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California Appeals Court Rules Oral Promises Are Binding

A California appeals court ruling could have far reaching effects for servicers who believe oral promises do not carry weight.

Last month, the three judges hearing the case of ""Aceves v. U.S. Bank"":http://www.courtinfo.ca.gov/opinions/documents/B220922.PDF found that the bank had promised to negotiate a loan modification for a customer while intending to proceed with the foreclosure on the customer's house.

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The plaintiff, Claudia Aceves, was on the verge of filing for Chapter 13 bankruptcy protection, but was told by the bank that she could receive a loan modification instead.

Unlike Chapter 7 bankruptcy, which would have required Aceves give up her home, Chapter 13 protection would have helped her stay in her home.

Aceves did not file for bankruptcy protections, and the bank foreclosed on her home, claiming, ""an oral promise to postpone either a loan payment or a foreclosure is unenforceable.""

But the court ruled that while, in the absence of consideration a gratuitous oral promise ordinarily would be unenforceable, but, ""under this doctrine a promisor is bound when he should reasonably expect a substantial change of position, either by act or forbearance, in reliance on his promise, if injustice can be avoided only by its enforcement.""

Because Aceves was pursuing another plan of action in order to keep her home, and decided against it once the bank promised to negotiate a modification with her, the bank was bound to keep that promise, and breached it by continuing with the foreclosure.

About Author: Joy Leopold

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