Forbearance of Foreclosure is Within the Statute of Frauds
In Secrest v. Security National Mortgage Loan Trust 2002-2, the Fourth District California Court of Appeal held that an agreement to forbear foreclosure comes within the statute of frauds.
In Secrest, plaintiff borrowers filed suit to enjoin foreclosure proceedings initiated by defendant lenders. Borrowers alleged that lenders' predecessors in interest had entered into an agreement to forbear foreclosure based on certain conditions. Borrowers had in fact made two such agreements, one in 2001 and one in 2002, each of which included a lump sum payment and timely payments on the note securing the deed of trust. Lenders asserted that the forbearance agreement was unenforceable under California's statute of frauds (Civil Code §1624) because lenders did not sign it. The trial court held that the forbearance agreement was unenforceable, and borrowers appealed.
On appeal, borrowers argued that the forbearance agreement was enforceable and that lenders were estopped from asserting the statute of frauds because borrowers had partly performed on the forbearance agreement by making a lump sum payment.
The Court of Appeal disagreed, holding that an agreement to forbear foreclosure falls within the statute of frauds because it constitutes a modification of the note and deed of trust, which fall within the statute of frauds. (Civil Code §§1624, 1628.) Here, because lenders, the "party to be charged" under the statute of frauds, had not signed the forbearance agreement, it was unenforceable. Significantly, the Court noted that one widely cited California law treatise incorrectly suggests that an agreement to forbear foreclosure is enforceable without a writing signed by both parties.
The Court also rejected borrowers' estoppel argument, holding that "under well-established principles of California law, payment of money alone is not enough as a matter of law to take an agreement out of the statute of frauds..." because it is not sufficient to show a change of position in reliance on the agreement.
