The U.S. Court of Appeals for the Eighth Circuit recently held that: (1) Minnesota's Credit Agreement Statute prohibited enforcement of a loan servicer's alleged oral promise to postpone a foreclosure sale, because such a "credit agreement" must be in writing; (2) Minnesota's "foreclosure by advertisement" statute was inapplicable where a foreclosure sale was never actually postponed. A copy of the opinion is attached.
The plaintiff ("Borrower") obtained a home mortgage loan and eventually fell behind on her loan payments. The loan servicer ("Servicer") allegedly agreed to place Borrower on a forbearance plan, but nevertheless initiated foreclosure proceedings and scheduled a foreclosure sale date.
Shortly thereafter, Borrower contacted Servicer to request a loan modification under the Home Affordable Modification Program ("HAMP"), at which time the Servicer allegedly promised to postpone the foreclosure sale pending review of Borrower's loan modification application. The sale was never postponed, but instead took place as scheduled.
Shortly after the sale, Servicer denied the borrower's loan modification request, because the foreclosure sale had already taken place. After allegedly instructing the borrower to submit a second loan modification application, the Servicer allegedly informed the borrower that her second request for a loan modification was also denied for the same reason. Servicer supposedly then offered to rescind the foreclosure sale if Borrower paid off her loan prior to the expiration of the redemption period. Borrower failed to make the redemption payment and the foreclosure sale was never rescinded.
Borrower filed suit in state court against Servicer and others (collectively, "Defendants"). Seeking to invalidate the foreclosure sale, Borrower claimed that she had detrimentally relied on the alleged oral promise to postpone the sale, and that Defendants supposedly failed to comply with the notice requirements under Minnesota's "foreclosure-by-advertisement" statute and, further, that the Servicer had supposedly breached its HAMP participation agreement under which Borrower claimed to be a third-party beneficiary. Borrower also sought damages for alleged negligent and intentional misrepresentation.
After removing the case to federal court, Defendants moved for summary judgment on all counts, arguing that Servicer had provided proper notice of the foreclosure sale, that Minnesota's Credit Agreement Statute ("MCAS") precluded enforcement of Servicer's alleged oral promise to postpone the foreclosure sale, and that the borrower had not shown detrimental reliance on that promise.
The district court granted summary judgment. Borrower appealed. The Eighth Circuit affirmed.
As you may recall, Minnesota's "foreclosure-by-advertisement" statute allows a mortgagee to postpone a previously scheduled foreclosure sale, but requires the "party requesting the postponement" to publish notice of the postponement." Minn. Stat. § 580.07, subdiv. 1.
In addition, the MCAS defines 'credit agreement" as "an agreement to lend or forbear repayment of money . . . or to make any other financial accommodation" and prohibits a debtor from "maintain[ing] an action on a credit agreement unless the agreement is in writing, expresses consideration, sets forth the relevant terms and conditions, and is signed by the creditor and debtor." Minn. Stat. § 513.33, subdiv. 1(1), subdiv. 2.
In addition, the MCAS defines 'credit agreement" as "an agreement to lend or forbear repayment of money . . . or to make any other financial accommodation" and prohibits a debtor from "maintain[ing] an action on a credit agreement unless the agreement is in writing, expresses consideration, sets forth the relevant terms and conditions, and is signed by the creditor and debtor." Minn. Stat. § 513.33, subdiv. 1(1), subdiv. 2.
Further, the MCAS precludes claims based on an "agreement by a creditor to take certain actions, such as . . . forbearing from exercising remedies under prior credit agreements" unless the agreement meets the preceding four requirements. Minn. Stat. § 513.33 subdiv. 3.
In rejecting the borrower's various arguments, the Eighth Circuit ruled that the notice requirements of the foreclosure-by-advertisement statute were never triggered in this case. In so ruling, the Court pointed out that notice of postponement is only required in situations where the foreclosure sale is actually postponed by the mortgagee and that Borrower's complaint was that the sale had not been postponed. The Court also held that Borrower had failed to provide any support for invalidating a properly noticed foreclosure sale.
Turning to Borrower's promissory estoppel argument, the Eighth Circuit ruled that the oral promise was a "financial accommodation" under the MCAS and as such was a "credit agreement" required to be in writing in order to be enforceable. The Court explained "[b]ecause foreclosure is a means of enforcing a debt, a promise to postpone the foreclosure sale falls squarely within the plain meaning of a forbearance agreement and is thus a 'credit agreement' within the meaning of the MCAS."
The Eighth Circuit also rejected Borrower's assertions that she detrimentally relied on the oral promise not to foreclose. In so doing, the Court noted that the evidence failed to show that Borrower would have taken steps to cure the loan default before the foreclosure sale.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
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