CALIFORNIA COURT OF APPEALS SAYS MERS CAN FORECLOSE IF DEED OF TRUST SAYS SO – GOMES CASE DISCUSSION
WHO CAN THAT BE KNOCKING AT MY DOOR? Is MERS trying to foreclose on you?
Gomes v. Countrywide, MERS and Recontrust
MERS is an interesting entity. They call themselves both the “nominee of the lender” (who never lent any money in most cases) and “their successors and assigns” (even though it is not known who the successor or assign of the loan-turned-bond would be). In the same instrument, MERS calls itself a “beneficiary” (which is also completely false and nonsensical because by MERS own admission they do not own the note, hold the note, or have any right to transfer the note, and they do not collect your loan payment, and they do not lose money if your mortgage payment is not made. But yet they argue that by signing the deed of trust, approximately 6o million homeowners across the nation have magically appointed or named MERS to the the agent (nominee) of another party. It is not even clear how you can appoint a second party to the the agent of a third party.
Adding more controversy into the debate, MERS often assigns a deed of trust “and the notes therein” when it assigns your deed of trust (usually at the time the foreclosure is taking place) and usually assigning your DOT and the notes therein to a securitized loan trust that argues it is the holder and owner of your loan (even though this is akin to a bigfoot sighting an in fact, I do not believe anyone has seen a complete and unbroken chain of endorsement of the note from the originator of the loan up to the securitized loan trust. These are things Max Gardner and Neil Garfield, expert lawyers in their respective fields, often teach.
Yet even given this controversy, there is a mix of opinion amongst courts and legal scholars as to just what role MERS is allowed to play in the foreclosure game. We have talked about other MERS cases on our website if you google “Vondran MERS.” So now we have another case, this time out of the California Court of Appeals, 4th District, which says MERS can foreclose on residences in California. Heck, in California Wallmart, Target, and BestBuy can foreclose on your if they wanted to given the Courts view that “produce the note” or “show me the note” (original note) as they call it, has been beaten down by the California and Arizona judiciary. So no proof is required to foreclose on anyone in California. You owe a debt and so it should not be an issue what the financial institutions want to do. You already allowed them to turn your loan into a stock to be sold on Wall Street, and that is all you need to know (if you ask them their opinion).
So let’s talk about the Gomes decision. In Gomes, the defaulting borrower brought a lawsuit to stop MERS from foreclosing arguing the note-holder (securitized loan trust) never authorized MERS to foreclose in their name.
The Court first discussed the role of MERS:
The role of MERS is central to the issues in this appeal. As case law explains,
“MERS is a private corporation that administers the MERS System, a national electronic
registry that tracks the transfer of ownership interests and servicing rights in mortgage
loans. Through the MERS System, MERS becomes the mortgagee of record for
participating members through assignment of the members’ interests to MERS. MERS is
listed as the grantee in the official records maintained at county register of deeds offices.
The lenders retain the promissory notes, as well as the servicing rights to the mortgages.
The lenders can then sell these interests to investors without having to record the
transaction in the public record. MERS is compensated for its services through fees
charged to participating MERS members.” (Mortgage Elec. Registration Sys. v.
Nebraska Dept. of Banking & Fin. (2005) 270 Neb. 529, 530 [704 N.W.2d 784, 785].)
“A side effect of the MERS system is that a transfer of an interest in a mortgage loan
between two MERS members is unknown to those outside the MERS system.” (Jackson
v. Mortgage Elec. Registration Sys., Inc. (Minn. 2009) 770 N.W.2d 487, 491.)”
IN OTHER WORDS, THE LOAN SERVICERS PLAY A BIG GAME TO HIDE THE TRUE IDENTITY OF THE ALLEGED OWNER OF YOUR LOAN WHEN THERE IS A MERS LOAN INVOLVED. MERS CLAIMS TO ACCURATELY TRACK LOAN OWNERSHIP AND SERVICING RIGHTS.
GOMES DEED OF TRUST GAVE MERS THE RIGHT TO FORECLOSE ACCORDING TO THE COURT:
“The deed of trust that Gomes signed states that “Borrower [i.e., Gomes]
understands and agrees that MERS holds only legal title to the interests granted by
Borrower in this Security Instrument, but, if necessary to comply with law or custom,
MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to
exercise any or all of those interests, including, but not limited to, the right to foreclose
and sell the Property . . . .”
NEXT, THE COURT DISCUSSED THE CLAIM BEING PURSUED BY GOMES:
“The first cause of action is titled “Wrongful Initiation of Foreclosure.” In that
cause of action, Gomes states that he “does not know the identity of the Note’s beneficial
owner” — as he believes that KB Home Mortgage Company sold it on the secondary
mortgage market. He alleges on information and belief that “the person or entity who
directed the initiation of the foreclosure process, whether through an agent of MERS or
otherwise, was neither the Note’s rightful owner nor acting with the rightful owner’s
authority.” In short, the first cause of action alleges, on information and belief, that
MERS did not have authority to initiate the foreclosure because the current owner of the
Note did not authorize MERS to proceed with the foreclosure.
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“The second cause of action seeks declaratory relief on the issue of whether “Civil
Code section 2924, subdivision (a)] allows a borrower, before his or her property is sold,
to bring a civil action in order to test whether the person electing to sell the property is, or
is duly authorized to so by, the owner of a beneficial interest in it.” Although designated
a cause of action for declaratory relief, the second cause of action appears to serve simply
as a legal argument in support of the first cause of action. Specifically, the second cause
of action alleges that section 2924, subdivision (a) provides the legal authority for Gomes
to assert the claim he has made in the first cause of action, namely that MERS lacks the
authority to initiate the foreclosure process because it was not authorized to do so by the
owner of the Note.”
