Foreclosure In The Pandemic (Part II); After the Moratorium
This two-part blog is for those of you that have stopped paying your mortgage during the pandemic and don’t know what to expect as the moratorium ends. Part I describes the general foreclosure business up to and including the moratorium and Part II predicts mortgage-servicer and trustee behavior and advises strategy for borrowers post-moratorium to avoid foreclosure.
As stated in Part I, if you have stopped paying your mortgage during the pandemic you will fall into one of two categories. The first group of you, which will be an extremely small group, will have received a written forbearance agreement from your mortgage servicer which will allow you to miss six months to a year of payments and have them tacked onto the end of your mortgage. This group will have loans backed by HUD and the FHA, the USDA, the VA, Fannie Mae, or Freddie Mac. The second group will have stopped making payments during the pandemic but will have no such written agreement regardless of what type of loan you have. This will be most of you. Here’s what to expect when the moratorium on foreclosure ends. First remember two things from the first article:
Foreclosure is good business for a lot of industries and people – just not you. • The mortgage servicer has a client, but it isn’t you.
And two more things that will help you understand the approach I take here:
The moratorium gives servicers a new and improved opportunity to foreclose.
Nothing will be given without a fight.
You’ll need cash flow to survive this.
Start with the CFPB and Attorney General.
So, if you weren’t able to get a forbearance agreement in writing from your mortgage servicer, how do you fight for one? The Consumer Financial Protection Bureau (CFPB) is a great resource for researching all the scams that mortgage servicers play on borrowers, but their enforcement is limited to suing the servicer in court, settling on a consent decree, and extracting penalties which ultimately add up to a slap on the wrist for most servicers. Also, it doesn’t help you much in the moment. The CFPB will intervene with your servicer and at least demand they respond to you, but they cannot make your servicer do anything except pay after they sue them in court. Still, you should start by filing a complaint against your servicer with the CFPB since they are most useful for creating a paper trail to show that you were making reasonable requests for assistance and that your requests were ignored.
Along with the CFPB, you can also write to your state attorney general and be sure to get a response in writing. In California that is Attorney General Xavier Becerra who is preparing for a tsunami of desperate borrowers post-moratorium. In all correspondences with the servicers and the AG, be sure to emphasize that you suffered a temporary loss of income and you were requesting a regular forbearance to get a year of payments tacked onto the end of your loan. Do not ask for any special treatment and do not litigate the entire corrupt mortgage industry. You are only asking for what is fair and reasonable – one year tacked on the end of your mortgage due to a countrywide natural disaster which was and is the pandemic.
Continue creating a paper trail with your servicer.
Knowing that you may need to document your maltreatment by the servicer in preparation for a lawsuit, you should continue to request forbearance repeatedly and in writing to create a history of the servicers’ responses. These will be to delay you, ignore you, or refuse to assist you. Don’t wait for them to record a Notice of Default before you start papering them with certified letters and requests. With each new certified letter document the past history of your requests and their responses.
If the servicer has already recorded a Notice of Default, that just means you need to move quicker. If you have not yet started to make your requests in writing, do that immediately and use this written correspondence to document the telephone history and how you were treated. Call the CFPB to place your complaint and be prepared to wait on hold. Call your AG with more urgency, keeping in mind that you are creating a paper trail and not expecting the AG to get you a forbearance agreement. He may, and if so that’s great. Just don’t expect it. Remember enforcement means court.
Fraud, Negligence, and Promissory Estoppel.
There are three causes of action that might apply in a simple failure of the servicer to give you forbearance and these are fraud, negligence and promissory estoppel. Borrowers often use the words fraud, and to lesser degree negligence, to describe the actions of their mortgage servicers, but these are fact-specific claims that must meet the pleading requirements to be proven. Fraud is extremely difficult to prove in the mortgage servicing context unless you can show intentional actions; for example when Bank of America intentionally processed my client Joe Duran’s Fannie Mae loan modification with the wrong name so that he could not get it notarized while they simultaneously intentionally purchased his loan from Fannie Mae so they could foreclose. Fraud requires 1) an intentional lie (which can be by omission), 2) intent for the victim to rely on the lie, 3) which they reasonably do, and 4) resulting damages.1 Intention was clear in Mr. Duran’s case, but most of the time the actions, and intentions, of the mortgage servicer, are better disguised. For this reason, fraud is hard to prove against servicers.
