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Claudia Jacqueline Aceves v. U.S. Bank

January 27, 2011

CLAUDIA JACQUELINE ACEVES, PLAINTIFF AND APPELLANT,
v.
U.S. BANK, N.A., AS TRUSTEE, ETC., DEFENDANT AND RESPONDENT.



APPEAL from an order and a judgment of the Superior Court of Los Angeles County, Michael L. Stern, Judge. (Los Angeles County Super. Ct. No. BC410890)

The opinion of the court was delivered by: Mallano, P. J.

CERTIFIED FOR PUBLICATION

Affirmed in part and reversed in part.

As alleged in this case, plaintiff, a married woman, obtained an adjustable rate loan from a bank to purchase real property secured by a deed of trust on her residence. About two years into the loan, she could not afford the monthly payments and filed for bankruptcy under chapter 7 of the Bankruptcy Code (11 U.S.C. §§ 701-784). She intended to convert the chapter 7 proceeding to a chapter 13 proceeding (11 U.S.C. §§ 1301-1330) and to enlist the financial assistance of her husband to reinstate the loan, pay the arrearages, and resume the regular loan payments.

Plaintiff contacted the bank, which promised to work with her on a loan reinstatement and modification if she would forgo further bankruptcy proceedings. In reliance on that promise, plaintiff did not convert her bankruptcy case to a chapter 13 proceeding or oppose the bank's motion to lift the bankruptcy stay. While the bank was promising to work with plaintiff, it was simultaneously complying with the notice requirements to conduct a sale under the power of sale in the deed of trust, commonly referred to as a non-judicial foreclosure or foreclosure. (See Civ. Code, §§ 2924, 2924a-2924k.)

The bankruptcy court lifted the stay. But the bank did not work with plaintiff in an attempt to reinstate and modify the loan. Rather, it completed the foreclosure.

Plaintiff filed this action against the bank, alleging a cause of action for promissory estoppel, among others. She argued the bank's promise to work with her in reinstating and modifying the loan was enforceable, she had relied on the promise by forgoing bankruptcy protection under chapter 13, and the bank subsequently breached its promise by foreclosing. The trial court dismissed the case on demurrer.

We conclude (1) plaintiff could have reasonably relied on the bank's promise to work on a loan reinstatement and modification if she did not seek relief under chapter 13, (2) the promise was sufficiently concrete to be enforceable, and (3) plaintiff's decision to forgo chapter 13 relief was detrimental because it allowed the bank to foreclose on the property. Contrary to the bank's contention that plaintiff's use of the Bankruptcy Code was ipso facto bad faith, chapter 13 is "'uniquely tailored to protect homeowners' primary residences [from foreclosure].'" (In re Willette (Bankr. D.Vt. 2008) 395 B.R. 308, 322.)

I BACKGROUND

The facts of this case are taken from the allegations of the operative complaint, which we accept as true. (See Hensler v. City of Glendale (1994) 8 Cal.4th 1, 8, fn. 3.)

A. Complaint

This action was filed on April 1, 2009. Two months later, a first amended complaint was filed. On August 17, 2009, after the sustaining of a demurrer, a second amended complaint (complaint) was filed. The complaint alleged as follows.

Plaintiff Claudia Aceves, an unmarried woman, obtained a loan from Option One Mortgage Corporation (Option One) on April 20, 2006. The loan was evidenced by a note secured by a deed of trust on Aceves's residence. Aceves borrowed $845,000 at an initial rate of 6.35 percent. After two years, the rate became adjustable. The term of the loan was 30 years. Aceves's initial monthly payments were $4,857.09.

On March 25, 2008, Option One transferred its entire interest under the deed of trust to defendant U.S. Bank, National Association, as the "Trustee for the Certificateholders of Asset Backed Securities Corporation Home Equity Loan Trust, Series OOMC 2006-HE5" (U.S. Bank). The transfer was effected through an "Assignment of Deed of Trust." U.S. Bank therefore became Option One's assignee and the beneficiary of the deed of trust. Also on March 25, 2008, U.S. Bank, by way of a "Substitution of Trustee," designated Quality Loan Service Corporation (Quality Loan Service) as the trustee under the deed of trust. The Substitution of Trustee was signed by the bank's attorney-in-fact.

In January 2008, Aceves could no longer afford the monthly payments on the loan. On March 26, 2008, Quality Loan Service recorded a "Notice of Default and Election to Sell Under Deed of Trust." (See Civ. Code, § 2924.) Shortly thereafter, Aceves filed for bankruptcy protection under chapter 7 of the Bankruptcy Code (11 U.S.C. §§ 701-784), imposing an automatic stay on the foreclosure proceedings (see 11 U.S.C. § 362(a)). Aceves contacted U.S. Bank and was told that, once her loan was out of bankruptcy, the bank "would work with her on a mortgage reinstatement and loan modification." She was asked to submit documents to U.S. Bank for its consideration.

Aceves intended to convert her chapter 7 bankruptcy case to a chapter 13 case (see 11 U.S.C. §§ 1301-1330) and to rely on the financial resources of her husband "to save her home" under chapter 13. In general, chapter 7, entitled "Liquidation," permits a debtor to discharge unpaid debts, but a debtor who discharges an unpaid home loan cannot keep the home; chapter 13, entitled "Adjustment of Debts of an Individual with Regular Income," allows a homeowner in default to reinstate the original loan payments, pay the arrearages over time, avoid foreclosure, and retain the home. (See 1 Collier on Bankruptcy (16th ed. 2010) ¶¶ 1.07[1][a] to 1.07[1][g], 1.07[5][a] to 1.07[5][e], pp. 1-25 to 1-30, 1-43 to 1-45.)

U.S. Bank filed a motion in the bankruptcy court to lift the stay so it could proceed with a non-judicial foreclosure.

On or about November 12, 2008, Aceves's bankruptcy attorney received a letter from counsel for the company servicing the loan, American Home Mortgage Servicing, Inc. (American Home). The letter requested that Aceves's attorney agree in writing to allow American Home to contact Aceves directly to "explore Loss Mitigation possibilities." Thereafter, Aceves contacted American Home's counsel and was told they could not speak to her before the motion to lift the bankruptcy stay had been granted.

In reliance on U.S. Bank's promise to work with her to reinstate and modify the loan, Aceves did not oppose the motion to lift the bankruptcy stay and decided not to seek bankruptcy relief under chapter 13. On December 4, 2008, the bankruptcy court lifted the stay. On December 9, 2008, although neither U.S. Bank nor American Home had contacted Aceves to discuss the reinstatement and ...


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