documents, or have an attorney review them, to see whether the disclosures were accurate and adequate about the consequences of making the scheduled minimum monthly payments.

Don't Mess With Someone Else's Password

Teenagers may think it's cool to hack into someone's Facebook page, alter the subscriber's profile, and post sexually explicit comments, but it may also be a crime. In a recent case, a juvenile used a girl's email password and account to gain access to her Facebook account, where he posted, in her name, prurient messages on two of her male friend's pages (walls) and altered her profile description in a vulgar manner. The juvenile was found guilty of identity theft under California Penal Code section 530.5 and ordered to serve 90 days to a year in the county juvenile Alpha Program. (In re Rolando S. (2011) 197 Cal.App.4th 936).

If I do not Believe my Homeowners Association's Parking Regulations are Effective, do I have a Case for Fraud?

Nope. In a fraud case, one of the many elements you have to prove is called "detrimental reliance." This means that you relied on the defendant's false statement to your detriment. In other words, because you believed the statement was true, you took some action that you would not have taken had you known the statement was really false.

For example, you wouldn't have paid $5,000.00 for a "Rolex" watch at the swap meet if you knew it was just an imitation, worth only $50.00, but because the seller told you it was a genuine Rolex, and even gave you a certificate of authenticity, you bought it. Later you found out the certificate was false, and your jeweler told you the watch was junk. Because you relied on the seller's word, believing his word and the certificate to be true, you were out of pocket $5,000.00. This is detrimental reliance.

In a recent Orange County case, a homeowner's complaint for fraud was thrown out for lack of detrimental reliance. The homeowners association ("HOA") notified plaintiff that amended parking regulations prohibiting the parking of inoperable vehicles on association property were effective immediately. Plaintiff objected, saying the amended regulations were not effective because they were not recorded, so he kept his inoperable van parked in a prohibited space for two months. The HOA had the van towed.

Plaintiff sued for fraud, claiming the HOA representation that the regulations were effective immediately was false. (Sui v. Price (2011) 196 Cal.App.4th 933; partial publication). The court held that plaintiff failed to plead detrimental reliance. Because plaintiff had alleged that he did not believe the regulations were effective, he could not possibly have relied upon the representation to his detriment. As the court said: "failure to believe the representation is the opposite of reliance." Moreover, the fact that plaintiff left his van parked in a prohibited space for two months indicated that plaintiff did not believe the parking regulations were effective.

So, to have a case for fraud, one of the elements you must prove is that when the statement was made to you, you believed it to be true, and acted upon it. In other words, if you did not believe the statement when it was made to you, and acted as if you did not believe it, then you did not detrimentally rely on the statement, and you have no case for fraud.

Court Slams Wells Fargo Bank Tactics Against Homeowner

Considering the current recession brought on by the mortgage-lending practices of several large banks, it is good to see one court was not going to let the perpetrators of financial ruin add insult to injury.


A few weeks ago, federal judge A. Howard Matz, United States District Court Judge for the Central District of California, denied Wells Fargo Bank's motion to order homeowners Abundio and Luz Cruz to pay $18,552.50 in attorney's fees the Bank incurred in defending against their lawsuit to stop a foreclosure on their home. The Cruz's claimed they were deceived by Wells Fargo Bank into agreeing to a payment-option, adjustable rate mortgage.


Wells Fargo successfully moved to dismiss the case on technical grounds, showing that the Cruz's complaint was, among other things: (1) preempted by federal law and (2) had to be dismissed because the Mortgage Reform and Anti-Predatory Act of 2010 was enacted too late to apply to the Cruz's case.


Wells Fargo then filed a motion asking the Court to order the Cruz's to pay the attorney's fees the bank incurred in successfully defending the lawsuit. Wells Fargo argued that under California law (Code of Civil Procedure, Section 1032), it was entitled to payment of attorney's fees because the Cruz's promised to pay such fees when they contractually agreed to the loan.


The Court, however, pointed out there was a higher principle of law, namely, that federal courts have the discretion to deny contractually-authorized attorney's fees if an award of fees would be inequitable and unreasonable. (Cruz v. Wachovia Mortgage, Well Fargo, et al., (2011) 2011 U.S. Dist. LEXIS 24784). In fact, the court noted it would be an abuse of its discretion for a court to award contractually-authorized attorney's fees under circumstances making the award inequitable or unreasonable. (Id.)


Under the circumstances of this case, the Court concluded that to permit Wells Fargo to recover its attorney's fees would be both inequitable and unreasonable.


The Court's conclusion is well-reasoned. First of all, Wells Fargo had never disproved the Cruz's allegations; rather, Wells Fargo prevailed on technical defenses that did not address the merits of the Cruz's allegation that the lenders disregarded their underwriting requirements to get the Cruz's to obtain a loan they would not be able to repay. The Court believed the allegation was plausible. In the words of the Court, "as the revelations of mortgage and banking abuses over the past two years have demonstrated, this allegation is by no means implausible." (p.3). Moreover, Wells Fargo did not claim the Cruz's suit was frivolous.


