California loan modification duty of care on lenders and loan servicers – Alvarez v. BAC Home Loans 228 Cal.App 4th 941 (2014) Court of Appeals 1st District.
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What happens when your loan servicer (ex. Chase, Wells Fargo, Citimortgage, Bank of America, Nationstar, Ocwen, etc.) agrees to review you for a loan modification and then does one or more of the following acts:
1. Falsely informs you that your must miss payments if you want any loss mitigation assistance (ex. a modification of your loan that reduces the principle loan balance, or lowers your interest rate and forgives arrearages)
2. Falsely claims that you never submitted the proper documentation (i.e. they “failed to receive” requested loan modification documents of failed to receive a “completed” modification package.
3. Denies you based on factually false information (i.e. the value of the property, your gross monthly income, etc.)
This video will discuss the tort of “NEGLIGENCE” which requires a borrower to prove FOUR THINGS in a Court of law to survive a Demurrer:
1. Loan servicer owed borrower or homeowner a DUTY of due care
2. THe loan servicer BREACHED its duty of due care
3. The breach of Duty was the ACTUAL AND PROXIMATE CAUSE
4. Of Plaintiff’s DAMAGES
The Plaintiff bears the burden of proving each of the elements and failing to meet eve one of these elements could result in this tort losing on a Demurrer, motion to dismiss in federal court, or motion for summary judgment.
The borrower was trying to get a loan modification. They were submitting financial documents as requested by BAC Home Loans Servicing (note this is the servicing branch of BofA and they “service loans” that are securitized and owned by loan trusts, and this is NOT the loan origination unit). The Bank had the usual problems of dealing honestly with the borrower, as alleged by Plaintiff and they foreclosed on Plaintiff after denying a HAMP modification. The borrower argued, among other things, that Bank of America was NEGLIGENT and owed a duty of due care to properly and fairly handle the loan modification, and denying them based on having a $2,000+ gross monthly income – when they really had over $6,000+monthly income was negligent and caused them to miss out on the opportunity for a loan modification (which under the HAMP guidelines they believed they qualified for) and this lead to the loss of their home. The bank argued the typical “tender rule” (you cannot attack the foreclosure sale if you cannot tender the full loan balance – a rule that is not absolute but which does have some teeth) and they argued a bank owes no fiduciary duties to its borrowers or homeowners (in other words – YOU TAKE WHAT WE GIVE YOU AND THAT’S JUST THE WAY IT IS).
This case involves the legal question of whether or not you can hold a loan servicer liable for negligence under California law (i.e. whether a loan servicer owes a duty of due care), for mishandling a loan modification review (breach) that results in a foreclosure (loss of opportunity to obtain a loan modification causing damage)?
Yes. There are some circumstances where the loan servicer (who is not playing the role of traditional “lender” of money) and where there is no “arms length transaction” (i.e. you do not get to pick who your loan servicer will be as opposed to being able to pick which company you want to originate your loan) will have a duty of care and can be held liable for the tort of negligence for breaching the duty of care if they cause the borrower damages.
The banks “hold all the cards” when it comes to servicing your loan. You do not get to pick them. Thus, when the voluntarily chose to review you for a loan modification, they must do it fairly, honestly and with a duty of due care. They must also undertake their review and any foreclosure process in compliance with the California Homeowner Bill of Rights (click link to watch our video).
1. We find the Garcia court’s reasoning persuasive and applicable to the facts alleged in the present case. Here, because defendants allegedly agreed to consider modification of the plaintiffs’ loans, the Biakanja factors clearly weigh in favor of a duty. The transaction was intended to affect the plaintiffs and it was entirely foreseeable that failing to timely and carefully process the loan modification applications could result in significant harm to the applicants. Plaintiffs allege that the mishandling of their applications “caus[ed] them to lose title to their home, deterrence from seeking other remedies to address their default and/or unaffordable mortgage payments, damage to their credit, additional income tax liability, costs and expenses incurred to prevent or fight foreclosure, and other damages.” As stated in Garcia, “Although there was no guarantee the modification would be granted had the loan been properly processed, the mishandling of the documents deprived Plaintiff of the possibility of obtaining the requested relief.” (Garcia, supra, 2010 WL 1881098, p. *3, 2010 U.S. Dist. Lexis 45375, p. *9.) Should plaintiffs fail to prove that they would have obtained a loan modification absent defendants’ negligence, damages will be affected accordingly, but not necessarily eliminated. See Alvarez v. BAC Home Loans Servicing, L.P., 228 Cal. App. 4th 941, 948-49, 176 Cal. Rptr. 3d 304, 310 (2014).
2. The policy of preventing future harm also strongly favors imposing a duty of care on defendants. As noted in Jolley,supra, 213 Cal.App.4th at page 903, 153 Cal.Rptr.3d 546, “[T]he California Legislature has expressed a strong preference for fostering more cooperative relations between lenders and borrowers who are at risk of foreclosure, so that homes will not be lost.” The “California Homeowner Bill of Rights” (HBOR) (Assem. Bill No. 278; Sen. Bill No. 900 (2011–2012 Reg. Sess.)), which became effective January 1, 2013, demonstrates “a rising trend to require lenders to deal reasonably with borrowers in default to try to effectuate a workable loan modification.” (Jolley at p. 903, 153 Cal.Rptr.3d 546.).
3. TENDER RULE – Finally, plaintiffs’ failure to tender the outstanding balances on their loans does not deprive them of standing to pursue their negligence claim. Defendants cite cases holding that tender of the indebtedness is required in an action to set aside a trustee’s sale for irregularities in sale notice or procedure. (See e.g., Arnolds Mgmt. Corp. v. Eischen (1984) 158 Cal.App.3d 575, 205 Cal.Rptr. 15 [defect in notice of sale]; Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 92 Cal.Rptr. 851 [trustee sold property to a corporation in which trustee was financially interested].) Tender of the unpaid debt is not necessarily required, however, to set aside a sale in other circumstances, including an action seeking relief based on allegedly fraudulent and unlawful business practices relating to the marketing of the subject loan. (See, e.g., Menan v. U.S. Bank Nat. Assn. (E.D.Cal.2013) 924 F.Supp.2d 1151, 1160 [“The law does not require plaintiff to tender the purchase price to a trustee who has no right to sell the property at all.”]; Ohlendorf v. American Home Mortg. Servicing (E.D.Cal.2010) 279 F.R.D. 575, 580 [Under California law, borrower was not required to tender loan proceeds before bringing claims against lender and related parties for fraud and violations of the UCL, where borrower asserted no causes of action that relied on any irregularity in mortgage foreclosure sale itself]; Azzini v. Countrywide Home Loans (S.D.Cal. Dec. 29, 2009) 2009 WL 5218042, 2009 U.S. Dist. Lexis 120599 [tender not required where complaint seeks relief based on fraud and unfair business practices].)
5. The borrower’s lack of bargaining power coupled with conflicts of interest that exist in the modern loan servicing industry provide a moral imperative that those with the controlling hand be required to exercise reasonable care in their dealings with borrowers seeking a loan modification. Moreover, the *950 allegation in the complaint that defendants engaged in “dual tracking,” which has now been prohibited (see Civ.Code, §§ 2923.6, 2924.18) increases the blame that may properly be assigned to the conduct alleged in the complaint. (Jolley, supra, 213 Cal.App.4th at p. 901, 153 Cal.Rptr.3d 546.)
6. With respect to whether defendants’ conduct was blameworthy—the fifth Biakanja factor—it is highly relevant that the borrowers “ability to protect his own interests in the loan modification process [is] practically nil” and the bank holds “all the cards.” (Jolley, supra, 213 Cal.App.4th at p. 900, 153 Cal.Rptr.3d 546.) As explained in the amicus curiae brief filed by Housing and Economic Rights Advocates et al.: “Traditional mortgage lending involved a bank evaluating a borrower and her security, and issuing a loan with terms reflecting the perceived risk that the borrower would default. The same bank would then (i) retain the loan, making its profit on the interest the borrower paid; and (ii) service the loan, meaning that it would be in contact with the borrower directly, collecting the borrower’s payments and negotiating any changes in loan terms. See Eamonn K. Moran, Wall Street Meets Main Street: Understanding the Financial Crisis (2009) 13 N.C. Banking Inst. 5, 32 (“ ‘Traditionally, banks managed loan “from cradle to grave” as they made mortgage loans and retained the risk of default, called credit risk, and profited as they were paid back.’ ”) [citation omitted] These tasks have been dispersed among different actors in the modern mortgage servicing context, however, changing the relationships between the borrower, the loan originator, the ultimate holder of the loan, and the servicer of the loan. First, borrowers are captive, with no choice of servicer, little information, and virtually no bargaining power. Servicing rights are bought and sold without input or approval by the borrower. Borrowers cannot pick their servicers or fire them for poor performance. The power to hire and fire is an important constraint on opportunism and shoddy work in most business relationships. But in the absence of this constraint, servicers may actually have positive incentives to misinform and under-inform borrowers. Providing limited and low-quality information not only allows servicers to save money on customer service, but increases the chances they will be able to collect late fees and other penalties from confused borrowers.”
As you can see, there is some good language for California homeowners facing foreclosure, dealing with a Notice of Default or Notice of Sale (or when you get a notice of substitution of trustee or get an assignment of deed of trust).
Contact a California CHBOR, Predatory Lending and Foreclosure Law FIrm
People have asked me for general advice when dealing with a foreclosure in California. Here are some general thoughts (facts, issues, and legal theories may differ so contact us for a consultation for specific advice).
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We offer independent unbiased foreclosure reviews. We basically look at your documents (letters with loan servicers, loan modification agreements, chain of title documents, etc.) and your current situation and provide general legal advice on what your options are. Not everyone can afford a legal review though. As such, I though I would take this opportunity to try to help out with some general suggestions or ideas that might help you understand some of the things we look at for those who cannot afford a review.
Sample Advice (not to be relied on)
Here are some of the main “loss mitigation roadmap” points that come up in many calls.
1. Best way to stop a foreclosure is to bring the loan current, paying past due amounts, and this must be done at least 5 business days before the sale. Every borrower has a legal right to reinstate their mortgage. Click here to see our video on reinstatement.
This can be tricky and let me know if you need some help. The key would be to make sure they actually RECIEVE the money before five business days prior to the sale. If not, they could claim “we never received your money” and the foreclosure trustee sold the property. Reinstatement of the mortgage will stop the sale if done properly. This “cures” the default.
2. Next way to try to stop the non-judicial foreclosure sale and seek assistance is to FILL OUT A COMPLETED LOAN MOD APPLICATION with SPS, Ocwen, Bank of America, Chase, Citimortgage (or your current loan servicer). This is also an art form and something to TAKE YOUR TIME ON TO MAKE SURE YOU GET IT RIGHT!!
A. In sending in your letter for assistance, MAKE SURE TO Highlight your changed financial circumstances if this is your second time applying for a modification (ex. you have gone through BK and your situation has improved since the prior HAMP application). A completed loan modification application SHOULD halt (at least temporarily) your foreclosure sale date under the HBOR.
B. If you are submitting for a modification or principle reduction (ex.your house is underwater), request your terms for modification (ex. request the reduction amount and terms you are seeking). There is no requirement for the banks to modify, but they should stop the foreclosure process (i.e. not engage in “dual tracking” which is prohibited by the California Homeowner’s Bill of Rights) while your review is being considered.
C. Make sure your modification package is COMPLETED (meaning provide EVERYTHING on EVERY LINE and ALL DOCUMENTS they are requesting). Only a “completed application” triggers any potential rights under the CHBOR.
D. Retain records of everything you submit
E. Send to correct address, certified with receipt requested
F. Keep a call log of everyone you talk to (names, dates, times, what was discussed, badge numbers, etc.). You need to be detailed, and call several times per week. Be persistent.
G. Send a QWR to clarify any financial disputes you have with the loan servicer. You need to specifically lay out your accounting or billing disputes or request a payoff or reinstatement quote. This can also be tricky, but we can help you with that, and we offer free QWR letter template on our website.
Any QWR MUST be sent to the proper address (which should be listed on their website or in prior correspondence) for sending QWR’s. Again, send certified.
H. Also, in your letter requesting assistance, REQUEST THAT THEY PROVIDE YOU WITH A SINGLE POINT OF CONTACT (Failure to provide you with this is a violation of the CHBOR). If you don’t request it, you may find a hard time getting this which they are required to provide to you and which simplifies the process.
3. Make a HBOR 2923.55 request. Demand copy of the endorsed note, deed of trust and assignments (asking to comply with 2923.55).
We can send this letter for $395 on our end, or I have a sample template that I have shown online so you can get an idea of what I would ask for.
4. If there are any material violations of CHBOR during this process, our firm can be retained to file a CHBOR complaint seeking an injunction and attorney fees (if successful). Whether or not these requests are granted of course depend on the Courts. But that is the law that is there to provide, what I call “Truth in Servicing“. So you have to keep an eye on the process, and keep your eye on your County Recorder’s office to make sure the servicer or foreclosure trustee is not recording a Notice of Sale (which we expect to be recorded any time now) without maiing you a copy. Yes, they have been known to do this.
5. We also discussed, as another possible means to stopping the sale, discussing a possibility of moving back into a chapter 13 (which should provide a bankruptcy stay, and possibly trying to bring your arrearages current, spread out over 60 months). Again, I cannot file this as I limit my practice to litigation, but you should check with a Chapter 13 bankruptcy specialist in your area to discuss:
a. The viability of filing a BK or second BK (and getting a stay). There can be a “presumption of bad faith” for serial BK filers.
b. Their willingness to list but to “dispute the debt” on your schedules (so that a proof of claim could be challenged in the BK court if the need arises). This is from the Max Garnder school of bankruptcy litigation but not all BK attorneys want to get involved with this.
What about Glaski assignment of Deed of Trust challenges?
We often find the “Glaski tardy assignment” issue when MERS securitized loans are involved (possible to challenge, but courts are now asking how that “prejudices” a borrower and its up on Supreme Court Review), which makes this risky as a stand alone lawsuit in my opinion, and we also often find problems with “Substitution of Trustee documents” that appear to be “robosigned” containing possible false and unathorized signatures.
Again, filing a lawsuit to stop the foreclosure sale solely on these grounds can present another risky proposition since the courts will probably want to understand how this “prejudice” or how this injured you. So I don’t want to encourage clients to file a lawsuit on these grounds alone (especially since litigation can be expensive). If you have a valid CHBOR claim to tag along with these other claims, at least give you a CHANCE to recoup some legal fees if successful.
I hope this was helpful to those of you looking for some GENERAL non-legal tips when in the foreclosure process. If you have specific needs and concerns that warrant a consultation we are here to help with one hour paid consultations.
California Homeowner Bill of Rights – Early “dual tracking” case going to trial!
People are wondering if the California Homeowner Bill of Rights has any “teeth” We are still trying to figure this out as well. One of the biggest issues under CHBOR is the “dual tracking” prohibition. We have talked about this on many blogs. In fact, here is one of our videos on this topic – give it a watch and SUBSCRIBE to our Youtube Channel by clicking on the RED “V” in the upper right hand corner so you can get all of our real estate law updates!
This real estate foreclosure law blog discusses one case in Santa Maria that is going to trial with issues under the CHBOR. If the bank was smart, they would settle the case. But by moving forward to trial this shows their arrogance and bravado of the banks, lenders and loan servicers.
The case is Valli Keller v. Bank of New York Mellon, et al. The case is in Santa Maria, California Superior Court. This is a case dealing with “dual tracking” under the HBOR in California. The case has now entered the trial phase after BONY tried to dismiss the case to no avail. The gist of the banks defense was “there was no completed loan mod package submitted.” This is what they banks and loan servicers try to argue in every case. The gist of their argument is “we keep asking for loan mod and financial documents, thus, your application can never be complete.” This evidences a clear intent to make sure the CHBOR never has any real meaning. For example, if they always ask for more loan documents you can never claim dual tracking under HBOR. It’s a devious position to take, but that’s what most borrower’s will face, unfortunately, when bringing one of these claims. This blog discusses the California law.
(c) If a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower’s mortgage servicer, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale, or conduct a trustee’s sale, while the complete first lien loan modification application is pending. A mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale or conduct a trustee’s sale until any of the following occurs:
(1) The mortgage servicer makes a written determination that the borrower is not eligible for a first lien loan modification, and any appeal period pursuant to subdivision (d) has expired.
(2) The borrower does not accept an offered first lien loan modification within 14 days of the offer.
(3) The borrower accepts a written first lien loan modification, but defaults on, or otherwise breaches the borrower’s obligations under, the first lien loan modification.
What this means in general is that if a borrower fills out a loan modification application and provides everything the initial application asks for, this should be deemed a complete loan mod application. However, the banks will argue that as long as they continue to request “additional documentation” your loan modification application will never be complete. At least this is THEIR position. And what the case above says – WHETHER A LOAN MODIFICATION APPLICATION IS COMPLETE OR NOT COMPLETE IS A QUESTION OF FACT FOR THE JUSY TO FIGURE OUT.
The fact that the Santa Maria Superior Court let this case go to trial is a BIG DEAL. It let’s the JURY (citizens of the state and local community members) figure out when a loan mod application is complete. If it were up to the banks, nothing would ever be complete and the CHBOR would be a literal waste of time. This is what they want. We believe when the members of the local community are called upon to render their beliefs in the case, this position will hold NO WEIGHT.
What is a “complete” loan modification package?
This situation is discussed above. I thought I would have more to say, but those are my main points. The case law will have to play out on this point. Borrower’s will have to continue to challenge this and bring it to the Courts. Yes, it costs money to make the challenge, but as a friend of mine once said (and which is a principle I will never forget) “IF YOU DON’T STAND FOR SOMETHING YOU WILL FALL FOR ANYTHING. For borrowers facing foreclosure in California if you know you are being dual tracked, you can either “go quietly into the foreclosure night” or tell the wall street backed lender or loan servicer “I AM NOT GOING TO LET YOU DO THIS TO ME, I WILL DEMAND THAT THE LAW BE FOLLOWED.” This saga is going to play out over the next several years.
What is a “material” CHBOR violation?
Here is another position the banks, securitized loan trusts, and loan servicers are taking. That is, even if the borrower is right, and even if we “dual tracked” them after they submitted a “complete” loan mod package, this is not a “material violation” entitling the borrower to attorney fees under CHBOR. Again, they do everything possible to trivialize the law and make it seem “immaterial.”
Yet, when the attorney general file their lawsuits, and the banks quickly whip out the checks books (willing to enter into multi-millon and billion dollar agreements) everything is material then. It is only when an individual borrower files a lawsuit for the same issues the attorney general sued for, that the conduct and behavior and non-compliance with California state statutes becomes “immaterial.” This has to change. The attitude toward borrowers (who once filled the commission books of the lenders and servicers) has to change. Fairness in the process has to change. And borrowers need to be treated with respect, despite the fact that the lenders and servicers want to profit off the defaulting borrowers.
Contact a real estate attorney (California and Arizona cases only)
If you believe you are victim of predatory lending, want to rescind your mortgage under TILA, have an elder who is a victim of predatory lending and financial elder abuse, or just a homeowner on main street that is being dual tracked, contact us to discuss your case and our legal services. We have flexible legal fees, and a foreclosure track record that is second to none. We have appeared as a guest on Fox News as a foreclosure analyst three times. Call to speak with one of our foreclosure lawyers at (877) 276-5084.
Truth in Lending essentials – Can the three year right to rescind your mortgage loan be equitably tolled?
Truth in lending law is heating up once again. We have talked FOR YEARS (just search our blog for proof) about Federal Truth in Lending Act (“TILA”) and how in many cases this is the most powerful weapon a homeowner or borrower has when dealing with securitized loan trusts and other creditors. Things are heating up once again given the recent decision in Jesinoski v. Countywide Home Loans (a case dealing with a borrower trying to rescind their mortgage loan with Bank of America). Does equitable tolling apply to TILA mortgage loan rescission cases? This blog takes a look at this fascinating legal issue.
Three year extended right to rescind your mortgage loan
As discussed in the Beach v. Ocwen and Jesinoski United States Supreme Court decisions below, there is nothing to indicate that the United States Supreme Court has any intention of applying equitable tolling to the TILA loan rescission case to extend rescission right out beyond three years (meaning, the rights will need to be executed within the three year period to be safe from a statute of limitations attack. However, this blog discusses the concept of whether there is ever a chance that this will be the law, and that equitable tolling in a TILA case may one day be the law.
What is Equitable Tolling?
A good case from the California Supreme Court which discusses equitable tolling doctrine is McDonald v. Antelope Valley Cmty. Coll. Dist., 45 Cal. 4th 88, 99-100, 194 P.3d 1026, 1031-32 (2008). This case lays out some good language for real estate foreclosure practitioners to consider in a TILA loan rescission case (in trying to determine whether it could be argued, in good faith, to extend, reverse or modify existing case law in regard to when the extended three year right to rescind the mortgage loan ends):
“The equitabletolling of statutes of limitations is a judicially created, nonstatutory doctrine. It is designed to prevent unjust and technical forfeitures of the right to a trial on the merits when the purpose of the statute of limitations—timely notice to the defendant of the plaintiff’s claims—has been satisfied. Where applicable, the doctrine will “suspend or extend a statute of limitations as necessary to ensure fundamental practicality and fairness. Though the doctrine operates independently of the language of the Code of Civil Procedure and other codified sources of statutes of limitations its legitimacy is unquestioned. We have described it as a creature of the judiciary’s inherent power “ ‘to formulate rules of procedure where justice demands it. Broadly speaking, the doctrine applies “ ‘[w]hen an injured person has several legal remedies and, reasonably and in good faith, pursues one. ” Thus, it may apply where one action stands to lessen the harm that is the subject of a potential second action; where administrative remedies must be exhausted before a second action can proceed; or where a first action, embarked upon in good faith, is found to be defective for some reason. Its application in such circumstances serves “the need for harmony and the avoidance of chaos in the administration of justice.” Tolling eases the pressure on parties “concurrently to seek redress in two separate forums with the attendant danger of conflicting decisions on the same issue. By alleviating the fear of claim forfeiture, it affords grievants the opportunity to pursue informal remedies, a process we have repeatedly encouraged. The tolling doctrine does so without compromising defendants’ significant “interest in being promptly apprised of claims against them in order that they may gather and preserve evidence” because that notice interest is satisfied by the filing of the first proceeding that gives rise to tolling. Lastly, tolling benefits the court system by reducing the costs associated with a duplicative filing requirement, in many instances rendering later court proceedings either easier and cheaper to resolve or wholly unnecessary.”
Other California courts have chimed in:
“The doctrine of fraudulent concealment, which is judicially created, limits the typical statute of limitations. “[T]he defendant’s fraud in concealing a cause of action against him tolls the applicable statute of limitations….in articulating the doctrine, the courts have had as their purpose to disarm a defendant who, by his own deception, has caused a claim to become stale and a plaintiff dilatory. See Regents of Univ. of California v. Superior Court, 20 Cal. 4th 509, 533, 976 P.2d 808, 822 (1999).
InSagehorn v. Engle, 141 Cal. App. 4th 452, 460-61, 46 Cal. Rptr. 3d 131, 135 (2006) the California Court of Appeals held:
“Equitable tolling “halts the running of the limitations period so long as the plaintiff uses reasonable care and diligence in attempting to learn the facts that would disclose the defendant’s fraud or other misconduct.” (4 Wright & Miller, Federal Practice and Procedure (3d ed. 2002) Commencement of Action, § 1056, p. 255.) The doctrine “focuses primarily on the plaintiff’s excusable ignorance of the limitations period. [Citation.] [It] is not available to avoid the consequences of one’s own negligence.” To establish that equitable tolling applies, a plaintiff must prove the following elements: fraudulent conduct by the defendant resulting in concealment of the operative facts, failure of the plaintiff to discover the operative facts that are the basis of its cause of action within the limitations period, and due diligence by the plaintiff until discovery of those facts.” So as a threshold issue in any type of legal case TILA or otherwise, where any party wants to rely on this legal doctrine, facts to justify the imposition would need to be explored to see if an honest and reasonable argument can be made.
Beach v. Ocwen – is TILA 15 U.S.C. 1635(f) an “ABSOLUTE” limit on the timeframes to rescind under TILA? (Statute of Repose)
This is one of the main truth in lending cases that discusses when the right to rescind a mortgage loan under TILA ends. This case dealt with another borrower challenge seeking to rescind their mortgage loan over three years after the consummation of the loan, and the Court did not go for it. This case was relied on by many other courts to deny any attempts to rescind a mortgage beyond three years from the date the loan was “consummated” (which has been held to be a matter of state by state law).
Beach v. Ocwen Fed. Bank, 523 U.S. 410, 419, 118 S. Ct. 1408, 1413, 140 L. Ed. 2d 566 (1998) held:
“Section 1635(f), however, takes us beyond any question whether it limits more than the time for bringing a suit, by governing the life of the underlying right as well. The subsection says nothing in terms of bringing an action but instead provides that the “right of rescission [under the Act] shall expire” at the end of the time period. It talks not of a suit’s commencement but of a right’s duration, which it addresses in terms so straightforward as to render any limitation on the time for seeking a remedy superfluous. There is no reason, then, even to resort to the canons of construction that we use to resolve doubtful cases, such as the rule that the creation of a right in the same statute that provides a limitation is some evidence that the right was meant to be limited, not just the remedy……we respect Congress’s manifest intent by concluding that the Act permits no federal right to rescind, defensively or otherwise, after the 3-year period of § 1635(f) has run. Accordingly, we affirm the judgment of the Supreme Court of Florida.
In short, the Supreme Court showed no intent to lengthen the statutory period beyond three years, and the recent Jesinoski decision did not overrule Beach v. Ocwen (while also citing the case in its decision). So these decisions would appear to make it difficult to bring an equitable tolling claim in a TILA loan rescission case. But thats not the end of the discussion.
