Alleged Oral Modification of Note and Mortgage Rejected on the Basis of Statute of Frauds

By Timothy D. Hedrick and Mark S. Mitchell

On December 9, 2015, Florida’s Fourth District Court of Appeal issued an opinion hurting a borrower’s ability to claim a lender orally agreed to modify the borrower’s obligations. In OCWEN Loan Servicing, LLC v. Delvar , [1] the trial court accepted a borrower’s argument that he was told by his lender that foreclosure proceedings would be halted if he made a payment of $6,200 and then continued to make recurring payments of $2,000 per month. [2] On that basis, the trial court issued a judgment providing that the original note and mortgage had been modified, and reformed the terms thereof to obligate the borrower to make payments of $2,000 per month. [3]

On appeal, the Fourth DCA reversed the trial court’s judgment. [4] Concluding that the relevant promissory note contemplated payments over thirty years, the Fourth DCA held the oral modification was void for failure to comply with the statute of frauds. [5] Any modification to the note and mortgage, the court explained, was required to be in writing. [6] The Fourth DCA also rejected that the oral modification could be valid under a theory of promissory estoppel because, “[t]he Florida Supreme Court has expressly stated that the Statute of Frauds cannot be circumvented by application of the doctrine of promissory estoppel.” [7]

Although this opinion is helpful to lenders dealing with an alleged oral modification to the loan documents, lenders should nonetheless carefully document any settlement negotiations to prevent or limit arguments related to alleged modifications of the relevant loan documents. Additionally, lenders looking to negotiate with borrowers may want to enter a pre-negotiation agreement stating, among other things, that there is no agreement to modify until there is a written document signed by the parties. On the other side of the coin, borrowers who believe they have an agreement with a lender should ensure any such agreement is in writing.

[1] — So. 3d —, No. 4D14-763, 2015 WL 8347300 (Fla. 4th DCA 2015)
[2] Delvar , 2015 WL 8347300, at *1–2.
[3] Id. , at *2.
[4] Id. at *3–4.
[5] Id. at *2–3.  The court applied the general statute of frauds found in section 725.01, Florida Statutes.  The court expressly did not consider whether the “banking” statute of frauds (section 687.0304) applied to the oral modification at issue because the lender had not raised it before the trial court. Id. at *1 & n.1.
[6] Id. (citing § 725.01, Fla. Stat.).
[7] Id. at *3 (citing DK Arena Inc. v. EB Acquisitions I, LLC , 112 So. 3d 85, 96 (Fla. 2013)).