Statute of Frauds Bars Claims Seeking To Set Aside Foreclosure Sale Based On Oral Promises Related To Loan Modifications


The Fourth Circuit, in an unpublished opinion, recently held that an oral statement that borrowers should disregard notices of foreclosure sale while being considered for a loan modification is insufficient to set aside a properly noticed foreclosure sale. The borrowers sought to set aside a foreclosure sale on equitable grounds based on allegations that the mortgage servicer orally represented that:

  • It would provide the borrowers with a loan modification if they met certain criteria.
  • The borrowers' loan application materials were incomplete.
  • The borrowers should disregard the notice of foreclosure due to their pending loan modification.

The district court dismissed the borrowers' claims as barred by the state statute of frauds. In affirming the district court's dismissal, the Fourth Circuit majority affirmatively found that the promises may have been improper, but that they could not form the basis for a claim because the statute of frauds renders oral promises affecting real property unenforceable.

The Fourth Circuit's decision has general appeal and applicability because the court succinctly and squarely addressed a claim commonly raised in foreclosure defense through the application of a universal rule. Many borrowers claim that their lender made oral misrepresentations concerning the ability to avoid foreclosure. Invocation of the statute of frauds is another tool potentially available to lenders to defeat these common claims.