Estoppel: When the Bank Tells You to Stop Making Payments

IMPORTANT PRACTICE NOTE: The use of the doctrine of estoppel on the facts presented in this article is only a temporary solution. If a representative of the bank told you to stop paying and then declared you in default and foreclose  it is unfair and that is exactly why we have the doctrine of estoppel. However, on these facts, the doctrine can only be applied for as long as the issue of modification or settlement is on the table. Whether it can be bootstrapped into an action for slander of title or breach of contract is an issue that will be decided by the courts.

My opinion is that on these facts the doctrine of estoppel will not serve as the foundation for an action for slander of title or breach of contract.

However, my opinion is that a lawsuit for intentional interference in the contractual rights of another could be brought if an intermediary between you and the servicer or between you and the creditor instructed you to stop making payments if you wish to seek a modification or settlement. 

If you are making that allegation you obviously want to say that the party who made that representation fraudulently induced you to believe that they have the authority to do it, but in fact lacked that authority inasmuch as  the sub servicer is almost certainly going to deny that they had the authority to make such representations.  In discovery the truth will come out —  the representative had been instructed to make those representations to homeowners by a sub servicer who lacked actual authority to make collections or decisions concerning the disposition of the loan because the entire paper trail of the securitization chain was false. This will enable you to sue both the representative and the sub servicer who gave the instruction. (Make sure you seek the advice of an attorney who is licensed in the jurisdiction in which a property is located and is familiar with these issues and does research to corroborate and fortify the arguments).

If you then received a declaration of default, notice of sale or a foreclosure lawsuit it could be argued that the intermediary was not a party with whom the homeowner was in privity. This argument would be fortified by a denial from the sub servicer that the intermediary had any authority make that statement.

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The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

EDITOR’S ANALYSIS AND COMMENT:  Judges seem to find it hard to believe that a creditor would tell the borrower to stop making payments. It sounds ridiculous. But the fact remains that the majority of the homeowners who have been declared in default were told exactly that by a representative with apparent authority to speak for the sub servicer and apparent authority to speak for the creditor.

I would suggest that anyone reading this article who has received that instruction from a person, party or institution draft an affidavit that is notarized that can be used by other parties to show the judge that this is a pattern of conduct that permeates the entire foreclosure industry. You can send those affidavits to me at  and without charge we will make those available to any lawyer or pro se litigant in need of those affidavits.  And by the way, let your lawyer draft the affidavit and retain an original copy which means you should be signing two of them each of which is notarized separately.

Those affidavits should include any information regarding subsequent correspondence, telephone calls or instructions from the same or different representative of the alleged sub servicer or creditor. And it should include any events in which the  sub servicer claim to have lost your submission of documents that were requested. As a practice hand, it is my opinion that no such submission should be made without a specific offer from the homeowner certified by a real estate professional.

This can subsequently be used as corroboration of the allegation that sub servicer neither considered the modification request or the modification proposal.  In addition it will fortify the allegation that the creditor was never informed of the offer and that therefore the sub servicer or representative is in violation of the laws of the nation and potentially of the state in which the property is located.

The Wall Street banks have created the illusion that they don’t want to foreclose but they have no other choice. In fact they have engaged in a pattern of conduct that made foreclosure an inevitable conclusion. Most people believe that the banks don’t want the property and therefore they would not foreclose if there was a real opportunity to settle or modified below with the assistance of the federal government under HAMP and HARP. Of course when you are dealing with Wall Street strategies the situation is  always more complex than the simplistic arguments used by attorneys seeking foreclosure or defending claims from borrowers.

It is hard to argue that the banks don’t want property when they have walked away from hundreds of thousands of homes that were emptied as a result of the wrongful foreclosure and eviction of the homeowner. In places like Cleveland and Detroit tens of thousands of homes were literally bulldozed because entire neighborhoods lost all of their residents and the homes became headquarters for drug deals and other illicit activities.

The simple truth is that the banks are not nearly as interested in the property as they are in the foreclosure. It is the foreclosure sale that creates the illusion of a stamp of approval from the state government that the entire securitization scheme was valid and it creates the reality of a presumption of the validity of the deed issued at the so-called auction of the property upon submission of  false credit bid from a non-creditor who is a stranger (not in privity) to the transaction alleged.

Their motivation is also quite simple, to wit: they have already received insurance proceeds and the proceeds of credit default swaps far in excess of the principal supposedly due on the note. If the loan were converted from “nonperforming” to “performing” it is highly likely that the Wall Street banks and their affiliates would be responsible for refunding the insurance money and proceeds of credit default swaps, all of which frequently amounted to multiples as high as 42 times the amount of the note.