AS YOU CAN SEE, THE PLAINTIFF GOMES APPARENTLY TRIED AN ARGUMENT SIMILAR TO “SHOW ME THE ORIGINAL NOTE SO I KNOW WHO THE LENDER IS.” As we have discussed, California and Arizona courts (the two states where we practice law) have shot down this legal theory although THIS SEEMS TO BE A FAIR QUESTION, YOU ARE THE BANK, DO YOU OWN MY LOAN, AND DO YOU HAVE THE RIGHT TO FORECLOSE ON ME? THE COURTS WILL NOT ENTERTAIN THIS LINE OF QUESTIONING IN THE FORECLOSURE PROCESS (although even a small claims court would demand proof of an IOU or contract in certain cases).
The Defendants in GOMES filed a demurrer raising the typical arguments:
Demurring to the first cause of action, Defendants
argued, among other things, that (1) to maintain a cause of action for wrongful
foreclosure, Gomes must allege that he is able to tender the full amount due under the
loan; (2) California’s nonjudicial foreclosure statute sets forth an exhaustive framework
that does not provide for the type of relief that Gomes seeks; (3) the terms of the deed of
trust authorize MERS to initiate a foreclosure proceeding; and (4) if Gomes is arguing
that “he is entitled to avoid foreclosure until a defendant has produced the note,” such a
claim has been uniformly rejected. Demurring to the second cause of action for
declaratory relief, Defendants argued that it was “nothing more than a repeat of the legal
theory” asserted in the first cause of action and should be rejected on the same basis.
THE COURT ULTIMATELY REACHED ITS DECISION ON THE MERS STANDING TO FORECLOSE ISSUE:
“Gomes Has Not Identified a Legal Basis for an Action to Determine
Whether MERS Has Authority to Initiate a Foreclosure Proceeding
California’s nonjudicial foreclosure scheme is set forth in Civil Code sections 2924
through 2924k, which “provide a comprehensive framework for the regulation of a
nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust.”
(Moeller v. Lien (1994) 25 Cal.App.4th 822, 830 (Moeller).) “These provisions cover
every aspect of exercise of the power of sale contained in a deed of trust.” (I. E.
Associates v. Safeco Title Ins. Co. (1985) 39 Cal.3d 281, 285.) “The purposes of this
comprehensive scheme are threefold: (1) to provide the creditor/beneficiary with a quick,
inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the
debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly
conducted sale is final between the parties and conclusive as to a bona fide purchaser.”
(Moeller, at p. 830.) “Because of the exhaustive nature of this scheme, California
appellate courts have refused to read any additional requirements into the non-judicial
foreclosure statute.” (Lane v. Vitek Real Estate Industries Group (E.D. Cal. 2010) 713
F.Supp.2d 1092, 1098; see also Moeller, at p. 834 ["It would be inconsistent with the
comprehensive and exhaustive statutory scheme regulating nonjudicial foreclosures to
incorporate another unrelated cure provision into statutory nonjudicial foreclosure
proceedings."
AND THEN THE COURT DELIVERED THE PAYLOAD:
"By asserting a right to bring a court action to determine whether the owner of the
Note has authorized its nominee to initiate the foreclosure process, Gomes is attempting
to interject the courts into this comprehensive nonjudicial scheme. As Defendants
correctly point out, Gomes has identified no legal authority for such a lawsuit. Nothing
in the statutory provisions establishing the nonjudicial foreclosure process suggests that
such a judicial proceeding is permitted or contemplated.
In his declaratory relief cause of action, Gomes sets forth the purported legal
authority for his first cause of action, alleging that Civil Code section 2924,
subdivision (a), by "necessary implication," allows for an action to test whether the
person initiating the foreclosure has the authority to do so. We reject this argument.
Section 2924, subdivision (a)(1) states that a "trustee, mortgagee, or beneficiary, or any
of their authorized agents" may initiate the foreclosure process. However, nowhere does
the statute provide for a judicial action to determine whether the person initiating the
foreclosure process is indeed authorized, and we see no ground for implying such an
action. (See Lu v. Hawaiian Gardens Casino, Inc. (2010) 50 Cal.4th 592, 596 [legislative
intent, if any, to create a private cause of action is revealed through the language of the
statute and its legislative history].) Significantly, “[n]onjudicial foreclosure is less
expensive and more quickly concluded than judicial foreclosure, since there is no
oversight by a court, ‘[n]either appraisal nor judicial determination of fair value is
required,’ and the debtor has no postsale right of redemption.” (Alliance Mortgage Co. v.
Rothwell (1995) 10 Cal.4th 1226, 1236.) The recognition of the right to bring a lawsuit
to determine a nominee’s authorization to proceed with foreclosure on behalf of the
noteholder would fundamentally undermine the nonjudicial nature of the process and
introduce the possibility of lawsuits filed solely for the purpose of delaying valid
foreclosures.
THE COURT THEN POINTED TO GOMES DEED OF TRUST AND THE COURT HELD GOMES HAD SPECIFICALLY AUTHORIZED THE FORECLOSURE SALE:
“Specifically, Gomes agreed that “MERS (as nominee
for Lender and Lender’s successors and assigns) has . . . the right to foreclose and sell the
Property.” The deed of trust contains no suggestion that the lender or its successors and
assigns must provide Gomes with assurances that MERS is authorized to proceed with a
foreclosure at the time it is initiated.”
THE COURT ALSO FOOTNOTED TO THE BOGUS MERS ARGUMENT (ALSO MADE IN THE DEED OF TRUST WHICH IS CONSIDERED TO BE THE OPERATIVE FORECLOSURE DOCUMENT IN THE GOMES CASE) THAT IT IS A “BENEFICIARY” OF THE LOAN.
