Dixon v. Wells Fargo Bank, N.A.

United States District Court for the District of Massachusetts · Contracts

ContractsPromissory EstoppelHOLA PreemptionLoan Modificationpromissory estoppelreliance damagespromise to negotiateloan modification

Facts

The Dixons alleged that Wells Fargo orally agreed to consider them for a mortgage loan modification if they took certain steps, including stopping payments and providing requested financial information. Wells Fargo instructed them to stop making payments, with the understanding that the unpaid amounts would be added to the modified note, and the Dixons promptly supplied the requested information. Despite their compliance and reliance, Wells Fargo allegedly refused to proceed and instead initiated foreclosure proceedings on their home. The Dixons claimed that their reliance left them in default and exposed them to foreclosure.

Issue

Whether allegations that a lender promised to consider borrowers for a loan modification if they stopped making payments and submitted financial information, and then foreclosed after the borrowers relied on that promise, state a claim for promissory estoppel under Massachusetts law. The court also considered whether such a promissory estoppel claim is preempted by HOLA.

Rule

Under Massachusetts law as applied here, a complaint states a promissory estoppel claim when it alleges that the defendant made a specific promise reasonably expected to induce action or forbearance, that the promise did induce reasonable and detrimental reliance, and that enforcement is necessary to avoid injustice. Even if the promise does not amount to an enforceable final contract or loan modification, reliance-based recovery may be available for a specific promise made during negotiations, particularly where the promisor allegedly takes advantage of the reliance. A generally applicable state common-law promissory estoppel claim is not preempted by HOLA when, as applied, it does not purport to impose substantive requirements on lending operations but merely seeks to hold the lender to its word.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Portland, Maine, Nora and Daniel Price fell behind on their home loan with Harbor Crest Mortgage, a federally chartered savings association. A servicing agent told them, "If you skip the next two monthly payments and upload your tax returns and pay stubs by Friday, we will review your eligibility for a modification before taking any foreclosure action." The Prices did exactly that, but the lender filed foreclosure papers the next week without conducting any review.

Which is the strongest argument that the Prices have stated a promissory estoppel claim?

Explanation. Under the majority opinion, a borrower may state a promissory estoppel claim where the lender makes a specific promise during negotiations—here, to review eligibility before foreclosure if the borrowers stop paying and submit information—and the lender should reasonably expect reliance. If the borrowers in fact rely and are made worse off by default and exposure to foreclosure, the complaint may proceed even though there was no final modification agreement. The doctrine does not require a complete enforceable modification contract, but it does require more than a vague assurance. (Derived from Dixon v. Wells Fargo Bank, N.A. (n.d.).)