Because Payment Of Money Alone Is Not Sufficient Performance To Remove An Unsigned Agreement From The Statute Of Frauds, Agreement Not To Foreclose Is Unenforceable

In Secrest v. Security National Mortgage Loan Trust, — Cal.Rptr.3d —, 2008 WL 4516413, Cal.App. 4 Dist., Oct. 9, 2008) a California Court of Appeal considered the appeal of a borrower seeking to block foreclosure on his home citing a forbearance agreement he had reached with the lender that it would forego foreclosure proceedings in exchange for payment of a portion of the past due amount. The court ruled the agreement was unenforceable under the statute of frauds because 1) it was unsigned, 2) the payment of money alone is not sufficient performance to take an oral agreement out of the statute of frauds, and 3) the agreement not to foreclose was therefore unenforceable.


In 1996, Luther and Charmella Secrest borrowed $552,700 from GE Capitol Mortgage Services, Inc., to purchase their home. The loan was later sold to Ocwen Federal Bank (“Ocwen”). The Secrests fell into default on their mortgage payments. In April 2001, the Secrests and Ocwen entered into a forbearance agreement in which Ocwen agreed not to initiate foreclosure if the Secrests complied with a new payment schedule. By January 2002, the Secrests were again in default. Ocwen and the Secrests again discussed foreclosure alternatives. Ocwen sent the Secrests another proposed forbearance agreement, but Luther Secrest disputed the dollar amounts contained therein, and agreed orally with Ocwen to cross those amounts out, sign the agreement, and again make a partial payment of the past due amount owed. A corrected forbearance agreement was never completed and signed by Ocwen.

Ocwen then sold the loan to Security National Mortgage Loan Trust (“Security”). In September 2004, Security filed a notice of default and notice of its intention to sell the property. The Secrests sued for injunctive relief, alleging that their January 2002 forbearance agreement with Ocwen precluded foreclosure action by Security. The trial court found that agreement to be unenforceable under the statute of frauds, and ruled that Security’s notice of default was therefore valid and enforceable. The Secrests appealed.


The court first rejected the Secrests’ contention that Security had waived the statute of frauds by failing to object specifically on that ground. The court found that Security had squarely argued that the January 2002 agreement was unenforceable under the statute of frauds and had therefore not waived their right to invoke it.

The statute of frauds, Civil Code Section 1624, states that a contract is unenforceable unless it is memorialized in writing. As neither Ocwen nor Security had signed the January 2002 agreement, the court found, it was therefore subject to the statute of frauds.

Finally, the court considered whether money paid by the Secrests in January 2002 constituted part performance sufficient to stop Security from asserting the statute of frauds. Part performance, the court noted, allows enforcement of a contract lacking the requisite writing in situations in which invoking the statute would cause unconscionable harm. Citing Anderson v. Stansbury (1952) 38 Cal.2d 707, 715, the court stated that in addition to part performance, a party seeking to enforce the contract must have changed position in reliance on the oral contract, to an extent that applying the statute of frauds would result in an unconscionable loss.

The Secrests’ claim that their January 2002 payment constituted such a change failed, the court said, again quoting Anderson, “The payment of money is not sufficient part performance to take an oral agreement out of the statute of frauds.” The unsigned January 2002 agreement therefore remained unenforceable, the court said, and did not preclude Security from proceeding with foreclosure. The trial court ruling was affirmed.


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