Verbal Promise by Mortgage Lenders May Be Enforceable

There has been significant activity recently which may impact mortgage lenders’ practices which contributed to the current real estate downturn but how does a debt relief program affect your credit?

First, the California Court of Appeal recently decided a case which may have far-reaching impact on mortgage lenders as they communicate with clients.

In Garcia v. World Savings Bank 183 Cal.App.4th 1031 (April 9, 2010), the Court of Appeal held that a mortgage lender’s verbal agreement with a borrower to postpone a foreclosure sale could be enforceable, even absent consideration for the lender’s promise to postpone.

The Court of Appeal’s decision in this case sends a shot across the bow of mortgage lenders which are currently taking heat from lawmakers.  California in particular has been ground zero of the real estate meltdown, with the Golden State accounting for 23 percent of the nation’s total foreclosure activity in the first quarter of this year.

Other significant recent legislation relating to the real estate crisis includes:

  • SB 1275 (Leno), which passed the Senate and is currently in the State Assembly, would provide additional protections for homeowners working their way through the loan modification process so they can potentially avoid foreclosure. This legislation prevents lenders from foreclosing on a home while a borrower is being evaluated for a loan modification. If a loan modification is not a viable option for a homeowner, loan servicers must provide borrowers with a detailed explanation why they are being denied.
  • SB 1329 (Leno), which is also in the Assembly having passed the Senate, would strengthen the rights of California seniors who live in residential care facilities. This bill, sponsored by California Advocates for Nursing Home Reform, ensures that vulnerable care facility residents and their loved ones are notified when their home is being threatened. With such notification, they will be better able to carefully plan for a possible move and avoid dangerous last-minute evictions.
  • SB 1178 (Corbett), which passed the Senate on May 10, 2010, would extend deficiency judgment protections for homeowners who have refinanced. This means if a homeowner refinances and later defaults, they will have the same protections against deficiency judgments as they had with their original loan under state law.

John Corcoran is an Associate with Plastiras & Terrizzi law firm in San Rafael, California (Marin County).  He advises clients on real estate matters, small business issues, estate planning, and general civil litigation.  He may be reached at [email protected] or (415) 472-8100 x211.