As the parties discuss, some federal district courts have observed
that although identified as a “beneficiary” in a deed of trust, the role of MERS is not
acting as a beneficiary as that term is commonly used, and that MERS in fact acts as a
nominee, and thus an agent of the beneficiary. (See, e.g., Roybal v. Countrywide Home
Loans, Inc. (D. Nev., Dec. 9, 2010, No. 2:10-CV-750-ECR-PAL) 2010 U.S. Dist. Lexis
131287, *11 ["there is a near consensus among district courts in this circuit that while
MERS does not have standing to foreclose as a beneficiary, because it is not one, it does
have standing as an agent of the beneficiary where it is the nominee of the lender, who is
the true beneficiary"]; Weingartner, supra, 702 F.Supp.2d at p. 1280 ["Calling MERS a
'beneficiary' is both incorrect and unnecessary . . . ," and "[c]ourts often hold that MERS
does not have standing as a beneficiary because it is not one, regardless of what a deed of
trust says, but that it does have standing as an agent of the beneficiary where it is the
nominee of the lender (who is the ‘true’ beneficiary).”
THE COURT DID WHAT SOME OTHER COURTS HAVE DONE WHEN FACED WITH THIS “PART OF WHAT WE SAY IN THE DEED OF TRUST IS TRUE AND PART OF WHAT WE SAY IS FALSE” ARGUMENT AND PERMIT THE NOMINEE LANGUAGE TO BE CONTROLLING WHEN IT COMES TO FORECLOSURE.
Relying on the terms of the applicable deeds of trust, courts have rejected similar
challenges to MERS’s authority to foreclose. In Pantoja v. Countrywide Home Loans,
Inc. (N.D. Cal. 2009) 640 F.Supp.2d 1177, the federal district court pointed out that in the
deed of trust, the plaintiff “distinctly granted MERS the right to foreclose through the
power of sale provision, giving MERS the right to conduct the foreclosure process under
[Civil Code s]ection 2924,” and therefore “[s]ince Plaintiff granted MERS the right to
foreclose in his contract, his argument that MERS cannot initiate foreclosure proceedings
is meritless.” (Id. at pp. 1189, 1190.) Similarly, another court pointed out that “[u]nder
the mortgage contract, MERS has the legal right to foreclose on the debtor’s property. . . .
MERS is the owner and holder of the note as nominee for the lender, and thus MERS can
enforce the note on the lender’s behalf.” (Morgera v. Countrywide Home Loans, Inc.
(E.D. Cal., Jan. 11, 2010, No. 2:09-cv-01476-MCE-GGH) 2010 U.S. Dist. Lexis 2037,
*22, citation omitted.).”
AND WITH THAT THE GOMES COURT AFFIRMED THE LOWER COURT DECISION AND REFUSED LEAVE TO AMEND.
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Some thoughts:
(1) Check your Deed of Trust, did you grant MERS the right to foreclose?
(2) Do you have grounds to rescind your loan under TILA? (refinance loan within the last three years and ability to tender)
(3) Keep an eye eye out for other MERS cases as the Courts are not in unanimous agreement about MERS and the scope of their agency authority or whether the scheme actually violates well established principles of agency law.
(4) If you are getting close to a foreclosure date, perhaps you are a chapter 13 bankruptcy candidate. In a bankruptcy setting MERS and the securitized loan trustee that claims to own and hold your note may not have it so easy and you may be able to challenge their legal standing to file a proof of claim in a chapter 13 proceeding, and challenge whether or not they are a real party in interest. I doubt MERS and the securitized trustee will welcome your challenge like they do the “produce the note” foreclosure strategy that they can easily defeat on a demurrer or motion to dismiss.
(5) There are a few letters you can send out to your loan servicer, MERS, and the securitized loan trust before you are foreclosed on that may help set up a chapter 13 attack.
(6) Never wait before its too late to get a foreclosure or bankruptcy game plan. The time to act is before you get a Notice of Sale or Notice of Default.
(7) As always, never trust a word your lender or loan servicer says. They want to foreclose, rather than assist, in most cases.
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Wrongful Foreclosure – There may be remedies against a trustee for a wrongful foreclosure sale if not inconsistent with California Foreclosure Policies
CALIFORNIA GOLF CASE LEAVES DOOR OPEN FOR HOLE IN ONE!
This is the Golf Case – California Golf, L.L.C. v. Cooper (2008) 163 Cal.App.4th 1053. Without going into details on the facts, suffice it to say a party wanted to hold a trustee liable for wrongful foreclosure. The Defendants argue there is no remedy available to the Plaintiff because the non-judicial foreclosure statutes in California do not permit such remedies. To this point the Court stated:
“Respondents rely on statements in three cases which, they argue, indicate that the Legislature intended to occupy the field of nonjudicial foreclosure sales and permit no further remedies. (I. E. Associates v. Safeco Title Ins. Co. (1985) 39 Cal.3d 281, 285; Residential Capital v. Cal-Western Reconveyance Corp., supra, 108 Cal.App.4th at p. 821; Moeller v. Lien (1994) 25 Cal.App.4th 822, 834.) Before addressing the cases on which respondents rely, a brief overview of the purposes of the statutes governing nonjudicial foreclosure is appropriate. [163 Cal.App.4th 1070].
This case analysis is just this authors opinion and is not legal advice or a substitute for legal advice. If you are facing foreclosure or bankruptcy you need a competent lawyer who understands foreclosure law.
Civil Code sections 2924 through 2924k provide a comprehensive framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust.‘ This comprehensive statutory scheme has three purposes: ‘ “(1) to provide the creditor/beneficiary with a quick, inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser.” (Melendrez v. D & I Investment, Inc. (2005) 127 Cal.App.4th 1238, 1249-1250.)
