Mortgage Lenders Estopped From Relying On Own Failure To Sign Modification Agreement As Basis For Invalidating Agreement

In the case of Chavez v. Indymac Mortgage Services (C.A. 4th; September 19, 2013; D061997), the Fourth Appellate District held that lenders who failed to execute and return a loan modification agreement to a borrower were equitably estopped from relying on the borrower’s inability to produce an executed loan modification agreement as grounds for the lenders’ demurrer.

The lenders in this case offered the borrower a loan modification plan (“Plan”) pursuant to the Home Affordable Mortgage Program. Pursuant to the Plan, the borrower was required, among other things, to make three payments during a three-month trial period. If the borrower fully performed under the Plan during the trial period, the borrower would qualify for loan modification. The borrower returned two signed copies of the Plan to the lenders as required. The Plan provided that the lenders were to sign and return a copy of Plan to the borrower, however, the lenders failed to sign the Plan. The borrower then performed as required by the Plan during the trial period and the lenders sent the borrower a loan modification agreement that required the signature of the borrower and indicated that the loan would automatically become modified as of July 2010. The borrower signed and returned the loan modification agreement. In September 2010, the lenders returned the borrower’s payment, stating that the check was not certified, although no such requirements for payment via certified check was contained in the loan modification agreement. The lenders proceeded to sell the property at auction without notice to the borrower and subsequently instituted an unlawful detainer action against the borrower. The borrower filed suit for wrongful foreclosure and breach of the loan modification agreement.

The borrower argued that she fully performed as required by the Plan, that the lenders accepted her payments and that the lenders sent her a loan modification agreement which she signed and returned. The lenders argued that because the Plan was not signed by the lenders, the Plan was therefore invalid under the Statute of Frauds. The trial court sustained the lenders’ demurrer to Chavez’s breach of contract action.

The Fourth Appellate District reversed the lower court’s decision, holding that the action of sending the borrower a loan modification agreement, coupled with the language of the Plan, suggested that the lenders found the borrower to have qualified for the loan modification. The Fourth Appellate District accordingly held that the lenders were equitably estopped from relying on the borrower’s inability to produce a copy of the Plan signed by the lenders as a basis for dismissing the borrower’s complaint.