In a recent opinion, Brisbin v. Aurora Loan Services, et al., No. 11-2218 (May 21, 2012), the Eighth Circuit Court of Appeals ruled that a lender's oral promise to postpone a foreclosure sale was unenforceable because such a "credit agreement" had to be in writing under Minnesota law. The Court also held that the lender was not required to advertise the postponement under state law because the lender did not request the postponement.
A borrower who was in default on her mortgage payments on a Minnesota property was orally promised by the lender that she would be placed in a trial forbearance program. However, the lender later disqualified the borrower and served her with foreclosure documents. The borrower then requested a loan modification under the Home Affordable Modification Program. Although the lender agreed to postpone the foreclosure to allow it to consider the request, it nevertheless moved forward with foreclosure proceedings.
The property was foreclosed upon and the lender obtained title, resulting in a denial of the borrower's request for the loan modification. When the borrower asked why her request had been denied, the lender did not tell her it had obtained title through foreclosure.
Subsequently, the lender allowed the borrower to reapply for a loan modification, but later informed the borrower that it had obtained title and that her second request was being denied. The lender agreed to rescind the sale if the borrower could settle the account that day, but the borrower did not pay. Subsequently, the borrower filed a lawsuit, claiming that: (1) the lender was required to publish notice of the postponement; (2) the lender is estopped from reneging on its oral promise; and (3) she detrimentally relied on the lender's promise. The borrower also brought a claim for negligent and intentional misrepresentation. The lender moved for summary judgment, responding that: (1) it provided proper notice of the foreclosure sale; (2) the Minnesota Credit Agreement Statute ("MCAS") precluded the enforcement of its oral promise to postpone the sale; and (3) the borrower failed to show evidence of detrimental reliance.
The district court granted the lender's motion and the Eighth Circuit affirmed. First, the Eighth Circuit rejected the borrower's claim that the lender had to advertise the postponement under Minnesota's "foreclosure-by-advertisement" statute. This statute only requires the "party requesting the postponement" to publish such notice, and that was the borrower here. Minn. Stat. § 580.07.
With respect to promissory estoppel, the Court held that MCAS precluded enforcement of the lender's promise. The statute prohibits enforcement of an "agreement by a creditor to take certain actions, such as . . . forbearing from exercising remedies under prior credit agreements" unless "the agreement is in writing, expresses consideration, sets forth the relevant terms and conditions, and is signed by the creditor and debtor." Minn. Stat. § 513.33. The Court held that an oral promise to postpone a foreclosure sale is such a "credit agreement" and that the four aforementioned conditions were unmet. Specifically, the Court explained that "[b]ecause foreclosure is a means of enforcing a debt, a promise to postpone the foreclosure sale falls squarely within the plan meaning of a forbearance agreement and is thus a 'credit agreement' within the meaning of MCAS."
Finally, regarding detrimental reliance, the Eighth Circuit concluded that the borrower had not demonstrated that she would have taken the necessary steps to cure her default before the sale.
This decision is a great example of the lengths to which plaintiffs are willing to go to convince courts that they should simply ignore black-letter law in the context of the "foreclosure crisis." But, ultimately, the decision stands for the proposition that lenders and servicers should and can stick to their guns (applicable law) in order to prevail.