Aceves (P) v. U.S. Bank, N.A

Brief Fact Summary.

Aceves (P) contended that the mortgagee, U.S. Bank, N.A. (U.S. Bank) (D) was promissorily estopped from foreclosing her house after she defaulted on her mortgaged house, basis her reason on the fact that her reliance on U.S. Bank’s (D) promise to work with her to reinstate and modify her loan is now detrimental to her as she forewent the opportunity to save her home by converting a chapter 7 bankruptcy case to a chapter 13 case. But the house was foreclosed without the U.S. Bank ever commencing negotiations toward a possible loan solution.

Synopsis of Rule of Law.

A chapter 7 bankruptcy case is converted to a chapter 13 case when a mortgagor in default states a claim of promissory estoppel where the mortgagor has, in reliance on the mortgagee’s promise to reinstate and modify the mortgage, foregone the opportunity to save the mortgagor’s home.

Facts.

Aceves (P) was unable to pay the mortgage payment on her house which she had mortgaged to a lender, who transferred its entire interest under the mortgage to the U.S Bank (D), N.A. (U.S Bank (D)) (D). Shortly after she defaulted in the payment of her mortgage payment, she filed for bankruptcy protection under chapter 7 of the Bankruptcy Code which imposed an automatic stay on the foreclosure proceedings. Aceves (P) was told by the U.S Bank (D) after she contacted them that the bank “would work with her on a mortgage reinstatement and loan modification.”  She also complied with the directive of the bank when she was told that she should submit document to the U.S Bank (D) for its consideration.
Her intention was to convert her chapter 7 bankruptcy case to a chapter 13 case and to fall back on the financial resources of her husband “to save her home” under chapter 13. A debtor is permitted under chapter 7 to discharge unpaid debts, but a debtor who discharges an unpaid home loan cannot keep the home. A home owner is allowed under chapter 13 to reinstate the original loan payments, pay the arrearages as at when due, avoid foreclosure and keep the home. In order to proceed with a nonjudicial foreclosure, the U.S Bank (D) filed a motion in the bankruptcy court to lift the stay. The company servicing the loan informed Aceves (P) after she approach them that they would not be able to speak with her before the motion to lift the bankruptcy stay had been granted.
Aceves (P) however did not oppose the motion to lift the stay because she had relied on the U.S Bank (D) promise to work with her in reinstating and modifying the loan, and so she decided not to seek bankruptcy relief under chapter 13. The stay was lifted by the bankruptcy court, and five days later, the U.S Bank (D) scheduled aceve’s home for public aution a month later even when both the bank and servicing company failed to discuss the reinstatement and modification of the loan with her. A document relating to reinstating and modifying the loan was sent by Aceves (P) to the servicing company a day later. It took the servicing company two weeks before they could contact Aceves (P) that a “negotiator” would contact her on or before a date that was four days after the scheduled auction of her house. Throughout this period, neither the U.S Bank (D) or the servicing company ever worked with Aceves (P) to reinstate and modify her loan, although the negotiator did call. A three day notice for Aceves (P) to vacate the premises was served her by the U.S Bank (D) and in the following month, the bank filed an unlawful detainer action against her and her husband. Although she and her husband vacated the house during the eviction proceedings, this did not deter her from bringing a suit against U.S Bank (D), claiming, among other things, promissory estoppel and seeking to set aside the foreclosure sale of her house and to cancel the deed upon the sale of her home. Judgment was entered for the U.S Bank (D) by the trial court and the state’s intermediate appellate court granted review.

Issue.

does a chapter 7 bankruptcy case which is converted to a chapter 13 case when a mortgagor in default states a claim of promissory estoppel where the mortgagor has, in reliance on the mortgagee’s promise to reinstate and modify the mortgage, foregone the opportunity to save the mortgagor’s home?

Held.