Second, the contractual attorney's fees provision was in fine print, buried in six pages of legalese. As the Court put it, 'the size of the print is so tiny that most readers blessed with 20-20 vision would experience the trevails of Mr. Magoo in trying to decipher it." (p.4).


Lastly, the Court found Wells Fargo's motivation to be offensive. "Now, Wells Fargo Bank seeks to punish Plaintiffs for daring to sue it." (p.3). "Plaintiffs are already facing the loss of their home. To saddle them with nearly $20,000.00 in attorney's fees sought by a giant financial institution because they had the temerity to file a lawsuit would be worse than inequitable and unreasonable ; it would be a travesty." (p.7).


This opinion should give hope to homeowners contemplating a lawsuit to save their home. Anyone considering a lawsuit for breach of contract or a loan agreement that contains an attorney's fees provision should seriously consider their liklihood of prevailing before filing suit. But as this case shows, an attorney's fees provision in an agreement with a mortgage lender or bank should be construed in the context of the abuses perpetrated by the lenders.

It remains to be seem whether other courts will agree; nevertheless, it is undeniable the lenders played a major role in creating the current crisis. Moreover, the banks received hundreds of billions of dollars to bail them out of the crisis they created; for them to to get attorney's fees from insolvent homeowners, just to punish and deter hoeowners' legal attempts to save their homes would just add insult to injury.

Court Rules That Homeowner's Lawsuit Can Proceed Against U.S. Bank for Bank's Alleged False Promise

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.

Truckers Beware

This month, the California Supreme Court affirmed a jury's verdict holding Ralph's Grocery Company partially liable for the death of a motorist who veered off the freeway and collided with a parked Ralph's truck. (Cabral v. Ralph's Grocery Company (2011) 51 Cal.4th 764). The Court ruled that a trucker owes a duty of ordinary care when parking alongside a freeway to park in such a manner as to avoid injury or death to other motorists. Stopping on the dirt shoulder of the freeway, in an area designated for emergency parking, to have a snack, is not an emergency, and will result in liability for injuries or death to the motorist whose vehicle veers off the freeway and collides with the parked truck.

Forced Abortion Constitutes Political Persecution

Last summer, the United States Court of Appeals for the Ninth Circuit held that the Board of Immigration Appeals must reconsider its denial of an asylum application by Nai Yuan Jiang, a Chinese man whose girlfriend was forced to have an abortion in China. In his application, Jiang claimed he was persecuted under China's coercive family planning policies. The Court agreed. The key to the Court's decision in Jiang's favor was its finding that forced abortion constitutes political persecution within the meaning of our immigration laws. (Jiang v. Holder, 611 F.3d 1086 (9th Cir. 2010)).

Upon reading the Court's opinion, one is readily inclined to agree that the Court made the right call; after all, it must be horrible to live in a country where the government controls population growth through the barbaric practice of forced abortion. But wait, in the context of abortion, what is the difference between China and the United States ? Well, U.S. citizens are not forced to have abortions; to the contrary, they volunteer to have them! How enlightened we are; how superior we are to those barbarians in China. China's abortions constitute political persecution but ours are politically correct.

Is the difference between China and the U.S. simply freedom of choice? Does a person's freedom to choose change the nature of the act itself? Of course not. Any act is objectively good or bad in itself; the goodness of the act does not depend on whether the act is done freely or under force. Forced action changes a person's culpability for an action, but it does not change the nature of the act itself. A person can be absolved of responsibility for an act done against their will, but the act itself does not change.

So again, one must ask what is the difference between the U.S. and China? Thomas Aquinas teaches that there are three parts to the morality of any act and all three parts must be good for any act to be morally good. The three are (1) the objective act itself, (2) the subjective motive, and (3) the situation or circumstances. (Peter Kreeft, Making Choices, Practical Wisdom for Everyday Moral Decisions, (Servant Books, Cincinnati, Ohio, 1990) pp. 29-30). By applying this test to the act of abortion we can see that we are more culpable than the Chinese.

Of course, there are some who will say that an abortion, in and of itself, is neither good nor bad; rather, it's no different than disposing of hamburger, both are just lifeless flesh. It's possible that such people have never laid their hand on a pregnant woman's stomach and felt the movement of a child in the womb. On the other hand, it is impossible that such people have ever felt a pound of packaged hamburger moving and kicking.

On this day, the 38th anniversary of the Roe v. Wade holding, we must stop and think. How can we look down our noses at China for its law of forced abortions while at the same time seeing ourselves as superior for our law of free abortions?

The abortion issue is the most important issue of our time. The next generation might well ask of us, like we have asked of Germans who lived next door to concentration camps during WWII, why more wasn't done to stop these murders. Six million people were killed under Nazism; 30,000,000 were killed under Stalinism, and approximately 54,000,000, so far, have been killed in the name of individualism since Roe v. Wade. (See statistics kept by the U.S. Center for Disease Control).

Mother Teresa said "the greatest destroyer of peace today is abortion because it is war against the child...A direct killing of the innocent child, murder by the mother herself...And if we can accept that a mother can kill even her own child, how can we tell other people not to kill one another?"