The Dodd-Frank Law  makes it illegal for any servicer or representative of a creditor to engage in the consideration of a modification or settlement regarding the loan and at the same time pursue foreclosure. But even without that law, the doctrine of promissory estoppel accomplishes the same result.

I would point out that the reason that provision was made part of the Dodd-Frank  law was that there was no dispute as to the fact that servicers were encouraging people to stop making payments if they wanted to see an approval on a modification of their loan, a short sale of the property, or any type of settlement whatsoever.

The doctrine of promissory estoppel can be used both offensively in the nonjudicial states and defensively in the judicial states. It is important for a lawyer who is licensed in the jurisdiction in which the property is located to do the research on the statutes and case law dealing with promissory estoppel. The state and federal system do have differences.

In general, the elements of promissory estoppel consists of a promise or representation from one party that leads another party to reasonably rely on that promise or representation and act to their own detriment.  Generally it is not important that the benefits of the statement or action by the first party result in a benefit to that party. It is generally understood that the detriment to the homeowner as a result of the promise or representation may be all that is required in order to establish promissory estoppel, which of course must be properly alleged in a lawsuit or affirmative defenses depending upon whether the case is in a nonjudicial jurisdiction or a judicial jurisdiction.

There is no legal or business reason to tell a homeowner to stop paying if they want their loan modified, or if they want their property approved for short sale, or they want to settle with the creditor or creditors, the identity of which is closely guarded by the Wall Street banks and all of the parties in the securitization chain that turns out to be more of a paper chain of sham transactions than anything else.

The reason why homeowners are being told to stop making payments and why they are given trial modifications that are subsequently denied status as permanent modification is that the goal is foreclosure in order to keep the illicit proceeds of insurance and credit default swaps. As soon as the homeowners are told to stop making payments, and subsequent payments are often returned, the securitization parties are slowly edging the borrower into a position where it is impossible for them to make up the payments and therefore inevitable that the foreclosure will proceed. And the reason why becomes impossible for them to make up the payments is that they are told  that the back payments at worst will be added to the end of the loan. They are told this to make sure that the borrower spends the money and no longer has the money to bring the loan current.  It is a perfect storm for the Wall Street banks.

If the borrower is taken the trouble to send a qualified written request or a debt validation letter and will fortify the claim because the sub servicer or other representative will have failed to  provide proof of payment or funding for the acquisition or the origination of the loan and will have failed to provide proof of authority to represent the creditor and further failed to identify the creditor so that the authority to represent could be confirmed.

Sitting on the desk of the governor of the state of Florida is a crazy bill that would make it impossible for most homeowners to defend wrongful foreclosures. If he signs the bill into law the banks will be cheering, but not for long. Using the doctrine of estoppel the foreclosure will be stopped dead in most cases assuming the homeowner was in fact instructed to  cease making  payments and was promised that if they follow the rules their request for modification would be considered —  which is something which is required under existing federal law dating back to the time of TARP.

If the homeowner takes the position in litigation that all payments that were due were in fact paid, and that in fact the homeowner believes he has overpaid, a question of fact emerges that probably cannot be handled in the summary proceedings under what might be the new Florida law and similar laws passed in other jurisdictions.  If the homeowner also takes the position that he is neither in privity with nor does he owe any money to either the party bringing the foreclosure proceedings, this raises additional questions of fact that must be dealt with under the rules of evidence in a properly noticed hearing.

PRACTICE NOTE: Procedurally I have come to the opinion that in order to take control of the narrative away from parties who are essentially strangers to the transaction, lawyers should issue subpoenas rather than notices under the Rules of Civil Procedure. Those subpoenas should go out immediately upon receipt of any notice of foreclosure or any lawsuit seeking foreclosure. The subpoenas should ask for a competent witness to testify at deposition and require the witness produce proof of payment or consideration in the acquisition or origination of the loan. The subpoena should specify the type of information you are seeking, to wit: a canceled check, wire transfer receipt, and ACH confirmation, or check 21 confirmation. The failure of the opposing party to respond even if they file timely objections are motions to quash will raise issues as to the amount of any payment alleged to have been missed in the amount of any principal alleged to be unpaid. If I am right, the Florida law may well turn out to be a landmine for the banks from which they cannot recover.

