Coronavirus, Foreclosure & Contract Law

isisis

LoanSafe Member
If you're behind on payments and facing foreclosure because of the coronavirus don't give up. Stand up for your rights, the law may be on your side.

While making monthly payments seems like an absolute under the mortgage contract, just like in any contract under certain circumstances performance is excused. One of those is if performance has been rendered impossible or impracticable by unforeseeable events beyond either party's control. This isn't a personal event like the loss of employment but something of larger significance. One such event is called a force majeure which is an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, epidemic, or an event described as an "act of God." It essentially frees both parties from liability or obligation and excuses a party's non-performance entirely or suspends it for the duration of the force majeure.

In many business contracts there is a force majeure clause but not in the mortgage contract. Not to worry, in the absence of such a clause the default is that performance is excused; the clauses generally serve to modify the conditions of the excuse.

This is also found in the common law in Restatement (Second) of Contracts. Section 265 deals with impossibility that discharges the contract and section 269 (seen below) is about impracticability that suspends performance.

"Impracticability of performance or frustration of purpose that is only temporary suspends the obligor’s duty to perform while the impracticability or frustration exists but does not discharge his duty or prevent it from arising unless his performance after the cessation of the impracticability or frustration would be materially more burdensome than had there been no impracticability or frustration.

In many states it's written into the statutory code.* California Civil Code § 1511 provides that the performance of an obligation is excused “when it is prevented or delayed by an irresistible, superhuman cause, or by the act of public enemies of this state or of the United States...

In California, the test for whether a force majeure / act of God situation is present is “whether…there was such an insuperable interference…as could not have been prevented by the exercise of due diligence.” Pac. Vegetable Oil Corp. v. C.S.T., Ltd., 29 Cal.2d 238 (Cal. 1946).

The principle underlying the doctrine of force majeure is set forth in the Maxims of Jurisprudence in Cal. Civ. Code § 3526: “No man is responsible for that which no man can control.”

What this could mean for a homeowner unable to make payments due to Covid-19 is that those missed payments cannot place you in default because your performance has been excused and can remain excused until the pandemic has loosened its grip. If performance is excused a default can't occur. An event of default is the condition precedent that triggers the creditor's right to foreclose. You may in fact be foreclosure-proof. Maybe not indefinitely but possibly for the duration.

Let's say that as a result of the pandemic your job or business is lost for good. Under those circumstances, your obligations under the contact may be discharged. It's important to note that that doesn't mean a free house at all. The contract and the debt are not one and the same, the debt would still exist but it wouldn't be secured by the contract and could possibly be unloaded as an unsecured debt in Chapter 13.

It's important to contact your servicer and tell them you've been impacted by the pandemic. Specifically, tell them that as a result your performance under the loan contract was rendered impossible or impracticable. You should show good faith at this point by alerting them to your situation. It might not be as effective to spring it on them just as they are trying to foreclose. You could tell them that your performance has been excused and depending on your intentions you could assure them that after a given period of time you should be able to resume monthly payments. The word resume is significant because you don't want forbearance, you're not asking for time and intending to repay the skipped payments. I'd recommend not accepting forbearance as it may be an admission that payments are owed.

The banks are going to hate this because in many ways it becomes more their problem than ours. So they're going to act like they're being really generous by offering forbearance while making sure they get paid every penny back with interest. Don't let them, they've taken enough of our money as it is.

An important caveat: I'm just a homeowner, not a lawyer. I've been studying contract law for the past ten years in my battle with the banks but not this particular aspect. Also, this is an unprecedented situation, we don't know how courts will be ruling or how the law will be interpreted. Don't follow my suggestions without asking others and doing your own research. I'm just trying to give people some hope and some tools to fight for their homes.

* If you need help finding the applicable statutes for your state just reply to this thread and ask.
 

Vavouna1

LoanSafe Member
Thank you for this important information! I live in Massachusetts, what is the statutes for Massachusetts? Each time I send in a request for help after my forbearance, I'm told that my loan is not eligible based on the investors guidelines. Any help you may provide me will be greatly appreciated!
 

Survivor_IN

LoanSafe Member
Cares Act and The Consumer Financial Protection Bureau - most forbearance plans expire at 6 months and can be renewed. There is no requirement to file financials or other proof to request an automatic CARES ACT forbearance. However, private lenders do pose the majority of problems.