The Court then went on to discuss whether this is in fact a comprehensive statutory scheme for non-judicial foreclosure sale in California and whether or not any remedies may exist for a party who is claimed to be injured by a wrongful foreclosure sale (in this case the borrower was seeking certain remedies under the Uniform Commercial Code – UCC).
“In each of the cases on which respondents rely, the court did not conclude that no remedies outside those provided by the nonjudicial foreclosure statutes are available simply because the Legislature intended to occupy the field. Instead, the court also considered the policies advanced by the statutory scheme, and whether those policies would be frustrated by the allowance of the additional remedy. (I. E. Associates v. Safeco Title Ins. Co., supra, 39 Cal.3d at pp. 288-289 concluding that expanding the notice obligations of the trustee would not be supported by policy; Residential Capital v. Cal-Western Reconveyance Corp., supra, 108 Cal.App.4th at pp. 827, 829 declining to “graft a tort remedy onto a comprehensive statutory scheme in the absence of a compelling justification for doing so,” and concluding that the addition of the proposed remedy would not fit within the comprehensive statutory scheme; (Moeller v. Lien, supra, 25 Cal.App.4th at p. 834 (concluding that “it would be inconsistent with the comprehensive and exhaustive statutory scheme regulating nonjudicial foreclosures to incorporate another unrelated cure provision into statutory nonjudicial foreclosure proceedings”). It is clear, then, that the mere existence of a comprehensive statutory scheme does not necessarily eliminate all further remedies without the consideration of the relevant policy concerns. Indeed, California courts have repeatedly allowed parties to pursue additional remedies for misconduct arising out of a nonjudicial foreclosure sale when not inconsistent with the policies behind the statutes. In Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1231, our Supreme Court concluded that a lender who obtained the property with a full credit bid at a foreclosure sale was not precluded from suing a third party who had fraudulently induced it to make the loan. The court concluded that ” ‘the antideficiency laws were not intended to immunize wrongdoers from the consequences of their fraudulent acts’ ” and that, if the court applies a proper measure of damages, ” ‘fraud suits do not frustrate the antideficiency policies because there should be no double recovery for the beneficiary.’ ” (Id. at p. 1238.) In South Bay Building Enterprises, Inc. v. Riviera Lend-Lease, Inc. [163 Cal.App.4th 1071] (1999) 72 Cal.App.4th 1111, 1121, the court held that a junior lienor retains the right to recover damages from the trustee and the beneficiary of the foreclosing lien if there have been material irregularities in the conduct of the foreclosure sale. (See also Melendrez v. D & I Investment, Inc., supra, 127 Cal.App.4th at pp. 1257-1258; Lo v. Jensen (2001) 88 Cal.App.4th 1093, 1095 (a trustee’s sale tainted by fraud may be set aside.)
The Golf case then keeps open the possibility that as long as a Plaintiff is not seeking a remedy inconsistent with the California Foreclosure Laws, that they Court should see fit to permit such a remedy and this case the Court recognized the UCC remedy. The Court said:
“Considering the policy interests advanced by the statutory scheme governing nonjudicial foreclosure sales, and the policy interests advanced by Commercial Code section 3312.”
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NOTICE:
The foregoing information is general legal information only and shall not be relied upon as legal advice, or a substitution for legal advice. If you have specific legal questions about your foreclosure case you should seek out the advice of a real estate attorney. In addition, the information posted above may not be 100% complete, accurate or up-to-date. Law is always changing. The Law Offices of Steve Vondran is licensed to practice law in the state of Arizona and California and only seeks to solicit and serve Clients in these two states. Steve Vondran, Esq. is a licensed attorney and former licensed real estate broker in California and Arizona. He can be reached by email at steve@vondranlaw.com or toll free (877) 276-5084. This is an advertisement and communication pursuant to State Bar Rules. Please do not send us private or confidential information through any of our above-listed websites. Sending us an email does not create an attorney-client relationship (only signing a legal retainer will do this).
The California 2923.5 Declaration of Compliance – any legal traction here to stop foreclosure?
In California, the state legislature passed SB 1137 in 2008 to try to stem the tide of the unnecessary foreclosures (aka The Perata Mortgage Relief Act). The idea was to force loan servicers (who are servicing loans on behalf of so-called lenders who supposedly own your loan and have the endorsed copy of the note in their physical possessions) to contact defaulting borrowers prior to filing a notice of default and to “assess” and “explore” potential opportunities for loan workouts. There is therefore a “due diligence” requirement that servicers must follow before trying to foreclose on California homeowners. Once they make these required contacts, they can then bring down the guillotine and foreclose. Like everything else in the loan modification business crafted by legislators pretending to provide help to homeowners in distress, the law does not REQUIRE any modifications be given, and we know that many of the pooling and servicing agreements may not even allow for modifications. So it is questionable whether the law is much more than window dressing, but it is a law on the books.
In California, we have seen a slew of homeowners want to turn a non-judicial foreclosure sale into a judicial foreclosure sale by filing suit to enjoin a foreclosure sale based on a violation of 2923.5. Some of the challenges being made under 2923.5 were/are challenges to the mortgagees, trustees, beneficiaries, or their authorized agents (hereafter, “lenders” or “servicers”) alleging the following grounds:
(1) The servicer or lender is simply failing to make the required contacts
(2) The lender servicer is failing to provide the required HUD phone number
(3) The servicer or lender refuses to file the declaration of compliance prior to filing the notice of default or foreclosing
(4) The declaration is false as it is signed by a robosigner
(5) The “declaration” is not made under penalty of perjury
These are the basic grounds that I have seen asserted in various lawsuits. The key case on point dealing with this declaration and what it means is Mabry v. Superior Court of Orange County, 185 Cal. App. 4th 208 (2010). In Mabry, a borrower in default sought to enjoin a private trustee sale by arguing a violation of 2923.5 in that the declaration of compliance did not outline the specific attempts made by the lender/servicer or their agent, and was not made under penalty of perjury. Here are a few snippets from the Court’s decision (Questions asked and answered by the Court):
(A) May section 2923.5 be enforced by a private right of action? “Yes. Otherwise the statute would be a dead letter.”