Don’t Take Advice from Banks! It’s All Scripted to Get You in Foreclosure and then Default

14 Responses

  1. Las Vegas you are a bit behind the 8 ball. There were no loans of anything of value or redemption. We were scammed by the banksters into paying them juice money every month on money they never lent.

  2. I am now pleased I was denied the Obama Plan at the last minute by the U.S. TREASURY DEPT. Like OBAMACARE it is tyranny and it is oppressive. I refuse to pay for bankster fraud and everyone should.

  3. As to Joan’s comment about a show-cause hearing, that is a waste of the courts time and the taxpayers money if the plaintiff never showed cause at the onset of their fc action as the law requires.

  4. May I add they gave us another loan to make up for the 2 payments we missed before the loan mod scam began we were not behind. After what the servicer told us, don’t send any payments until the loan mod package came, we were again behind. They also told us in the beginning of the struggle to pay, do not send any partial payments. Assholes.

  5. The servicer told me not to send any payments and not to worry, just wait until the loan mod package comes in the mail.

    The name for it was extend & pretend, all the banksters were doing was collecting the property tax money for us to pay the taxes during fraudclosure. They thought fraudclosure would be a snap because we were all uneducated and they had all the attorney’s and judges in their pockets. Fortunately, not everyone fell for their scam.

  6. couldn’t you use detrimental reliance in all phases of loan? origination through whatever current state of loan. thank you in advance

  7. @Charles

    Yup. Getting “tricked” is the whole point of a Ponzi scheme…which is what happened with the subprime with the fake note/non-mortgage/non-funding/non-securitization of false-default debt…then we got “tricked” into believing that a HAMP “loan mod” was possible…all one big long “trick”…that is STILL going on…

  8. Here what happen and it was not that the banks/servicers came right out and told people to stop making payment but they told the people about the program and what was needed to qualify and that was that they had to be 3 payments behind.

    The bank personnel were people off the street who did not has the knowledge of mortgages, but people were lead to think well if I only miss 3 payments that I will qualified for the 2% interest rate.

    Who know that the borrower would take this path? Anybody with half a brain. At what point pass Sept 2009 did not the banking industry not know people were defaulting trying to get a modification? However this went on and on.

    The borrowers got tricked out their homes went government insured borrowers could have gotten 4% streamline refinances but most bank were charging higher rates and most their personnel did not know the programs.

    This should not have run credit reports and simply get the mortgage loan history and confirm job not income (source of income) and streamline the loan.

    The scheme worked!

  9. These banksters owe us a lot of money and collecting payments on non existent contracts and foreclosure are extortion. Same goes for loan mods, short sales, deed in lieu, refis etc because of the Origination Fraud.

  10. While Neil makes persuasive points with his advocacy of use of Estoppel as a counter to attempts to foreclose, that is not the only arrow in the quiver. I would suggest that filing suit (and/or advancing as an affirmative defense and a counterclaim) is the claim for “detrimental reliance.” I do not see that being used in foreclosure litigation, yet it obviously has a place: The homeowner relied upon the representations made by persons of apparent authority (and whom the creditors knew were representing themselves of having apparent authority), and relied upon those representations to his detriment. Hard to argue that that was not the case.

    I have used “detrimental reliance” to great effect in countering claims on installment credit cases, with the plaintiff bank collapsing very quickly. While detrimental reliance does not accrue the big-bucks in damages – you get to recoup only the amounts you relied to your detriment on – what it does do is get you in the door for injunctive relief. I use detrimental reliance in concert with Motion for Order to Show Cause, and that typically is successful. Once a court issues show-cause, and further relief after a show-cause hearing, the creditor sees the writing on the wall and caves.

  11. The banks are trying to pull a fast one and rely on what we do not know and use that against us. They are ignoring the fact they defaulted on their contracts and destroyed our Securities because to them their fraudulent business model is business as usual. They simply thought they compromised everyone and they would never get caught. WRONG…!

  12. I agree with most of your information Mr garfiled, but I do beleive if a homeowner is told not to pay, is breach of contract and null and voids the contract that was involved. in any other civil case thatw ould be so. is it not so because it is dealing with mortgages that are worth alot of money? my promissory estoppel. these are homes we should have protection. if you are told not to pay. the contract should be voided bottom line. could anyone please help me? here.

  13. When the banks tell you to stop paying that means the banksters destroyed your Security and that was intentional. Then it is up to us as individuals to educate ourselves and go after these crooks for destroying our Security without our knowledge or consent.

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