My bank is refusing to accept my mortgage payment, do I have a legal claim against it?

6 September 2019

Answer: Maybe, as there was a recent case that seemed to indicate it is grounds for a claim of breach of contract.  We will look at a recent case in which it was found to be grounds, but the author warns facts in a different situation must be similar enough to be able to argue this recent case should be persuasive and followed.

It has been heard by the author it seems a thousand times that a bank is refusing to accept mortgage payments from a consumer, and it has exasperated a delinquency and the consumer wants justice.  The consumer is frustrated and scared, and the bank is vague, confusing, and contradictory, at least from the consumer’s perspective.  Consumers speaking to bank customer service about mortgage problems, especially deficiencies, is a recipe for confusion and possibly financial disaster.  We will now look at this case where arguably disaster was averted at the last minute.

In McLain v. Citizens Bank, N.A., the consumer, in this case also a bankruptcy debtor, brought a claim against the bank, here Citizens Bank, for breach of contract for not accepting her payments.  In re Laura McLain, Case No. 17-30213, McLain v. Citizens Bank, N.A., Adv Pro. No. 18-03028 (7/26/2019).  The basic facts are that a consumer and a third party were co-owners of residential property and although only the friend was obligated, they both signed the mortgage.  The third party then filed for bankruptcy under chapter 7 and received a discharge.  The third party vacated the property, but the consumer remained living there as her primary residence.  The bank, it is alleged, told the consumer that due to the bankruptcy discharge granted to the third party that there was no longer any obligation for anyone to pay on the mortgage.  This was not legally accurate, as the third party was still obligated, but it is implied the consumer/debtor followed and relied on this statement and stopped paying or arguably was not permitted to pay it.  (It appears the consumer was paying the mortgage, conceivably to maintain her primary residence, even though the third party was the only one obligated.)  Contrary to its prior statements, the lack of continued payments resulted in the bank to start, and get very close to, foreclosure.  The consumer/debtor filed for bankruptcy herself this time, under chapter 13, the day before the foreclosure was scheduled to stop it.

In a proceeding associated with the chapter 13, the debtor brought her claim of breach of contract, inter alia, against the bank.  Some additional important facts are that the language in the mortgage actually permitted payments to be made at each Citizen’s branch, and the consumer had been essentially turned away from a branch.  The consumer/debtor also had documentation establishing exactly what the bank was stating, specifically that the consumer/debtor need not continue to pay on the loan after the third party’s bankruptcy.  (The author points out that, what is alleged to have happened here, essentially a large bank saying one thing but doing another, is usually not captured in writing for a consumer to provide evidence of their mistaken reliance on incorrect statements in most cases.).  This documentation was highlighted and quoted in the bankruptcy court’s decision denying the bank’s motion to dismiss.

Another important legal determination that occurred was that the bankruptcy court found that the consumer/debtor was an intended beneficiary of the note/mortgage and thus had standing to bring a breach of contract claim against the bank.  (The bankruptcy court relied on Restatement of (Second) Contracts (1981) §§ 304, 315 and Miller v. Mooney, 431 Mass. 57, 62 (2000).)  This is not surprising as she had signed it.

In this case it looks like the consumer had a valid contract breach claim against their mortgage holder, as many other consumers have believed they did.  However, the author reiterates that to rely on this case to argue that any future claim like it is also a valid breach of contract claim will depend on if the court thinks the facts are similar enough.  The author notes, what seems may not be answered directly by this case is whether banks’ usual practice of refusing to accept payments after acceleration, that is the point that they deem either the entire balance of the mortgage or the entire amount of the current deficiency is owed, is a legal claim for breach of contract.

If you are believing that you may have a similar claim, feel free to contact this office.