Bonus Materials – Click on the picture above to watch our video on equitable tolling in TILA cases. Make sure to SUBSCRIBE to our Youtube channel by clicking on the Red “V” in the upper right hand corner of the video.
Some cases that might suggest a right to equitably toll 15 U.S.C. 1635(f)
These cases need to be considered carefully, and you will probably want a skilled attorney to look into these types of equitable tolling claims. Attorney in most states are normally permitted to argue for good faith changes, modifications, and reversal to existing case law. (In California see ethical rule 3-200). When there are people dying of cancer, have family homes equipped with ADA ramps and rails, and other elderly persons socked away into predatory negative amortization option arm loans, all tools available to the foreclosure defense counsel to advocate on behalf of the client should be explored. Please do not rely on these decisions as our interpretation may not be accurate. These are simply presented as some things to think about if you are representing a borrower of a bank.
A. Rodenhurst v. Bank of Am., 773 F. Supp. 2d 886, 893-94 (D. Haw. 2011)
An obligor’s right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first, notwithstanding the fact that the information and forms required under this section or any other disclosures required under this part have not been delivered to the obligor, except that if (1) any agency empowered to enforce the provisions of this subchapter institutes a proceeding to enforce the provisions of this section within three years after the date of consummation of the transaction, (2) such agency finds a violation of this section, and (3) the obligor’s right to rescind is based in whole or in part on any matter involved in such proceeding, then the obligor’s right of rescission shall expire three years after the date of consummation of the transaction or upon the earlier sale of the property, or upon the expiration of one year following the conclusion of the proceeding, or any judicial review or period for judicial review thereof, whichever is later.
15 U.S.C. § 1635(f); see also 12 C.F.R. § 226.23(a)(3) (“[T]he right to rescind shall expire 3 years after consummation, upon transfer of all of the consumer’s interest in the property, or upon sale of the property, whichever occurs first.”). Plaintiffs here executed the applicable loan documents on March 23, 2007, but sought rescission on May 2, 2010—more than three years after the consummation of the transaction. “[Section] 1635(f) is a statute of repose, depriving the courts of subject matter jurisdiction when a § 1635 claim is brought outside the three-year limitation period. See Miguel v. Country Funding Corp., 309 F.3d 1161, 1164 (9th Cir.2002). Accordingly, because Plaintiffs’ right to rescind expired before Plaintiffs sent rescission requests or filed the instant Complaint, Plaintiffs’ rescission claim under TILA is untimely.”
This analysis appeared to end the claim, but the Court marched on with it’s analysis:
“Nor are the allegations here sufficient to satisfy equitable tolling. The First Amended Complaint pleads no facts indicating Defendant BofA prevented Plaintiffs from discovering the alleged TILA violations or caused Plaintiffs to allow the filing deadline to pass. See, e.g., O’Donnell v. Vencor Inc., 466 F.3d 1104, 1112 (9th Cir.2006) (“Equitable tolling is generally applied in situations where the claimant has actively pursued his judicial remedies by filing a defective pleading during the statutory period, or where the complainant has been induced or tricked by his adversary’s misconduct into allowing the filing deadline to pass.” (citation and quotation marks omitted)); see also Araki v. One West Bank FSB, Civ. No. 10–00103 JMS/KSC, 2010 WL 5625969, at *6–7 (D.Hawai’i Sept. 8, 2010).
B. Jones v. Saxon Mortgage, Inc., 980 F. Supp. 842, 845-46 (E.D. Va. 1997) aff’d, 161 F.3d 2 (4th Cir. 1998) and aff’d, 537 F.3d 320 (4th Cir. 1998)
In this case, the Court held:
“Generally, statutes of limitations and statutes of repose are not subject to equitable tolling. (typically, statutes of repose are not subject to tolling). But see Greyhound Corp. v. Mt. Hood Stages Inc., 437 U.S. 322, 337 n. 21, 98 S.Ct. 2370, 2378 n. 21, 57 L.Ed.2d 239 (1978) (statute of repose may be subject to equitable tolling); id. at 338, 98 S.Ct. at 2379 (C.J.Burger, concurring); American Pipe and Construction Co. v. Utah, 414 U.S. 538, 558, 94 S.Ct. 756, 768, 38 L.Ed.2d 713 (1974); Burnett v. New York Central R.R. Co., 380 U.S. 424, 427 n. 2, 85 S.Ct. 1050, 1054 n. 2, 13 L.Ed.2d 941 (1965). Cf. King v. California, 784 F.2d 910, 915 (9th Cir.1986) (finding the TILA’s one year limitation on damages subject to equitable tolling) cert. denied, 484 U.S. 802, 108 S.Ct. 47, 98 L.Ed.2d 11 (1987). The Court of Appeals for this circuit has not decided whether the rescission period provided in § 1635(f) is a statute of limitation or as a statute of repose. However, no matter which characterization is ascribed to §1635(f), this action is barred unless the limitation period was tolled. For the reasons which follow, Jones cannot prevail on his tolling theory. The doctrine of equitable tolling is applied sparingly. Jones relies on two of the several possible grounds for equitable tolling. First, Jones alleges fraudulent concealment, claiming that he “has been induced or tricked by his adversary’s misconduct into allowing the filing deadline to pass.” Id. (citing Glus v. Brooklyn Eastern Dist. Terminal, 359 U.S. 231, 79 S.Ct. 760, 3 L.Ed.2d 770 (1959). Second, Jones asserts that equitable estoppel applies here because he “has actively pursued his judicial remedies by filing a defective pleading during the statutory period”. Irwin, 498 U.S. at 96, 111 S.Ct. at 458 (citing Burnett v. New York Central R.R. Co., 380 U.S. 424, 85 S.Ct. 1050, 13 L.Ed.2d 941 (1965). These general principles, however, must be considered in the context of equity’s basic rule that “[o]ne who fails to act diligently cannot invoke equitable principles to excuse that lack of diligence.” Baldwin County Welcome Center v. Brown, 466 U.S. 147, 155, 104 S.Ct. 1723, 1727–28, 80 L.Ed.2d 196 (1984). This principle finds expression in the tolling theories on which Jones relies. As explained below, Jones has not acted diligently and for that reason and others, his claim of tolling must fail.”
The Court then went on to discuss the fraudulent concealment prong:
To invoke the doctrine of fraudulent concealment as a grounds for equitable tolling, a plaintiff must demonstrate that: “(1) the party pleading the statute of limitations fraudulently concealed facts that are the basis of the plaintiff’s claim, and (2) the plaintiff failed to discover those facts within the statutory period, despite (3) the exercise of due diligence.” Supermarket of Marlinton Inc. v. Meadow Gold Dairies, Inc., 71 F.3d 119, 122 (4th Cir.1995) (citing Weinberger v. Retail Credit Co., 498 F.2d 552, 555 (4th Cir.1974)) (emphasis added). Jones‘ claim of fraudulent concealment is based on the failure of Lenders and the Broker to own up to their improper kickback arrangement. Thus, this claim of fraudulent concealment fails simply because neither Saxon nor TCB, the parties pleading the bar of the statute, fraudulently concealed facts that were the basis for Jones‘ TILA claims.”
Again, the facts of these cases should be closely reviewed and your case facts need to be applied to see if there is any credible argument to be made.
Contact a mortgage lending & real estate law firm before taking any action in regard to TILA loan rescission
These cases make clear that it appears there is room for good faith discussion in this area when TILA rights are concerned. Clearly the law as it stands supports the position that there is no equitable tolling in regard to a three year exercising of federal loan rescission rights. But keep in mind lawyers and litigants are allowed to argue for good faith extension, modification, or reversal of existing law. If not Separate but Equal would still be the law. However, it appears it would take a case with unique facts to be able to assert equitable tolling. I am sure we will see some challenges where the appropriate fact patterns supports application of this equitable legal doctrine designed to prevent injustice. We are handling TILA rescission and recoupment claims for Plaintiff’s and Defendants in state, federal, and bankruptcy Court adversary proceedings. Call us at (877) 276-5084 to discuss your case with truth in lending legal counsel.
What do you do when you have sent in a letter to rescind your mortgage a few years back, and the lender, loan servicer, creditor, securitized loan trust, and others refused to honor your rescission request, and figured that since you did not sue them you have no remaining legal rights? Here is one sample letter that is similar to letters we used to use for independent foreclosure reviews. This may give you an idea of what a TILA damages letter might look like.
Sample Demand Letter
January 25, 2015
Attn: Legal Department
SENT CERTIFIED MAIL
Re: Wrongful Foreclosure in violation of Federal Truth in Lending Law (“TILA”) for real property located at 123 Main Street, San Francisco, CA 94104.
DAMAGES DUE TO HOMEOWNER CUASED BY THE FAILURE TO HONOR TILA RESCISSION RIGHTS. THIS IS A DEMAND LETTER, WHICH COULD AFFECT YOUR LEGAL RIGHTS. PLEASE FORWARD TO THE PROPER DEPARTMENT FOR IMMEDIATE REVIEW AND RESPONSE
To whom it may concern:
This letter is to explain, and support with documentation, the wrongful foreclosure, TILA violation, and financial injury suffered by:
Name of borrower: XXXXX
Previous loan number: XXXXX
Property address: XXXXXX (“subject property”)
A.P.N #: XXXXXXX
A copy of my previous mortgage loan statement is attached as Exhibit “A”. It is our contention that your bank has been UNJUSTLY ENRICHED and has engaged in a WRONGFUL FORECLOSURE of the subject property.
As the attached application sets forth, my client was the victim of predatory lending by (insert Chase, Wells Fargo, Citimortgage, Nationstar, Bank of America etc. as the case may be). In short, The XXXX primary residence was lost due to a wrongful foreclosure based on a blatant disregard of my clients’ Federal Truth in Lending (“TILA”) rights to rescind their loan.
In addition to being steered into a predatory “option arm” (negative amortization loan), a loan that was literally designed and destined to result in a foreclosure of the San Francisco County property, the XXXXX property was foreclosed AFTER they had rescinded their mortgage loan pursuant to explicit rights granted by TILA, where material loan violations were uncovered in the loan origination process. As discussed below, the Deed of Trust (the security for the loan) was VOID by operation of law at the time of the non-judicial foreclosure action commenced by XXXXX. This is wrongful, and certainly unlawful and was done with guilty knowledge of my Client’s having exercised their federal rights to rescind their loan as discussed below.
After my firm conducted a detailed mortgage loan audit of the XXXXXX loan, it was uncovered that there were not only a plethora of predatory lending violations but there was also a MATERIAL TILA VIOLATION relating to the Notices of Right to Cancel (failure to provide two completed copies to each borrower) which are documents given to the borrower at the loan origination stage and which allow a borrower to cancel their refinance loan transaction.
Where these types of “material” TILA violations are uncovered, this triggers a federal THREE- YEAR EXTENDED RIGHT TO RESCIND THEIR MORTGAGE LOAN. Specifically, as Attached Exhibit “A” indicates, there was a failure to include ANY rescission dates in the federal right to cancel notices given to the borrowers. These notices were/are legally required to contain the EXACT dates for which a borrower may rescind their loan. Under TILA, it is not the borrower’s duty to fill or know these critical cancellation dates. The failure to provide these dates is a material TILA violation, which permits the borrower to cancel the loan, even up to three years later, which the borrower did by written notice and which XXXXX was aware of and refused to honor the rescission request.
A brief overview of TILA law is appropriate:
A.FEDERAL TRUTH IN LENDING LAW
The Truth in Lending Act (TILA) is a cornerstone of consumer credit legislation. The Statute is Congress’s effort to guarantee the accurate and meaningful disclosure of the costs of consumer credit and thereby to enable consumers to make informed choices in the marketplace. See 15 U.S.C. § 1601(a).
The Act is designed to protect borrowers who are not on an equal footing with creditors either in bargaining power or with respect to the knowledge of credit terms. In other words, TILA was passed to aid the unsophisticated consumer. See Thomka v. A.Z. Chevrolet, Inc. 619 F.2d 246 (3d Cir. 1980). The Act is also remedial and must be liberally construed in favor of borrowers. See King v. California, 784 F.2d 910 (9th Cir. 1986). Except where Congress has relieved lenders of liability for noncompliance, it is a strict liability statute. Courts should continue to assure that consumers are accorded the full remedies available under the Act for violations found, even if they might seem technical. See Rodash v. AIB Mortgage Co., 16 F.3d 1142, 1145, 1149 (11th Cir. 1994).
Although Congress permitted the Federal Reserve Board to issue regulations implementing TILA (Reg Z), and to issue interpretations and official staff commentary that the Courts consider to be persuasive authority, the FRB’s authority is not without limits, and a regulation that conflicts with TILA cannot stand. See Fabricant v. Sears, Roebuck, Clearinghouse No. 54,563 (S.D. Fla. Mar. 5, 2002).
B. NOTICE OF RIGHT TO CANCEL – DISCLOSURE REQUIREMENTS
Under Federal Truth in Lending Law, each Borrower, or person with ownership interest in the property, (in a non-purchase loan or other exempt transaction) in which a security interest, including any such interest arising by operation of law, is or will be retained or acquired in any property which is used as the principal dwelling,shall be provided with TWO (2) COMPLETED copies EACH of a notice of right to rescind (cancel).It is the lender’s obligation to complete these forms and deliver TWO copies
to each Borrower or person with Ownership interest in the Property. 15 U.S.C. § 1635(a), Reg. Z §§ 226.5(b), 226.23(b).
If each borrower or person with ownership interest is not provided two accurate and completed copies of this cancellation notice, then an extended three-year right to rescind is permitted under the Federal Truth in Lending Law.
The right to cancel notice shall identify the transaction or occurrence and clearly and conspicuously disclose the following:
(1) The retention or acquisition of a security interest in the consumer’s principal dwelling;
(2) The consumer’s right to rescind, as described in paragraph (a)(1) of this section;
(3) How to exercise the right to rescind, with a form for that purpose, designating the address of the creditor’s place of business;
(4) The effects of rescission, as described in paragraph (d) of this section;
(5) The date the rescission period expires. (See Reg. Z §§ 226.15(b)(5) and 226.23(b)(5))
The plain-meaning implication of this statutory provision is clear (and therefore is controlling), the lender has the obligation to complete these forms, it is not the borrowers duty to determine what dates to insert into the forms, much less at the direction of a mobile notary. This reading of the law (that it is the lender’s obligation to insert the dates, and not the borrowers) is also consistent with the requirement #5 (set forth above) that “the lender shall clearly and conspicuously identify the date the rescission period expires.” In fact, at least two courts have held that: “the complexity of business transactions under TILA means that the average consumer cannot figure out when TILA rights expire…..” See Bonney v. Wash. Mutual Bank, No. 08-30087 (D. Mass. July 30, 2008). Failure to meet these requirements provides an extended three-year right to rescind the loan transaction. See 15 U.S.C. § 1635(a); Reg. Z §§ 226.15(b), 226.23(b) and Webster v. Centex Home Equity Corp. (In re Webster), 300 B.R. 787 (Bankr. W.D. Okla. 2003).
C.THREE YEAR EXTENDED RIGHT TO RESCIND A MORTGAGE LOAN
(a) Consumer’s right to rescind. (1) “In a credit transaction in which a security interest is or will be retained or acquired in a consumer’s principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind the transaction….”
(b) Exercising the right of Rescission: 226.23(3) – “The consumer may exercise the right to rescind until midnight of the third business day following consummation, delivery of the notice required by paragraph (b) of this section, or delivery of all material disclosures, whichever occurs last. If the required notice or material disclosures are not delivered, the right to rescind shall expire 3 years after consummation, upon transfer of all of the consumer’s interest in the property, or upon sale of the property, whichever occurs first. In the case of certain administrative proceedings, the rescission period shall be extended in accordance with section 125(f) of the Act.” There is also legal precedence for “tolling” the statute beyond three years where fraudulent concealment is shown. See Bank of New York v. Waldon, 751 N.Y.S.2d 341 (Sup. Ct. 2002).
226.23(2): (2) “To exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram or other means of written communication. Notice is considered given when mailed, when filed for telegraphic transmission or, if sent by other means, when delivered to the creditor’s designated place of business.”
D. EFFECTS OF RESCISSION
(d) Effects of rescission. (1) When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void and the consumer shall not be liable for any amount, including any finance charge.
(2) Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action necessary to reflect the termination of the security interest.
ASSIGNEE LIABILTY FOR RESCSSION
While assignees are only liable for TILA “statutory damages” that are “apparent on the face of the loan documents” assignees are subject to the rescission right to the same extent as the original creditor. 15 U.S.C. §1641(c) states: “Any consumer who has the right to rescind a transaction under section 1635 of this title may rescind the transaction as against any assignee of the obligation. See also the case of Ocwen Fed. Bank v. Russell, 53 P.3d 312 (Haw Ct. App. 2002) which rejected the assignees holder in due course argument as being no defense to rescission. As other courts have held: “without such protection for the consumer the right of rescission would provide little or no effective remedy.” See Stone v. Mehlberg, 728 F. Supp. 1341, 1348, (W.D. Mich 1989). A loan servicer is deemed an assignee if it “is or was the holder of the obligation.”
WRONGFUL FORECLOSURE ANALYSIS: As discussed above, the original lender, failed to fill in the dates on the XXXXX notices of right to cancel (See Exhibit “A” which is a true and correct copy of the notice of right to cancel the borrowers received at the close of the loan which is incorporated herein by reference). The loan was consummated on August 25, 2006 (See a true and correct copy of the relevant Deed of Trust which is attached as Exhibit “B” which is incorporated herein by reference) and the TILA rescission letter was timely sent within the three-year period on June 24, 2009. (See a true and correct copy of the XXXXX notice of exercise of rescission rights letter which is attached as Exhibit “C” which is incorporated herein by reference – although the letter provided was not signed, the copy sent to XXXXXX was and was received as evidenced by Exhibit “F” discussed below).
The TILA loan rescission letter was sent to both XXXX and XXXXX (who was either owner, or acting as agent of the lender/owner of the loan), and this letter made clear they wanted to rescind their loan given the material loan violations and which was explicit in requesting “please mail me confirmation the mortgage has been voided.”
On or around the date the rescission letter was sent, the value of the XXXX property was estimated to be approximately $750,000 (See attached Exhibit “D” which is a true and correct copy of an objective estimate of the value of the property at the time the loan was rescinded by Zillow.com). The loan balance was originally $750,000. See attached Exhibit “E” which is a true and correct copy of a XXXXX statement indicating the original loan amount, and also indicating monthly mortgage payments the XXX’ had made on the loan (totaling $115,000), which payments are required to be returned to the borrower following a rescission under TILA:
“As the United States Supreme Court made clear: “after receiving notice of rescission, the lender must “return to the [borrower] any money or property given as earnest money, down payment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction.” (emphasis added). See Beach v. Ocwen Fed. Bank, 523 U.S. 410 (1998).”
Taking the $750,000 loan and subtracting $115,000 in loan payments, which were due to, be returned to the borrower following TILA rescission, this means the XXXXX tender obligation to the lender was $$635,000. The value of the property was approximately $722,000. By not allowing XXXXX to exercise federal rescission rights, $87,000 in equity (that XXXXX was rightfully entitled to), had been literally flushed down the drain. This means, that the XXXX’ were ready, willing, and able to tender the balance of the loan to the lender as required under TILA, and despite their attempts to rescind, XXXXX stripped them of their equity causing serious and devastating financial injury.
As evidenced by Exhibit “F”, XXXXX was well aware of the XXXXX attempt to rescind their loan, and they had received and reviewed the rescission letter (See Exhibit “F” which is a true and correct copy of XXXXX response to the XXXX rescission letter which FALSELY indicated that “please be assured that your request for a rescission of the subject loan has been forwarded to the appropriate department. You will receive a response under separate cover.”)
DESPITE THE PROMISE TO ADDRESS THE BORROWERS TILA RESCISSION RIGHTS, THERE WAS NO RESPONSE BY XXXXXXX, ONLY A FORECLOSURE WHILE THE DEED OF TRUST WAS VOID BY OPERATION OF LAW.
The XXXXXX plan in sending the rescission letter was to rescind the loan and to sell the property so that the rescission could be effectuated, and the mutual tender obligations could be satisfied as discussed above. The XXXXXX’ were prepared to tender the $635,000 by selling their house. However, they never got a chance to realize their federal rights to rescind due to a wrongful foreclosure undertaken by XXXXX.
IT MUST BE NOTED THAT The sale of real properTY TO EFFECTUATE THE MUTUAL TENDER OBLIGATION UNDER TILA RESCISSION has LEGAL precedent. See Kakogui v. American Brokers Conduit, Slip Copy, 2010 WL 1265201 (N.D.Cal. 2010), wherein the United States District Court stated: “For example, a TILA plaintiff might be able to allege that while he lacks the liquidity to tender the loan proceeds at the time he files the rescission claim, he has sufficient equity in the home and a willingness to sell that would render it likely that he could tender the loan proceeds if given a reasonable period of time”.
Nevertheless, despite the valid rescission letter (which VOIDED the deed of trust), which letter was both received and acknowledged (and a promised response that never came), and given the borrower’s ability to tender the balance of the loan, the bank violated XXXXX rights and foreclosed as if there were no such thing as a TILA rescission right. At the end of the day, the federal extended loan rescission rights were virtually scoffed at. YOU CANNOT GET A MORE BLATANT WRONGFUL FORECLOSURE THAN THIS! As a result of this wrongful foreclosure, my Client has been financially injured in a manner that has never been compensated or recognized to any degree.
DAMAGES: Specifically, my clients were financially damagedand injured by the wrongful foreclosure in the following respects:
(1) Loss of Equity – At the time they rescinded their loan it is estimated that the value of the XXXXX property was $722,000 dollars (See unbiased Zillow.com printout evidencing the approximate value as Exhibit “D”). Had their rescission been honored, the bank would have received what they were owed under the loan (Approximately $635,000following the mutual “tender” obligation) and the borrower would have retained the balance of approximately $87,000. This is a devastating loss and serious financial injury attributable to the wrongful foreclosure.
(2) Loss of improvements made to the home: The XXXXX’ made substantial improvements to the home that can be estimated at $30,000. When the home was wrongfully foreclosed, these improvements, and the costs thereof, were lost forever.
(3) Relocation costs and expenses: As a result of the wrongful foreclosure, the XXXXX’ were forced to relocate at great time and expense to them. The estimated value of this loss is $7,500.
Given the above-referenced blatant disrespect for my client’s Federal TILA loan rescission rights, and given their SUBSANTIAL FINANCIAL LOSS (in totaling the above approximately $119,500 in financial injury was suffered) attributable to the objectively verifiable WRONGFUL FORECLOSURE, we respectfully request that you immediately review the XXXXXX case file in critical detail, and determine that a wrongful foreclosure has occurred, which has not been compensated at all, and to immediately compensate my client for their unfortunate loss which could have been avoided by XXXXXXX respecting my clients’ rights. While we hope to resolve this amicably, if there is a failure to fairly compensate my client for this blatant and callous wrongful foreclosure, we reserve the right to take legal action to vindicate the loss of equity. We truly hope you will take care of the matter and provide closure.
You may address all future correspondence regarding this matter to my San Francisco office as listed on this letterhead. Should you have any questions, or require additional documentation, please feel free to contact me directly at XXXXXXX. Thank you for your time and attention to this matter.
So here is the common scenario we are seeing. Homeowner is in default, working with the loss mitigation department of the major bank or loan servicer. Borrower is told DO NOT MAKE YOUR MORTGAGE PAYMENTS. So the borrower trusts the banks and basically does what they are told. This of course forces them into a loan default and allows a foreclosure to work its way through. Often, the borrower will be working on trying to get a loan modification or principle reduction, and yet the foreclosure process will continue (“dual tracking” under the California Homeowner Bill of Rights). The next thing you know, the house gets sold, and the borrower who had several hundreds of thousands of dollars in equity, ends up with nothing, and a new “buyer” (usually from an LLC appears) claiming to be the new owner of the home and is threatening eviction or offering “cash for keys.” The property sold for well under market value, making the homeowner wonder if there was actually a sale that took place, properly noticed and published in the newspaper. How could the house sell for so little? Who is this new owner from the LLC? Did I just get duped out of all my equity in the property? What do I do now? For us, this raises questions over “loss mitigation fraud” and what we would call “insider trading” between the loss mitigation insider and LLC outsider. If this fraud can be shown, serious consequences to the colluding team and their employer may exist.
Say you have a house in Los Angeles or San Francisco that worth 1 million dollars. You have a first mortgage of $400,000 and a second mortgage of $100,000. All told, you owe $500,000 and have $500,000 in equity (minus any real estate commissions you would have to pay if your sold your property). Then, say you are working on a modification of your first mortgage, which is in default along with the second mortgage. You could put your house up for sale and cash out on your equity, or, you do what many homeowners mistakenly do – YOU TRUST YOUR MORTGAGE LOAN SERVICER WHO KEEPS TELLING YOU QUALIFY FOR A LOAN MODIFICATION OR PRINCIPLE LOAN REDUCTION AND NO NEED TO WORRY THE FORECLOSURE WILL BE PUT ON HOLD (assume a Notice of Default has been filed).
Then, you wake up to a knock on your door one morning and someone is there (perhaps a realtor or the owner of an LLC) saying that they bought the house at a foreclosure sale. You are up in arms. You ask them “how much did the house sell for” and they say $500,000. This means, YOUR equity is now THEIR equity. More importantly, if they are a “bona fide purchaser for sale” you now have no legal recourse (subject to a few minor exceptions) to get title back in your name, and eviction or bankruptcy is the next route many take.
