Foreclosed Homeowner: Negligent Misrepresentation Claim Survives

   California courts have not been sympathetic to homeowners facing foreclosure. As long as lenders and their appointed trustees strictly follow the statutory non-judicial foreclosure procedure, foreclosure sales are final and shell-shocked homeowners have little recourse.

    Demurrers to causes of action filed by homeowners who have lost their homes are routinely sustained without leave: MERS has standing; there is no requirement to “show me the note”; homeowners have no enforceable rights under the federal Home Affordable Modification Program (HAMP); and, with respect to cancellation of deed claims, tender is required.

   However, the recent non-published case of Lee v. JPMorgan Chase Bank highlights a cause of action that may be available to some foreclosed homeowners: negligent misrepresentation.

   The elements of negligent misrepresentation are (1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another’s reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage. The tort does not require intent to defraud. It encompasses the assertion, as fact, of that which is not true, by one who has no reasonable ground to believe it is true.

   In Lee the complaint alleged she had applied for a modification under HAMP and was advised by the bank that a foreclosure sale would be on hold pending review of the requested loan modification. The bank told Lee her file was under review on eight separate dates between April 27 and May 28, 2009. Nonetheless, on June 3, 2009, Lee discovered that the bank had foreclosed on May 4, 2009. Later, Lee was served with an unlawful detainer complaint and was eventually evicted and locked out of her home.

   The court held that Lee has sufficiently alleged negligent misrepresentation:

   1. The complaint alleged that the representation that the trustee sale was postponed pending review of the loan modification request was false because the sale in fact was not postponed. Nor was it true that the loan modification request was under review on May 6, 7, 11, 17, 21, 26, and 28, 2009, because the property had already been sold at the May 4 sale.

   2. The complaint alleged that the bank had no reasonable ground to believe the trustee sale was postponed or that Lee’s loan modification request was under review. The property had already been sold.

   3. The complaint alleged that the bank made the misrepresentations with the intent to induce Lee to rely on them and to take no action to stop the sale, such as by filing a Chapter 13 bankruptcy petition.

   4. The complaint also sufficiently alleged the fourth element, justifiable reliance. It was justifiable for Lee to believe the representation that the trustee sale would be postponed while the modification request was under review, was made by someone with authority to make it.

   5. Lee suffered damages as a result:  the use and enjoyment of her home, humiliation from being locked out of her home, legal fees and costs of over $15,000, and other incidental expenses.

   The take-away is that homeowners facing foreclosure should meticulously document each communication with the trustee, and any representative of the foreclosing party. The date, time, name of the person and title, and substance of the conversation should be accurately and carefully written down and saved. Lee has only survived a demurrer. Her records will now be an important part of her proof.

  I consult with clients and accept cases involving foreclosure and allegations of wrongful foreclosure. For other types of cases I accept, please scroll my “Home” and “My Practice” pages. If you are seeking a legal consultation or representation, please give me a call at 818-971-9409. – Michael Daymude

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5 thoughts on “Foreclosed Homeowner: Negligent Misrepresentation Claim Survives

  1. I went through some what similar situation. I was under chapter 7 when the company I was working at begin to downsize putting me out work. I discuss with my attorney, at the time he seemed to think that chapter 13 would be the best option. I file accordingly a couple months before the hearing in May of 2011 I notified him with the intent of keeping my home and vehicle. He filed the motion to keep the vehicle not the home. During the hearing he sat beside me and said nothing. As we left the hearing I ask him why wasn’t the home mention the vehicle was and it was agreed upon for me to keep it, what about the home? He said just continue to pay the notes. To make a long story short I lost my property and I would like to know if anyone has or had similar situations and what was the outcome? Is there anything that can possibly be done?

    • You do not mention why you lost your home or the jurisdiction. In the Central District of California you do not reaffirm home loans. That would make you personally liable and no judge that I know would approve the reaffirmation.

      If you want to keep your home, you simply need to make your payments pursuant to your Chapter 13 Plan and keep your regularly scheduled payments, taxes, and insurance current.

      You do need to reaffirm your vehicle loans. So, nothing in the advice your attorney gave you as represented in your comment seems amiss to me.

      If you wish to determine if you have a cause of action against your lender, you need to consult local bankruptcy counsel who can review the court file and foreclosure proceedings.

    • Thanks for the response. The motion filed was “abandon stay”. In state of Mississippi u can reaffirm homeowner loan. I tried modifications even hired a modification’s attorney, he let me know about 4 day before sale date that my only option was to file bankruptcy. According to the modification attorney the loan holder wasn’t releasing information to him. Be advised I begin working with the modification attorney in January of 2013. August 29 2013 was the sale date for my property.

    • Many aspects of bankruptcy proceedings either expressly borrow from state law or implicate them. For example, your exemptions may be borrowed from state law and foreclosure proceedings are entirely governed by state law. I am not authorized to practice in Mississippi. The best advice I can give you is, once again, to consult a local bankruptcy attorney. Good luck.

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