Negligence is also a legal action that requires you to plead certain elements, less onerous than fraud. The elements of a negligence cause of action are (1) a duty to exercise due care, (2) breach of that duty, (3) causation, and (4) damages.2 Causation is the “but for” part of the claim, as in: but for the servicers failure to give me forbearance I would not be facing foreclosure. Damages may be emotional, physical, or financial, and in the case of a foreclosure, they are obvious. Regarding a duty to exercise care, the California courts follow the general rule from Nymark (1991) that “lenders of money” have no duty of reasonable care to borrowers unless there is a “special relationship,” and the court applies another case, Biakanja (1958) to decide if there is such a relationship.3 In Sheen v. Wells
Fargo, California AG Becerra has weighed in, arguing that the court should impose a reasonable duty of care on servicers based on the harm that occurs to the public when servicers act “free from any potential liability in negligence.4” Before securitization and the growth of mortgage servicers, banks routinely negotiated with borrowers for forbearance when they suffered temporary hardships because it was in the best interest of everyone. Using this new Becerra standard, borrowers can argue that, having suffered from a natural disaster, their request for a mortgage forbearance of one year is reasonable and should be a matter of public policy in all situations.
Promissory Estoppel can be pled if the servicer has made a promise to you in writing that you relied on, such as a promise that they would not foreclose.5 Servicers make their promises to stop a foreclosure sale over the telephone because the California civil code requires a promise regarding real property to be in writing to be enforceable.6 In the rare case where your servicer misled you in writing you can include this cause of action in your complaint.
In addition to filing a complaint against your servicer, you will also need to seek a temporary restraining order to stop any foreclosure sale while your claims are heard. In your request for a restraining order, you should stress that your hardship was temporary and that you want the court to order the servicer to resume taking your payments. If you are successful in getting past that first hurdle, you should be prepared to start paying your mortgage again immediately. Meanwhile, start creating that paper trail.
the plaintiff, 2) the foreseeability of harm to him, 3) the degree of certainty that the plaintiff suffered injury, 4) the closeness of the connection between the defendant's conduct and the injury suffered, 5) the moral blame attached to the defendant's conduct, and 6) the policy of preventing future harm.”) 4 Sheen v. Wells Fargo Bank, N.A., 38 Cal. App. 5th 346, 250 (2019); Amicus brief available at: https://oag.ca.gov/sites/default/files/FILE%20STAMPED%20COPY_FINAL%20- %20Sheen%20v.%20Wells%20Fargo%20Amicus.pdf; Nymark, supra.
5Toscano v. Greene Music, 124 Cal. App. 4th 685, 692 (2004) (“The elements of promissory estoppel are (1) a clear promise, (2) reliance, (3) substantial detriment, and (4) damages “measured by the extent of the obligation assumed and not performed.”); See also: 1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, §§ 249–250, p. 251.
6 Raedeke v. Gibralter Sav. & Loan Assn, 10 Cal. 3d 665, 673 (1974) (“a gratuitous oral promise to postpone a sale of property pursuant to the terms of a trust deed ordinarily would be unenforceable under section 1698.”); See also: Cal. Civ. Code §1698 (a)-(d) Modification of a written contract; See also: Cal. Civ. Code §1624 (a)-(d) Statute of frauds; Qualified financial contracts et al.
See: Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996) (“The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or 'scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.")
See: Toland v. Sunland Hous. Grp., Inc., 18 Cal. 4th 253, 256 (1998.)
See: Nymark v. Heart Fed. Sav. & Loan Ass'n, 231 Cal. App. 3d 1089, 1096 (1991) (“… as a general rule, a financial institution owes no duty of care to a borrower when the institution's involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money”); See: Biakanja v. Irving, 49 Cal. 2d 647, 650 (1958) (“The determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors among which are 1) the extent to which the transaction was intended to affect