Oral Modification of Mortgage Not Permitted by Florida Court of Appeals

This week, the Florida Fourth District Court of Appeals held that Florida’s Statute of Frauds precludes oral modification of a mortgage and that the judicial doctrine of promissory estoppel may not be used to circumvent the application of the Statute of Frauds.

In Ocwen Loan Servicing, LLC v. Jean Marie Delvar, the noteholding servicer brought a foreclosure action, and the borrower asserted that the servicer was estopped from pursuing foreclosure because, the borrower alleged, the servicer’s loss mitigation department had orally represented to the borrower that the servicer would accept a lower monthly payment going forward. No agreement was memorialized in writing, but the borrower made some payments in accordance with what the borrower claimed was an oral loan modification.The servicer maintained that any lower payments must have been made pursuant to a forbearance agreement rather than any loan modification, and that the mortgage agreement fell within Florida’s Statute of Frauds as a contract not to be performed within one year─meaning that any modification of the agreement had be to in writing to be effective. Applying the doctrine of promissory estoppel, the trial court concluded that although the mortgage fell within the Statute of Frauds, the mortgage had been modified by an oral agreement between the parties and the borrower’s default was cured by the borrower’s reliance on the alleged oral modification.

On appeal, the Court of Appeals reversed the trial court, finding that the alleged oral loan modification violated Florida’s Statute of Frauds and that the trial court erroneously applied the doctrine of promissory estoppel. The Court of Appeals found that the terms of the mortgage reflected the parties’ intent that the loan be repaid in regular monthly payments over the course of thirty years, not within one year, bringing the mortgage agreement within the Statute of Frauds.

Thus, any modification to the terms of the mortgage were required to be in writing. (Florida’s “Banking Statute of Frauds,” Fla. Stat. § 687.0304, had not been raised in the trial court and thus was not at issue in this appeal.) Additionally, the Court of Appeals squarely rejected the trial court’s ruling that the doctrine of promissory estoppel applied to allow the oral modification, notwithstanding the Statute of Frauds. Citing Florida Supreme Court precedent, the Court of Appeals held that the Statute of Frauds may not be circumvented in this way by the application of the doctrine of promissory estoppel.