This is a mess. What can be done? Was their “dual tracking” under the California Homeowners Bill of Rights (“CHBOR”)? Can you sue the loan servicer for fraud? Can you recover your lost equity even though there are no “surplus funds”? Was their “insider trading” with the loss mitigation department and the private investor who “bought” your house (allegedly) on the courthouse steps? Was the notice of sale publicated? Was the non-judicial foreclosure sale actually held? What do you do now? First thing is to waste no time, call us to schedule an immediate phone consultation. The more time you lose, the worse your legal position may become.
Should “insider trading laws” apply?
Insider trading laws prohibit “insiders” from trading on insider information not generally known to the public. Both the tipper and tipee are generally liable.
In relevant part, Rule 10b–5 (federal insider trading laws) provides:
“It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, or “to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading….,“in connection with the purchase or sale of any security.” But this applies in the stock trading world. In Basic Inc. v. Levinson, 485 U.S. 224, 230, 108 S. Ct. 978, 982-83, 99 L. Ed. 2d 194 (1988) the United States Supreme Court held:
The 1934 Act was designed to protect investors against manipulation of stock prices…….underlying the adoption of extensive disclosure requirements was a legislative philosophy: “There cannot be honest markets without honest publicity. Manipulation and dishonest practices of the market place thrive upon mystery and secrecy……. this Court “repeatedly has described the ‘fundamental purpose’ of the Act as implementing a ‘philosophy of full disclosure.
InDirks v. S.E.C., 463 U.S. 646, 654, 103 S. Ct. 3255, 3261, 77 L. Ed. 2d 911 (1983) the Court noted:
Not “all breaches of fiduciary duty in connection with a securities transaction,” however, come within the ambit of Rule 10b–5. Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 472, 97 S.Ct. 1292, 1300, 51 L.Ed.2d 480 (1977). There must also be “manipulation or deception.” Id., at 473, 97 S.Ct., at 1300. In an inside-trading case this fraud derives from the “inherent unfairness involved where one takes advantage” of “information intended to be available only for a corporate purpose and not for the personal benefit of anyone.” In re Merrill Lynch, Pierce, Fenner & Smith, Inc., 43 S.E.C. 933, 936 (1968). Thus, an insider will be liable under Rule 10b–5 for inside trading only where he fails to disclose material nonpublic information before trading on it and thus makes “secret profits.
While this is not a perfect legal analogy, it helps highlight a point. What happens when you “foreclosure prevention specialist” or “loss mitigation” consultant pretends they are helping you stop foreclosure, while talking to their buddies on the side telling them there is a house coming up for auction that has a lot of equity. When you are talking about a 1/2 million dollars hanging in the balance on these transactions, would it surprise anyone to know there is insider trading going on and no real intent to modify a mortgage?
This becomes more obvious when you see an LLC purchase your property and quickly flip it to another entity or doing a grant deed to another individual. These types of cases need to be closely examined for fraud and insider trading.
Loss mitigation fraud
So what about the situation with there is a “secret deal” between the loan servicers loss mitigation representative and an outside company (ex. the insider’s buddy who invests in foreclosure properties). The insider tips off the outsider “there is a nice one coming on for sale, form an LLC and make me a member or my wife a member of the LLC, then well sell the property to you (secretly, without a public sale) and this will make you a bona fide purchaser for value. That way, the owner cannot challenge the sale. We can split the profits later.” We have had a rush of cases that appear to have something going on along these lines. Again, the cases, and the LLC’s and the conduct of the loss mitigation representative (along with the notice of sale, publication etc.) need to be examined for evidence of fraud. If this fraud exists, this can be considered intentional, willful and malicious conduct and should warrant a serious damages award along with punitive damages designed to punish and deter the Defendants who are proven to be acting in collusion.
“Finally, San Paolo Holding concedes King’s making of one or more intentionally false promises, as the jury found he did, constitutes “intentional deceit” …..rather than a “mere accident” …..at a minimum, California law requires conduct done with “willful and conscious disregard of the rights or safety of others” or despicable conduct done “in conscious disregard” of a person’s rights…….conscious disregard means “that the defendant was aware of the probable dangerous consequences of his conduct, and that he wilfully and deliberately failed to avoid those consequences.”
Is a foreclosure investor LLC always deemed a “bona fide purchaser for value”?
No. A BFP normally takes title free of the prior fraud of another party. California case law has discussed this:
“We begin with the general proposition that the trustor cannot set aside a foreclosure sale to a BFP “based on irregularities in the foreclosure sale process, except in the case of fraud.” (4 Miller & Starr, Cal. RealEstate, supra, Deeds of Trust § 10:211, p. 683.) This rule is founded upon BFP principles, generally, that “a bonafide purchaser is not chargeable with the fraud of his predecessors and takes a title purged of any anterior fraud affecting it and free from any equities existing between the original parties” See Melendrez v. D & I Inv., Inc., 127 Cal. App. 4th 1238, 1256-57, 26 Cal. Rptr. 3d 413, 429 (2005).
The Melendrez case referenced the Yates case which discussed how an investor might not be a BFP in all cases:
“The appellate court in Yates affirmed, concluding that there was sufficient evidence in the record to support the probate court’s implied conclusion that the buyer was not a bona fide purchaser.” (See Yates, supra, 25 Cal.App.4th at p. 523, 32 Cal.Rptr.2d 53.) This evidence included:
(1) the fact that the buyer had purchased between 300 and 500 properties in foreclosure over 16 years,
(2) the buyer’s testimony that “ ‘there was a lot of juice equity in the 1253 property,
(3) the fact that there was a “gross inadequacy of the sales price.”
So while it is not always clear, there may be times when an LLC investor is not a BFP.
What is the test for determining who is a BFP in a foreclosure sale in California?
Melendrez v. D & I Inv., Inc., discusses the general BFP law in California:
“Thus, the two elements of being a BFP are that the buyer:
(1) purchase the property in good faith for value, and
(2) have no knowledge or notice of the asserted rights of another.
The first element does not require that the buyer’s consideration be the fair market value of the property (or anything approaching it). Instead, the buyer need only part with something of value in exchange for the property…… the second element required to establish BFP status is that the buyer have neither knowledge nor notice of the competing claim…….The purpose is to protect those who honestly believe they are acquiring a good title, and who invest some substantial sum in reliance on that belief. A person generally has ‘notice’ of a particular fact if that person has knowledge of circumstances which, upon reasonable inquiry, would lead to that particular fact.”
Again, as with every thing else in real estate foreclosure law, you need a skilled foreclosure attorney to examine the facts of your case, especially where insider trading and loss mitigation collusion with an LLC owner is suspected.
Can I set aside the sale if there is collusion or insider trading?
Possibly. One of the key standards to keep in mind is the following:
“While mere inadequacy of price, standing alone, will not justify setting aside a trustee’s sale, gross inadequacy of price coupled with even slight unfairness or irregularity is a sufficient basis for setting the sale aside.” See Whitman v. Transtate Title Co. (1985) 165 Cal.App.3d 312, 323, 211 Cal.Rptr. 582.). See Estate of Yates, 25 Cal. App. 4th 511, 523, 32 Cal. Rptr. 2d 53, 59 (1994).
Bonus Materials: Watch Attorney Steve discuss the Whitman v. Translate Title Co. California foreclosure case. Don’t forget to SUBSCRIBE to our real estate & litigation youtube channel by clicking on the RED “V” in the top right hand corner!
Violation of CHBOR (“Dual tracking”)
The above facts may also indicate a violation of the CHBOR. We have discussed this 2013 California Homeowner Bill of Rights law (which I refer to as “Truth in Servicing”) on many other blogs. You can watch our CHBOR video here:
CHBOR law defined – Click on picture to watch video.
Violations of right to reinstate mortgage (Cal. Civ. Code 2924)
When the panic button gets pushed in these types of situations where you finally realize the lender or loan servicer is lying to you and they are going to sell your house, that’s when you MOST DEFINITELY need to contact real estate counsel!!! For many homeowners in this position, there is an ability to “reinstate your mortgage” but by then the insider trader loss mitigation person may be so committed to carrying out the fraud that it cannot be stopped. You have to contact counsel at this point to seek an injunction and TRO (and file a lis pendens) to stop the illegal conduct.
The right to reinstate your loan and cure the default is spelled out in the Civil Code and was also discussed in Bank of Am., N.A. v. La Jolla Grp. II, 129 Cal. App. 4th 706, 712, 28 Cal. Rptr. 3d 825, 828-29 (2005), as modified (June 15, 2005):
La Jolla argues that the agreement to cure the default did not invalidate the sale because it did not take place within the time statutorily granted to a trustor to cure a default as a matter of right. California Civil Code section 2924c, subdivisions (a)(1) and (e), provide that a trustor has a rightto cure a default and reinstate a loan “at any time within the period commencing with the date of recordation of the notice of default until fivebusinessdays prior to the date of sale set forth in the initial recorded notice of sale.” § 2924c, subd. (e).) Here, the trustor cured the default on November 8, 2002, and the sale was set for November 12, 2002, fewer than five days later.”
Again, this is an important right you may need to exercise to stop the loan servicer from pulling off the planned fraudulent closure what some refer to as “fraudclosure.”
Here is a video we did on California Right of Reinstatement. Click on Photo. Subscribe to our real estate channel by clicking on the RED “V” in the top right corner of the video.
Contact California real estate fraud & illegal foreclosure lawyers
We hope you found this blog post informative. If you find yourself in this type of situation, you are not alone. The loan servicers and banks have too many loans to handle and you can sometimes get lost in the shuffle. If you need a real estate law firm to assist you, we believe we are the best and most cost effective legal solution. Contact one of our wrongful foreclosure lawyers at (877) 276-5084. We look forward to working with you to fight for your rights in regard to one of your biggest assets – your real estate.
Predatory Lending Litigation – From Attorney Steve case files!
We have talked for years about the various aspects of predatory lending. Negam loans (aka option arm loans – where you were given a low “teaser” rate and then the interest you were not paying was being lumped on the end of your loan, waiting to explode on you, causing your payment shock and leading you right into the foreclosure path. This blog talks about one California borrower that fought back against these predatory loans, that are virtually impossible to properly explain and disclose.
The facts and procedural issues of Boschma v. Home Loan Ctr., Inc., 198 Cal. App. 4th 230
In Boschma v. Home Loan Ctr., Inc., 198 Cal. App. 4th 230, 234, 129 Cal. Rptr. 3d 874, 878-79 (2011) the California Court of Appeals for the 4th District discussed the basic nature of option arm (negam mortgage loans).
“The defining feature of an option adjustable rate mortgage loan (“Option ARM”) with a discounted initial interest rate (i.e., a “teaser” rate) is that for a limited number of years, the borrower may (by paying the minimum amount required to avoid default on the loan) make a monthly payment that is insufficient to pay off the interest accruing on the loan principal. Rather than amortizing the loan with each minimum monthly payment (as occurs with a standard mortgage loan), “negative amortization” occurs—a borrower who elects to make only the scheduled payment during the initial years of the Option ARM owes more to the lender than he or she did on the date the loan was made. After an initial period of several years in which negative amortization can occur, a borrower’s payment schedule then recasts to require a minimum monthly payment that amortizes the loan.”
The Case came up on appeal, after the Plaintiff lost on Demurrer:
“plaintiffs1 sued defendant Home Loan Center, Inc., for: (1) fraudulent omissions; and (2) violations of Business and Professions Code section 17200 et seq. (section 17200). Plaintiffs, individual borrowers who entered into Option ARMs with defendant, allege defendant’s loan documents failed to adequately and accurately disclose the essential terms of the loans, namely that plaintiffs would suffer negative amortization if they made monthly payments according to the only payment schedule provided to them prior to the closing of the loan. The court sustained defendant’s demurrer to the second amended complaint without leave to amend, reasoning that the loan documentation adequately described the nature of Option ARMs. We reverse the ensuing judgment. Plaintiffs adequately alleged fraud and section 17200 causes of action.”
Truth in Lending challenges
You will have to click on the case link above to read all of the challenges made to the negam loan. They are numerous, and not uncommon from what I have seen in examining literally hundreds of loan documents over the years. As the Boschma court noted:
“A string of cases (involving strikingly similar Option ARM forms/disclosures to those used in the instant case) have held that a borrower states a claim for a violation of TILA based on, among other disclosure deficiencies, the failure of the lender to clearly state that making payments pursuant to the TILDS payment schedule will result in negative amortization during the initial years of the loan. See Romero v. Countrywide Bank, N.A. (N.D.Cal.2010) 740 F.Supp.2d 1129, 1132–1133, 1136–1141 (Romero ); Ralston v. Mortgage Investors Group, Inc. (N.D. Cal., Mar. 16, 2009, No. C 08–536 JF) 2009 WL 688858, and Velazquez v. GMAC Mortgage Corporation (C.D.Cal.2008) 605 F.Supp.2d 1049, 1053–1056, 1064–1066.
The Court was convinced of the merits of the predatory lending case:
“Velazquez, supra, 605 F.Supp.2d at page 1065, clearly and concisely states the reasoning relied upon by these courts with regard to the issue of negative amortization: “All disclosures framed negative amortization as a possibility. The disclosures are perhaps literally accurate: they state that paying less than the full amount is an option under the Note, they state how negative amortization would occur, and the payment schedule provided in the TILDS appears to reflect (without using the term) negative amortization. …….plaintiffs “may be able to show” a lack of clear and conspicuous TILA disclosures pertaining to negative amortization………“Plaintiffs may be able to show that, when taken in conjunction with the disclosure in the Note and the TILDS, [the program disclosure] is not clear and conspicuous as required by TILA.” (Id. at p. 1067.)
As the Court put it:
“We find the above-cited federal district court cases to be persuasive. Cases reaching contrary results are inapposite or unconvincing. (See Taylor v. Homecomings Financial, LLC (N.D.Fla.2010) 738 F.Supp.2d 1257, 1267.”
Unfair competition (Cal. Business & Professions Code Section 17200 challenges)
California’s unfair competition law (UCL) “does not proscribe specific **893 activities, but broadly prohibits ‘any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.’ (§ 17200.) The UCL ‘governs “anti-competitive business practices” as well as injuries to consumers, and has as a major purpose “the preservation of fair business competition.” [Citations.] By proscribing “any unlawful” business practice, “section 17200 ‘borrows’ violations of other laws and treats them as unlawful practices” that the unfair competition law makes independently actionable.’ [Citation.] ‘ “Because … section 17200 is written in the disjunctive, it establishes three varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent. ‘In other words, a practice is prohibited as “unfair” or “deceptive” even if not “unlawful” and vice versa. See Puentes v. Wells Fargo Home Mortgage, Inc. (2008) 160 Cal.App.4th 638, 643–644, 72 Cal.Rptr.3d 903.). A practice may be deemed unfair even if not specifically proscribed by some other law.
The unfair competition statute in California thus prohibits statutory violations, unfair actions, and fraud. The Court looked at the fraud prong of B & P 17200:
“Actual fraud consists, among other things, of “[t]he suppression of that which is true, by one having knowledge or belief of the fact” or “[a]ny other act fitted to deceive.” (Civ.Code, § 1572, subds.(3), (5), see also Civ.Code § 1710, subd. (3) [definition of “deceit” includes “[t]he suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact”]; Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, 292, 17 Cal.Rptr.3d 26 **890 (Vega ) [“active concealment or suppression of facts … is the equivalent of a false representation”
The Court discussed the elements of action for fraud under California law:
‘The elements of an action for fraud and deceit based on concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.’ ” (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 748, 54 Cal.Rptr.3d 527.) Fraud must be pleaded with specificity rather than with “ ‘general and conclusory’ ” allegations.”
Contact our predatory lending and predatory loan servicing law firm
Foreclosure defense is a tough battle. We think we are one of the best foreclosure litigation firms in California. We have written about the foreclosure meltdown, briefed cases on our real estate youtube channel, and fought for clients for years. Review out blog to see where we have been and what we have done. We have helped numerous homeowners fight loan servicing and foreclosure abuses both in State and Federal Courts. Call us at (877) 276-5084.
Homeowner’s Association Lawyers Fighting Wrongful Foreclosure (FDCPA & Stirling Davis Act).
Click on the picture to watch our Video!
This blog answers a simple question, but dealing with a problem we are seeing more and more. The HOA moving to foreclose on its lien for unpaid dues and assessments. If you are facing foreclosure from your HOA, you need to think about sending the collection lawyer an FDCPA letter to make them justify the fees being charged, and to confirm how fees were applied. For best results, watch our video on HOA foreclosures in California by clicking on the picture above.
Can my HOA foreclose?
Yes. If proper procedures are followed. Unpaid hoa dues, fees and assessments can become a lien. When properly recorded, and assuming proper procedures are followed, the HOA can foreclose on the lien as any other lender or creditor could (ex. Bank of America, Chase, Nationstar, Citimortgage, Wells Fargo, etc.)
What is the process the HOA must follow to foreclose on my property?
The best way to get this information quick is to watch our video on HOA foreclosure. This is a fairly comprehensive review of the general process of HOA foreclosure law in California. If you need a lawyer after reviewing the video, please contact us at (877) 276-5084.
What happens when my house is sold at non-judicial foreclosure – 90 day right of redemption
After the HOA foreclosure, you will have a 90 day redemption period, which allows you to bring current all the past due fees, etc. During this period, you cannot be evicted. But afterwards, you can. Here is some case law on this point:
In Multani v. Witkin & Neal, 215 Cal. App. 4th 1428, 1449, 155 Cal. Rptr. 3d 892, 907-08 (2013), as modified on denial of reh’g (May 29, 2013) the Court held:
“Justifications … which satisfy the first element [to set aside a foreclosure] include the trustee’s … failure to comply with the statutory procedural requirements for the notice or conduct of the sale.” (Lona, supra, 202 Cal.App.4th at p. 104, 134 Cal.Rptr.3d 622.) Although there is generally no “postsale rightofredemption” in nonjudicial foreclosure proceedings a nonjudicial foreclosure by an association for delinquent assessments is “subject to the rightofredemption within 90 days after the sale.” (§ 729.035; see also 908 Civ.Code, § 1367.4, subd. (c)(4).) As a result, the trustee who conducts the sale must “promptly … serve notice of the rightofredemption on the judgment debtor,” which “shall indicate the applicable redemption period.” (Cal Civ Code § 729.050.).
“Notwithstanding any provision of law to the contrary, the sale of a separate interest in a common interest development is subject to the right of redemption within 90 days after the sale if the sale arises from a foreclosure by the association of a common interest development pursuant to subdivision (g) of Section 1367.1 of the Civil Code, subject to the conditions of Section 1367.4 of the Civil Code.”
California Civil Code Section 729.050
If property is sold subject to the right of redemption, promptly after the sale the levying officer or trustee who conducted the sale shall serve notice of the right of redemption on the judgment debtor. Service shall be made personally or by mail. The notice of the right of redemption shall indicate the applicable redemption period.
What should I do if the law firm for the Homeowner’s Association is bullying and badgering me?
This could be a potential FDCPA violation and makes important why you should retain a lawyer and send an FDCPA debt validation letter, and demand that the law firm cool its jets so to speak.
Defenses to an HOA foreclosure
Our video lays out the major defenses to HOA foreclosure. Please watch the vide, and if you believe one of the defenses applies in your case, contact one of our foreclosure lawyers to discuss how you can best protect yourself.
5. Failure to follow the statutory foreclosure procedures
6. Failure to allow a meeting with the HOA
To see more defenses, click on the picture above to watch our HOA foreclosure law video.
What if I never received the 90 day redemption notice?
In Multani v. Witkin & Neal, 215 Cal. App. 4th 1428, 1449-50, 155 Cal. Rptr. 3d 892, 908 (2013), as modified on denial of reh’g (May 29, 2013), the homeowner claimed they never received notice of their 90 day redemption rights. The Court discussed:
Defendants, however, have cited no evidence in the record—and we have located none—demonstrating that it mailed the Multanis a notice of right to redemption as required under section 729.050. Instead, defendants contend that they had no burden to present evidence that they complied with section 729.050 because “a nonjudicial foreclosure sale is accompanied by a common law presumption that it ‘was conducted regularly and fairly.’ Defendants appear to assert that this presumption was, standing alone, sufficient ‘to make a prima facie showing that plaintiff could not demonstrate any procedural irregularity in the foreclosure proceedings.”
The Court continued:
“Section 729.050′s notification requirement serves two purposes. First, it ensures that the debtor is aware that the property may still be redeemed. Second, it informs the debtor the date on which his or her redemption rights expire. Presumably, a debtor who has not received such notice has been harmed or prejudiced by the fact that they were not informed of those rights. (See Residential Capital v. Cal–Western Reconveyance Corp. (2003) 108 Cal.App.4th 807, 822, 134 Cal.Rptr.2d 162 (Residential Capital ) [“The inquiry is whether … there is a … defect in the statutory procedure that is prejudicial to the interests of the trustor and claimants”
Obviously it is an important right that must be respected.
Contact a Real Estate HOA lawyer
Our law firm has been fighting for residential and commercial property owners for years who face taking on the big banks, loan servicers, private mortgage lenders, hard money lenders, foreclosure trustees, and securitized loan trusts in foreclosure defense cases. We can represent you at a meeting with the HOA, or send FDCPA demand letters to attorneys and law firms that are bullying you. Contact us at (877) 276-5084 to discuss.
California Foreclosure Defense Law Firm – Legal Challenges in UD.
In California, foreclosures continue even though the press largely ignores this issue (i.e. the issue of the United States becoming a “renter society” as powerful foreclosure investors buy up all the distressed real estate and seek to evict the former borrowers from their homes and turn them into tenants.
Despite the passage of the California Homeowners Bill of Rights, foreclosures based on robosigned documents, false promises of foreclosure postponement (i.e. “dual tracking”) continue. In some cases, a homeowner will be foreclosed on by the loan servicer who claims to be the holder of the “beneficial interest” and the foreclosure marches on in unlawful detainer (“UD”) Court. Do you have any grounds to fight your lender or loan servicer, or the “BFP” (i.e. the alleged “Bona fide purchaser for value”) in UD court? Let’s examine some of the potential issues.
Foreclosure sale creates a right of possession in the purchaser
“(b) In any of the following cases, a person who holds over and continues in possession of a manufactured home, mobile home, floating home, or real property after a three-day written notice to quit the property has been served upon the person, or if there is a subtenant in actual occupation of the premises, also upon such subtenant, as prescribed in Section 1162, may be removed therefrom as prescribed in this chapter:
(3) Where the property has been sold in accordance with Section 2924 of the Civil Code, under a power of sale contained in a deed of trust executed by such person, or a person under whom such person claims, and the title under the sale has been duly perfected.”
This is the section most BFP’s or the loan servicers (or securitized loan trustee’s) will bring an eviction action under following a foreclosure sale on the prior borrower’s property. As this section points out, the Plaintiff bringing the wrongful holdover (unlawful detainer action) bears the burden to prove the sale was in accordance with Section 2924 of the Civil Code (which are California’s non-judicial foreclosure statute.
“Except as otherwise provided by law, a party has the burden of proof as to each fact the existence or nonexistence of which is essential to the claim for relief or defense that he is asserting.”
California Homeowner Bill of Rights – adds to the requirements to California Civil Code 2924 obligations to pursue a valid non-judicial foreclosure sale.
CCP 1161a (cited above) indicates that the foreclosure sale has to be in accordance with section 2924 of the Cal. Civ. Code. So what then does the code require? We have talked about the California HBOR in other blog posts. The CHBOR added, among other code sections, 2924.19 (click to see our video on CC 2924.19). As the video points out, there are two new code sections that a loan servicer needs to comply with if it wants to be “in accordance with 2924” as is required as set forth above to evict.
Specifically, as the video points out, California Civil Codes 2924.17 (substantiating the right and authority to foreclose with accurate and reliable evidence / no foreclosing with robosigned documents) and Civil Code 2924.18 (no “dual tracking“) were added to California’s non-judicial foreclosure statutes. Shouldn’t these legal issues thus be litigatable in the unlawful detainer Courts when a lender, servicer, creditor, BFP, or securitized loan trustee seeks to evict the homeowner following a foreclosure sale? Seems logical to me.
But it has been said that Unlawful Detainer is a “summary proceeding” that cannot adjudicate “complex” issues of title.
Given the above, I am not sure why showing requiring an entity, to produce the original note and thus verify the right to foreclose in accordance with California Civil Code 2924.17 would be such a hassle. Since the “security follows the note” (Cal. Civ. Code 2936) in California we only need to see the original endorsed note to determine whether or not a party was the property party with the right and authority to initiate the non-judicial foreclosure process). This is “easy” not “complex,” it is only the banks that make this complex because in most cases they cannot show any properly endorsed chain of assignments of the promissory note. Nevertheless, this continues to be the phrase adopted by many courts notwithstanding the fact that foreclosures need to be properly initiated under Civil Code 2924.
“The summary proceedings for unlawful detainer are based on the English statutes that abrogated the common law right of a person wrongfully dispossessed to regain possession of real property by force. The statutory situations in which the remedy of unlawful detainer is available are exclusive, and the statutory procedure must be strictly followed. The proceeding has characteristics of a contract action, e.g., it usually involves a lease, and often seeks its termination and recovery of rent. But this type of relief is deemed incidental to the main purpose of the suit—recovery of possession. Title is not in issue in the conventional unlawful detainer suit. The remedy of unlawful detainer is designed to provide means by the timely possession of premises which are wrongfully withheld may be secured to the person entitledthereto. The summary character of the action would be defeated if, by cross-complaint or counterclaim, issues irrelevant to the right of immediate possession could be introduced.