(B) Must a borrower tender the full amount of the mortgage indebtedness due as a prerequisite to bringing an action under section 2923.5? “No. To hold otherwise would defeat the purpose of the statute.”
(C) Is section 2923.5 preempted by federal law? “No — but, we must emphasize, it is not preempted because the remedy for noncompliance is a simple postponement of the foreclosure sale, nothing more.”
(D) What is the extent of a private right of action under section 2923.5? ”To repeat: The right of action is limited to obtaining a postponement of an impending foreclosure to permit the lender to comply with section 2923.5.”
(E) Must the declaration required of the lender by section 2923.5, subdivision (b) be under penalty of perjury? No. Such a requirement is not only not in the statute, but would be at odds with the way the statute is written.
(F) Does a declaration in a notice of default that tracks the language of section 2923.5, subdivision (b) comply with the statute, even though such language does not on its face delineate precisely which one of the three categories set forth in the declaration applies to the particular case at hand? “Yes. There is no indication that the legislature wanted to saddle lenders with the need to “custom draft” the statement required by the statute in notices of default.”
(G) If a lender did not comply with section 2923.5 and a foreclosure sale has already been held, does that noncompliance affect the title to the foreclosed property obtained by the families or investors who may have bought the property at the foreclosure sale? “No. The Legislature did nothing to affect the rule regarding foreclosure sales as final.”
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Okay, let’s take a look at just what this Court might be saying. (1) There is a private right of action for violating 2923.5 (if you are willing to pay an attorney to “postpone” the sale, (2) The lender or their agent need not specify the precise grounds employed in their due diligence efforts to satisfy the statute (i.e. they don’t have to say “we contacted the borrower 4 times at the following phone number”), (3) If the sale has already taken place, arguing a violation of 2923.5 probably won’t do much for your cause, and (4) If you bring a 2923.5 challenge before the sale, you do not have to “tender” the balance of the loan to take on your lender/servicer.
At the end of the day, if you have good grounds to assert a 2923.5 violation then perhaps you can postpone your sale. But the Mabry case does not appear willing to provide damages, and class action lawsuits are not permitted. So, chalk up another win for the lenders/servicers who can basically say they complied, and if they don’t comply, then you get the right to hire a lawyer to merely postpone the sale and make them do it over again. I suppose we should all be pleased that at least the Courts recognized there is a private right to file a lawsuit.
The case was recently appealed to the California Supreme Court, who declined to hear the appeal. For now, the Mabry appelate Court decision reigns as law. Other grounds to consider in challenging your alleged lender is filing for Chapter 13 bankruptcy and challenging the proof of claim in Bankruptcy Court or opposing the so-called lenders effort to lift the automatic stay. If these financial institutions cannot prove their legal standing and that they are the real party in interest to your loan, this may pave the way for an adversary proceeding in the bankruptcy court.
Truth in lending loan rescission lawsuits are also another avenue to investigate if you have a refinanced loan originated in the last three years. Although these loans are declining in numbers, they are still out there. More information about bankruptcy challenges can be found at http://www.UltimateBk.com
What is wrongful foreclosure in California? Here is a whiff of how some courts look at this issue.
WRONGFUL FORECLOSURE IS A FUNGUS THAT IS SPREADING IN CALIFORNIA AND ARIZONA – ARE ROBISGNERS TO BLAME?
In California, the tort of wrongful foreclosure requires: (1) a legally owed duty to the Plaintiff by the foreclosing party (2) a breach of that duty (3) a causal connection between the breach of that duty and the injury the Plaintiff sustained, and (4) damages. California courts have further clarified this cause of action by stating: “We are inclined however, to believe that with respect to real property the Murphy case was articulating a rule that has been applied in other jurisdictions. That rule is that a trustee or mortgagee may be liable to the trustor or mortgagor for damages sustained where there has been an illegal, fraudulent or willfully oppressive sale of property under a power of sale contained in a mortgage or deed of trust. Munger v. Moore, 11 Cal. App. 3d 1, 7, 89 Cal. Rptr. 323, 326 (Cal. Ct. App. 1970)
The court in Munger appears to be saying that if the foreclosure was illegal, fraudulent or willfully oppressive then that foreclosure was wrongful and the party foreclosed on may be entitled to damages. According to California statutory and case law several types of damages are available to victims of wrongful foreclosures.
First, damages are measured by the value of the property at the time of the sale in excess of the mortgage lien against the property (i.e the equity in the property). Second, damages are available in the amount that is sufficient to compensate for all detriment proximately caused by the wrongful conduct. California Civil Code Section 3333. Third, the borrower may be able to obtain damages for emotional distress in a wrongful foreclosure action and if the borrower can prove by clear and convincing evidence that the servicer/trustee was guilty of fraud, oppression or malice punitive damages may be awarded. Where there is a wrongful foreclosure, the borrower may seek punitive damages. In Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 345 [85 Cal.Rptr.3d 532, 554] the Court in acknowledging the right to seek punitive damages said:
“The jury concluded that the nonjudicial foreclosures instituted by the Kachlons were wrongful, and that in pursuing the foreclosure proceedings Mordechai acted “intentionally, fraudulently and in conscious and callous disregard for the rights of the Markowitzes.” These findings are tantamount to the finding of malice….” (emphasis added).
