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.”ť 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”ť 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”ť 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?