The language of this case raises more questions than it answers. Without production of the endorsed note, timely deposited with the securitized loan trust (so as not to create a “Glaski” issue), how can a Plaintiff in a wrongful foreclosure action show that it is the “person entitled to” possession of the property or that somehow it is being “wrongfully withheld” from them? Is this really an “irrelevant issue” as to whether the Plaintiff is entitled to possession of the property? Is this really a “complex” legal issue that cannot be quickly resolved since the legal authority to foreclose (which is required under the CHBOR to be resolved before foreclosure proceeds as set forth above) is supposed to be substantiated early on in the non-judicial foreclosure process. Surely this would then be a simple matter of producing a copy of the original endorsed note. Some defense attorneys will refer to this as a “novel legal theory.” Yet you cannot walk into a small claims court and ask the judge for a monetary judgement without the judge asking to see the IOU. Is this really that different?
This of course is only one of the potential issues that can arise in a UD homeowner eviction case.
However, despite the “no legal challenges” to title position taken by some courts, there is legal authority under CCP 1161a to challenge to “duly perfected title”
When a Plaintiff seeks to evict a former borrower in UD Court, the Code of Civil Procedure 1161a requires the purchaser seeking eviction to have “duly perfected” title. Thus, Plaintiff’s lack of title is and should be a proper defense. See Vella vs Hudgins (1977) 20 Cal.3d 251, 255 which held:
“For our present purpose, it is sufficient to note that the proceeding is summary in character; that, ordinarily, only claims bearing directly upon the right of immediate possession are cognizable……..and that cross-complaints and affirmative defenses, legal or equitable, are permissible only insofar as they would, if successful, “preclude removal of the tenant from the premises.”
The Vella court continued:
“A qualified exception to the rule that title cannot be tried in unlawful detainer is contained in Code of Civil Procedure section 1161a, which extends the summary eviction remedy beyond the conventional landlord-tenant relationship to include certain purchasers of property such as Hudgins. Section 1161a provides for a narrow and sharply focused examination of title. To establish that he is a proper plaintiff, one who has purchased property at a trustee’s sale and seeks to evict the occupant in possession must show that he acquired the property at a regularly conducted sale and thereafter “duly perfected” his title. (§ 1161a, subd. 3.) Thus, we have declared that “to this limited extent, as provided by the statute, title may be litigated in such a proceeding.” See also Cheney v. Trauzettel.
Evicting Plaintiff’s and their attorneys will likely argue that the trustee’s deed constitutes prima facie evidence of duly perfected tile and that the Trustee’s Deed establishes that the Defendant purchased the property at a trustee’s sale held in compliance with Civil Code section 2924 and that as such, title has been duly perfected in the Defendant. See Beck v. Reinholt (1956) 138 Cal. App. 2d 719, 292 P. 2d 906. This, of course, is not always the case and legal challenges might need to be raised depending upon the type of evidence you have, and the facts of your case.
What a Plaintiff must prove in a unlawful detainer case
So, if you are still with me you are doing well. The question then becomes, what must an evicting Plaintiff prove in California to make a prima facie case for eviction (especially where legitimate title issues are present, for example when a servicer will not comply with, nor respond to a request to produce “evidence of the indebtedness” as required under California Civil Code section 2923.55 – another section added by the CHBOR).
Evicting Plaintiffs in California UD courts bear the burden of establishing:
(1) Proper service of a valid 3 day notice to quit;
(2) Proper legal compliance with the foreclosure notice and recording requirements of Cal. Civ. Code § 2924 et seq. | Cal. Civ. Code § 2924(a)(1)-(5) for requirements you should insist on)
(3) Plaintiff “duly perfected title” (which should incorporate the CHBOR “authority to foreclose” requirements discussed above). See California Civil Code § 2924(a)(6) added section to California non judicial foreclosure laws (holder of beneficial interest in note/deed of trust).
(4) Show that the tenant or former borrower is improperly holding over.
In many securitized loan trust cases, (especially after spending time to research your loan, and sending debt validation letters, QWR’s and 2923.55 letters – see link above) you will find it a mess trying to figure out which party owns your loan (original note endorsed by all transferors). Checking out the MERS servicer ID also can confuse more than clarify and create issues over which party has a legal right to foreclose (if you are ever lucky enough to get a MERS milestone report or securitized loan audit, this can also create further confusion and raise questions as to just what duly perfected title means).
“Unlike the Mehrs, Seibert, by way of affirmative defenses or separate action, did not assert that the trustee’s sale failed to comply with the applicable statutory provisions. Nor did Seibert claim that there was fraud in the actual acquisition of the trustee’s deed.”
The Old National Court also discussed the possibility of a UD Defendant filing a civil action and seeking to consolidate the UD case with an unlimited civil proceeding where “complex” issues of title and fraud can be resolved:
“Likewise, the case of Asuncion v. Superior Court (1980) 108 Cal. App. 3d 141 [166 Cal.Rptr. 306], has no application to the case at bench. In that opinion, the Court of Appeal held that, consistent with due process guarantees, homeowners cannot be evicted without being permitted to raise affirmative defenses which, if proved, would maintain their possession and ownership. The court concluded that title to the property was in issue and that the unlawful detainer action exceeded the municipal court’s jurisdiction. The Court of Appeal stated that there are situations where it may be appropriate to stay the eviction proceedings until after the trial of the fraud action or, in the alternative, to consolidate the actions.”
As discussed above, the court should take at least a minimal look at title issues under 1161a. Title is duly perfected when all steps have been taken to make it perfect, i.e., to convey to the purchaser that which he has purchased, valid and good beyond all reasonable doubt.
The word title has a variety of meanings. It sometimes connotes the means by which property in land is established, as in the expression ‘chain of title.’ It sometimes means ‘property’ or ‘ownership’ in the sense of the interest one has in land. A common meaning is complete ownership, in the sense of all the rights, privileges, powers and immunities an owner may have with respect to land……A perfect title must be one that is good and valid beyond all reasonable doubt’; and in that case it was conceded by counsel upon both sides that a title, to be good, ‘should be free from litigation, palpable defects, and grave doubts, should consist of both legal and equitable titles, and should be fairly deducible of record.’ It would seem, in fairness to the vendee, that the foregoing requirements should be held absolutely necessary, in order to fully satisfy the covenant of perfect title. Certainly such a condition of title must exist before it can be said to be good and valid beyond reasonable doubt……which includes good record title (Gwin v. Calegaris (1903), 139 Cal. 384), but is not limited to good record title, as between the parties to the transaction. (Emphasis Added) The term “record title” means a title officially of record. (Bone v. Dwyer, 89 Cal. App. 535).
In UD cases, evicting Plaintiff (especially when if the property sold back to the loan servicers, trustees who should be able to easily show good title as discussed above), although you will not normally see this type of evidence at least from my experience handling wrongful foreclosure cases in California.
Potential UD challenges & strategies
This takes us to where you go from here. If you are a homeowner facing eviction in UD court, and have serious issues going to duly perfected title or other 2924 issues set forth above, some possible strategies might be:
1. Demurrer to UD (under CCP 430.10) citing (a) lack of standing to evict, (b) court has no jurisidication (ex. you filed an unlimited civil action and the case should be heard there to dtermine the “complex” issues, or (c) other grounds that show failure to state and cause of action for eviction.
2. File a cross-complaint. IN UD action you might find such a cross-complaint will only be viable if the cross-complaint relates to grounds for keeping you in the property (as opposed to giving rise to money damages)
3. File a civil suit (ex. a wrongful foreclosure action unlimited civil case in superior court – ex. Los Angeles or San francisco Superior Court) and seek to consolidate the UD case under the Ascunsion case cited above.
4. Some California homeowners have tried to remove the case to Federal Court and challenge standing there (assuming there is diversity of citizenship and an amount in controversy greater than $75,000 and/or a federal question – ex. FDCPA, TILA, RESPA QWR claim etc.)
5. Some residential property owners would file chapter 7 or Chapter 13 bankruptcy (and challenge title in the form of a challenge to the proof of claim in the 13 or the lift stay motion that might be filed in the chapter 7).
These are some of the main options I have seen borrowers pursue. Other options might exist.
California Unlawful Detainer, Eviction & Holder Defense Litigation
For more information contact one of our real estate lawyers at (877) 276-5084.
People have been asking me “is produce the note a valid legal theory.” This is an interesting question. We know one thing for sure most lender’s and loan servicers cannot produce or show possession of the ORIGINAL NOTE (which would require, under the California commercial code) to be properly endorsed, with any allonge that might be applicable. An allonge in theory should only be used where there is no space on the promissory note to include an endorsement. The allonge should be affixed to the note.
These simple things are how we figure out every day who owns what and who the rightful party is to enforce the terms of the note. However, in the world of securitized loans, these rules seems to have gone the wayside, and basically anyone who wants to foreclose on you can do so if they are willing to show up and institute foreclosure proceedings and represent that they are the beneficiary of your loan.
But that being said, is “produce the note” a dead legal concept that applies only to every other area of commercial law outside of the foreclosure arena (for example, we can demand that “debt collectors” validate the debt and prove the right to enforce a note, but we cannot ask a bank or loan servicer to do this)? Does this seems right?
Well it doesn’t sit right with me, and I don’t believe this sits right with the California legislature who in my opinion are seeking “Truth in Servicing” (sort of like the Truth in Lending Act - “TILA”).
2923.55.(a) A mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent may not record a notice of default pursuant to Section 2924 until all of the following:
(1) The mortgage servicer has satisfied the requirements of paragraph (1) of subdivision (b).
(2) Either 30 days after initial contact is made as required by paragraph (2) of subdivision (b) or 30 days after satisfying the due diligence requirements as described in subdivision (f).
(3) The mortgage servicer complies with subdivision (c) of Section 2923.6, if the borrower has provided a complete application as defined in subdivision (h) of Section 2923.6. (b) (1) As specified in subdivision (a), a mortgage servicer shall send the following information in writing to the borrower:
(A) A statement that if the borrower is a servicemember or a dependent of a servicemember, he or she may be entitled to certain protections under the federal Service Members Civil ReliefAct, (50 U.S.C. Appen. Sec. 501 et seq.) regarding the servicemember’s interest rate and the risk of foreclosure, and counseling for covered servicemembers that is available at agencies such as Military OneSource and Armed Forces Legal Assistance.
(B) A statement that the borrower may request the following:
(i) A copy of the borrower’s promissory note or other evidence of indebtedness.
(ii) A copy of the borrower’s deed of trust or mortgage.
(iii) A copy of any assignment, if applicable, of the borrower’s mortgage or deed of trust required to demonstrate the right of the mortgage servicer to foreclose.
(iv) A copy of the borrower’s payment history since the borrower was last less than 60 days past due.
This section seems fairly straightforward at first glance. The borrower is entitled to a copy of their note “or” some “other evidence of indebtedness” Since the purpose of the law is to stop “fraudclosures” and to stop foreclosing where there is no authority to foreclose, it seems that this requires the loan servicer or lender to prove that you owe THEM money. That you are indebted to THEM. It wouldn’t make much sense if all they lender had to do was to send you a copy of the note you signed in 2007 to some now-defunct and bankrupt predatory lender. Most borrowers we have worked with already have a copy of the 2007 note and deed of trust. This proves nothing as far as “standing” or “authority to foreclose”. In my mind, a copy of the endorsed note (evidencing which party is in possession of the original, and properly assigned deed of trust should (which should have been assigned to the securitized loan trust BEFORE the loan trust closed as discussed in the Glaski case) be provided to the homeowner.
Failure to send this statement, or to provide this information on request should, at least in my mind, be deemed a “material” violation of the CHBOR, and should warrant a borrower to seek a TRO and Injunction to stop the foreclosure sale and record a lis pendens to seek to maintain title and possession of the real property.
If true, (these issues remain to be clarified through foreclosure litigation), might also mean a borrower can seek attorney fees for violations of this code section.
So check your PRE-NOD paperwork. If this statement was not provided to you, or if you sent a QWR, FDCPA “debt validation” letter or demand letter under 2923.55 (See our sample produce the note demand letter under Cal. Civ. Code 2923.55), you might have a right to file a lawsuit against your lender or loan servicer to demand that they comply with the law and validate their right and legal authority to foreclose on you.
Conflict with section 2923.55 and traditional “produce the note” legal theory
One issue that arises with the produce the note legal theory in California foreclosure cases, is we have talked for years about the fact that “produce the note” (or should I say the common situation where the lender or loan servicer does not produce the note, or refuses to produce it – happens in most cases I have handled) is not a grounds to STOP or ENJOIN a non-judicial foreclosure sale. While this might be a valid legal theory if the lender sought to foreclose in a “judicial” foreclosure (one brought through the Courts – here you would attack their procedural “standing” and “real party in interest”) in the venue, and you could potentially have success with this legal theory. After all, how do you have standing to enforce an IOU if you cannot prove YOU are owed the money? But that being said we have always stated that you cannot stop a non-judicial private trustee sale using the produce the note theory in California or Arizona (where we also practice). Courts in California have told us this time and time again.
So what now do we make of the recent January 2013 California Homeowner Bill of Rights, which appears to give you the explicit legal right to seek an “injunction” and to seek “attorney fees” for “material violations” of the HBOR? Does this section trump the prior caselaw? I would argue that it does. This is a new legislative enactment (and the most recent word from the California legislative branch on this topic). The state does not want continued foreclosures based on false documents, and a failure to be able to substantiate the right and legal authority to foreclose. It’s time to clean up the mess and do things right, and if you cannot do things right, the law, to me says you cannot lawfully foreclose. Again, banks will fight us real estate lawyers on this point, and will most likely argue this is not a “material violation” of the CHBOR (that they cannot show proof of who owns the original endorsed note is apparently no consequence to their foreclosure machines).
California Civil Code Section 2924.17 (prohibition of foreclosure through use of unreliable an inaccurate evidence of right and authority to foreclose)
You should also keep in mind that other sections of the CHBOR discuss the need to validate the authority to foreclose (i.e. the robosigning section of CHBOR) with accurate, reliable and competent evidence showing the “authority to foreclose.” This is set forth in California Civil Code Section 2924.17 which states:
“A declaration recorded pursuant to Section 2923.5 or, until January 1, 2018, pursuant to Section 2923.55, a notice of default, notice of sale, assignment of a deed of trust, or substitution of trustee recorded by or on behalf of a mortgage servicer in connection with a foreclosure subject to the requirements of Section 2924, or a declaration or affidavit filed in any court relative to a foreclosure proceeding shall be accurate and complete and supported by competent and reliable evidence.
(b) Before recording or filing any of the documents described in subdivision (a), a mortgage servicer shall ensure that it has reviewed competent and reliable evidence to substantiate the borrower’ s default and the right to foreclose, including the borrower’s loan status and loan information.
These are critical requirements placed on loan servicers subject to this section and knowing which entity, if any, has the orignal endorsed note evidencing the right to foreclose, to me, is an important component of the new law. These are things that should be argued in every foreclosure case dealing with a securitized loan. As we discussed in another blog, a material violation of the robosigning provision can lead to a $50,000 statutory damages case under California civil code section 2924.19
Contact a California Foreclosure Defense Law Firm
If you need a real estate law firm to send out a 2923.55 demand letter (citing their failure to give you the required disclosure statement, and/or demanding they produce evidence of their “authority to foreclose” we can do that for a low flat rate fee. Keep in mind this is something that needs to be done PRE-FORECLOSURE (not after your trustee sale date). Call us at (877) 276-5084.
Financial institutions, loan servicers, banks and fiduciary duties!
Does a loan servicer owe a fiduciary duty to their borrowers? What about to borrowers in the loan modification process? What about to borrowers have a “reset” provision in the borrower’s deed of trust. A reset provision is one that basically states that after a certain number of years, the loan will have a balloon payment that will have to be paid off, or the borrower may make an election to reset the loan (at some agreed upon rate using a formula set forth in the deed of trust). Do any of these situations create a “fiduciary duty” of the loan servicer to the borrower? Let’s explore this issue.
What is a fiduciary duty?
In general a fiduciary relationship is:
1. “any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party.
2. Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other party without the latter’s knowledge or consent. See Rickel v. Schwinn Bicycle Co. (1983) 144 Cal.App.3d 648, 654, 192 Cal.Rptr. 732.
3. A “fiduciary relation” in law is ordinarily synonymous with a “confidential relation.” It is founded upon the trust or confidence reposed by one person in the integrity and fidelity of another, and likewise precludes the idea of profit or advantage resulting from the dealings of the parties and the person in whom the confidence is reposed.
4. Traditional examples of fiduciary relationships in the commercial context include trustee/beneficiary, directors and majority shareholders of a corporation, business partners, joint adventurers, and agent/principal. See, e.g., Evangelho v. Presoto (1998) 67 Cal.App.4th 615, 621, 79 Cal.Rptr.2d 146 [trustee and beneficiary]; Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93, 108–109, 81 Cal.Rptr. 592, 460 P.2d 464 [controlling shareholder of corporation]; April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 818–819, 195 Cal.Rptr. 421 [joint adventurers]; Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1580, 36 Cal.Rptr.2d 343 [agent/principal].) See Wolf v. Superior Court, 106 Cal. App. 4th 625, 29-30, 130 Cal. Rptr. 2d 860, 863-64 (2003), as modified on denial of reh’g (Mar. 20, 2003)
As you can see, these are the general types of things you will find when you look into this legal issue. But I don’t see specifically that a “lender and a borrower” or a “servicer and a borrower” are basically in a fiduciary relationship. But does this mean it doesn’t exist?
Survey of Fiduciary duty in borrower-lender cases nationwide
Florida courts have found fiduciary relationships between borrowers and their lenders. For example, see Barnett Bank v. Hooper,498 So.2d 923 (Fla. 1986) the Florida court discussed:
“Generally, a bank-depositor relationship is treated as a debtor-creditor relationship, and does not ordinarily impose a duty of disclosure upon the bank.However, there are circumstances in which a duty to disclose may arise:
(1) one who speaks must say enough to prevent his words from misleading the other party;
(2) one who has knowledge of material facts to which the other party does not have access may have a duty to disclose these facts to the other party; and
(3) one who stands in a confidential or fiduciary relation to the other party to a transaction must disclose material facts. Klein v. First Edina National Bank, supra.
(4) A duty to disclose may also arise under still another circumstance, that is, when the bank has actual knowledge of fraud. Richfield Bank and Trust Company v. Sjogren, supra.
(5) With regard to the fiduciary duty of disclosure, which Dr. Hooper urges is applicable here, the courts have recognized a duty to disclose the material facts of a transaction where a bank holds itself out as a financial advisor or otherwise has reason to know (has actual or constructive knowledge) that a depositor is reposing trust and confidence in the bank.Klein v. First Edina National Bank, supra; Annot., 70 A.L.R.3d 1344, 1347-1349.
These give you some good grounds to argue that in California the Courts should be more liberal in determining when a fiduciary duty exists in the borrower-loan servicer relationship.
“In its generic sense, constructive fraud comprises all acts, omissions and concealments involving a breach of legal or equitable duty, trust, or confidence, and resulting in damages to another. Constructive fraud exists in cases in which conduct, although not actually fraudulent, ought to be so treated—that is, in which such conduct is a constructive or quasi fraud, having all the actual consequences and all the legal effects of actual fraud.” Constructive fraud usually arises from a breach of duty where a relation of trust and confidence exists. (Darrow v. Robert A. Klein & Co., Inc. (1931) 111 Cal.App. 310, 315–316, 295 P. 566.).
Confidential and fiduciary relations are in law, synonymous and may be said to exist whenever trust and confidence is reposed by one person in another. (Estate of Cover (1922) 188 Cal. 133, 143, 204 P. 583.) The relationship of a bank to depositor is at least quasi-fiduciary. (Commercial Cotton Co. v. United California Bank (1985) 163 Cal.App.3d 511, 516, as modified 164 Cal.App.3d 493a, 209 Cal.Rptr. 551 [as modified].)
Other jurisdictions recognize a similar relationship of trust and confidence exists between a bank and its loan customers which gives rise to a duty of disclosure of facts which may place the bank or a third party at an advantage with respect to the customer. (See Klein v. First Edina National Bank (1972) 293 Minn. 418, 196 N.W.2d 619; First National Bank in Lenox v. Brown (Iowa 1970) 181 N.W.2d 178; Stewart v. Phoenix Nat. Bank (1937) 49 Ariz. 34, 64 P.2d 101.). See Barrett v. Bank of Am., 183 Cal. App. 3d 1362, 1368-69, 229 Cal. Rptr. 16, 20 (Ct. App. 1986).
California breach of fiduciary duty law in CALIFORNIA
The general rule as to whether a loan servicer owes fiduciary duties to the borrower was set forth in Rufini v. CitiMortgage, Inc., 227 Cal. App. 4th 299, 312, 173 Cal. Rptr. 3d 422, 433 (2014), as modified on denial of reh’g (July 22, 2014):
“As to breach of fiduciaryduty, Rufini alleges that CitiMortgage owed him a fiduciaryduty to, at a minimum, perform a fair analysis in good faith, investigate the material facts, and use reasonable care and due diligence in compliance with the relevant standards of professional conduct. This cause of action falls directly afoul of the principle that “no fiduciaryduty exists between a borrower and lender in an arm’s length transaction.”
The Court continued:
“As a general rule, a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.’ See Ragland v. U.S. Bank Nat. Assn., supra, 209 Cal.App.4th at p. 206, 147 Cal.Rptr.3d 41; Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1096, 283 Cal.Rptr. 53.) Rufini’s factual allegations do not show that CitiMortgage’s activities went beyond its conventional role as a mere lender of money and therefore do not establish the existence of a fiduciaryduty.”
So this Citimortgage case states that the loan servicer must exceed its traditional roles before a fiduciary duty can be found to exist. But what kinds of things take this out of the traditional roles?
Existence of a fiduciary relationship is a question of fact
In re Daisy Sys. Corp., 97 F.3d 1171, 1178 (9th Cir. 1996), the Court discussed:
“The existence of a fiduciary relation is a question of fact which properly should be resolved by looking to the particular facts and circumstances of the relationship at issue. See Kudokas v. Balkus, 26 Cal.App.3d 744, 103 Cal.Rptr. 318 (1972); Stokes v. Henson, 217 Cal.App.3d 187, 265 Cal.Rptr. 836 (1990).
In Kudokas, the California Court of Appeal held that the “[e]xistence of a confidential or fiduciary relationship depends on the circumstances of each case and is a question of fact for the fact trier.” 26 Cal.App.3d at 750, 103 Cal.Rptr. 318.
Similarly, in Stokes the court inferred the existence of a fiduciary relationship between an investment advisor and his clients on the basis of the surrounding facts. 217 Cal.App.3d at 194, 265 Cal.Rptr. 836.
Accordingly, in determining whether Bear Stearns may have owed any fiduciary obligations, the district court should have evaluated more carefully the details of the Daisy/Bear Stearns relationship.
Two important issues of fact that must be resolved before it can be determined whether a fiduciary relationship existed between Daisy and Bear Stearns are the questions of agency and confidentiality. As confidentiality is an element of a fiduciary relationship, see Beery, 239 Cal.Rptr. at 126–27, 739 P.2d at 1294, resolution of the fiduciary question in this case will turn in part on whether Daisy reposed confidences in Bear Stearns. Moreover, among the terms of Bear Stearns’ retention was a provision stating that it would be acting on Daisy’s behalf. Should a factfinder determine from the record that an agency relationship existed between the parties, see Michelson v. Hamada, 29 Cal.App.4th 1566, 1575–76, 36 Cal.Rptr.2d 343 (1994) (holding that “[t]he existence of an agency is a factual question within the province of the trier of fact whose determination may not be disturbed on appeal if supported by substantial evidence”), then a fiduciary relation should be presumed to exist.
Possible argument that a fiduciary relationship exists in loan modification / loss mitigation process.
SeeCal. Civ.Code § 2295 (defining an agent as “one who represents another … in dealings with third parties”)
LITIGATION TIP: aren’t loan servicers gathering and submitting documents to the “investor of the loan” (third party securitized loan trust), and based on this couldn’t it be said the loan servicer is assuming the role as agent of the borrower, to make sure a full and fair review of modification is undertaken and presented to the securitized loan investor before taking steps to foreclose? If so, a breach of fiduciary duty claim may exist for failing to act with the duty of due care, avoid self dealing, and to give full and honest disclosure of all material facts.
See Michelson, 29 Cal.App.4th at 1576, 36 Cal.Rptr.2d 343 (holding that fiduciary relationship existed between two doctors where one doctor became the agent of the other); Gerhardt v. Weiss, 247 Cal.App.2d 114, 116, 55 Cal.Rptr. 425 (1966)(holding that “an agent is a fiduciary whose obligation of diligent and faithful service is the same as that imposed upon a trustee”); Whittaker v. Otto, 188 Cal.App.2d 619, 624, 10 Cal.Rptr. 689 (holding that agent’s relationship to his principal is essentially fiduciary in character and in dealing with his principal he is bound to principles of good faith and honesty).
This case provides a possible framework for raising BFD claims in state and federal foreclosure injunction lawsuits.
Moreover, at least one California court has suggested that even where the relationship between an agent and principal cannot generally be classified as fiduciary, a fiduciary obligation may exist with respect to those matters falling within the scope of the agency. See Wilson v. Houston Funeral Home, 42 Cal.App.4th 1124, 50 Cal.Rptr.2d 169, 178 (1996)
What is the statute of limitations in California for a breach of fiduciary duty lawsuit?
There is an argument that the 4-year statute of limitations applies in breach of fiduciary duty claims. However, you should be careful as some courts may apply a three year statute of limitations.