As such, it is clear in California, if the borrower can prove by clear and convincing evidence that the servicer or trustee was guilty of fraud, oppression or malice in its wrongful conduct, punitive damages may be awarded.
However, an action for the tort of wrongful foreclosure will lie if the trustor or mortgagor (borrower) can establish that at the time the power of sale was exercised or the foreclosure occurred, no breach of condition or failure of performance existed on the mortgagor’s or trustor’s part which would have authorized the foreclosure or exercise of the power of sale. See Munger v. Moore, 11 Cal.App.3d 1, 89 Cal.Rptr. 323 (Cal.App.1970). This seems to be an obstacle for many homeowners during this financial crisis. Many borrowers are behind on their payments and have fallen victim to predatory lending schemes or have stopped paying based on instructions from their lenders trying to qualify for loan modifications. But does default always mean the mere fact that you have fallen behind on your payments? This is an interesting issue we have discussed in other blogs the so-called “presentment” defense under the UCC.
First, for a mortgage to be in default, the borrower, or maker of the promissory note, must have dishonored the note. Under UCC §3-502 a promissory note is not dishonored until the maker refuses to pay it when presentment thereof is made. “Presentment” is defined by the UCC as “a demand to pay the instrument made by a person entitled to enforce an instrument.” The UCC also requires that “Upon demand of the person to whom presentment is made, the person making presentment must 1) exhibit the instrument” [emphasis added] (UCC 3-501(B)(2)(a))
Until the proper presentment is made the UCC requires that the “obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of the instrument were taken, and the following rules apply: …2) In the case of a note, suspension of the obligation continues until dishonor of the note or until it is paid.” (UCC 3-310(b) & A.R.S. 47-3310(b)) Therefore, the borrower is not in default until the lender can exhibit the instrument, proving dishonor. Default is not simply missing payments. It also includes refusal to pay after presentment has been made. Default must also include an exhibit of the instrument. Thus, the lender in a wrongful foreclosure suit cannot claim the borrower is in default unless they can produce the original note and deed of trust.
If true, this would produce additional problems for the lender/creditor. In fact, I recently reviewed one loan that has a UCC PRESENTMENT WAIVER (evidencing that this is an issue that at least one lender – in that case a reverse mortgage) has considered and apparently given credence to. According to California case law, the so-called lender would lose the right to foreclose on the security (real estate) if the obligation is unenforceable. Savings Bank v. Asbury (1897) 117 C 96, 48 P 1081; Trowbridge v. Love (1943) 58 CA 2d 746. As the theory goes, if the lender trying to foreclose on a property cannot prove default by producing the original note and deed of trust then they may not have the right to foreclose at all. IN FACT, IN SOME DEEDS OF TRUST (LIKE THIS ONE FOR A REVERSE MORTGAGE) THERE IS A SPECIFIC CLAUSE ASKING THAT THE BORROWER WAIVE THEIR “RIGHT” OF PRESENTMENT.
In fact, a recent Massachusetts court ruling invalidated two foreclosure sales based on a failure to prove proper documentation (unbroken chain of mortgage from the originator to the trust) proving the “lender” (the securitized loan trust) had the legal right to foreclose. See Ibanez v. U.S. Bank a recent landmark case from the Massachusetts Supreme Court.
DISCLAIMER: THIS IS ONLY A GENERAL LEGAL THEORY THAT WAS PRESENTED TO MY FIRM BY A 30 YEAR UCC LAW PROFESSOR FROM A MAJOR LAW SCHOOL. THE THEORY HAS NOT BEEN TESTED BY THIS AUTHOR AND YOU ARE ADVISED TO SEEK THE ADVISE OF COUNSEL BEFORE PURSUING THIS NOVEL THEORY.
In summary, where the Defendants fail to follow statutory law (ex. where you have notary fraud in the chain of title NOTICE OF DEFAULT, NOTICE OF SALE, ASSIGNMENT OF DEED OF TRUST, OR SUBSTITUTION OF TRUSTEE – and where the notary refuses to produce their notary transaction logs for a given transaction following a written request for such proof of valid signatures, etc.) this type of fraud can be argued to violate the duties set by the California foreclosure laws such as Civil Code Section 2924, 2934, and 2932.5 which require duly recorded documents be notarized and recorded with the County Recorder. Where you have false and forged signatures by robosigners, and a notary that does not verify a signing parties credentials, or signatures, and cannot produce a notary log, there may be a legal argument to be made that the resulting foreclosure sale was “fruit of the poisonous tree” as I like to say, and argue the sale was tainted with fraud, oppression, and breach of duties.
WHAT IS THIS – YOU MAY HAVE “RIGHTS” TO DEMAND “PRESENTMENT OF THE NOTE AND TERMS?”
Here is a document that shows in the Deed of Trust for this reverse mortgage, the lender wanted the borrower to “waive their right” to demand presentment of the Note. Click on the attached link to see the document. To see our blog post on this topic click here:
HOMEOWNER TAKES THE BULL BY THE HORNS AND FORECLOSES ON WELLS FARGO. TOO FUNNY!! MUST READ!!
HERE IS A LINK TO THE STORY. I COULD NOT RESIST SHARING THIS ONE. Shows that sometimes when you put the pressure on the right way (in the Courts and the “law of the press”) sometimes you might just get someones attention.
http://consumerist.com/2011/02/how-this-philly-homeowner-foreclosed-on-wells-fargo.html
IS YOUR LOAN SERVICER AIDING, ABETTING, AND RATIFYING NOTARY FRAUD IN THE NAME OF SWIFT FORECLOSURE?
