In Fleet v. Bank of America, N.A. (No. G050049, published 9/23/14, filed 8/25/14), a California Court of Appeal held that the trial court erred in sustaining the demurrer of a lender, where the homeowners had adequately alleged causes of action for breach of contract, fraud, and promissory estoppel. The homeowners alleged that they made timely payments during the trial period plan under the modification program, but before the last payment was due, the lender foreclosed and their house was sold.
The homeowners had applied for a loan modification and were approved for a trial period plan under the modification program. They were required to make three monthly payments and verify financial hardship to permanently modify their loan. The homeowners made two payments and were told that foreclosure proceedings had been suspended. But before the third payment was due, the lender foreclosed. The trial court found that the trial period plan was not a binding loan modification agreement, so the homeowners had no right to any guaranteed loan modification.
The appeals court disagreed. Relying on its recent decision in West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, the court of appeal found that the homeowners had performed all the terms of the trial period plan agreement and thus, the lender had to offer the permanent modification. The court also found that the homeowners had stated a claim for fraud because they alleged that the lender never intended to modify their loan, despite that it assured the homeowners that payments submitted had been received and credited and that the foreclosure proceedings had been suspended.
Fleet is significant in that it may represent a shift in the courts’ treatment towards demurrers used to counter homeowners’ attempts to force a loan modification. The court opined that “lender incompetence” was to blame for the situation and that “other less benign explanations are coming to more and more minds.” Interesting, too, was the court’s advice to the homeowners to retain counsel to “give them a chance to litigate on equal terms.” In short, West and its progeny such as Fleet illustrate that more courts are now willing to find a breach of contract action stated, even absent a binding loan modification agreement. For these courts, it is enough that the borrower has complied with all terms of the trial period plan agreement, thereby triggering the obligation of the lender to offer a permanent modification.
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