The Four–Year Statute of Limitations
“Vista contends the four-year statute of limitations applies to its causes of action for breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing. The statute of limitations that applies to an action is governed by the gravamen of the complaint, not the cause of action pled. (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 786, fn. 2, 157 Cal.Rptr. 392, 598 P.2d 45.) The gravamen of Vista’s complaint is that Robert Thomas’s acts constituted actual or constructive fraud. The applicable statute of limitations for fraud is three years. (Code Civ.Proc. § 338, subd. (d).) Therefore, the court did not err in holding the statute of limitations is three years.” See City of Vista v. Robert Thomas Sec., Inc., 84 Cal. App. 4th 882, 889, 101 Cal. Rptr. 2d 237, 241 (2000).
Our real estate attorneys can be reached at (877) 276-5084.
California Homeowner’s Bill of Rights Sample Complaint
Many people have asked us what a civil lawsuit Complaint looks like, one alleging violations of the California Homeowner Bill of Rights. Here is a sample California CHBOR complaint we drafted to show you what one might look like. This complaint is copyrighted, but if you want to obtain a license to use the complaint please contact us at (877) 276-5048 and mention “HBOR COMPLAINT.” We can offer a copy customized for you for a low flat rate fee where you believe there are HBOR violations.
Overview of CHBOR violations
The Foreclosure Bill of Rights law in California was intended to STOP the loan servicer abuses and to basically incorporate the terms of the National Mortgage Settlement Agreement. If you click on that link you will notice all the nice pictures of happy people, who I guess have been helped by the settlement agreement. While some of the loan servicers such as JP Morgan Chase, Wells Fargo, Bank of America, Nationstar, PHH, SLS, SPS, and Citimortgage might actually be helping some homeowners, but many others are lost or stuck in the cracks and struggling for fair and honest loss mitigation assistance.
Let’s face it, with a struggling economy, there are more homeowners needing help. Even my brother who has an engineering degree from Cal Poly Pomona, and a tremendous amount of industry experience was laid off, looking for work, and hoping to avoid a default of his mortgage (while trying to keep his kids thriving in their learning environments). When families have to move, friends are lost, self-esteem is lost, and yes, even hope is lost. Can you imagine the embarrassment of a young child who has to tell their friends “the bank is forcing us out of the house and into foreclosure, I hope we can stay friends on facebook.”
This is a real crisis that does not appear to be changing. There are no more foreclosure stories on TV (they prefer to broadcast a local DUI or rape), and the foreclosure fiasco is not even part of the newspaper anymore. It has become like dealing with crime, just something that you have to deal with. Well this is something we deal with, and we fight for homeowners rights in California.
Some common violations of the HBOR include: (a) dual tracking, (b) robosigning, (c) failure to acknowledge receipt of loan modification documents within 5 days, and (d) failure to appoint a single point of contact for loss mitigation efforts. In our opinion, these are all “material” violations, but this remains to be litigated.
Early signs indicate servicers undeterred by CHBOR
You have to keep in mind that we are a law firm. People come to us when they have legal problems, or in the foreclosure situation, when fears become so high a property owner’s instincts (often backed by internet research) compels them to contact a foreclosure law firm.
That being said, I can tell you that since we started taking homeowner calls years ago, the PHONE HAS NOT STOPPED RINGING. Every single day we get homeowners calling or emailing us asking us for help. They are being abused by their loan servicers, lied-to, tricked, deceived, and misled. It is really horrible. This may sound unbelievable, but in the beginning, there would be certain phone calls that would lead us to shed tears. We are much more hardened now as we realize this problem is so big that even the banks cannot properly deal with it or the number of homeowners seeking loan modification assistance.
To get to the point, we don’t see loss mitigation getting any better, and we do not see a slow in people seeking assistance to try to fight to save their homes. We are going on 7 or 8 years now. We can only wonder if we will be posting foreclosure blogs in 2020. Time will tell.
Unfortunately you cannot trust your loan servicer
Once your house is sold, your battle goes from tough to extremely difficult. This is a fact of foreclosure life. This is why we have been saying for years PLEASE DO NOT TRUST EVERYTHING YOUR LOAN SERVICER SAYS AS IF IT WERE SCRIPTURE FROM THE BIBLE. The banks do not have to be honest with you. There is no law demanding they be upfront and truthful. Once your house is sold, here are some of the COMMON things you will hear the banks tell the judge (just so you can understand why it is so important that you do not let your house get sold).
1. The borrower is a real estate speculator, things didn’t work out and now they want to complain
2. Loan servicers have no duties in the loan modification process your honor
3. The borrower is in default and they have no right to challenge our foreclosure process
4. The borrower cannot challenge our foreclosure unless they can pay the full balance of the loan, since they cannot, they have no case
5. Your honor, even if the foreclosure documents are falsely signed and even if the notary was not present for the signing (i.e. someone else was using their notary stamp, this doesn’t mean we did anything wrong, how can the borrower challenge this if they were not prejudiced by the documents that were recorded
6. We don’t need to show who owns the loan judge, it doesn’t matter
7. The borrower has no standing to challenge false statements that might have been made to the SEC in regard to having the endorsed note and deed of trust in the securitized loan trust, and the authority to foreclose cannot be challenged
8. The borrower didn’t have any equity in the property so they cannot claim any damages of any kind
These are the things you can expect to hear AFTER your residential or commercial property is sold in California pursuant to California Civil Code section 2924 (non-judicial foreclosure sale statutes), which highlights why you don’t want to get in this position in the first place. These same nice banks that are trying to help you with a loan modification, COULD BE, the very same loan servicer that hires a foreclosure law firm to make these very same legal arguments against you.
Now, thanks to the CHBOR, you at least have statutory grounds to try to demand fairness in the process, and to try to hold lenders and loan servicers accountable.
What to do if you are facing foreclosure in 2014 or 2015
Many people say “you cannot fight the banks when it comes to foreclosure.” Or, “you can never win just give up” or “its too bad you got foreclosed on the loan servicer won” or “just move out and get cash for keys. In some cases this is good advice, in other cases however, you may have grounds to stop your foreclosure (with an injunction) or reverse your foreclosure sale, or seek money damages. Of course the financial institutions would prefer if you just went away. After all, according to them you are in default and deserve to lose your home (of course they are quick to forget their taxpayer funded bailout, akin to a wonderful loan modification and there was no “investor” around to deny them).
Nevertheless, in a good number of loans we review (via our independent foreclosure review designed to layout your realistic options when facing foreclosure in California).
Homeowner tips when dealing with California HBOR lawsuits
Here are my top three tips when going through the loan modification or loss mitigation systems as a California property owner:
1. Keep your guard up. Loan servicers, whether intentional, reckless, negligent, or otherwise, can foreclose on you no matter what representations are being made (ex. we have heard the story hundreds of times “don’t worry, looks like you qualify for a loan modification, don’t worry, we wont foreclose, or the sale will be postponed.” While there might be truth and good intention to this, if you are foreclosed you will wish you did not trust the servicers or lenders.
2. Take diligent notes of your dealings with the loss mitigation department. Keep a log of who you talk to, what they say, which department they are in, and any other notes. Servicers don’t expect you to take notes and you should do this in case you need to hold their feet to the fire in a HBOR lawsuit (ex. failing to appoint a single point of contact, or threatening to foreclose). Sometimes, the servicer will say “this phone call may be recorded for quality control.” You might want to say “since you are recording this phone call so am I, do you consent to this? If they agree, you can tape record the call as California is a two-party consent state. This is fair play as they tape record calls, so can you with the proper consent.
3. If you get a notice of default or acceleration notice call a California real estate lawyer immediately. When you get a notice of acceleration of your loan, or NOD, this is the time when you have to STOP TRUSTING YOUR LOAN SERVICER. This means they are moving toward (or should I say inclined) to foreclose on you. This is the time to contact your real estate counsel and get legal advice as to your options and to send any demand letters that may be appropriate.
We hope this blog has been helpful. We urge you to be cautious and prudent when you are in the foreclosure process. Sometimes they loan servicers or your lender is not intentionally causing you damage, but when you are “just a number” (loan number) you cannot always expect any level of VIP service. Protect yourself. Pay the money to have a lawyer look your case over and advise you. If you don’t have the money, there are legal aid services that can help you. If you are over 65 we might be able to offer to take all or part of your foreclosure case on a contingency fee basis (ex. financial elder abuse case). Contact us at (877) 276-5084. We have offices in San Diego, San Francisco, Beverly Hills, and Newport Beach. We handle cases throughout the state of California.
This blog is intended for California attorneys, law firms, and property owners who fight the foreclosure battle.
Fighting to save your home from the jaws of foreclosure in California is never an easy task. The banks have pulled off quite a bit of magic including things like:
1. Being able to foreclose without any legal proof they own your loan (failure to produce endorsed notes proving legal ownership and legal right to initiate foreclosure against you);
In the old days, the bank would originate your loan, service it, and if you didn’t pay they would foreclose on you. Since they had SKIN IN THE GAME, they would seek to modify your loan to keep it performing and to keep the interest running. After all, even semi-performing loans make banks TONS OF MONEY. In the age of “securitized loans” there is no incentive to care about whether your loan performs or not. In fact, most loans were insured against default and so offering modifications to keep the loan performing is not so much of an issue.
2. Having laws passed like SB94 (that prevent you from paying attorneys to help you fight for your biggest asset). Ask yourself if there is ANY OTHER LEGAL PROBLEM WHERE YOU CANNOT PAY A LAWYER IN ADVANCE TO HELP YOU. That is simply amazing and should highlight to the homeowner what you are up against.
3. Entering into settlement agreements with state Attorney Generals and others (basically writing billion dollar checks without so much as litigating the case – do you know any company that will write a billion dollar check without first spending a few million to litigate (think Tobacco litigation – there were no easy laydown settlements there was there)? Yet when these same banks, lenders and loan servicers come into state and federal courts battling foreclosure lawsuits, they act like they are saints that could never do anything wrong (it is always the borrowers fault that agreed to the loans they were pitching and begging you to take). The false promises of “come back here and we will refinance you in a few years don’t worry”) is just par for the course.
I could go on but anyone that has been battling foreclosures in California already understands these things, and understands that the forces are aligned against you. It is completely fair to characterize this as a “David vs. Goliath” situation.
There is hope in the foreclosure process!
If you are in the foreclosure process, you know that it’s something you think about every day and every night. It puts a serious stress and strain on your life, and your personal relationships. We know, we have counseled countless homeowners fighting the battle against major lenders banks, loans servicers, foreclosure trustees and securitized loan trusts such as:
1. Chase bank (who took over Washington Mutual Loans)
2. Wells Fargo (who took over the World Savings and Wachovia loans, including the pick a pays)
3. Citimortgage (Citibank)
4. Bank of America (who took over the Countrywide loans)
5. Downey Savings (home of the “hairy” loan – right up there with Aurora loans, Ameriquest, New Century Mortgage)
The list goes on and on. Some lenders and servicers are better than others, but these are some of the main players we see in the mortgage defense arena. Many of these are extremely large and powerful banking organizations. They are not easy for the average homeowner or commercial property owner to take on all by themselves. For California homeowners, you need a law firm that understands the legal issues and can help bring you a sense of relief. We are a leading foreclosure defense law firm and we have been fighting in the trenches for property owners since the foreclosure meltdown and bailouts first became front page news.
What can our foreclosure and predatory loan servicing defense law firm do for you?
Our strategy to fight for you is fairly straight forward. We do not help you with loan modifications or mortgage forbearance. This is something you will have to do on your own. Unfortunately SB94 prevents attorneys from charging “advance fees” for loan modification work. So you will have to contact the lender on your own to try to negotiate a modification.
Where we come into play is in asserting legal rights offered by state and federal laws (rights that exist even if you are in default on your mortgage loan). Our foreclosure defense strategy is to send out a California homeowner pre-foreclosure demand package consisting of the following:
A. Legal rights that exist under Federal Law:
(a) Qualified Written Request (“QWR”) (challenging excessive fees and unscrupulous servicing practices where loan servicer abuses are evident);
(b) FDCPA “debt validation letter” demanding that the loan servicer or trustee, (assuming the servicer or foreclosure trustee is a “debt collector”) validate the debt and prove it is entitled to collect and enforce the note;
B. Legal rights to homeowners under California State law:
C. Where violations of CHBOR are present (which happens in the bulk of foreclosure cases we review at the time clients contact us):
(e) A drafted Complaint on pleading paper highlighting the causes of action believed to exist currently, and threatening a lawsuit on those terms. Note: if the above letters trigger additional legal violations (ex. a claim for statutory damages under TILA or RESPA), these causes of action can be added to the complaint at a later date, (if the Client chooses to file a lawsuit seeking an injunction to stop foreclosure).
Common violations under the CHBOR include (failing to acknowledge receipt of loan modification documents, dual tracking foreclosure and loss mitigation review, failure to appoint single point of contact for modification reviews, foreclosing without substantiating the right to foreclose with verification of default and review of authority to foreclose, recording notice of default or notice of sale when the borrower is being reviewed for modification, etc.)
He have a California Homeowners Bill of Rights Violations Questionnaire we can send you upon request. Call us at (877) 276-5084.
These are the documents we will send out on your behalf, on a flat rate fee basis. We will review any correspondence that is returned to us and advise you as to your legal rights. In many cases, the lenders, loan servicers, foreclosure trustees and securitized loan trusts (who claim to own your loan) will not respond. Failure to respond creates legal violations that we can sue for (usually statutory damages, and potential attorney fees. In some cases you can seek an injunction to stop the non-judicial foreclosure process). Where the responses are not timely, or legally deficient, this likewise creates potential causes of action that could pave the way for a state or federal lawsuit seeking redress for the legal violations.
So while we cannot seek to modify your loan, we can assert legal rights you are entitled to under the law, and seek foreclosure injunctions under the California Homeowner Bill of Rights.
In other cases, obtaining a copy of the assignment of deed of trust will raise a Glaski type issue, or a Truth in Lending (“TILA”) 131(g) situation (i.e. the lenders and loan servicers purporting to transfer legal ownership of your loan without providing notice to you, the borrower and homeowner). This happens all the time and makes it clear that only chaos rules in the foreclosure process in California.
Nevertheless, realize the banks have lawyers on their time, and if your property preservation is mission critical, you have the legal right to hire a California real estate lawyer to assert rights explicitly set forth under California and Federal law.
Contact a California Foreclosure Defense Law Firm
If you are facing foreclosure call us as soon as possible. The earlier you call us the better (i.e, when you first start missing loan payments, are told to stop making your mortgage payment, get a notice of default, or notice of sale). The more time we have to work the better. We offer low cost “independent foreclosure reviews” and flat rate fee pre-sale homeowner demand letters.
The following is general legal information only and not legal advice. The information may be outdated or incorrect.
This is another California Court of Appeals case dealing with securitized loans, assignments of deed of trusts that occur after the pooling and servicing agreements say they were supposed to be signed (i.e the “mortgage file” was supposed to be assigned to the securitized loan trust on or before a particular “cutoff date”), and a defaulting borrower’s challenge to non-judicial foreclosure. The case is along the lines of other California foreclosure cases we have briefed such as the Glaski case and Ynanova v. . Once again there is more good news for banks, loan servicers and financial institutions who can apparently feel free to assign deeds of trust any time they want (regardless of what the PSA says they are supposed to do, and regardless of whatever representations were made to the SEC to obtain tax exempt status for the pool of securitized mortgage loans). But are borrowers missing a critical piece of the foreclosure defense puzzle by failing to articulate the “prejudice” they have suffered by improper loan securitization?
LITIGATION TIP: THIS CASE IS SET TO BE HEARD BY THE CALIFORNIA SUPREME COURT. Facts of Keshtgar California foreclosure case:
1. Borrower obtained a loan in the amount of $910,000 in 2005. The note and deed of trust indicated that Resource Lenders (as the “lender”), while Cuesta Title (was the foreclosure trustee) and our good friend MERS was the “nominee of the beneficiary.”
2. The borrower wound up in default of the loan in or around 2011. The “ASSIGNMENT OF DEED OF TRUST” was assigned from MERS to the US Bank loan trust for certificate holders of Harborview Mortgage Loan Trust on or around 9/19/11 (which would have been after the cutoff date for the securitized loan trust). 3. A non-judicial foreclosure sale was scheduled (i.e. a private foreclosure sale) 4. The borrower brought a foreclosure lawsuit prior to the sale date and sought to enjoin the sale arguing among other things: a. Alice Rowe (MERS) was not an Assistant Secretary or employee of MERS (note I have never seen these arguments win) b. The note has never been delivered to the trust c. The trust never acquired the rights of MERS d. The trust did not receive any other assignments of the debt (note) e. The assignment of deed of trust was void ab initio (“VOID”) These were the main arguments, basically that the securitized loan trust had no “standing” to foreclose on Plaintiff. 5. The trial court dismissed these arguments and the California Court of Appeals affirmed.
Legal issue in Keshtgar v. US Bank
Does a California property owner have a legal right to bring a case pre-foreclosure lawsuit to challenge the wrongful securitization of a loan (based on a tardy assignment of deed of trust in violation of the terms of the Pooling and Servicing Agreement), and try to get an injunction to halt the non-judicial foreclosure sale?
The Court’s holding
The Court said NO. The Court discussed how California Civil Code Section 2924 is the non-judicial foreclosure sale remedy in California, which is available to lenders or their agents (I assume you cannot challenge the fact that they are not the true lender) to bring a prompt and speedy foreclosure trustee sale outside the watchful eye of the court. This is built into your deed of trust.
The Court basically found there was no right to challenge (pre-foreclosure) a failure to properly securitize the loan case. The court cited to often cited rational that ‘non-judicial foreclosure is designed to be a speedy and efficient remedy that basically should never be disturbed‘ (in essence).
ATTORNEY STEVE TIP: Keep in mind, the California Homeowner’s Bill of Rights allows a pre-foreclosure suit to challenge improprieties of a planned non-judicial foreclosure so I am not sure how long this age-old rationale can stand up logically.
The Court felt the borrower was merely bringing the action to delay the foreclosure and that the borrower could not show any real “PREJUDICE” even if Alice Rowe was not a MERS employee, and even if the note and deed of trust were not properly assigned to US bank for the Harborview trust.
The California Court of Appeal also discussed other pivotal California foreclosure defense cases, several involving securitized loan trust cases:
1. Gomes v. Countrywide (the court basically saying Gomes precludes any pre-foreclosure challenges where MERS is involved, basically because you granted MERS authority to foreclose when you executed the deed of trust)
2. Glaski v. Bank of America(the Court discussed the Glaski cases and several cases the Glaski Court relied on in reaching its decision, one is an unpublished federal court case).
In discussing the Glaski case, the Court basically distinguished the case determining that Glaski was a “post-foreclosure case for money damages” as opposed to a case seeking an injunction pre-foreclosure. Glaski was a big decision that held the borrower had standing to challenge a VOID ASSIGNMENT OF DEED OF TRUST. Being that this was a post foreclosure lawsuit, the highly cherished “speedy foreclosures” rationale could remain in tact.
3. Jenkins v. JP Morgan – This was another challenge to improper securitization of a mortgage loan – ALSO A PRE-FORECLOSURE challenge to tardy assignments of deed of trust in violation of the New York trust agreement / pooling and servicing agreement. The case held the opposite of Glaski (keeping in mind that Glaski is a post-foreclosure case) and many foreclosure attorneys for the banks like to argue this case in their motions to dismiss and demurrers. Again, the Court used this to determine there is not right to a pre-emptive challenge to foreclosure.
5. Barroso . Ocwen Loan Servicing (this was another post-foreclosure case where the borrower did not challenge the authority to foreclose and which alleged full performance)
At the end of the day, the California Court of Appeals did not like the pre-foreclosure challenge to non-judicial foreclosure sale. They also weren’t impressed that the borrower (even assuming all the errors were true) could not show how they could be prejudiced as they were the defaulting party in a loan. This is a position many judges will take, and needs to be considered in every foreclosure case.
So how do you allege “prejudice” in a foreclosure injunction lawsuit when you are a borrower in default of your loan?
This seems to be one of the biggest hurdles (aside from pleading around the “tender rule” – what I affectionately refer to as the “sack of cash theory” or the “lender please don’t make me tender” rule).
One legal theory might be to argue that the residential property owners in CA are entitled to a full and fair loan modification review once a “completed” loan modification application is submitted (see California Homeowner Bill of Rights which requires a single point of contact, no dual tracking, and acknowledgement of documents received, no foreclosures based on robosiging etc.). How can a borrower get a full and fair modification review if the loan servicer is seeking approval from an “investor of the loan” that has not lawfully acquired the note and/or deed of trust (i.e. the securitized loan trust is not the true owner of the loan per a Glaski type of analysis). This is just one theory to look at. The deprival of right of reinstatement is another one that has come up. Each case is different and must be reviewed for its own “prejudice analysis.”
This is another potential pin in the balloon of California homeowner pre-foreclosure lawsuits. Court may compel homeowners to wait until AFTER a foreclosure sale to file suit for wrongful foreclosure (ala Glaski) if other grounds for an injunctions prior to a non-judicial foreclosure sale cannot be uncovered. The flavor of the day is the California Homeowner Bill of Rights, but there are other grounds to seek an injunction, and we have discussed this on our blogs, and on our real estate law video channel. Subscribe to our Youtube Channel so you can get video updates every time we post new cases. This is a free service. To schedule a foreclosure review of your case, we offer one hour paid consultations and case review. Call us at (877) 276-5084 or fill out the form below.
Civil litigation attorney to file lis pendens – what is a lis pendens in California?
Introduction – notice of pendency of action.
A lis pendens if often misunderstood. This is a question we get quite often – “can you file a lis pendens” or “how do I file a lis pendens.”
The first question we have in response is “have you filed a civil lawsuit involving commercial or residential real estate.” If the answer is “yes” or “I plan to”, or next question is “will the lawsuit involve a claim that you are entitled to tile or possession of real estate? For example, a lis pendens might be filed in the following types of cases:
1. Federal real estate lawsuit;
2. California state foreclosure lawsuit (ex. when you seek an injunction or TRO to stop foreclosure);
3. Filing a counterclaim or crossclaim in an eviction action;
4. Cancellation of instruments case;
5. Quiet title lawsuit;
6. Suits to foreclose mechanic’s liens
7. Marriage dissolution (divorce cases) where real property is involved;
8. Suits to set aside a fraudulent conveyance of real property (ex. financial elder abuse cases);
9. Actions to determine ownership of a leashold;
10. Suits to enforce or determine easement rights in real property;
11. Suit to compel specific performance in a real estate transaction (ex. buyer of residential or commercial property compelling seller to sell);
12. A suit for declaratory relief as to rights in real property.
These are just a few examples. A lis pendens is a pretty basic document you record with the County Recorder’s office (note that it is not a document filed in the state or federal court case – other than to provide the judge notice of what you are doing), but rather it is a document your record at the County Recorder’s office where the property is located.
A lis pendens provides “constructive notice” or your “pending lawsuit” that challenges “title or possession” to real property.
The term is latin for “pending litigation.”
What is the purpose of recording a lis pendens after you file a lawsuit?
The lis pendens “clouds the title” to real property. This means, any party that is considering purchasing the property is “buying into the lawsuit,” meaning they might not clear title if the party that filed the lis pendens wins the lawsuit. This legal document puts other parties on notice of your potential claims and defenses and the lis pendens identifies the lawsuit and case number of your suit. Let’s see an example of how this works in a foreclosure injunction case:
LIS PENDENS EXAMPLE: Say you file a state lawsuit for violation of the California Homeowner’s Bill of Rights. For example you were “dual tracked” or the loan servicer failed to designate a “single point of contact” or is trying to foreclose with “robosigned” foreclosure documents (such as a notice of default, notice of sale, substitution of trustee, or assignment of deed of trust). When you see the non-judicial foreclosure sale date fast approaching, you decide (rightly so) not to trust your loan servicers promises that they will postpone the foreclosure sale, and you file a civil lawsuit alleging a violation of the CHBOR.
After you file the CHBOR lawsuit, you then go directly over to the County Recorder’s office and record your lis pendens. The lis pendens will put any potential purchasers who might attend the foreclosure sale “on notice” of your potential claims to title and/or possession to the property. The filing is said to provide “constructive notice” to the world.
So then let’s say a party that likes to buy properties at a foreclosure sale (ex. ABC homes, LLC) decides to show up at the foreclosure sale that is being pursued by your loan servicer – whether intentionally or “accidentally” (ex. Chase, Citimortgage, Bank of America, Wells Fargo, SPS, SLS, Nationstar, etc), and the professional buyer wants to buy the property at a bargain price. The lis pendens (whether the buyer saw it or not) would provide “constructive notice” or your claims to title/possession and this will preclude the buyer from being deemed a “bona fide purchaser for value” (what us attorneys call a “BFP”). The Courts will protect a BFP who buys foreclosure properties. But the lis pendens clouds the title and prevents the buyer from getting this cherished status.
Then, for example, if you win your lawsuit and you are entitled to title or possession to real estate property (whether residential or commercial) the buyer will have no good title despite the fact that they may have recorded a trustee’s deed upon sale. That is the purpose of the lis pendens, to give notice of your claims and defenses and cloud the title in the hopes of preserving the status quo while you litigate your real estate case.
Will a lis pendens prevent the loan servicer from selling the property?
No. A sale can still occur. As I mentioned, the title is clouded, and the buyer takes subject to the lawsuit, but a lis pendens does not prevent a sale of the property. An injunction or TRO (temporary restraining order) can do that. Click the photo for an explanation of lis pendens:
Attorney Steve Vondran, the Real Estate Lawyer, explains lis pendens concept.
How to file a lis pendens
1. File the civil lawsuit (ex. the state or federal real estate lawsuit challenging title or possession to real property).
2. Prepare a lis pendens pleading
3. Make sure the pleading has the correct property address, case number of the lawsuit, APN (assessor’s parcel number), name of parties to the lawsuit and get the document NOTARIZED (sign only in the presence of a notary)!