CHECK YOUR MERS ASSIGNMENT OF DEED OF TRUST (THE DEED OF TRUST PLACES AN ENCUMBRANCE ON THE PROPERTY) AND SUBSTITUTION OF TRUSTEE DOCUMENTS.
WHO SIGNED IT – SEARCH THE WEB – IS THIS PERSON (EX. SOME BOGUS VICE PRESIDENT FOR MERS) A KNOWN ROBOSIGNER? THERE ARE SOME TELL TALE SIGNS OF ROBOSIGNING THAT WE DISCUSS IN OTHER ARTICLES.
IF YOU HAVE YOUR SUSPICIONS, WHICH YOU SHOULD IN ALMOST EVERY CASE, THEN SEND THE NOTARY A DEMAND LETTER TO “PRODUCE YOUR NOTARY TRANSACTION LOG” FOR THAT PARTICULAR TRANSACTION.
WHEN THE NOTARY REFUSES TO PRODUCE IT – WHICH HAS HAPPENED IN EVERY SINGLE CASE WE HAVE DEALT WITH IN REGARD TO SECURITIZED LOANS, (WHICH ESSENTIALLY ADMITS THEIR WAS NO VALID LOGS KEPT, NO SIGNINGS IN FRONT OF THE NOTARY, AND NO IDENTIFICATION CHECKED, ETC.) YOU HAVE TO ASK YOURSELF, ARE THE NOTARIES AND THE SO-CALLED “LENDER” OR LOAN SERVICER (WHO THESE RECORDED DOCUMENTS ARE SUPPOSED TO BE SENT BACK TO AFTER RECORDING), ARE THEY COMMITTING A CRIME UNDER CALIFORNIA LAW?
YOU HAVE TO ASK YOURSELF WHAT IS GOING ON HERE, AND WHY ANY FORECLOSURE BASED ON THIS TYPE OF KNOWING AND INTENTIONAL ACTS OF NOTARY FRAUD SHOULD BE PERMITTED TO FORM THE FOUNDATION FOR A VALID FORECLOSURE. SHOULD THE COURTS REALLY GIVE ANY WEIGHT TO ANY DOCUMENT (LIKE A SUBSTITUTION OF TRUSTEE OR ASSIGNMENT OF DEED OF TRUST) THAT IS THE PRODUCT OF VERIFIABLE FRAUD?
LET’S TAKE A LOOK AT THE CALIFORNIA PENAL CODE:
115.5. Filing false or forged documents relating to single-family residences;
punishment; false statement to notary public
(a) Every person who files any false or forged document or instrument with the county
recorder which affects title to, places an encumbrance on, or places an interest secured by a
mortgage or deed of trust on, real property consisting of a single-family residence containing
not more than four dwelling units, with knowledge that the document is false or forged, is
punishable, in addition to any other punishment, by a fine not exceeding seventy-five thousand
dollars ($75,000).
(b) Every person who makes a false sworn statement to a notary public, with knowledge
that the statement is false, to induce the notary public to perform an improper notarial act
on an instrument or document affecting title to, or placing an encumbrance on, real property
consisting of a single-family residence containing not more than four dwelling units is guilty
of a felony.
WHO IS GOING TO CALL THESE PEOPLE OUT?
MAKE THEM “PRODUCE THE NOTARY TRANSACTION LOGS”
Arizona looks at new law SB1259 that seeks to force “lenders” (securitized loan trusts) to record chain of ownership before they foreclose
This is real interesting, here is the text of a bill that just passed the Arizona Senate. Not perfect, but trying to get some “truth in lending.”
A. FOR ANY BENEFICIARY WHO IS NOT THE ORIGINATING BENEFICIARY ON THE DEED OF TRUST, THE BENEFICIARY SHALL RECORD A SUMMARY DOCUMENT REGARDING THE BENEFICIARY’S LEGAL INTEREST IN THE DEED OF TRUST THAT CONTAINS THE FOLLOWING INFORMATION IN CHRONOLOGICAL ORDER:
THE FULL NAME AND ADDRESS OF RECORD OF EVERY PRIOR BENEFICIARY ON THE DEED OF TRUST.
THE DATE, RECORDATION NUMBER OR OTHER UNIQUE DESIGNATION OF THE INSTRUMENT, AND A DESCRIPTION OF THE INSTRUMENT THAT CONVEYED THE INTEREST OF EACH BENEFICIARY.
THE SUMMARY DOCUMENT PRESCRIBED BY THIS SECTION SHALL BE RECORDED AT THE SAME TIME AND PLACE THAT THE NOTICE OF TRUSTEE’S SALE IS RECORDED PURSUANT TO SECTION 33-808 AND A COPY OF THE SUMMARY DOCUMENT SHALL BE ATTACHED TO ANY NOTICE OF TRUSTEE’S SALE THAT IS REQUIRED TO BE PROVIDED AS PRESCRIBED IN SECTION 33-809.
C. FAILURE TO PROPERLY RECORD THE SUMMARY DOCUMENT THAT DEMONSTRATES EVIDENCE OF TITLE FOR THE FORECLOSING BENEFICIARY AS OF THE DATE OF THE TRUSTEE’S SALE AS PRESCRIBED BY THIS SECTION RESULTS IN A VOIDABLE SALE.
D. ANY PERSON WITH AN INTEREST IN THE TRUST PROPERTY MAY FILE AN ACTION TO VOID THE TRUSTEE’S SALE FOR FAILURE TO COMPLY WITH THIS SECTION AND IS ENTITLED TO AN AWARD OF ATTORNEY FEES AS WELL AS DAMAGES AS OTHERWISE PROVIDED BY LAW IF THE PERSON SUBSTANTIALLY PREVAILS, INCLUDING AN AWARD OF ATTORNEY FEES FOR ANY INJUNCTION OR OTHER PROVISIONAL REMEDIES RELATED TO THE CLAIM.
