Northern NJ Couple's Suit Says Loan Servicer Duped Them Into Making Temporary Loan Mod Payments w/ Bogus Assurances That Deal Would Be Made Permanent

In New Milford, New Jersey, The Bergen Record reports:

• Luis and Maria Valenzuela of New Milford struggled to pay their mortgage after a cascade of setbacks — including illness, a car accident, their daughter's layoff, and a granddaughter's autism diagnosis. The family's mortgage company agreed to a temporary loan modification, which lowered their monthly payments (including property taxes) from $3,250 to $2,156. But the Valenzuelas say that although they paid faithfully, their mortgage company refused to make the modification permanent.

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• The Valenzuelas have filed suit in Superior Court in Bergen County, accusing their mortgage servicer, Wells Fargo, of violating a contract — as well as consumer protection laws(1) — by refusing to grant them a permanent loan modification.(2)

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• Mario Blanch, the Valenzuelas' lawyer, acknowledges that there was no written agreement to make the temporary loan modification permanent. But he said Wells Fargo employees told the family they were on track for a permanent lowering of their monthly charges.

• Moreover, he said, by accepting the family's modified mortgage payment for 11 months, the lender led the family to believe the deal would become permanent. As a result, he said, the family did not pursue other possible solutions, such as declaring bankruptcy. "They were given a promise, and that promise was breached," Blanch said.(3)

For more, see Family says lender did not deliver the mortgage relief it promised.

(1) A ruling by a New Jersey appellate court earlier this year held that unfair or deceptive practices by a lender or loan servicer in connection with the negotiation of an agreement to cure a default in a mortgage following the entry of the judgment of foreclosure is subject to the provisions of the New Jersey Consumer Fraud Act. Gonzalez v. Wilshire Credit Corp., 411 N.J. Super. 582, 988 A.2d 567; 2010 N.J. Super. LEXIS 16 (N.J. Sup. Ct. App. Div. 2010). See also Unfair, Deceptive Practices In Connection With Post-Foreclosure Judgment Loan Workout Negotiations Subject To NJ Consumer Fraud Act.

(2) For similar HAMP-related lawsuits brought against lenders & loan servicers for allegedly stringing borrowers along with empty loan modification promises, see:

• Bosque v. Wells Fargo, Class Action Amended Complaint (Exhibits: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, and 11 - eight-page demand letter (offering Wells Fargo opportunity to settle HAMP claims)),
• Johnson v. Bank of America Home Loans Servicing, Class Action Amended Complaint,
• Durmic v. J.P. Morgan Chase, Class Action Complaint,
• Reyes v. OneWest, Class Action Amended Complaint,
• Belyea v. Litton Loan Servicing, Class Action Amended Complaint,
• Ponder et al. v. Bank of America, BAC Home Loans Servicing.

(3) By giving the family assurances that the temporary loan modification would become permanent, causing them to abandon the pursuit of other possible solutions, the lender could open itself up to a defense of promissory estoppel which, if a court agrees, could make a lender's oral promises enforceable, even absent consideration given by the borrower in exchange for those assurances.

A California appeals court made the following observations with regard to the defense of promissory estoppel in a foreclosure action earlier this year in Garcia v. World Savings FSB, 183 Cal. App. 4th 1031 (2010) (bold text is my emphasis, not in the original text; all case law links may require free registration at Findlaw.com):

• As a general rule, a gratuitous oral promise to postpone a foreclosure sale or to allow a borrower to delay monthly mortgage payments is unenforceable. (Raedeke, supra, 10 Cal.3d at p. 673; California Securities Co. v. Grosse (1935) 3 Cal.2d 732, 733; Secrest v. Security National Mortgage Loan Trust 2002-2 (2008) 167 Cal.App.4th 544, 547; Sutherland v. Barclays American/Mortgage Corp. (1997) 53 Cal.App.4th 299, 312; Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 121; Stafford v. Clinard (1948) 87 Cal.App.2d 480, 481.) fn. 9

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• The absence of consideration or benefit to the promisor does not, however, defeat a claim based on promissory estoppel. fn. 10 The doctrine of promissory estoppel "make[s] a promise binding under certain circumstances, without consideration in the usual sense of something bargained for and given in exchange." (Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 249; accord, Raedeke, supra, 10 Cal.3d at p. 672.)

• "Under this doctrine a promisor is bound when he should reasonably expect a substantial change of position, either by act or forbearance, in reliance on his promise, if injustice can be avoided only by its enforcement." (Youngman v. Nevada Irrigation Dist., supra, 70 Cal.2d at p. 249.)

• "'The vital principle is that he who by his language or conduct leads another to do what he would not otherwise have done shall not subject such person to loss or injury by disappointing the expectations upon which he acted.'" (Wilson v. Bailey (1937) 8 Cal.2d 416, 423, quoting Carpy v. Dowdell (1897) 115 Cal. 677, 687.)

• "'In such a case, although no consideration or benefit accrues to the person making the promise, he is the author or promoter of the very condition of affairs which stands in his way; and when this plainly appears, it is most equitable that the court should say that they shall so stand. [Citations.]'" (Wade v. Markwell & Co. (1953) 118 Cal.App.2d 410, 420.)

See also, Wrongful foreclosure – verbal assurance that foreclosure sale will be postponed may be enforceable (requires paid subscription; if no subscription TRY HERE, or TRY HERE, then click link for the story).