4. File the lis pendens with the County Recorder’s office where the real estate is located
5. Get a certified copy for your own records
6. File a copy of the recorded lis pendens with the Court (and serve opposing parties with a copy and proof of service)
I would also put any other party that may be part of the foreclosure puzzle on notice of your recorded document.
When do I have to release a lis pendens?
When your civil lawsuit is over, the party that filed the lis pendens (or their successor in interest) can withdraw the lis pendens by recording a similar pleading as was filed in the first place, but this time WITHDRAWING THE NOTICE OF PENDENCY OF ACTION.
“At any time after notice of pendency of an action has been recorded pursuant to this title or other law, the notice may be withdrawn by recording in the office of the recorder in which the notice of pendency was recorded a notice of withdrawal executed by the party who recorded the notice of pendency of action or by the party’s successor in interest. The notice of withdrawal shall be acknowledged.”
What happens if I file a lis pendens without proper grounds?
You can get hit with serious damages, costs and even attorney fees if you file a lis pendens without proper cause and to harass, etc. where title or possession to real estate is not a legitimate issue.
What are common grounds for expungement of lis pendens?
Here are some of the common reasons to move to expunge a recorded lis pendens:
1. Complaint does not contain a real property claim [ccp 405.31]
2. Plaintiff cannot establish probably validity by a preponderance of the evidence [ccp 405.32]
3. Defects in statutory servicing and filing [ccp 405.23]
4. Posting a bond can serve as adequate security [ccp 405.33]
A lis pendens motion to expunge can be filed any time after a lis pendens is recorded. Contact a real estate lawyer to discuss your case.
Can I sue an attorney for slander of title for filing a lis pendens?
Probably not. In most cases the lawyer will get a “privilege” preventing any liability for filing a lis pendens.As the California Court of Appeals held in La Jolla Grp. II v. Bruce, 211 Cal. App. 4th 461, 476, 149 Cal. Rptr. 3d 716, 727 (2012):
A recorded lis pendens is not a privileged publication unless it identifies an action previously filed with a court of competent jurisdiction which affects the title or right of possession of real property, as authorized or required by law.” (Civ.Code, § 47(b)(4).) Those conditions are: (1) the lis pendens must identify a previously filed action and (2) the previously filed action must be one that affects title or right of possession of real property. We decline to add a third requirement that there must also be evidentiary merit.
If you have a foreclosure situation pre-foreclosure sale, or even a wrongful foreclosure case (civil lawsuit filed after a non-judicial foreclosure sale) and you need a complaint filed (along with a lis pendens), contact our real estate foreclosure litigation team at (877) 276-5084.
This is another in a long line of California homeowner foreclosure cases that challenge some of the strange things that go on in foreclosure cases. One of those being assignments of deeds of trust (which often represent that the note is being transferred as well) that occur after any securitized loan trust would have closed pursuant (“cutoff date”) to the terms of the pooling and servicing agreement which banks allege governs your loan.
As we have discussed in prior foreclosure blogs, only the Glaski wrongful foreclosure case has had any success on challenging proper securitization of the mortgage loan.
Facts of Ynanova v. New Century Mortgage
1. Plaintiff, Tsvetana Yvanova obtained a $483,000 mortgage loan in 2006 from New Century Mortgage.
2. In 2008 she fell behind in her mortgage payments and a notice of default was recorded (home was in Woodland Hills, Ca) on 8/08 indicating Plaintiff was in arrears in the amount of $63,960. The original trustee under the deed of trust was Stewart Title.
3. On or around this time, New Century Mortgage was in bankruptcy court (2007/2008).
4. On or around 2007 New Century Mortgage allegedly assigned Plaintiff’s note and deed of trust the the Duetsche Bank National Trust Co. securitized loan trust as trustee for the Morgan Stanley Mortgage Backed Securities Trust (“Morgan Stanley MBS”).
Note: You see this is many mortgage foreclosure cases in CA wherein the note and deed of trust are assigned years after the loan was originated to the MSB trust. The terms of the pooling and servicing agreement (“PSA”) normally set a cutoff date which is shortly after the loan was originated, which leads borrowers to question “why is my note and deed of trust being assigned at the time of foreclosure if the loan was supposed to be in the securitized loan trust by a prior “cutoff date.”). This is the issue borrowers try to challenge in foreclosure cases. Why are the lenders and loan servicers allowed to make these “tardy” assignments (often the product of robosigner foreclosure factories) in violation of their own terms.
5. On or around 1/2012 a second notice of default (“NOD”) was recorded referencing that Plaintiff was $63,960 in arrears. Western Progressive later recorded a Notice of Trustee Sale (“NOTS”) indicating the amount of $537,934 was due.
6. On 9/14/12 Western Progressive sold the property at a non-judicial foreclosure sale to the buyer THR California, LLC for $355,000.
NOTE: My review of the record indicates that Western Processing was not substituted in as trustee until 2/2013 (some five months after the sale)
7. Plaintiff thereafter filed a wrongful foreclosure and quiet title lawsuit.
8. Defendants’ demurred (which is basically a motion to dismiss the case) and the Court sustained the demurrer (i.e. agreed to dismiss the case)
Plaintiff, acting in pro per (the Court held that no special privileges are afforded to a party representing themselves as far as observing proper court procedures), alleged that she should have standing to attack the securitization of the loan as New Century allegedly assigned the deed of trust while in bankruptcy, and without bankruptcy trustee approval. Plaintiff believed they had a right to quiet title.
Plaintiff argued new Century Mortgage was non-existent entity at the time of the assignments and argued the bankruptcy trustee did not approve the assignment or transfer of interest and as such, it was an invalid transfer, making the other foreclosure documents invalid.
Trial courts ruling on Demurrer
The Trial court dismissed the Plaintiff’s causes of action for quiet title and wrongful foreclosure. The court ruled Plaintiff did not tender the balance of the loan sufficient to quiet title. The Court also ruled that the borrower (who filed her action in pro per) did not have standing to challenge the assignment of the note or deed of trust by New Century to the Deutsche / Stanley Morgan Mortgage Backed Security (“MBS”) trust.
Decision of California Court of Appeals
The Court of Appeals affirmed the lower court decision holding that the borrower had no standing to challenge improper securitization of the loan, basically because who owned the loan “did not change the borrowers obligations to pay the loan” (I am paraphrasing, but this is the Courts basic position). The Court felt that the secondary market “lenders” like Duetsche and Morgan Stanley MBS can pass around notes and assignments of deeds of trust any time (even if it violates the terms of the polling and servicing agreement that supposedly governs your loan) and only a third party that might have a claim to a beneficial interest in the note or deed of trust has any standing to make a challenge. As such, the Court found the demurrer to the quiet title and wrongful foreclosure causes of action at the trial court level were properly denied.
NOTE: THIS DECISION IS CURRENTLY ON APPEAL TO THE CALIFORNIA SUPREME COURT. WE WILL KEEP YOU POSTED AND LET YOU KNOW IF ANYTHING CHANGES. PLEASE BE SURE TO BOOKMARK OUR PAGE – OR BETTER YET, SUBSCRIBE TO OUR REAL ESTATE LAW YOUTUBE CHANNEL SO YOU CAN WATCH THE ATTORNEY STEVE CASE BRIEF ONCE WE LEARN THE OUTCOME.
We are a premier California real estate foreclosure defense law firm with offices up and down the State of California, from San Diego to San Francisco, Los Angeles and Orange County.
If you are facing foreclosure (have received a notice of default, notice of trustee sale, or notice of substitution of trustee – documents which normally highlight that you are a candidate for foreclosure) and need to see if you have grounds to stop the foreclosure sale with an injunction, complaint, and lis pendens, contact us at (877) 276-5084. We offer one-hour paid foreclosure reviews that are designed to be unbiased and give you a look at your options as a borrower.
This website is provided by TheLaw Offices of Steven C. Vondran, P.C., as a general information website that seeks to educate California and Arizona Homeowners (we are only licensed to practice laws in these two states, and only seek to solicit clients in these two states) about the “ins and outs” of foreclosure law.
Foreclosure Defense topics we will cover include Federal Truth in Lending law (TILA), RESPA, Loan servicer abuses, California Homeowner Bill of Rights, Foreclosure prevention alternatives, California injunction process, Lis pendens, California civil code section 2924, Trial plan modification fraud, BIG foreclosure verdicts, tips for homeowners, commercial modification law, short sales & deficiency judgements, one action rule, wrongful foreclosure, financial elder abuse and much more. Our law firm has helped a large number of property owners fight for their legal rights even though they might be in default. Lenders and loan servicers have their attorneys stacked up against you and these are the same lenders who put you in harms way in the first place. We fight for your legal rights in regard to your greatest asset, your home.
California Homeowner wins loan servicer jackpot – 16 million dollar jury verdict against PHH in loan modification abuse case.
16 million dollar judgement for loan servicer abuses – when will they learn? California homeowner Phil Linza sued PHH mortgage in Yuba county for loan servicer abuses in regard to seeking to get his loan modified. PHH is one of the top ten largest loan servicers behind other servicers such as Bank of America (who took over Countrywide) Wells Fargo (who took over World Savings and Wachovia), Chase Home Loans, Citimortgage, ResCap and others. The case was handled by United Law Center (kudos to you guys for reeling that one in). The case was reported on Mandelman matters blog which has done a fine job tracking mortgage and foreclosure abuses over the years.
The verdict is going up on appeal, but this is an example of a job well done by foreclosure counsel and the jury that weighed the evidence. This jury verdict confirms what we have been saying all along – the loan servicers need to treat people (i.e. customers) with respect and dignity even though they might be in default on their mortgage loans. At the end of the day, I am (assuming) the bank wants these types of clients back becoming mortgage borrowers again someday?? According to one of the Attorneys at United Law Center, the bank basically said go ahead and sue us we have an army of attorneys to fight you. This is the type of loan servicer / banking industry arrogance that lead to the mortgage meltdown in the first place.
This is not the first rodeo for Coldwell Banker / PHH mortgage corporation and they were previously hit with a 21 million dollar judgment in a Georgia federal court.
PHH, dba as Coldwell Banker Mortgage, previously reported a seargent in the United States military (Army) as being late on his mortgage even though the borrower made his payments automatically each month.
For some reason Coldwell Banker wouldn’t get the problem fixed and instead reported the Plaintiff as late to the three credit bureaus (Experian, Equifax, and Trans Union) and ultimately Plaintiff sued and Defendants got hit with a huge jury verdict in the millions of dollars. Such a simple problem that could have been avoided.
The federal jury found for Plaintiff and awarded $1,000,000 in emotional damages and $20,000,000 in punitive damages.
The jury found for the Plaintiff as to breach of contract, RESPA, and negligence in the servicing of the loan.
The complaint was a basic twelve page complaint that charged Defendants with being “stubbornly litigious.”
This is not to single out PHH, these may have been isolated incidents and they might be a fantastic servicer of loans on the macro level. However, it does raise an interesting question, do a loan servicer have a duty to the borrower to exercise reasonable care in servicing of the loans it handles?
Does a loan servicer had a “duty” of care in the loan modification setting?
The general rule is that a loan servicer, in normal situations, does not owe a duty of care to its borrowers (other than those set forth in the note, deed of trust, or other contracts that might govern the borrower-servicer relationship). Several courts have discussed this interesting legal issue. In a case working in their favor, the Court in Salmo v. PHH Mortg. Corp. (C.D. Cal., Jan. 11, 2012, CV 11-1582-ODW PJWX) 2012 WL 84222 (UNREPORTED DECISION) held:
“Plaintiff alleges a claim for negligence against PHH and U.S. Bank. “In order to establish a claim for negligence, a plaintiff must establish four required elements:
Defendants move to dismiss Plaintiff’s third claim for negligence on the ground that Defendants U.S. Bank and PHH did not owe Plaintiff a duty of care. The existence of a legal duty to use reasonable care in a particular factual situation is a question of law for the court to decide. See Castaneda v. Saxon Mortg. Servs., Inc., 687 F.Supp.2d 1191, 1198 (E.D.Cal.2009) (quoting Vasquez v. Residential Invs., Inc., 118 Cal.App.4th 269, 278, 12 Cal.Rptr.3d 846 (2004)).
Absent special circumstances, a home-mortgage loan is an arm’s-length transaction from which no duties arise outside of those set forth in the loan agreement. Castaneda, 687 F.Supp.2d at 1198. Barring an assumption of duty or a special relationship, “a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.”Vann v. Aurora Loan Servs. LLC, No. 10–CV–04736–LHK, 2011 WL 2181861, at *4 (N.D.Cal., June 3, 2011) (quoting Nymark v. Heart Fed. Sav. & Loan Ass’n, 231 Cal.App.3d 1089, 1096, 283 Cal.Rptr. 53 (1991)). Courts have held that this rule is applicable to loanservicers as well.”
In another unreported case (there are lots of unreported decisions in foreclosure law) Tsien v. Wells Fargo Home Mortg.(N.D. Cal., May 28, 2010, C 09-04790 SI) 2010 WL 2198290, the Court noted:
Plaintiffs have not alleged that defendant violated any law that imposed a fiduciary duty on mortgage servicers, or otherwise pled facts to support an allegation that defendant assumed a duty or created a special relationship with plaintiffs.
These are probably important facts to consider if you are filing suit using negligence as a cause of action against your loan servicer.
Also note, that many cases hold that a “statute can set a duty” (such as the California Homeowners Bill of RIghts I would argue) that the loan servicer must follow (ex. duty to create a single point of contact for loan mods, or to not foreclose using robosigned documents, and not to dual track), and if they breach the duties set forth in the statute they should be held liable for “damages” (assuming a homeowner can prove damages). This would be the legal theory.
Other courts have noted that a mortgage loan servicer might have a duty of care in the loan modification process.
In a REPORTED decision Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 65 [163 Cal.Rptr.3d 804, 818] the federal court noted:
Other United States District Courts have concluded a lender might owe a borrower a duty of care in negotiating or processing an application for a loan modification. (See Ansanelli v. JP Morgan Chase Bank, N.A. (N.D.Cal., Mar. 28, 2011, No. C 10–03892 WHA) 2011 WL 1134451, p. *7, 2011 U.S.Dist. Lexis 32350, pp. *21–*22 [allegation that lender offered plaintiffs a loan modification and “engage[d] with them concerning the trial period plan” was sufficient to create duty of care]; Becker v. Wells Fargo Bank, N.A., Inc. (E.D.Cal., Nov. 30, 2012, No. 2:10–cv–02799 LKK KJN PS) 2012 WL 6005759, p. *12, 2012 U.S.Dist. Lexis 170729, pp. *34–*35 [complaint stated claim against lender for negligence during the loan modification process]; Crilley v. Bank of America, N.A. (D. Hawaii, Apr. 26, 2012, No. 12–00081 LEK–BMK) 2012 WL 1492413, p. *10, 2012 U.S.Dist. Lexis 58469, p. *29 [denying motion to dismiss because plaintiffs “have pled sufficient facts to support a finding that Defendant went beyond its conventional role as a loan servicer by soliciting Plaintiffs to apply for a loan modification and by engaging with them for several months” regarding the modification]; Garcia v. Ocwen Loan Servicing, LLC (N.D.Cal., May 10, 2010, No. C 10–0290 PVT) 2010 WL 1881098, p. *2–4, 2010 U.S.Dist. Lexis 45375, pp. *7–*11 [plaintiff’s allegations of lender’s conduct in handling application for loan modification pleaded a duty of care].)
These cases show that alleging negligence against the loan servicer is not a slam dunk for the defendants on a motion to dismiss or a state court demurrer.
Another Federal Court agreed and held:
“We finally acknowledge that “as a general rule, a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.” (Nymark, supra, 231 Cal.App.3d at p. 1096, 283 Cal.Rptr. 53; see also Fox & Carskadon Financial Corp. v. San Francisco Fed. Sav. & Loan Assn. (1975) 52 Cal.App.3d 484, 488, 489, 125 Cal.Rptr. 549; Ragland v. U.S. Bank National Association (2012) 209 Cal.App.4th 182, 206, 147 Cal.Rptr.3d 41.). Such “general rule” has often been repeated, including in federal cases involving the takeover by Chase of WaMu’s loans and cases decided in the context of loan modification applications.It was primarily on the basis of this general rule that the trial court below, without further analysis, granted summary adjudication of the negligence claim. And Chase relies upon such general rule here, contending it owed Jolley no duty of care. Such reliance is misplaced. When considered in full context, the cases show the question is not subject to black-and-white analysis—and not easily decided on the “general rule.”
Whether or not a loan servicer owes a duty to treat you fairly in the loan modification, or in regards to an alleged default or alleged late payment is a question of fact that must be reviewed on a case by case basis. The above cases suggest there is room for argument.
The author, Attorney Steve Vondran is a California real estate lawyer has fought for property owners since the mortgage meltdown in 2008. Contact us with any questions.
The CHBOR was passed and became effective January 1, 2013. After this date, most major loan servicers that you deal with are forced to comply with the law. The law sets forth several things that must be followed by loan servicers which, incredibly, since I wrote my last article on the bill of rights law for homeowners in CA, the servicers have GOTTEN BETTER BUT STILL FAIL TO FULLY COMPLY. Some people will argue its because they are just busy, or that there are unintentional errors and mistakes in the various mortgage loan servicing units, but I STILL HAVE YET TO SEE ONE ERROR THAT EVER FAVORED A HOMEOWNER. Over the past 7+ years, could this just be a coincidence? I don’t think so. This is one of the grounds for me believing the loan servicer abuses are intentional, reckless, willful and deliberate. I realize homeowners may be in default on their mortgage loans, but this is still no way to treat people, and after the National Mortgage Settlement was entered into years ago, this has now become the law to comply with the provisions of the HBOR.
1. Acknowledge receipt of your completed loan modification applications (ex. a HAMP loan modification package for your first mortgage, primary residence, 1-4 units) within 5 days of receipt of such;
2. Upon receiving a completed loan modification application they must cease and desist from filing, recording, or even sending you a Notice of Default (“NOD”), Notice of Sale (“NOS”) or pursuing any private non-judicial foreclosure trustee’s sale (“TS”). This is the “dual-tracking” prohibition – which means the loan servicer cannot put you on both the loan modification track and the foreclosure track at the same time.
When is your submission “complete?” I would argue this is turning in the documents they ask for, aside from some “piecemeal” process where the service continually asks you for updated documents.
3. When you submit a completed loan modification package, for your first mortgage lien, they must establish a “single point of contact” (one thing I still see is loan servicers that like to continually change who your “point of contact” person is. I believe this is not only unfair, I also believe this violates the letter if not the spirit of the CHBOR.
4. They must know pursue the foreclosure through the use of ROBOSIGNED DOCUMENTS. This means those documents that use false names, false signatures, false notaries, etc. Yes, this is still popping up in our foreclosure defense law practice.
5. They should not foreclose on your without reliable evidence and documentation of the right to foreclose on your (meaning they know who owns the loan, and who has your original promissory note. This is still a total circus.
This blog is one in a series we will be publishing advising people of what “dual tracking” requirements are under California Civil Code Section 2923.6 and what the remedies are for a violation of this section.
What is Dual Tracking under 2923.6?
Here is what the California foreclosure law says:
(c) If a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower’s mortgage servicer, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale, or conduct a trustee’s sale, while the complete first lien loan modification application is pending.
This is the basics of the law, if a borrower is trying to be reviewed for a loan modification, the mortgage servicer should STOP with the foreclosure process. One of the questions that will arise is what is a “complete application” when the lender’s and loan servicer’s make this a moving target? Under 2923.6 (h) an application shall be deemed “complete” when a borrower has supplied the mortgage servicer with all documents required by the mortgage servicer within the reasonable timeframes specified by the mortgage servicer.
So when can the servicer move forward and record the NOS, NOD, or TS? The law addresses this as well”
“a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale or conduct a trustee’s sale until any of the following occurs:
(1) The mortgage servicer makes a written determination that the borrower is not eligible for a first lien loan modification, and any appeal period pursuant to subdivision (d) has expired. (generally the loan modification appeal period is thirty days, with a chance to present evidence the servicer’s determination is wrong)
(2) The borrower does not accept an offered first lien loan modification within 14 days of the offer.
(3) The borrower accepts a written first lien loan modification, but defaults on, or otherwise breachesthe borrower’s obligations under, the first lien loan modification.
(d) If the borrower’s application for a first lien loan modification is denied, the borrower shall have at least 30 days from the date of the written denial to appeal the denial and to provide evidence that the mortgage servicer’s determination was in error.
(e) If the borrower’s application for a first lien loan modification is denied, the mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or, if a notice of default has already been recorded, record a notice of sale or conduct a trustee’s sale until the later of:
(1) Thirty-one days after the borrower is notified in writing of the denial.
(2) If the borrower appeals the denial pursuant to subdivision
(d), the later of 15 days after the denial of the appeal or 14 days after a first lien loan modification is offered after appeal but declined by the borrower, or, if a first lien loan modification is offered and accepted after appeal, the date on which the borrower fails to timely
So you need to look closely at what the loan servicer is doing to determine whether or not you have a dual tracking lawsuit you can assert.
Does the California Homeowner Bill of Rights allow for a Private Right of Action?
Yes. While loan servicers have tried to argue their is no private right to file a lawsuit for violation of the CHBOR, the courts have disagreed with them.
2924.12. (a) (1) If a trustee’s deed upon sale has NOT been recorded, a borrower may bring an action for injunctive relief to enjoin a material violation of Section 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or 2924.17. (these are the only code violations you can seek an injunction for).
How ling will the injunction stay in effect (assuming the judge orders one)?
“Any injunction shall remain in place and any trustee’s sale shall be enjoined until the court determines that the mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent has corrected and remedied the violation or violations giving rise to the action for injunctive relief. An enjoined entity may move to dissolve an injunction based on a showing that the material violation has been corrected and remedied.
What remedy can you pursue if the foreclosure sale has already occurred?
2924.12(b) After a trustee’s deed upon sale has been recorded, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent SHALL BE LIABLE to a borrower for actual economic damages pursuant to Section 3281, resulting from a material violation of Section 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or 2924.17 by that mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent where the violation was not corrected and remedied prior to the recordation of the trustee’s deed upon sale.
If the court finds that the material violation was intentional or reckless, or resulted from willful misconduct by a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent, the court MAY AWARD the borrower the greater of treble actual damages or statutory damages of fifty thousand dollars ($50,000).
Yes, this section indicates there could be serious liability to the loan servicer if your house was sold in violation of the dual tracking provisions, for example where you had hundreds of thousands of dollars in lost equity (foreclosure sales don’t raise what a true or natural sale would yield).
(c) A mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not be liable for any violation that it has corrected and remedied prior to the recordation of a trustee’s deed upon sale, or that has been corrected and remedied by third parties working on its behalf prior to the recordation of a trustee’s deed upon sale.
(d) A violation of Section 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or 2924.17 by a person licensed by the Department of Corporations, Department of Financial Institutions, or Department of Real Estate raises possible licensing issues, such as a potential for an accusation.
What are the possible remedies if my loan servicer is violating the California Homeowner Bill of Rights Dual Tracking Provisions?
Each case is different and will depend upon the facts and the judge.
Does dual tracking apply to commercial loans in California?
No. First liens, owner occupied only.
Contact a California predatory loan servicing foreclosure defense lawyer
We can be reached to discuss your case at (877) 276-5084. Or fill out the contact form below. We offer one hour paid foreclosure reviews. We do not accept all foreclosure and predatory loan servicing cases for litigation.
2014 BORROWER ALERT: BE ON THE LOOKOUT. BANKS AND CREDIT UNIONS ARE SENDING OUT LETTERS TRYING TO PAY YOU LOW SUMS OF MONEY SUCH AS $1,000 SO THEY CAN RELEASE YOUR LOAN FROM THE SECURITY INSTRUMENT SO THAT THEY CAN THEN COME BACK AND SUE YOU ON THE NOTE IN A CIVIL LAWSUIT, WHERE THEY WILL PROBABLY ALSO SEEK THEIR ATTORNEY FEES. BEFORE YOU SIGN ANY AGREEMENT TO RELEASE OR SETTLE OUT YOUR SECOND MORTGAGE, YOU OWE IT TO YOURSELF TO HAVE YOUR CASE REVIEW BY A CALIFORNIA CIVIL CODE OF PROCEDURE ONE ACTION RULE LAWYER. YOU MAY ALSO HAVE RIGHTS UNDER RULE 580(e) DEALING WITH ANTI-DEFICIENCY JUDGMENTS WHICH THE BANKS WILL SURELY NEVER TELL YOU ABOUT.
Introduction to California Code of Civil Procedure Section 726(a) – the “One Action” (Security First) Rule for Second Morgage.
The legal issue raised by this blog is whether or not your second mortgage lender (junior lien holder) can sue you on the note for default of the junior mortgage / deed of trust – which is often times a HELOC (Home Equity Line of Credit)? The general rule is the bank or credit union or other lien holder must foreclose on the “security first,” before trying to sue you for the amount you borrowed on your second mortgage. So, for example, if you owed $500,000 on your first mortgage and $75,000 on a HELOC second mortgage you took out after you bought the house, you would owe $575,000 Total. The $500,000 is your FIRST mortgage and the $75,000 is your SECOND mortgage. The holder of the second mortgage holder is known as “the second” or the “junior lien-holder” or the second position mortgagee.
Like many California homeowners, you may be paying on your first mortgage, but you have a hardship that prevents you from paying your second mortgage. The second lender may then start to get aggressive with you and beefing up their collection efforts because they want to get something out of you. The general rule is they have to start a foreclosure if they are not happy, and cannot just file a lawsuit against you in a civil court (such as Los Angeles Superior Court or San Diego Superior Court).
