Court: Reneged Loan Mods = Breach of Contract

ForeclosureFreeZone Homeowners who are promised a loan modification can sue if that promise falls through, according to a recent decision by the California Court of Appeals. The case could have wide implications for homeowners trying to get mortgage modifications.

The lawsuit was brought by Claudia Aceves against U.S. Bank. Facing foreclosure, Aceves decided not to file for Chapter 13 bankruptcy, which would have allowed her to save her house, because U.S. Bank promised that it would modify her loan.

[Feature: Why the Home Loan Mod Program is Failing]

But even after making that promise, U.S. Bank continued the foreclosure process against Aceves. (Four days after the house was sold at auction, the bank appointed a negotiator to arrange Aceves’ modification, according to the suit.)

The bank “breached its promise by foreclosing,” the appeals court found. “The promise was sufficiently concrete to be enforceable.”

Such situations are common, says Bruce Marks, founder and director of the Neighborhood Assistance Corporation of America, a consumer activist group. In January the group held a ten-day event in Los Angeles where it negotiated helped thousands of people avoid foreclosure and obtain modifications.