In a recent decision, the
In Reeder v.
In early 2015,
Until
The borrower filed this action, alleging claims that included breach of contract, wrongful foreclosure and fraud. The lending parties filed a motion to dismiss the borrower's claims, which the trial court did.
On appeal, the appellate court set forth the general parameters of the impact of the statute of frauds with respect to loans secured by real property. First, from 1st year law school, "[t]he statute of frauds provides that certain contracts are invalid unless they, or some note of them, are in writing and signed by the party to be charged. This writing requirement serves only to prevent the contract from being unenforceable. . . ." With respect to agreements concerning real property, the court explained: "An agreement for the sale of real property or an interest in real property comes within the statute of frauds. That includes a promissory note and a deed of trust securing performance under the note." Further, "[a]n agreement to modify a contract that is subject to the statute of frauds is also subject to the statute of frauds." In fact, the appellate court explained that a forbearance agreement was also subject to the statute of frauds "because it modified the original promissory note and deed of trust the borrowers executed." An oral agreement to make a contract "which must be in writing, is itself within the statute of frauds."
In this lawsuit, the alleged oral agreement modified the 2005 credit agreement and the deed of trust, purporting to change the provision in the deed of trust stating that all amounts must be paid in full by the maturity date of
What this decision reminds us is that with the likely large amount of work-outs that are being discussed, first, the agreements must be in writing if the security for the loans is real property. And, then, also, that the terms of the modifications be clear and specific; generalities will not save the day.
Footnote
1. While the court recognized that the statute of frauds does not necessarily preclude a claim for fraud as opposed to breach of contract, the court found that the allegations by the borrower did not rise to the level of a properly pleading cause of action for fraud. Further, because the borrower's claim for wrongful foreclosure was solely based upon the alleged breach of the verbal agreement, that claim failed on appeal as well.
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