Nevertheless, and subject to just a few exceptions set forth below, the loan servicers (many of whom have purchased your debt after it has gone into default) continue to take aggressive, and sometimes even false and deceptive credit practices that can violate the federal fair debt collection practices act. Check out our Creditor Abuse practice area page if you believe your lender is violating the FDCPA. You may be entitled a up to $1,000 for a statutory violation.
California banks and lenders and credit unions (junior lien-holders) are getting aggressive.
We have been getting many calls lately from California residential homeowners (and even some commercial property owners) asking us if their lender can hold them liable for their second mortgage in California. And if so, can they sue them on the note without first going down the foreclosure route. Keep in mind, the issue of deficiency judgment liability in California, is a SEPARATE issue from the One Action Rule requirements. This is a very confusing area of the law, and the lenders and loan servicers are “BANKING ON THE FACT THAT YOU WILL NOT GET THIS FIGURED OUT.” Don’t fall for it, get a legal opinion of your rights when facing foreclosure. Yes, you heard me correctly, your “rights” when facing foreclosure. Even a borrower in default has certain rights available to them.
This article will attempt to provide some insights to the one action rule foreclosure issue and this blog will relate to owner occupied single-family residences (primary residences) in California whose owners have second mortgages that are in default – or at risk of going into default. When we speak of second mortgages, we are basically talking about home equity lines of credit (ex. a credit line or HELOC you took out on the house equity) or a piggy-back second mortgage that you might have got either at the time you got the original loan to buy the property, or a second that you may have taken out after you got the first mortgage to buy the property. Many properties today are underwater, but we are seeing a slight shift in this area since we first wrote this blog several years ago.
At issue is the One Action / Security First Rule of California Code of Civil Procedure Section 726(a).
This article is general legal information only and not intended to serve as legal advice or a substitute for legal advice. As law is constantly changing and evolving, the information may not be 100% complete, accurate or up-to-date. For specific questions about your legal liability in regard to junior loans, please contact a skilled and experienced real estate or foreclosure defense lawyer. The one-action rule is a tricky area of the law and we offer one hour affordable paid consultations to help you choose the best course or conduct, and to create a game plan to deal with your foreclosure issues. Please fill out the contact form below, or call us at the number shown on the logo above.
Junior mortgage example situation – California second mortgage in default
You own a home and have a first and second mortgage, both secured by a deed of trust on your primary residence. The first mortgage is 500k and the second mortgage is 100k. This is similar to the example used above. You are paying the first morgage but are delinquent on the second mortgage. The second mortgagee is threatening to sue you on the note or otherwise hold you liable for your default on the second mortgage. You are concerned and don’t know what to do and whether or not they can sue you or not – or whether you should try to workout a deal with them assuming they would be in the mood to negotiate.
The general rule regarding a lenders rights when you are in default of your promissory note, and assuming the deed of trust has a “power of sale clause,” (which most do) is the ONE ACTION RULE.
You have to know your legal rights when trying to deal with the tricky second lender. They will potentially say or do anything to get money out of you. Even a violation of the FDCPA may not deter them (yes, we can file a FDCPA lawsuit as well as a foreclosure injunction lawsuit).
A secured lender normally has the option of “electing remedies” especially when a deed of trust and note and not being paid as agreed.
QUCIK TIP: A deed of trust is the “security” for the payment of the note. The “promissory note” is the contract you sign to get the loan. If you don’t pay per the loan, then they “call the note due” and seek to exercise on their “security” (they do this by foreclosing). It is important to understand the terminology, because they will know it, and you need to also know it when you are negotiating and dealing with the banks and their loss mitigation staff.
So the lender with a “security” interest in your property can either pursue either a “judicial foreclosure” (which means they would file a lawsuit against you seeking a court order to sell your real property, and to seek any deficiency judgment they might be entitled to assuming the loan is not subject to California’s anti-deficiency laws under section 580 of the Civil Code) or, they can seek to pursue a non-judicial foreclosure sale – also called a “private trustees sale” (which allows them to sell your property after they record and send you a notice of default, notice of sale, and complying with other provisions of California Civil Code Section 2924 et seq – also known the California Foreclosure Laws. The California statutory foreclosure laws must be strictly followed.
What this means then is a secured lender must either seek to go to court to foreclose on your judicially, or then can seek to perform a non-judicial foreclosure sale. The COMPLETION of either one constitutes an “action.”
Judicial Foreclosure lawsuit in California
Will the junior lien holder (i.e. a second mortgagee) file a lawsuit against you to foreclosure on your property in a court of law? Probably not. They could - and most people don’t know that – (they say “California is a private trustee sale state”) however, they are usually not going to foreclose on you judicially by filing a state court lawsuit. Why is that? There are several reasons:
1. They would have to pay a real estate law firm to file the lawsuit. This incurs attorney fees, costs and expenses.
2. As a Plaintiff in a civil court case, they would have to have “standing” and be the real party in interest.” These are two big problems for modern day securitized loans and their loan servicers and trustees. Where you have a MERS loan, you have a securitized loan, and it is often, if not always, very difficult for a lender or loan servicer (such as specialized loan services, Wells Farog, Bank of Maerica, or American servicing company) would have to show they are the legal owner of the loan, have an original copy of the mortgage note, all proper allonge to note, and endorsements sufficient to show an enforceable loan under the California commercial code. At least that is the theory, and the legal argument which should be pressed against them if one of these types of banks tries to foreclose judicially. Consequently, this is another reason the bank may not move to foreclose judicially. It’s also another reason they may not rush to file a motion to lift the automatic stay in bankruptcy court -chapter 7.
3. In a judicial foreclosure, you are a named Defendant as property owner. As such, this gives you a right to (a) FILE A COUNTERSUIT AGAINST YOUR LENDER OR LOAN SERVICER, and (b) raise affirmative defenses (such as fraud, unconscinable loan, TILA recoupment damages, and the like).
4. Time consuming. Filing a civil lawsuit to foreclose on a property (especially for the reasons above, and given that motions to dismiss, or demurrers, and motions for summary judgment can be filed), not to mention the discovery process, right to take depositions, etc, the case can drag on, and it is much better idea to simply foreclose on your non-judicially in a private trustee sale. To do this, all they need to do is to make sure they comply with the California foreclosure law set forth in section 2924, 2934 and other sections of the California codes.
5. There is a statutory right of redemption following a private trustee sale (there is none for non-judical sales). This means, if your house sells at a judicial foreclosure sale, you would still have time to bring the loan current. This could of course cause big problems for lenders and loan servicers and securitized loan servicers who get the properties back via credit bid after the foreclosure sale.
So, will your second junior lienholder sue you in Court if you are not paying your second loan? Doubtful.
2nd morgage holder can foreclose on you in a ‘private trustee sale’ process if you are not making your second mortgage payment.
So the second lender (represented by their loan sservicer in most cases) will likely not foreclose on your in your local superior court, but as mentioned above they can still foreclose non-judicially, but will they? The short answer is that if you don’t have any equity in your property (i.e. you are “underwater”), they will probably not initiate or start a foreclosure process.
Because in order for the second to get paid anything following a foreclosure, the first mortgage holder (the senior-lien holder) would have to get paid off first paying them everything they are owed for any arrearages due on the first, past due attorney fees, appraisal fees, trustee fees, etc., following the trustee sale, in order for foreclosing to be financially worth it to the second.
In the example above, the foreclosure sale would have to yield more than $500,000 before the second holder would receive one thin dime. So if there is no equity, there is very little likelihood of a foreclosure sale. The same rationale is why many HOA (homeowners associations) don’t foreclose. Again, the junior lender is required under the one action rule to seek to exercise on the “security first” before they can just go and sue you for breach of contract on the note.
This raises a problem. Many of the junior lien holders have no adequate security equity to incentivize foreclosure and no interest in foreclosing. The natural instinct of many junior note holders would be to want to “waive the security and sue on the note.” The question is, whether they have the legal right to do this in California?
It should be noted I had once attorney for a bank back east call my office and ask me for a strategic way to help banks get around the rule. I politely told him to go pound sand, and that I would be keeping my eyes open for a east coast junior lienholder that comes to California trying to harass homeowners and who are more than willing to try to “WORK AROUND THE ONE ACTION RULE. Again, not to brag, but this is why we believe we are the best foreclosure defense law firm in California.
So what is a junior mortgagee to do when faced with this legal obstacle to recovering their past due debts.
Where can I find the text of the California one action rule?
Here is the text of the ca “one action rule” from another blog post we wrote.
One action rule applies to any lender or creditor with a secured interest
Keep in mind, a “secured creditor” can be any creditor of any type of loan or judgment that has a security intereston your real property. This includes for example the case where one party got a divorce judgment for 100k against the other forcing them into bankruptcy when the creditor tried to enforce the note without first foreclosing. See in re DiSalvo, BAP 9th Cir. 221 B.R. 769 (1988). In that case, the Court held that the 726(a) rule applied and since the creditor forced the debtor into bankruptcy court without first filing for foreclosure, that sanctions were appropriate against the creditor (at first the judge wiped out the debt completely, which I believe was reversed on appeal). At any rate, sanctions for the 726 one action rule violation was appropriate – even though the case did not involve a bank or loan servicer (or securitized loan trustee) dealing with a defaulting borrower under a promissory note and deed of trust.
Why does California have a one-action rule?
Having heard all this, you may be wondering what the rationale is for having the SINGLE ACTION rule in California. The stated rationale you will often hear is to protect the debtor against multiple actions that affect the debt. It is not clear how allowing dual-tracking (as discussed above) serves that purpose but such is life.
Why do senior and junior lien holders, mortgagees, and alleged creditors prefer non-judicial foreclosure (private trustee sale) when there is a statute of limitations problem on the underlying debt?
In a judicial foreclosure (court case), there are statutes of limitations as to how long a lender can wait to sue you for breach of written contract. We wrote a blog on the statutes of limitations for written loans in California and Arizona. Failure of a lender or servicer to file suit in time, could bar their claim as a matter of law. These same limitations can’t be challenged in a non-judicial foreclosure setting. The statute of limitations in a California written breach of contract case is 4 years, in Arizona it is 6. This highlights yet another reason why non-judicial foreclosure sales are often preferred, sometimes it is a matter of necessity.
The one action rule says they must go after the security first, before they can sue you on the note.
Breaking this down, a second mortgage holder holding a secured junior lien cannot just try to take you to court and sue on the note. They must wait for the first mortgage holder to foreclose on you and take what they can get from the sale, if anything. Or, they must initiate the foreclosure on their end, see what sale proceeds are derived from the sale and then after the first gets paid everything they are owed under their secured lien, then they get whatever might be left after that as their proceeds.
If you are sued, or threatened to be sued, by any lenders or loan servicers or any alleged creditors or their collection agency companies you have to raise the ONE ACTION RULE DEFENSE and seek sanctions and attorney fees!
Any creditor who has a security interest in your property (even if just partially secured debt obligation) who tries to sue you without first foreclosing on the security, you will want to make sure you raise the 726 defense and seek sanctions against them for failing to comply with the California One-Action Rule. If you don’t raise the defense, you waive it, and shoot yourself in the foot. Again, the creditor must proceed against the security initially to be in compliance with the law.
We can represent you in seeking to settle your debts, or in defending you against an unscrupulous creditor in a FDCPA action.
There are exceptions were a junior lender may be able to get around the security first rule and sue directly on the note.
Creditors are getting very agressive in the marketplace. In most cases, they are hoping you do not know the law, and will just give in to their legal demands, or the demands of their attorneys. They may seek to give you offers to “settle the debt” or to get cash in exchange for waiving lien rights. They are not doing this because they like you. Banks do not like people, they like people’s MONEY. They could be offering you money, for example we have heard of a $1,000 to the homeowner if they will agree that the security instrument can be removed. They are doing this so they can sue you directly for whatever assets you have, and this move should not be taken without first consulting a real estate law firm. The stroke of the pen could lead to you being named as a Defendant (for example both the husband and wife and any loan guarantors could be sued) for breach of contract, and attorney fees. This would be quite unfortunate if you have legal rights under 726(a) and 580(e). Don’t take the bait, “lawyer up.”
Attorney Steve Vondran is one of the foreclosure defense pioneers in the State of California
Steve Vondran is a California Real Estate Lawyer who is licensed to practice law in California (#232337) and Arizona (#025911). He also holds a real estate broker’s license in both California and Arizona and has a background in mortgage lending, and residential and commercial real estate. He has appeared on FoxNews three times as a real estate foreclosure lawyer analyzing foreclosure issues and fighting for homeowners. Here is a clip of Attorney Steve fighting Bank of America on television.
Contact us at (877) 276-5084 or fill out the form below:
Attorney Steve has been fighting for the rights of homeowners since the foreclosure meltdown began. He has been in the trenches fighting for good people, and fighting for decency and the rule of law when California homeowners face the loss of their most precious asset – the real estate investment they have poured their hearts, their soul, and their money into. While banks have been the proud recipients of a mandatory forced taxpayer bailout (a fact they don’t seem to recall or mention much) the average person on “main street” has not has an easy of a time as have the securitized loan trustees on “wall street.” And while California has specific laws that deal with how a non-judicial foreclosure should be conducted, we routinely, and repeatedly over the course of the last several years, have found multiple instances of continued misconduct and a blatant failure to honor the law.
This is reflected in the various lender and loan servicer abuses that continue to this day, despite so called “mortgage lending reforms” and despite various attorney general settlements. Recently, there have been cases such as the Glaski v. Bank of America case, which have affirmed the abuses (in that case of a tardy assignment of deed of trust after the loan trust had supposedly closed) and the beat goes on in foreclosure defense. This is not to say there are grounds to quiet title or seek cancellation of instruments in every distressed real estate case, but highlights that there are rights for California homeowners even while in default on their home mortgage, such as rights outlined in the California homeowner bill of rights, which we have talked about as far as seeking injunctions and attorney fees, on other occasions.
To that end, Attorney Steve has fought for California property owners and he created the “Foreclosure Warrior” website that many homeowners have turned to, and other attorneys in California have also turned to for foreclosure and real estate guidance. Recently, Attorney Steve has released a few of the video case briefs of some of the important foreclosure cases and you can now find these for free on youtube. This evidences our continued commitment to “help the little guy” when try to protect their assets from the large banking entities such as Wells Fargo, Citimortgage, US Bank, Ally, JP Morgan Chase, and other loan servicers.
As always, if you need an independent review (unbiased on non-pressured) we are happy to continue providing those services, and where applicable seek injunctions and quiet title, cancellation of instruments, predatory lending and financial elder abuse lawsuits. Usually, this involves filing a lis pendent to cloud the title.
“We are writing to let you know that we are releasing the lien on your property that serves as the collateral for the above referenced account.”
The letter goes on to say:
“Wells Fargo is extinguishing any secondary interest that we may have had in the property”
This may or may not be a good thing. For one, it may trigger tax liability as “debt forgiveness.” You will need to check with your tax attorney or CPA. One other issue, if they are releasing the lien, and recording a release in the lien, they might use this as a basis to “waive the security” and “sue on the note.” The one action rule prevents a junior lien holder from suing you on the note as they must pursue the “security first” (which is why the one action rule is sometimes referred to as the security first rule).
If Wells Farog is releasing their interest, they may say there is “no security to go after your honor, we released all security interest we had, and the borrower was sent a notice on that.”
This is just something that has to be watched closely. Banks will do anything for money.
Just wanted to keep you all posted on the happenings in the foreclosure trenches.
Eureka! A California appellate Court has confirmed what we have been saying all along, and which homeowner defense pundits such as Neil Garfield and Max Gardner have been saying all along – when the banks set up their securitized loan trusts and pooling and servicing agreements, they need to follow them, and follow the law! Novel concept I know. The law applies to everyone else, and now at least one court has recognized a right of California homeowners to challenge tardy assignments of deed of trust (robosigning, another common issue, was raised but not ruled on).
In essence, the Court held that the borrower (Glaski) had standing to challenge two tardy deed of trust assignments (which assignments also purported to transfer “the notes”) which were made AFTER the securitized loan trust had closed (by its own terms).
The court overruled the trial court and sent the case back to the trial court for further proceedings and the court stated that the borrower had legal grounds to pursue its causes of action for:
1. Wrongful foreclosure (the court said no “tender” was required to challenge what the court called a “void” assignment – more good news for the homeowner)
2. Slander of title
3. Quiet title
4. Cancellation of instruments
5. Unfair business practices
6. Declaratory relief
This is really good news since originally the case was unpublished (and not citeable). However, the court was petitioned and the court thereafter ruled that the case should be published (which makes it citeable in a court of law in California).
If you are facing foreclosure, or if your house was foreclosed on, you may have legal rights to money damages, and to setaside a wrongful foreclosure sale. There are a variety of factors to look at but we offer paid consultations that review your case and advise you of the best options to pursue (ex. filing a wrongful foreclosure lawsuit, quiet title, seeking an injunction under the California homeowner bill of rights, etc.).
Glaski is a step in the right direction. Call us today at (877) 276-5084. We reserve the right to accept or reject any case.
When a lender seeks to foreclose, one of the things they must do is to file a Notice of Default (which gives 90 days to cure) and a Notice of Sale (which gives at least 20 days notice before the sale date). This is foreclosure 101. Most everyone knows that. Without recording a notice of default that strictly complies with the notice of default requirements under the California foreclosure statutes, there can be no valid foreclosure sale. The law in California is fairly clear in this area. See Anderson v. Heart Federal Sav. & Loan Assn., 208 Cal. App. 3d 202, 211, 256 Cal. Rptr. 180 (3d Dist. 1989), reh’g denied and opinion modified, (Mar. 28, 1989); Miller v. Cote, 127 Cal. App. 3d 888, 894, 179 Cal. Rptr. 753 (4th Dist. 1982); System Inv. Corp. v. Union Bank, 21 Cal. App. 3d 137, 152-153, 98 Cal. Rptr. 735 (2d Dist. 1971); Saterstrom v. Glick Bros. Sash, Door & Mill Co., 118 Cal. App. 379, 381, 5 P.2d 21 (3d Dist. 1931).
The purpose of the notice of default is to provide notice to the trustor, the trustor’s successors, to junior lienors, other interested persons, and notice to the world, that there has been a default and of the nature of the default. Its objective is also to inform the trustor of the default and the nature of the default so that the trustor has an opportunity to reinstate the secured obligation. See Little v. Harbor Pacific Mortgage Investors, 175 Cal. App. 3d 717, 720, 221 Cal. Rptr. 59 (4th Dist. 1985); Miller v. Cote, 127 Cal. App. 3d 888, 894, 179 Cal. Rptr. 753 (4th Dist. 1982); U. S. Hertz, Inc. v. Niobrara Farms, 41 Cal. App. 3d 68, 86, 116 Cal. Rptr. 44 (3d Dist. 1974); System Inv. Corp. v. Union Bank, 21 Cal. App. 3d 137, 153, 98 Cal. Rptr. 735 (2d Dist. 1971).
In addition, the Notice of Default establishes the minimum period within which the default can be cured before the property can be sold by the trustee. See U. S. Hertz, Inc. v. Niobrara Farms, 41 Cal. App. 3d 68, 86, 116 Cal. Rptr. 44 (3d Dist. 1974). So this is a very important legal requirement that must be adhered to before a lender (through their agents the foreclosure trustee) can seek to initiate a valid non-judicial foreclosure trustee sale.
Because of the importance of the notice to the protection of the rights and property of the trustor, a valid foreclosure by the private power of sale requires strict compliance with the requirements of the statute. The requirements are set forth in Cal. Civ. Code, §§ 2924, 2924c, subd. (b)(1). However, some courts seem to say that “substantial compliance” with the statutes is sufficient and that minor defects or errors in the notice of default (ex. incorrect property descriptions, APN, legal descriptions, spelling errors, etc.) or even in the notice of sale will not necessarily invalidate the trustee sale. See Williams v. Koenig, 219 Cal. 656, 660, 28 P.2d 351 (1934); Hanlon v. Western Loan & Bldg. Co., 46 Cal. App. 2d 580, 600-601, 116 P.2d 465 (1st Dist. 1941).
We have also posted a blog about substantial defects in the notice of sale (ex. grossly overstating the amount needed to cure the default) and how that can lead to a void trustee sale that might allow one to reverse a foreclosure sale. So, the general rule would be that a trustee’s sale which is based upon a defective noticeof default is invalid and that a non-judicial foreclosure sale which is based on a defective (or non-recorded notice of default – failure to record a notice of default) may be challengeable and you may have grounds to set aside the foreclosure sale.
Where there is a defect in giving the notices and the trustee’s deed does not contain the required recitals the sale is void. See Scott v. Security Title Insurance & Guarantee Co., 9 Cal. 2d 606, 610, 72 P.2d 143, 117 A.L.R. 1049 (1937); United Bank & Trust Co. of California v. Brown, 203 Cal. 359, 361, 264 P. 482 (1928); Seccombe v. Roe, 22 Cal. App. 139, 142-143, 133 P. 507 (2d Dist. 1913).
It must be noted that a borrower may be required to prove how the substantial defect caused prejudice to the borrower (ex. it interfered with your right to reinstate your mortgage, or you did not know you were in default for example, or did not know the true and accurate amount to cure your mortgage or reinstate the loan). Also, following a foreclosure sale, it may be argued that you must tender the full balance of the loan in order to be able to challenge defects to the sale. Prejudice and tender therefore are typical arguments you will need to be prepared to address if you want to try to set aside the trustee foreclosure sale.
It is the burden of the party challenging the trustee’s sale to prove any irregularity and thereby overcome the presumption of the sale’s regularity. Lona v. Citibank, N.A., 202 Cal. App. 4th 89, 105, 134 Cal. Rptr. 3d 622 (6th Dist. 2011), citing Melendrez v. D & I Investment, Inc., 127 Cal. App. 4th 1238, 1258, 26 Cal. Rptr. 3d 413 (6th Dist. 2005).
Also, it should be kept in mind that some courts have allowed homeowners to set aside a foreclosure sale where it can be shown that (1) There was an inadequate sales price paid at the foreclosure sale, coupled with (2) Substantial defects in the foreclosure process (for ex. failing to record a notice of default or notice of sale, or fail to apply the 90 days and 20 days rules to these recorded documents).
A non-judicial foreclosure sale can be set aside where there is a gross inadequacy of the price paid at the sale, together with a slight irregularity, unfairness, or fraud. See Sargent v. Shumaker, 193 Cal. 122, 129-130, 223 P. 464 (1924); Winbigler v. Sherman, 175 Cal. 270, 275, 165 P. 943 (1917) (inadequate notice to trustor, and trustee refused to give trustor time to obtain cash at sale); Moeller v. Lien, 25 Cal. App. 4th 822, 832, 30 Cal. Rptr. 2d 777 (2d Dist. 1994); Bank of Seoul & Trust Co. v. Marcione, 198 Cal. App. 3d 113, 119, 244 Cal. Rptr. 1 (2d Dist. 1988) (refusal to recognize bid by junior lienor); Whitman v. Transtate Title Co., 165 Cal. App. 3d 312, 323, 211 Cal. Rptr. 582 (4th Dist. 1985) (failure to grant trustor’s successor one-day postponement); Gonzales v. Gem Properties, Inc., 37 Cal. App. 3d 1029, 1037, 112 Cal. Rptr. 884 (2d Dist. 1974) (course of conduct to fraudulently deprive trustor of his property at minimal price, including evasion to preclude reinstatement by unknown assignee and discouragement of bidding at sale); Crummer v. Whitehead, 230 Cal. App. 2d 264, 266-267, 40 Cal. Rptr. 826 (1st Dist. 1964) (notice sent by regular mail but actually received); Lopez v. Bell, 207 Cal. App. 2d 394, 398, 24 Cal. Rptr. 626 (2d Dist. 1962); Crofoot v. Tarman, 147 Cal. App. 2d 443, 446-447, 305 P.2d 56 (3d Dist. 1957); Foge v. Schmidt, 101 Cal. App. 2d 681, 683, 226 P.2d 73 (1st Dist. 1951) (trustee refused to give trustor opportunity to obtain cash at time of sale and refused to accept his personal check); Bank of America Nat. Trust & Savings Ass’n v. Century Land & Water Co., 19 Cal. App. 2d 194, 196, 65 P.2d 109 (2d Dist. 1937); David v. Frost, 122 Cal. App. 750, 754-755, 10 P.2d 504 (2d Dist. 1932).
These are just some examples to look into.
Also, the issue might arise that a buyer of a foreclosed property argues the sale cannot be attacked or set aside as to them because they are a “BFP” (Bona fide purchaser for value). This is not always the case.
Attacking a “VOID” trustee sale (as opposed to a voidable sale) is possible. And even if the foreclosure sale is determined to be “voidable” (as opposed to void), you can seek to attack the BFP who is a professional bidder who normally buys foreclosure property at a discount. See Scott v. Security Title Insurance & Guarantee Co., 9 Cal. 2d 606, 610, 72 P.2d 143, 117 A.L.R. 1049 (1937); United Bank & Trust Co. of California v. Brown, 203 Cal. 359, 361, 264 P. 482 (1928); Seccombe v. Roe, 22 Cal. App. 139, 142-143, 133 P. 507 (2d Dist. 1913).
Muralles v. Max Capital Investments – Los Angeles Superior Court (2013). Case#BC459723 In my practice involving mortgage foreclosure defense I have occasion to perform legal research into the latest foreclosure litigation cases. Here is a mortgage reinstatement case that I recently came across that was filed in Los Angeles Superior Court. It is a case involving a borrower that had taken out a $2,000,000 mortgage loan was lender Sachen. Several payments were made and then it appears there was a default. It also appeared that the borrower had a easement in escrow (valued at $329,000). The case involved the typical assignment of deed of trust from one lender to another (Max Capital Investments, LLC) in this case and the borrower sought to reinstate the loan.
