Reeder v. Specialized Loan Servicing LLC (Cal. App.)

The following is a case update written by Matthew D. Resnik, Resnik Hayes Moradi LLP, analyzing a recent decision of interest:


In Reeder v. Specialized Loan Servicing LLC, 52 Cal. App. 5th 795 (2020), the California Court of Appeals affirmed the trial court’s grant of demurrer without leave to amend—dismissing the complaint for breach of contract, wrongful foreclosure, and fraud.  The Court of Appeals affirmed that the breach of contract claim was barred by the statute of frauds; the wrongful foreclosure action could not proceed because it was based wholly on the breach of contract issue; and the fraud was not sufficiently pled as, even if the alleged false statement was made, it could not have been reasonably relied upon.  To view the memorandum, click here


In 2005, Christopher Reeder,

Obtained a home equity line of credit from defendant E-Loan, Inc. The line of credit (or loan), evidenced by a written credit agreement, had a maximum indebtedness of $245,000, a variable interest rate, and a balloon payment due on its April 1, 2015 maturity date.  The loan was secured by a second deed of trust on the [] property [at issue].

Reeder, 52 Cal. App. 5th at 799.

Reeder alleged that, at the time he obtained the loan, the loan officer assured him that the lender would refinance or re-amortize the loan at the end of the ten-year term.  Id.  Reeder referred to this as the “verbal loan commitment” and alleged he would not have entered into the transaction had he known the lender would not honor the verbal loan commitment.  Id.

When the loan came due, the lender refused to refinance or re-amortize the loan.  Id.  Reeder attempted to do a short sale, which the lender rejected, saying there was sufficient equity to pay it in full.  Id. at 800.  A foreclosure sale took place on November 3, 2017.  Id.  Reeder filed his complaint thereafter, alleging breach of contract, wrongful foreclosure, and three fraud claims.  Defendants demurred and:

The trial court sustained [the] demurrer . . . without leave to amend, concluding the oral agreement plaintiff alleged was barred by the statute of frauds, and was in any event too indefinite to be enforced.  This also meant there could be no wrongful foreclosure cause of action.  The court further found no actionable fraud was alleged.

Id. at 798.

Reeder argued that the statute of frauds did not apply because it “was enacted for the purpose of preventing frauds, and cannot be used to perpetrate a fraud.” Id. at 802.  “Thus, a misrepresentation of one’s intention is actionable even when the agreement is oral and made unenforceable by the statute of frauds.” Id. (quoting Tenzer v. Superscope, Inc., 39 Cal. 3d 18, 29 (1985).  The court said the fraud claim “has nothing to do with plaintiff’s breach of contract claim.”  Id.  The contract alleged was “oral and made unenforceable by the statute of frauds.” Id. (citing Tenzer, 39 Cal. 3d at 18). 


“The statute of frauds provides that certain contracts are invalid unless they . . .  are in writing and signed by the party to be charged.”  Reeder, 52 Cal. App. 5th at 801 (citing Cal. Civ. Code, § 1624, subd. (a)).   The court held the statute of frauds applied because there was “[a]n agreement for the sale of real property or an interest in real property . . . That include[d] a promissory note and a deed of trust securing performance under the note.”  Reeder, 52 Cal. App. 5th at 801 (citing Rossberg v. Bank of America, N.A., 219 Cal.App.4th 1481, 1503 (2013); Secrest v. Security National Mortgage Loan Trust 2002-2, 167 Cal. App. 4th 544, 552 (2008); and Cal. Civ. Code, § 2922 (“A mortgage can be created, renewed, or extended, only by writing, executed with the formalities required in the case of a grant of real property.”)). Further, “[a]n agreement to modify a contract that is subject to the statute of frauds is also subject to the statute of frauds.”  Reeder, 52 Cal. App. 5th at 801 (citing Secrest, 167 Cal. App. 4th at 553 (a forbearance agreement was subject to the statute of frauds because it modified the original promissory note and deed of trust the borrowers executed)).  The alleged oral agreement to refinance or re-amortize the loan was therefore unenforceable. 

The court also ruled that the alleged agreement was simply too uncertain to be enforceable.  Reeder did not allege sufficient material terms of the alleged contract such as the loan amount, the interest rate, or the amortization schedule. The court stated, “It is apparent to us that, absent those particulars, the intention of the parties cannot be ascertained and the alleged contract is unenforceable.  At most, plaintiff has alleged an agreement to agree 10 years later. That is not an enforceable contract.”  Reeder, 52 Cal. App. 5th at 803.

As to the wrongful foreclosure, the court simply said that the sole basis for asserting wrongful foreclosure was the breach of the oral agreement and, since there was no enforceable agreement to breach, there could be no wrongful foreclosure. 

As to the alleged fraud, the court agreed that fraud could be pled even if there was an unenforceable contract but it must be pled specifically as “general and conclusory allegations do not suffice.”  Id.  The court stated, “plaintiff has alleged no facts or circumstances suggesting defendants’ intent not to perform the alleged promise when it was made.”  Id. at 804.  Further, the court agreed that there could be no justifiable reliance saying:

It is patently unreasonable to rely on a promise of refinancing 10 years down the road, with no indication of what any of the terms of such a refinancing might be.  It is obvious that innumerable factors pertinent to refinancing may change during a 10-year period—property value, equity in the property, income, and so on. Promissory fraud, like all forms of fraud, requires a showing of justifiable reliance on the defendant’s misrepresentation. Plaintiff has alleged no facts or circumstances suggesting such a showing could ever be made.

Id. at 804 (citing Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Assn., 55 Cal. 4th 1169, 1183 (2013).

Author’s Comment

It is a little surprising to me that this case was published.  It seems so clear that the purported agreement here required some sufficient writing to establish that a contract had been entered into by the parties.  Here, it was an oral contract to modify a loan and therefore a deed of trust on real property, that requires a writing.  Apparently, the opinion was published to make it clear that demurrer without leave to amend is appropriate when the claim is based on an oral “loan mod” agreement.  Plaintiff’s assertion was that there was fraud in the inducement, that the original loan agreement would not have been entered into had he not been misled by the promises to modify the loan ten years later.  But that claim, as the court acknowledges, is fraud, not breach of contract.  The oral agreement is not enforceable because there is no writing. 

It is further surprising that a fraud claim would be thrown out on demurrer without leave to amend since fraud is so factually intensive.   But as the court said, reliance is “patently unreasonable” based on these facts. 

Plaintiff apparently did not argue that the loan mod promise was part of the loan, presumably because the parol evidence rule would have squashed that at the outset.   

These materials were authored by Matthew D. Resnik, Resnik Hayes Moradi LLP.  Editorial contributions were made by Meredith King, Higgs Fletcher & Mack LLP.