The Virginia Fourth Court of Appeals upheld a lower court ruling in Roanoke that a mortgage servicer can legally foreclose, even if a borrower claims they are told something otherwise.
The McFadden v. Fed. Nat'l Mortg. Ass'n (4th Cir., 2013) case pits oral promises versus written mandates, according to attorneys at Ballard Spahr who follow the case in their latest Mortgage Banking Update.
In the case, the McFadden family received a mortgage from Flagstar for $116,500 in 2007. As they fell behind, Flagstar introduced and enrolled the family in the Home Affordable Modification Program. The loan had since been recorded in the Mortgage Electronic Registration Systems and transferred to Fannie Mae, but Flagstar remained as servicer.
What happened next is up for debate.
The McFaddens say they were told by Flagstar, via telephone, to disregard the foreclosure notice while their mortgage mod was pending HAMP approval.
Flagstar denied this happened, on the grounds the McFaddens filed incomplete documents which, as a result, ejected them from HAMP consideration.
The foreclosure sale proceeded in accordance with the terms contained in the notice, the ruling states. Flagstar was the highest bidder at the sale, and purchased the property for $123,009.
The McFadden's claim of promises made did not hold up without written documents to support it.
By seeking to void the foreclosure sale, the McFaddens alleged that neither the purchaser of the property at auction, Flagstar, nor its assignee, Fannie Mae, held good title to the property.
"The district court dismissed the borrowers' claims as barred by the state statute of frauds," states the opinion from the Ballard Spahr attorneys Joel Tasca, Glenn Cline and Daniel McKenna. "In affirming the district court's dismissal, the Fourth Circuit majority affirmatively found that the promises may have been improper, but that they could not form the basis for a claim because the statute of frauds renders oral promises affecting real property unenforceable."
In other words, they say, lenders now have a decision which can be cited against commonly used borrower arguments.
"Many borrowers claim that their lender made oral misrepresentations concerning the ability to avoid foreclosure," they explain. "Invocation of the statute of frauds is another tool potentially available to lenders to defeat these common claims."