Claim That Bank Told Borrower To Miss A Payment In Order To Receive A Loan Modification, And Claim Based On Violation Of California Foreclosure Rules, Allowed To Proceed

In Ragland v. U.S. National Bank Ass’n, 209 Cal. App. 4th 182 (Sept. 11, 2012) a California appellate court held that where a lender instructs a borrower to miss a mortgage payment in order to qualify for consideration for a loan modification, and then proceeds to foreclose, the borrower has valid claims for intentional misrepresentation, fraud, and a violation of Cal. Civ. Code 2924g(d). In that case, the lender apparently told the borrower that it would charge a fee to modify the loan which the borrower requested be waived on the grounds that ”the loan was forged and nothing was done about it.” The bank said the forgery allegations would have to be investigated by the bank’s legal department and that the bank would not seek payment during the investigation. The borrower did not make that month’s payment and she received a delinquency notice, along with correspondence indicating the bank intended to foreclose. The borrower alleged that the bank told her several times that the foreclosure would not proceed and on several occasions she tried to make payments which the bank rejected. When the trustee recorded a notice of trustee’s sale the borrower filed suit. The lower court entered a conditional TRO giving the borrower several weeks to bring the loan current which she was unable to do. Borrower’s home was sold the day after the expiration of the deadline set by the court. The lower court eventually granted the bank’s motion for summary judgment on all claims and the borrower appealed. On the borrower’s negligent misrepresentation and fraud claims, the Appellate Court rejected the bank’s argument that the borrower suffered no damages because she could not reinstate the loan at the time of the foreclosure sale. The court found that the borrower’s representation that she could have made the back payments that were due at the time of the foreclosure sale, but not the fees assessed for late payments and foreclosure costs was enough to show a triable issue. The late payments and foreclosure costs were incurred only because the bank induced the borrower to miss a payment. If the borrower’s allegations were correct, the bank ”had no right to demand payment of additional fees…to reinstate the loan.” The Court also found that the borrower’s allegations as to the bank’s conduct, if proven, ”was so extreme as to exceed all bounds of decency in our society,” which established a triable issue of material fact as to intentional infliction of emotional distress. Regarding the borrower’s claim that the bank violated Cal. Civ. Code 2924g(d), which provides that foreclosure sales may be conducted ”no sooner than on the seventh day after…expiration or termination of [an] injunction…that required the postponement of the sale…”, the court found that ”section 2924g(d) creates a private right of action and is not preempted.” To reach that conclusion, the Court relied on precedent establishing that a private right of action is impliedly created where ”there [is] no administrative mechanism to enforce the statute, a private remedy further[s] the purpose of the state and was necessary for it to be effective,” while also noting that California courts do not favor constructions of statutes that render them advisory only.

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