Currently FHA (and government backed mortgage loans) forbearance is available through June 31, 2021. Most private lenders follow suit. CFPB states there is some flexibility in RegX requirements due to high volume of requests, as long as servicer's delays are in good faith and servicer sends notices within a reasonable time. Currently CFPB is receiving a high volume of complaints related to servicing, forbearance denials, general confusion as to qualifying during the COVID crisis. No you don't have to send endless documents to qualify - but non-government backed loans due tend to harass with endless demands and then deny anyway. We've seen this before with HAMP. Currently CFPB has an open comment period for any suggestions through May 14.

I would suggest that servicers be prepared to resolve loans versus foreclosing on and frightening 2 million people in a wave of court dockets in the fall. But hey, that's just me. It's not like we haven't been through a major crisis before.
____________

CFPB Compliance Bulletin Warns Mortgage Servicers: Unprepared is Unacceptable
CFPB Compliance Bulletin Warns Mortgage Servicers: Unprepared is Unacceptable | Consumer Financial Protection Bureau (consumerfinance.gov)

Prior bulletin on mortgage servicing rules/Cares Act
cfpb_interagency-statement_mortgage-servicing-rules-covid-19.pdf (consumerfinance.gov)

YOU CAN SUBMIT A COMPLAINT HERE - PLEASE COPY YOUR COMPLAINT BEFORE FILING/SENDING
Submit a complaint | Consumer Financial Protection Bureau (consumerfinance.gov)
 

isisis

LoanSafe Member
Thank you for this important information! I live in Massachusetts, what is the statutes for Massachusetts? Each time I send in a request for help after my forbearance, I'm told that my loan is not eligible based on the investors guidelines. Any help you may provide me will be greatly appreciated!
Sorry i didn't see your reply sooner!

I looked for you but Massachusetts is one of those states that doesn't have an exhaustive statutory system and uses the common law. So you'd need to rely on the common law doctrines of impossibility, impracticability or frustration of purpose.

Restatement (Second) of Contracts § 269

"Impracticability of performance or frustration of purpose that is only temporary suspends the obligor’s duty to perform while the impracticability or frustration exists but does not discharge his duty or prevent it from arising unless his performance after the cessation of the impracticability or frustration would be materially more burdensome than had there been no impracticability or frustration.”

Section 269 operates to temporarily suspend a party’s obligation to perform during the period of impracticality or frustration, but typically does not discharge the obligation altogether.

It also provides that when the facts giving rise to the impracticality or frustration cease to exist, a party will have a reasonable time to resume performance.

The key word there is resume. Restatement doesn't suggest that performance continues to accrue during the time in which it wasn't possible. I know of at least a few cases in which a Court agreed with this interpretation. But the banks will choose to ignore that and act on the assumption that the intervening payments are still due.
 

isisis

LoanSafe Member
People whose ability to earn income was seriously impacted by the pandemic and lockdown and are now facing foreclosure don't be passive and let them take your home. Here's what you could try.

Contract your servicer by certified return receipt mail. Inform them that unforeseeable events of the pandemic and lockdown that rendered payments impossible have in your case been corrected to the extent that performance is no longer impracticable. Accordingly, you are now able to resume making monthly payments as of the next month. (Documentation supporting this would be helpful). In this correspondence including legal authority isn't necessary but using terms like "unforeseeable", "impossible", "impracticable" will get the point across. The active word of course is resume.

See if the check was cashed and applied to your balance. If not and they return the check send a second letter saying there must have been a problem and send a check for that month and the current month and see if that was cashed and applied. Most likely it wasn't but now you're in a better position because you tendered (offered) a payment and most importantly you can assert the non-existence of default if they initiate foreclosure.

Now might be a good time to open a dialogue (in writing) with the servicer pointing out the legal issues involved, the pandemic and lockdown having excused your performance and then the issue of their refusing of payment. They'll say that they're entitled to refuse partial payments. But as the intervening payments were excused by the pandemic the resumed payment wasn't partial. Refusing payment is a legal issue in itself. In California under Civil Code § 1504

'An offer of payment or performance, duly made, stops the running of interest on the obligation and has the same effect as if the payment was made.'

The issue is also addressed under the UCC.

`If tender of payment of an amount due on an instrument is made to a person entitled to enforce the instrument, the obligation of the obligor to pay interest after the due date on the amount tendered is discharged.'

I have no idea if this would be successful because we're in such uncharted territory right now but technically you'd be on solid ground legally and it could provide leverage. It also opens up a defense against foreclosure because you can assert the non-existence of default on not one but two separate grounds. First, non payment due to the pandemic wasn't a default and second their refusal of your payments was a breach. Initiating foreclosure after refusing your payments also becomes a consumer law issue and you can file a FDCPA complaint
 
Top