Hey Bank, Say It Ain't So!
Banks do not have to keep their promises to you or your clients, at least promises not in writing. As if someone behind the teller counter needed encouragement, Michigan’s statute of frauds expressly authorizes a bank’s breaking of unwritten promises. MCL 566.132(2) provides,
An action shall not be brought against a financial institution to enforce any of the following promises or commitments of the financial institution unless the promise or commitment is in writing and signed with an authorized signature by the financial institution:
(a) A promise or commitment to lend money, grant or extend credit, or make any other financial accommodation.
(b) A promise or commitment to renew, extend, modify, or permit a delay in repayment or performance of a loan, extension of credit, or other financial accommodation.
(c) A promise or commitment to waive a provision of a loan, extension of credit, or other financial accommodation.
(Emphasis added.) Michigan courts interpret the statute as precluding a party "from bringing a claim – no matter its label – against a financial institution to enforce the terms of an oral promise[.]" Crown Tech. Park v. D&N Bank, FSB, 619 N.W.2d 66, 72 72 (Mich. Ct. App. 2000).
Like many others struggling to save their homes, the homeowner in Ross v. Federal National Mortgage Association, 2014 U.S. Dist. LEXIS 99043 (E.D. Mich. 2014), learned about MCL 566.132(2) the hard way. Cf. Boluch v. JPMorgan Chase Bank, 2015 U.S. Dist. LEXIS 55934, at *1 (E.D. Mich. 2015) (“The plaintiffs filed a complaint in state court alleging that the defendants committed fraud, breach of contract, and violated Michigan’s foreclosure by advertisement statute when they foreclosed on the plaintiff’s residential home mortgage, despite promises to modify their loan. It is a familiar story . . . .”). After losing her job and burning through her unemployment benefits and tax refund, the homeowner in Ross sought and apparently received a loan modification from her mortgage company. 2014 U.S. Dist. LEXIS 99043, at *3. The loan modification was not in writing, but appears substantiated by the bank’s acceptance of the first two modified mortgage payments. See id. For reasons unexplained, the bank rejected the third modified payment, and required the homeowner to resume full monthly payments. Id. Surely to no one’s surprise, she could not do so and foreclosure proceedings ensued. Id. Initiation of the proceedings allowed the bank to then lawfully refuse funds offered on the homeowner’s behalf by Michigan’s Hardest Hit Program, and to eventually take title to her residence at a sheriff’s sale. Id. at *4-5.
The homeowner then sued the bank on numerous grounds relating to its failure to honor its agreed upon loan modification, which would have allowed her to keep her home. See id. at *11-12. The homeowner’s argument that the bank should be required to keep its promise fell on deaf ears. The court summarily dismissed the case: “Plaintiff has neither referred to nor presented the Court with a written, signed instrument outlining her loan modification. . . . Therefore, she cannot bring an action to enforce it.” Id. at *15.
The irony of MCL 566.132(2) is that it allows banks to also victimize each other. In Citimortgage, Inc. v. FMM Bushnell, LLC, 2014 Mich. App. LEXIS 2569, at *2 (Mich. Ct. App. 2014), condominium owners sought to refinance the senior loan on their property. In coming to terms on new financing, the junior lender verbally agreed to discharge its existing mortgage, accept a new mortgage, and wait to record the new mortgage until after the new senior lender recorded its mortgage. Id. at *3. This would put the new lender’s lien on the property in the first position and junior lender’s lien back in the second position. Id. Despite its agreement, the junior lender subsequently beat the senior lender to the register of deeds office and recorded its mortgage first, and then sold its note to another bank. Id. at *4-5.
In the lenders’ suit that followed, the court ruled that the junior lender’s promise was unenforceable under MCL 566.132(2). Id. at *18-20. Notwithstanding “an abundance of evidence,” including internal memoranda and emails, showing that the junior lender in fact agreed to give the new lender a senior position, the court found that none of the evidence was “a promise or commitment that is itself in writing and signed.” Id. at *20. In commentary, the Citimortgage court emphasized, “We cannot justify excusing [the new lender’s] failure to secure a written subordination agreement . . . . The parties to the underlying transaction are sophisticated financial institutions. Such entities do not engage in handshake transactions.” Id. at *19 n.6.
So, consider yourself forewarned, and understand that this is merely but one of the banks’ many tricks. Banks know that they do not have to honor any promise they make that is not in writing and signed. Make certain that you realize this too.