(Mallano, J.) Yes. A chapter 7 bankruptcy case is converted to a chapter 13 case when a mortgagor in default states a claim of promissory estoppel where the mortgagor has, in reliance on the mortgagee’s promise to reinstate and modify the mortgage, foregone the opportunity to save the mortgagor’s home. The elements which are necessary for a claim of promissory estoppel are all present and this includes (1) a promise clear with terms which are easy to understand; (2) reliance by the party to whom the promise is made (3) the reliance must be foreseeable and reasonable and (4) there must be injury by her reliance by the party asserting the estoppel.
On the basis of the first element, it can be derived that the U.S Bank (D) agreed to work with Aceves (P) on a mortgage reinstatement and loan modification if she no longer pursued relief in the bankruptcy court. This promise made by the U.S Bank (D) is clear and unambiguous and it indicated that the U.S Bank (D) would not foreclose on the plaintiff’s home without first giving room for negotiations with her to reinstate and modify the loan on mutually agreeable terms. The promise made by the U.S Bank (D) was to negotiate with Aceves (P) and conclusively to reach an agreement with her on the reinstated loan. This indicated that the U.S Bank (D) erred in the fulfillment of its unambiguous promise to negotiate with Aceves (P).
Looking at the second element, the reliance Aceves (P) had on the U.S Bank (D) confirmed her action in which she declined to convert her chapter 7 bankruptcy proceeding to a chapter 13 proceeding, and by not contending the U.S Bank (D)’s motion to lift the bankruptcy stay. Aceves (P) reasonably relied on the U.S Bank (D)’s promise as the third element showed, as the modification of her loan would have been more beneficial to her than pursuing chapter 13 bankruptcy protections. Hence, the U.S Bank (D) action presented Aceves (P) with a solid reason to opt for negotitations with the bank instead of seeking bankruptcy relief because the U.S Bank (D) promised to work with Aceves (P) to modify the loan in addition to reinstating it. Thus the U.S Bank (D) foresaw and expected the reliance of Aceves (P) which was reasonable.
The fourth element shows that to the detriment of Aceves (P), she placed trust on the U.S Bank (D) promise because she gave up an opportunity to prevent the foreclosure of her residence. A debtor gets to keep the residence only if she ratifies the default by making the payments required under the loan as stipulated under chapter 13; making the loan to be reinstated but not modified. This implies that the interest on the mortgage is not diminished under chapter 13. Apart from reinstating the loan to predefault conditions, obtaining a maximum of five years to make up the arrearages and prevention of the U.S Bank (D) from foreclosing on the property (by using her husband’s resources), Aceves (P) gave up other various rights under chapter 13. Aceves (P) thereby stated a claim for promissory estoppel. The contention of the U.S Bank (D) here was that an oral promise to postpone either a loan payment or a foreclosure is not binding.
A written contract may therefore be modified by oral agreement or promissory estoppel despite the infallibility of this general principle. In conclusion, a plaintiff is entitled to damages available on a breach of contract claim under a promissory estoppel claim. Promissory estoppel does not provide a basis for voiding the deed of sale or otherwise invalidate the foreclosure and this is due to the fact that Aceves (P) did not pay the needed to reinstate the loan before the foreclosure. In addition to this position, it can be seen that the elements of fraud are similar to the elements of promissory estoppel, with the additional requirements that a false promise is made and the promisor is aware of the falsity when making the promise. The facts necessary to make a claim of fraud has been pleaded by Aceves (P). The ruling on the claims of promissory estoppel and fraud was reversed; the remaining claims were all affirmed. Affirmed in part and reversed in part.

Discussion.

the court ruled in this case that Aceves (P) reliance was both foreseeable and reasonable because the reliance element of promissory estoppel was strong. Scenarios of reliance can either be categorized as foreseeable nor reasonable in a situation whereby a plaintiff’s misguided belief or guileless action results in reliance on a statement on which no reasonable person would rely; the action of the plaintiff in light of her own intelligence and information is manifestly unreasonable; or in a situation where the plaintiff has a mere hopeful expectation. All these instances stated above can be equated with justifiable reliance and no relief will be granted