Daily Development for Thursday, October 20, 2005
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

MORTGAGES; FORBEARANCE; CONSIDERATION: Payment of outstanding loan balance is insufficient consideration to support a contract to forego foreclosure.

Citizens Trust Bank v. White, 618 S.E.2d 9 (Ga. App., 2005).

Borrower  had prevailed below in a suit against Lender for breach of a contract to forbear. It awarded $250,000 in actual damages (suggesting that this was the amount of value the jury thought was  lost at foreclosure) but no punitive damages.

Apparently the amount of the mortgage debt was only about $40,000.  There was some question about application of insurance proceeds in that amount to rebuilding, but it does not appear that this issue had much to do with the outcome here.

Borrower had missed several payments, and bank scheduled the property for foreclosure.  Borrower repeatedly blocked the foreclosure with bankruptcy filings for two years, and each filing was dismissed.   He finally was enjoined from filing any further bankruptcies.  The parties then entered into a letter agreement that provided that Bank agreed to “postpone the foreclosure” if Borrower would pay $35,000 to Bank on the (apparently accelerated) debt.  The letter stated that there would be a remaining unpaid balance of approximately $5,000.  There was no provision for when that would be paid, but Bank testified that it expected payment of the balance within another thirty days.

Borrower made the payment and the foreclosure was postponed.  Borrower stated that he expected a letter detailing the application of the $35,000.  (Note that the original letter agreement stated the precise amount that would still be owing). 

The forbearance agreement letter was signed May 7.  On July 24 of the same year, Bank sent Borrower another notice of foreclosure.  It completed the foreclosure in September by bidding in the $5000 debt plus interest, a total of $5,986.

The Court of Appeals did not enforce the contract because of lack of consideration.  Though Bank’s act of forbearance constituted adequate consideration for a contract, Borrower's payment of a debt that he already owed was not sufficient consideration for a contract.

Comment: If indeed, the lost equity in this foreclosure was $250,000, as found below, the editor would have expected more discussion of alternatives to the requirement of consideration, such as promissory estoppel.  Perhaps the court concluded that the statement of remaining indebtedness in the letter agreement was sufficient to put the Borrower on notice that he had to promptly clear up the balance of the debt, but surely one should expect greater clarity from a bank in dealing with a borrower under these circumstances. 

On the other hand, there likely was not much uncertainty about the notice of foreclosure.  Perhaps the court concluded that the Bank, overall, had been patient enough. 

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