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California Court Rules Homeowner May Sue for Fraudulent Loan Modification Promise

February 4, 2011

Our Rancho Cucamonga foreclosure defense attorneys sue lenders - when appropriate -- for failure to adequately consider the loan modification requests of our clients. So it was interesting to see a recent item on HousingWire about a court decision explicitly giving a Los Angeles County woman permission to sue her mortgage lender for an allegedly fraudulent mortgage promise. As HousingWire reported Feb. 1, the Second District Court of Appeal ruled that Claudia Jacqueline Aceves may sue U.S. Bank for reneging on a promise to consider a loan modification if she voluntarily removed her home from her bankruptcy case. She did, and the bank foreclosed anyway. Aceves is now without the home, but may sue the bank for damages.

Like many Californians, Aceves got into financial trouble when her mortgage interest rate became adjustable and adjusted beyond her ability to pay. She filed for Chapter 7 bankruptcy, which automatically stops a bankruptcy, and intended to convert to Chapter 13 so she could catch up on her payments. She also got in touch with U.S. Bank, which told her it would negotiate "loss mitigation" options if she removed the home from the bankruptcy. After her bankruptcy attorney received the same promise in writing, she allowed the stay on foreclosure to be lifted. Five days after it was lifted, the loan servicer scheduled a foreclosure sale without contacting Aceves.

She sent documents to explain the situation and was given several conflicting stories, including a promise to contact her about a loan workout four days after the scheduled sale; a statement that the sale was an error because the home had been "discharged in bankruptcy"; and an offer of a loan modification. The loan modification offer increased her monthly payments substantially and required a $6,500 deposit; she turned it down and eventually sued. The Second District Court of Appeal found that she relied on U.S. Bank's promises. Not only did the bank fail to keep that promise, it said, but it "never intended to work with Aceves and modify the loan. The bank so promised only to convince Aceves to forgo further bankruptcy proceedings, thereby permitting the bank to lift the automatic stay and foreclose on the property."

This is a stinging ruling from the appeals court and a key tool for Pomona foreclosure defense lawyers like us. Because it came from the appeals court that handles cases from Los Angeles County, it only applies to courts in that area - but it lays a path for other California appeals courts to follow. In essence, it says that homeowners may sue lenders for fraud when they reasonably relied on promises that were not kept - not at all an original concept in tort law. This is similar to the claims many homeowners make in lawsuits against lenders, but a stronger claim, because it asserts actual fraud rather than failure to consider a loan workout. Unfortunately, Aceves must still battle in court to get her home back, but many others can use this case to fight for their homes.

Howard Law PC helps clients fight to keep their homes after they've been plunged into the bureaucratic nightmare typical of foreclosure. After practicing in this area for several years, our San Juan Capistrano foreclosure defense attorneys have come to believe that loan servicers don't really want to modify loans - they can make more money by foreclosing. However, servicers still want to be seen as offering loan modifications, so they continue to mislead customers, stringing out the process to get them the most fees they can get before foreclosing. We fight back against this unfair and potentially fraudulent process, negotiating aggressively or taking our clients' cases to court. We want our clients to leave with a loan modification whose terms they can meet - or at the very least, a good reason why that's not possible.

If your home is in foreclosure or will be soon and you've been fighting red tape for months to get help, consider calling Howard Law instead for a free consultation. To set up a meeting or learn more about our experience, call us toll-free at 1-800-872-5925 or send us an email today..