If you are an Arizona homeowner, do not be afraid to call your Arizona legislatures asking for support of this bill. We need to bring more truth in lending. When you file lawsuits against these banks (as we do, for example TILA rescission), it takes a while to figure out who owns the loan. They try to keep this a secret from the Plaintiff and the Judge until discovery forces them to disclose this information. As an ARIZONA TRUTH IN LENDING LAWYER I strongly support this bill and others like it. In fact, they should be required to “produce the note” showing a full chain of transfer, endorsement, and consideration from the loan originator up the securitized loan trust. But of course that would probably collapse the securitized loan system and expose it for what it was – “a half-baked idea.”
You can watch the video testimony here on the ARIZONA BILL TO REQUIRE PROOF OF LOAN OWNERSHIP BE RECORDED
Bank of America gets called out by Arizona Attorney General. Charged with Violating Settlement Agreement. What’s new?
BANK OF AMERICA – GREETINGS FROM THE VALLEY OF THE SUN!
The Arizona Attorney general’s office entered into a settlement agreement with Bank of America which required Bank of America to help struggling homeowners get answers to loan modification requests and help modify “qualifying mortgages” for “eligible borrowers” and help provide relocation assistance to some homes that have been foreclosed. Of course, the settlement agreement was signed, but now the Attorney General is claiming BofA breached the agreement. Should anyone be surprised?
Specifically, the Attorney General is claiming a breach of the settlement agreement in the following respects:
(1) Foreclosing on eligible Arizona borrowers who have qualifying mortgages
(2) Failure to convert some temporary modifications to permanent modifications
(3) Keeping borrowers in limbo for extended periods of time (6-12 months) in breach of the settlement agreement
(4) Failure to use best efforts to secure investor approval
(5) Failing to respond to consumer complaint.
You can see the ATTORNEY GENERAL LAWSUIT AGAINST COUNTRYWIDE FOR VIOLATION OF CONSENT DECREE FOR LOAN MODIFICATIONS HERE
The Attorney General also calls them out for a violation of the Arizona Consumer Legal Remedies Act (A.R.S. 44-1522(A)). This section reads:
44-1522. Unlawful practices; intended interpretation of provisions
A. The act, use or employment by any person of any deception, deceptive act or practice, fraud, false pretense, false promise, misrepresentation, or concealment, suppression or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice.
B. The violation of chapter 9, article 16 or chapter 19, article 1 of this title is declared to be an unlawful practice and subject to enforcement under this article.
C. It is the intent of the legislature, in construing subsection A, that the courts may use as a guide interpretations given by the federal trade commission and the federal courts to 15 United States Code sections 45, 52 and 55(a)(1).
IT IS AMAZING TO SEE HOW A MAJOR RETAIL LENDER LIKE BANK OF AMERICA (THE BIG RED WHITE AND BLUE) REFUSES TO HELP HOMEOWNERS MODIFY THE CRAPPY COUNTRYWIDE LOANS (THAT THEY PURCHASED) THAT CONTRIBUTED TO THIS FINANCIAL FIASCO. MORE FALSE PROMISES, THIS TIME TO THE ATTORNEY GENERAL’S OFFICE.
Typical Grounds to File an Adversary Proceeding in the Bankruptcy Courts
ADVERSARY PROCEEDINGS – YES, YOU CAN FILE A LAWSUIT IN THE BANKRUPTCY COURT
The following are some of the typical types of cases that may get filed in a Bankruptcy Adversary Proceeding:
(1) “Lien Strip” of unsecured junior liens
(2) Rescind your Loan under Truth in Lending Law (TILA). Ex. you rescind your loan prior to filing bankruptcy, and then list property as unsecured on your schedules and then filing the adversary proceeding, usually while selling the house and figuring out a new payoff.
(3) Suing for Violation of the Automatic stay (creditors taking illegal actions in violation of the automatic bankruptcy stay)
(4) Fair Credit reporting Act (FCRA) credit reporting violations
(5) Violations of Fair Debt Collections Practices Act (FDCPA)
(6) Violations of State Unfair and Deceptive Business Practices Statute (Like pre-filing mortgage rescue scams)
(7) Suing for Tort of Harassment of Debtor (See in re Sipe v. Canseco 2001 WL 35672616)
(8) Pursuing violations stemming from filing false and fraudulent proof of claim (ex. creditor has no proof of secured status yet asserts they are a secured creditor using false affidavits). Note: this could be a systematic problem raising potential for class action.
(9) Filing lawsuit for violation of RESPA (ex. QWR violations seeking attorney fees and actual damages, or damages for unauthorized fees charged)
(10) File lawsuit for creditor’s failure to release a lien as required
(11) Lawsuit for violation of Federal Gramm Leach Bliley Privacy Act (GLB), or other state privacy laws, including identity theft law violations under state laws.
(12) Violations of discharge injunction. Ex. reopening the bankruptcy to file for violation of discharge injunction. Consult your local rules, there may be no charge to reopen and filing fees may be waived under these circumstances.
(13) Lawsuit challenging the extent, validity, or priority of alleged liens (proving your “creditor” is not a legitimate creditor, or is not secured creditor).
These are just a few grounds to consider when filing bankruptcy. In many cases, you may have grounds to assert legal challenges that could either lead to settlement, or to an award of actual damages, costs, attorney fees, and other damages.
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The Law Offices of Steven C. Vondran, P.C. is a foreclosure defense and bankruptcy lawfirm. We help people file for bankruptcy protection under the bankruptcy code. We can be reached at (877) 276-5084. Information may also be obtained at http://www.UltimateBK.com and http://www.AdversaryProceeding.com
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