Can a Homeowner File a Lawsuit for Wrongful Foreclosure?

Yes. In the case of Ragland vs. US Bank National Association (September 2012) 209 CA 4th 182, the court of appeal issued an important decision in favor of a homeowner who was induced to miss a monthly payment in order to qualify for a loan modification, where the lender misled the homeowner and proceeded with a foreclosure of the loan.

In that case, the borrower asked for a loan modification from the lender and informed the lender that several of the original loan-related documents apparently were forged by the loan broker. The lender told the borrower that the matter had been referred to its legal department, and collection activity would stop while the legal department investigated the forgery. The borrower followed up with the lender, but was told the lender could not do a loan modification while the matter was being investigated and collection activity was frozen. No one from the lender bothered to call the homeowner back. Thereafter, the lender filed a notice of trustee’s sale, which set a foreclosure sale date for the home.

The homeowner retained an attorney, and the borrower’s attorney contacted the lender’s attorney, who in turn agreed to postpone the foreclosure sale. However, the lender completed the foreclosure. The homeowner asserted claims in her lawsuit against the bank for negligent misrepresentation, breach of oral contract, fraud, intentional infliction of emotional distress, negligent infliction of emotional distress, and for rescission of the foreclosure sale.

The trial court granted the lender’s motion for summary judgment, and the homeowner appealed the judgment. On appeal, the court held that the homeowner had properly stated the elements of a cause of action for negligent misrepresentation. The elements to establish a cause of action for negligent misrepresentation are a misrepresentation of a past or existing material fact made without reasonable ground for believing it to be true, made with the intent to induce another’s reliance on the facts misrepresented; and justifiable reliance on the misrepresentation along with resulting damage. The court next held that the homeowner would be allowed to amend her complaint to allege promissory estoppel. Promissory estoppel means the lender is prevented from denying that the lender had promised to investigate her allegation that her signature on some of the loan documents had been forged, because the homeowner had relied upon the promise and deferred making loan payments while the matter was under investigation.

The court next held that the borrower had established the elements to establish fraud, which are that the defendant made a false representation as to a past or existing material fact; the defendant knew the representation was false at the time it was made; in making the representation, the defendant intended to deceive the plaintiff; the plaintiff justifiably and reasonably relied upon the representation; and that plaintiff suffered resulting damages.

The court also held the general rule prohibiting recovery of emotional distress damages for injuries arising solely out of property damage does not apply where there is a preexisting relationship between the parties or there is an intentional tort. The court held that the elements for a cause of action for intentional infliction of emotional distress are that the defendant engaged in extreme and outrageous conduct with the intent to cause emotional distress, or with reckless disregard for the probability of causing emotional distress; the plaintiff suffered extreme or emotional distress; and the defendant’s extremely and outrageous conduct was the actual and proximate cause of plaintiff’s extreme or severe emotional distress. The court held that outrageous conduct is conduct that is intentional or reckless, and so extreme as to exceed all bounds of decency in a civilized community. The borrower argued that the lender engaged in outrageous conduct by inducing her to skip a loan payment and then later refusing to accept the loan payment and by selling her home at foreclosure sale. The court held that the borrower had stated a cause of action for intentional infliction of emotional distress.

The Ragland decision provides hope for those who have lost a home in foreclosure after the lender promised to postpone foreclosure while a loan modification was under review or an investigation was being conducted.

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