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.
Court of Appeal Addresses Issues in Foreclosure Litigation
In what may be the leading edge of a wave of litigation related to foreclosures, in FDIC v. Dintino, the California Court of Appeal last week issued an opinion addressing statutes of limitations and attorney's fees related to an IndyMac (FDIC) foreclosure.
In Dintino, IndyMac sued borrower to foreclose on a mortgage, alleging breach of contract, money lent, and unjust enrichment. Borrower raised affirmative defenses based on the statute of limitations, the antideficiency statutes (Code of Civil Procedure §580 et seq.) and the doctrine of unclean hands. Both parties moved for summary judgment. The trial court denied IndyMac's motion for summary judgment and granted, in part, borrower's motion for summary adjudication, holding IndyMac's breach of contract cause of action was barred by the One Action Rule (Code of Civil Procedure §726 et seq.). The trial court rejected borrower's statute of limitations argument, holding IndyMac's unjust enrichment cause of action was not barred by the applicable statute of limitations (Code of Civil Procedure § 337).
The parties stipulated to a bench trial, after which the trial court entered judgment for IndyMac. Borrower moved to recover attorney's fees incurred in the defense of the breach of contract cause of action. The trial court denied the motion. Borrower appealed the partial denial of his motion for summary judgment and the denial of his motion for attorney's fees.
The Court of Appeal reversed, in part, holding: (1) the applicable statute of limitations for IndyMac's unjust enrichment cause of action was Code of Civil Procedure §338, not §337, but the cause of action was not barred because of the discovery rule; and (2) borrower was entitled to recover attorney's fees incurred in the defense of the breach of contract cause of action. The Court remanded for a determination of reasonable attorney's fees.
New Mortgage Foreclosure Rules Expected to Become Law
The final version of the California Senate Bill SB 1137 passed the Senate on July 2 after passing the California assembly in late June.