The main problem was the lender had “accelerated the loan” (calling all payments due) and the Notice of Default stated that the amount to cure the default was $1.972 million. The borrower of course did not have this amount (who would) and tried to find out the exact amount he needed to reinstate his mortgage pursuant to California Civil Code section 2924. There appeared to be a run-around as to what was exactly owed, with the new lender eventually saying that $75,000 was the amount. On closer examination, it appeared this was nowhere near the amount that was actually required to reinstate the loan. Following the foreclosure sale, the lender sought to foreclose and then filed an unlawful detainer (eviction action). Of course this raised the legal dispute. The borrower then filed a civil lawsuit to set aside the foreclosure for failing to allow him his reinstatement rights. The court, after hearing the evidence, issued a decision on February 2013.
The court found in favor of the borrower in the unlawful detainer action, and found the foreclosure to be unlawful and VOID. There was no noted discussion about tendering the loan balance. Key to the decision appeared to be that there is a legal right to reinstate and that the borrower actually had the means to reinstate his loan. We have seen this many times with banks literally “forcing the default”. The court held that putting $1.972 million (being due as arrearages to cure the default) in the notice of default, was a substantial defect voiding the foreclosure sale.
short sales, deed in lieu, credit damage, false promises, advance fees for loan modifications, attorney malpractice
FORECLOSURE MALPRACTICE IN CALIFORNIA – ADDING INSULT TO INJURY.
There can be nothing worse in this world than being told that if you pay someone money that they will be able to help you save your home from foreclosure.
This happens quite a bit and we have heard our fair share of outrageous foreclosure practices committed by foreclosure attorneys, non-attorneys, foreclosure consultants, real estate brokers, and the like.
The fraudulent, deceptive, and unfair business practices can include any of the following:
Charging advance fees for a loan modification or mortgage forbearance (which violates California SB94)
Loan modification fraud
Promising that a company, lawyer or law firm will file a chapter 7 or chapter 13 bankruptcy case to “stop your foreclosure” or “delay the foreclosure sale” and then the bankruptcy attorney or paralegal firm not filing anything.
“Securitized loan audit” companies that charge you thousands of dollars (to basically inform you that your loan was securitized) – often a complete waste of money while telling you this will help you get a “free house” or to quiet title to property.
Paying money for phony forensic audits that are negligently performed by attorneys or forensic firms with no experience in mortgage origination or compliance.
False promises of assisting you in a short sale.
False promises relating to a deed-in-lieu of foreclosure service.
Attorneys or other third parties promising to buy your house and lease it back to you without so much as a conflict of interest disclosure.
Companies that fail to advise you of applicable statutes of limitations
Foreclosure rescue companies or even law firms failing to advise you of you right to rescind your loan under federal truth in lending law (“TILA”). If you had equity in your property, this could have resulted in a SERIOUS LOSS OF EQUITY.
Failure to notice or detect cases of financial elder abuse under the California Welfare & Institutions code
False promises of filing a “foreclosure class action” or filing a lawsuit to obtain a loan modification or principle loan balance reduction.
Negligence in the handling of a state or federal lawsuit, or adversary proceeding in a bankruptcy court.
If you were a victim of any of these false and fraudulent foreclosure practices, you may be entitled to compensation. In some cases we may be able to take your case on a contingency fee basis. We do not accept all cases, and certain restrictions and criteria will apply. To discuss your case contact us at (877) 276-5084. We are a civil litigation law firm that handles cases of foreclosure fraud, predatory lending, and foreclosure malpractice.
CALIFORNIA HOMEOWNER BILL OF RIGHTS – BONUS SAMPLE LETTER UNDER CIVIL CODE SECTION 2923.55 TO VIEW!
Here we are, seven years after the start of the mortgage meltdown. At the beginning, people like Neil Garfield and Max Gardner were talking about pretender lenders and loan servicers who can ‘t legally prove they can enforce your mortgage in most cases (ex. some portfolio loans might be different). But now the new law in California, effective January 2013 (Called the California Homeowners Bill of Rights) is in effect and you have a right to demand that the loan servicer investigate and produce competent and reliable evidence of its right to foreclose. Such evidence should be in the form of a copy of the original endorsed note (form what is usually a defunct lender). The law is new and open to some interpretation, but if you are having problems with any of the following loss mitigation efforts:
Getting loan mod approved because “investor wont approve” or the title company doesn’t have clean title
Short sale won’t be approved for same reasons
Deed in lieu won’t be approved for same reasons
Trying to reinstate your loan after a bogus loan modification review
Maybe you need to think about mentioning my letter and blasting one to the lender, loan servicer, securitized loan trustee and foreclosure trustee. Let’s see what they are hiding up their sleeves. It just may change the way they see the world. The law allows for injunctions and attorney fees for material violations.
(e) Reinstatement of a monetary default under the terms of an
obligation secured by a deed of trust, or mortgage may be made at any
time within the period commencing with the date of recordation of
the notice of default until five business days prior to the date of
sale set forth in the initial recorded notice of sale.
This is really upsetting me because on one hand Banks are telling people to “stop making their mortgage payment” so that they can be considered for a loan modification. Then, in reliance on the statements made by the “foreclosure specialist” the loan servicers (servicers are companies like JP Morgan Chase, Wells Fargo, Citimortgage, Bank of America, etc.) the borrower stops making payments and then, after not getting a loan modification, they are thrust upon a foreclosure sale date that promises nothing more than a private trustee sale on the court house steps. In this situation, some people just want to get current again and get back on track and forget about the bogus loan mod programs all together. The main problem then becomes that you are trying like crazy to get the mortgage loan servicer to accept your payments, only now they are telling you that you cannot pay the mortgage and cannot bring the loan current.
What is going on here? The loan servicer whose job it is to collect your mortgage payment is now telling you that you cannot reinstate your loan. This is total nonsense. If you have been denied a loan modification, or are in another situation where you are trying to bring your loan current (ex. after a chapter 7 bankruptcy or chapter 13 bankruptcy) and the lender or loan servicer refuses to accept your mortgage payment, DO NOT WASTE EVEN ONE MINUTE, call a real estate foreclosure defense attorney and demand that they give you a reinstatement quote and/or allow you to honor your legal right to reinstate your mortgage loan.
We can be reached at (877) 276-5084. Please note, once a foreclosure sale has transpired, it can be difficult and sometimes impossible to reverse the foreclosure sale. You cannot trust the lenders and loan servicers, and sometimes this is just their problem of being “too big” to be organized. Sometimes I think there are other reasons. Call us if you are having problems!
If you were the victim of a wrongful foreclosure, including if you were a service member foreclosed on or another person foreclosed on while in the foreclosure and loss mitigation process. You may be entitled to compensation as high as $125,000 and loss equity. This is the reqview 14 of the loan servicers are now undertaking to see if you might apply for financial compensation for injuries suffered at the hands of the major banks.
For example, if you were in a modification and then foreclosed, you might have rights to compensation.
If you made all three trial plan payments and then were denied a loan modification, you might also be entitled to payments.
There are several categories that will be looked at.
Hi, Attorney Steve back here with you. We have been in the trenches fighting for legal rights of our clients who are facing foreclosure.
One we we do this is to try to build an army of lawyers who are knowledge about the rights homeowners face in the foreclosure process.
Here is some information on the topic
Some topics we will hope to cover are:
1. Top grounds to getting injunctions in California
2. How attorneys can legall help distressed property owners in California
3. California Homeowner Bill of Rights
4. Indepedent Foreclosure Review
We will also be discussing any thing else that may come up with our special guest Matt Weidner, a well known foreclosure attorney. Topics such as MERS and “produce the note” and allonges, might even be on the table, who knows!!
Seems the politicians keep coming out with something new to try to appease the masses who are forced to fight for their houses in the the trenches while dealing with lenders or loan servicers who like to abuse people in the loan modification and short sale process. We are always hopeful this will be the law that brings fair treatment. But isn’t this like the third or fourth attempt to get loan servicers and banks to treat people fairly and decently in the loss mitigation and foreclosure process? Wasn’t there supposed to be new and improved servicing standards in the 50 states attorney general settlement which included settlement with the large banks (Bank of America, Chase, Wells Fargo, Citi etc.). Why do we need more rights? Will there really be any changes with this new “bill of rights”? Let’s take a look at the latest concepts being advanced (passed into law):
According to the press release on the California Attorney General website:
“The Homeowner Bill of Rights consists of a series of related bills, including two identical bills that were passed on July 2 by the state Senate and Assembly: AB 278 (Eng, Feuer, Pérez, Mitchell) and SB 900 (Leno, Evans, Corbett, DeSaulnier, Pavley, Steinberg).”
“Californians should not have to suffer the abusive tactics of those who would push foreclosure behind the back of an unsuspecting homeowner,” said Governor Brown. “These new rules make the foreclosure process more transparent so that loan servicers cannot promise one thing while doing the exact opposite.”
The Attorney General Press Release goes on to state:
“The California Homeowner Bill of Rights will give struggling homeowners a fighting shot to keep their home,” said Attorney General Harris. “This legislation will make the mortgage and foreclosure process more fair and transparent, which will benefit homeowners, their community, and the housing market as a whole.”
Here are some stated highlights of the new law:
The new law goes into effect January 1, 2013
There is a right to seek an injunction in Court for material violations (this is good, it gives a right to sue where the law is violated, and you can be sure the law will be violated)
The new law prevents “dual tracking” – the loan mod factories (loss mitigation departments) will have to concluse the modification review process before moving to foreclosure. No more dual tracking. The dual tracking has caused enormous problems where borrowers are lead to believe they are going to get a loan modification, or that they “qualify for a modification” but then at the end the servicer forecloses on the final hour of the modification review process, leaving the borrower without the ability to do much, if anything (aside for potentially racing to the BK court to file a chapter 7 or Chapter 13 bankruptcy to try to stop the sale). This will hopefully ensure a fairer review with less pressure on the borrower and give them more time to examine their rights if they are denied the modification.
There is now supposed to be a “single point of contact” to deal with at the lender or loan servicer’s loss mitigation department. This has also been a huge problem with borrowers being shuffled around to different “foreclosure specialists” “loss mitigation specialists” etc., and each person telling the borrowers something new, losing documents, etc. A whole host of servicing lies and abuses has been the standard practice for many financial institutions. Hopefully this will help resolve the mess.
These are some of the broad strokes. After the new year, in 2013, if you are facing violation of this new law, and need to discuss obtaining an injunction to stop foreclosure, give us a call to review your case.
You can find out more information about the California homeowner bill of rights from the Attorney General Fact sheet. We applaud the Attorney General’s office for stepping it up to try to make a difference in this process. According to their website:
“The California Homeowner Bill of Rights marks the third step in Attorney General Harris’ response to the state’s foreclosure and mortgage crisis. The first step was to create the Mortgage Fraud Strike Force, which has been investigating and prosecuting misconduct at all stages of the mortgage process. The second step was to extract a commitment from the nation’s five largest banks of an estimated $18 billion for California borrowers. The settlement contained thoughtful reforms but are only applicable for three years, and only to loans serviced by the settling banks.”
Time will tell how this new law plays out. I will know for sure that things are better when my firm stops getting calls from angry borrowers documenting the plethora or abuses committed at the hands of banks, lenders, loan servicers, and other entities. Also, when the amount of scammers start to dissapear – namely the loan mod scammers, fraudsters, fake “law centers”, attorney-backed loan mod scam, securitized audit scams, forensic loan audit fraud, and more.
As always, if you need a California real estate lawyer to help you sift through your foreclosure or mortgage related problems, gives us a call. We are extremely busy and may not be able to help all people, but we are in the corner fighting to help sort out these mortgage meltdown issues. We have offices in San Diego, Newport Beach, Beverly Hills, Fresno, San Francisco and Phoenix, Arizona. We can be reached at (877) 276-5084 or firstname.lastname@example.org.
The basis of the challenge to foreclosure by the homeowner was that the financial institution seeking to foreclose did not have any proof of legal ownership.
Here are a few snippets from the decision:
(1) “We hold that Arizona’s non-judicial foreclosure statutes do not require the beneficiary to prove its authority or “show the note” before the trustee may commence a non-judicial foreclosure.”
(2) “In each case, the court of appeals held that “Arizona’s non-judicial foreclosure statute does not require presentation of the original note before commencing foreclosure proceedings.” OP at ¶ 13 (quoting Diessner v. Mortg. Elec. Registration Sys., 618 F. Supp. 2d 1184, 1187 (D. Ariz. 2009)”
(3) “Hogan contends that before a trustee may exercise that power of sale, the beneficiary must show possession of, or otherwise document its right to enforce, the underlying note. Nothing in our statutes, however, requires this showing. Section 33-809(C) requires only that, after recording notice of the trustee’s sale under § 33- 808, the trustee must send the trustor notice of the default, signed by the beneficiary or his agent, setting forth the unpaid principal balance.” See also Transamerica Fin. Servs., Inc. v. Lafferty, 175 Ariz. 310
(4) “But Hogan has not alleged that WaMu and Deutsche Bank are not entitled to enforce the underlying note……Hogan’s complaints do not affirmatively allege that WaMu and Deutsche Bank are not the holders of the notes in question or that they otherwise lack authority to enforce the notes.”
(5) “Here, assuming the truth of Hogan’s factual allegations, Hogan is not entitled to relief because the deed of trust statutes impose no obligation on the beneficiary to “show the note” before the trustee conducts a non-judicial foreclosure. The only proof of authority the trustee’s sales statutes require is a statement indicating the basis for the trustee’s authority. See A.R.S. § 33-808(C)(5)”
(6) “Hogan further contends that the trustee, as a party seeking to collect on a note, must demonstrate its authority to do so under § 47-3301 of Arizona’s Uniform Commercial Code (“UCC”). But the trustees here did not seek to collect on the underlying notes; instead, they noticed these sales pursuant to the trust deeds. The UCC does not govern liens on real property. See Rodney v. Ariz. Bank, 172 Ariz. 221, 224-25, 836 P.2d 434, 437-38 (App. 1992).
As you can see, the beat goes on with the challenging the lender/servicer’s authority to foreclose. The Arizona courts show no willingness to allow such a theory to stop a non-judicial foreclosure sale.
We have talked alot both on our radio show (“Vondran legal hour”) and on our blogs about our NO ADVANCE FEE wachovia and world savings loan modification program. Some people have wanted to see proof and we can certainly appreciate skepticism especially when there are so many foreclosure rescue scams out there.
Here is a recent loan modification we were able to obtain for a California homeowner which ushers in a great Easter with a mortgage payment just over $700 a month and a 2% interest rate (start rate). The modification also offers a chance to earn principal reduction for timely payments. Not a bad deal at all. If you have a note that was originated by World Savings or Wachovia (both of which are now owned by Wells Fargo, and your loan may therefore be serviced and owned by Wells Fargo) and if your loan is a “pick-a-payment” loan which gave you multiple payment obligations when you first got it, and, assuming you have a hardship and can afford a reasonable monthly loan payment, please give us a call to see what we can do for you. We have had people that want to litigate these loans (which we do not presently do) and we have watched them lose their houses when we may have had a chance to get them something through our proven channel. It is a true shame, but some people just don’t get it. While these results are nice, we cannot and do not guarantee any specific results, and each case is determined on its own basis.
We also cannot guarantee timeframes but I would say typically we can results within 1-3 months and sometimes faster if there is a sale date approaching. At any rate, no guarantees are made, but with nothing out of pocket, what do you have to lose? Contact us at (877) 276-5084. PS – this is the ONLY lender or loan servicer we submit loan modifications for.
There are some basic categories such as new servicing standards, consumer relief sections, monitoring and enforecement provisions, and liability releases. I am not going to go into everything in this blog post, we have discussed this on another post. The big questions are:
1. How will this help you, the individual borrower?
2. Who will get what? There don’t seem to be any guidelines for who will get the help (i.e. no guarantees to anyone in particular – remember, this was the same problem with HAMP)
3. Will this help the overall economy?
4. Is this a fair settlement given the types of abuses outlined in the settlement agreements (which literally run the gamut, and which the lenders basically denied in every court case I have ever seen or heard of). Typical abuses we have been talking about for the past five years which are documented in these settlement agreements (as this song goes, it was NOT “just may imagination, running away with me” as we were trying to explain to the judges). Sample lending and loan servicer abuses outlined in these settlement agreements include:
a. Violations of False Claims Act
b. Bankruptcy abuses including filing bogus proof of claims. We have talked about this on our website (http://www.UltimateBK.com)
c. Problems with originating loans
d. Problems with servicing loans
e. HAMP – telling people not to make payments then denying loan modifications We have talked about this on our website (http://www.TrialPLanFraud.com)
I came across this today from the California Attorney General website. Just a quick post for you to review that discusses a California homeowner bill of rights which is “designed to protect homeowners from unfair practices by banks and mortgage companies and to help consumers and communities cope with the state’s urgent mortgage and foreclosure crisis.”
The memo states:
“California communities and families are being devastated by the mortgage and foreclosure crisis. We must ensure the deceptive practices that caused it never happen again,” said Attorney General Harris. “The California Homeowner Bill of Rights will provide basic fairness and transparency for homeowners, and improve the mortgage process for everyone.”
The legislation builds on the California commitment announced by Attorney General Harris earlier this month, which is expected to result in $18 billion of benefits for California homeowners. That agreement included reforms for mortgages owned by the five banks that were signing parties. The California Homeowner Bill of Rights will strengthen those protections, make them permanent, and apply them to all mortgages in the state.
“When I secured the California commitment, I made clear it was only one of many steps I am taking to comprehensively address the mortgage and foreclosure crisis,” Attorney General Harris continued. “I want to thank Senate President pro Tem Steinberg, Assembly Speaker Pérez and all the other lawmakers who are supporting this urgent package of legislation for homeowners.”
“I want to congratulate the Attorney General on the victory she won on behalf of the people of California,” said Speaker John A. Pérez. “Our state has suffered greatly as the result of bad actors in the banking and financial industries, and this settlement holds them accountable as we continue the difficult work of recovering the housing market and stemming the tide of foreclosures, evictions and auctions.”
“Millions of Californians have already lost their homes to foreclosure and the mortgage crisis is far from over,” said Senate President pro Tem Darrell Steinberg. “This landmark settlement negotiated by Attorney General Harris helps thousands of Californians but thousands more need the same help. We need to put these protections into law so that more people can save their homes.”
The press release also goes on to discuss some new bills that would hopefully be passed and states what they might do to help the California homeowner:
If passed, the following bills would:
ASSEMBLY BILL 1602 / SENATE BILL 1470- THE FORECLOSURE REDUCTION ACT OF 2012
Authors: Assemblymen Mike Eng and Mike Feuer; Senators Mark Leno, Fran Pavley, and Senate President pro Tem Darrell Steinberg
-Require creditors to provide documentation to a borrower that establishes the creditor’s right to foreclose on real property prior to recording a notice of default.
-Require creditors to provide documentary evidence of ownership, the chain of title to real property, and the right to foreclose, at the time of the filing of a notice of default.
-Prohibit creditors from recording a notice of default when a timely-filed application for a loan modification or other loss mitigation measure is pending.
-Prohibit creditors from recording a notice of sale when a timely-filed application for a loan modification or other loss mitigation measure is pending.
-Prohibit creditors from recording a notice of sale while a borrower is in compliance with the terms of a trial loan modification or after another loss mitigation measure has been approved.
-Require creditors to disclose why an application for a loan modification or other loss mitigation measure has been denied.
-Require that notices of foreclosure sales be personally served, including notices of foreclosure sale postponement.
-Provide homeowners with a private right of action in instances in which the requirements set forth in the legislation are not followed
ASSEMBLY BILL 2425 / SENATE BILL 1471 – DUE PROCESS REFORM LEGISLATION
Authors: Assemblywoman Holly Mitchell; Senators Mark DeSaulnier and Fran Pavley
-Require creditors to provide a single point of contact to borrowers in the foreclosure process who will be responsible for providing accurate account and other information related to the foreclosure process and loss mitigation efforts.
-Require creditors to provide a dedicated electronic mail address, facsimile number and mailing address for borrowers to submit information requested as part of a loan modification, short sale or other loss mitigation option.
-Authorize borrowers to challenge the unlawful commencement of a foreclosure process in court.
-Impose a $10,000 civil penalty on the recordation or filing of “robosigned” documents, defined as documents that contain information that was not verified for accuracy by the person or persons signing or swearing to the accuracy of the document or statement.
-Require that certain documents be recorded in a county recorder’s office.
ASSEMBLY BILL 2314 / SENATE BILL 1472 – BLIGHT PREVENTION LEGISLATION
Authors: Assemblywoman Wilmer Carter; Senator Fran Pavley
-Prevent blight enforcement actions from being taken against new purchasers of blighted property for 60 days, provided that repairs are being made to the property.
-Require banks that release liens on foreclosed property to inform local code enforcement agencies of the release so that demolition of blighted property can proceed.
-Increase fines against owners of blighted property from $1,000 per day to $5,000 per day, and allow the imposition of the costs of a receivership over blighted property to be imposed directly against the owner of blighted property.
ASSEMBLY BILL 2610/ SENATE BILL 1473 – TENANT PROTECTION LEGISLATION
Authors: Assemblywoman Nancy Skinner; Senator Loni Hancock
-Require purchasers of foreclosed homes to honor the terms of existing leases and give tenants at least 90 days notice before commencing eviction proceedings.
ASSEMBLY BILL 1950 – ENHANCEMENT OF ATTORNEY GENERAL ENFORCEMENT
Author: Assemblyman Mike Davis
-Impose a new $25 fee to be paid by servicers upon the recording of a notice of default. The fee would be deposited into a real estate fraud prosecution trust fund that would support the Attorney General’s efforts to deter, investigate and prosecute real estate fraud crimes, including the work of the Mortgage Fraud Strike Force.
-Extend the statute of limitations from one year to four years from the date of discovery for violations of law commonly occurring in connection with foreclosure-related scams, including acting as a real-estate agent without a license and charging up-front fees for loan modification services.
SENATE BILL 1474 / ASSEMBLY BILL 1763 – ATTORNEY GENERAL SPECIAL GRAND JURY
Authors: Assemblyman Mike Davis; Senator Loni Hancock
-Authorize the Attorney General to impanel a special grand jury for the purposes of investigating and indicting multi-jurisdictional financial crimes against the state.
We applaud any steps that may actually help homeowners. We would still like to see SB 94 repealed at least as to lawyers, so that they can be represented in the homeowners dealings with the banks. But I believe SB94 sunsets in 2013 so that may happen anyway, we will keep you posted.
More and more California Notaries are finding their way into civil foreclosure lawsuits.
We are seeing more and more notary “produce the transaction log” letters being sent out by California lawyers to various notaries in both California and elsewhere. We have talked about California notary duties on our websites, in particular on our Robosisgner website. This phenomena is happening, i think, due to the $25 billion mortgage settlements that were based in part on allegations of robosigning and notary fraud. More California homeowners and their attorneys seems to be filing written demands to notaries to produce their journal books verifying that certain documents (such as a deed of trust) were actually signed. Some homeowners I believe are starting to examine their rights under the settlement to see if they can get a slice of the settlement pie.
As you can see, the law does impose certain duties on a California notary to keep notary records and respond to public demands. If the notary journal is lost, destroyed, etc., the notary has a duty to notify the California Secretary of State “immediately” under Cal. Gov’t Code Section 8602(d).
If you are suing a notary, or being sued as a notary, you might want to investigate our services. We are seeing a rash of civil lawsuits wrongfully naming notaries and joining them as defendants in a civil lawsuit merely because they were the notary on the transaction. This is not to say there is no such thing as notary fraud. It’s just that every case needs to be investigated for its merits immediately upon receiving a summons and complaint alleging wrongful conduct. Contact us at (877) 276-5084 if you have needs in this area.
Here’s one situation that came up recently. The borrower had a first and second mortgage (both were refinance loans – non-purchase money loans). The borrower was not making loan payments and they received a notice of default. Prior to the trustee sale date, the borrower filed for bankruptcy protection (Chapter 7 no asset case). The senior lien holder sought to lift the automatic stay in bankruptcy and the motion was granted. The house was thereafter sold at private foreclosure sale. After the sale, the bankruptcy discharged (eliminating any personal liability on the first and second mortgage). However, the junior mortgagee, believing itself to be a “sold out junior” (one action rule – we have talked about this on other posts) sought to collect on the second mortgage debt. The borrower sought to reopen the bankruptcy case arguing the action to collect the debt violated the bankruptcy discharge. The junior lien holder argued they were not scheduled on the bankruptcy petition so their debt was not discharged. So what happens in this situation? A similar situation arises where an unscheduled (omitted creditor) seeks to file a lawsuit after the chapter 7 no asset bankruptcy case was discharged. Here is one argument to look at and some case law that supports the proposition that the debt was discharged even if it was not listed on the bankruptcy petition.
Here is a general look at two cases that address this point (In re Hicks and Beezley). The following is general legal information only and should not be relied on as legal advice and may not be accurate or up to date. Please consult a bankruptcy attorney to discuss your case. This article is limited to the situation where a creditor seeks to collect on an alleged debt after the debtor receives a discharge in a chapter 7 “no-asset” case.
In re Hicks, 184 B.R. 954, 27 Bankr.Ct.Dec. 676 (Bkrtcy.C.D.Cal., 1995).
This is a case that involved a chapter 7 no-asset bankruptcy case. The debtor filed for bankruptcy protection and the bankruptcy petition omitted an alleged creditor who claimed liability on two promissory notes. Eight months after the bankruptcy was discharged on February 1993, the alleged creditor filed a civil lawsuit seeking to collect on the notes. The Plaintiff’s attorney was sent a copy of the Notice of Discharge, but ignored it and continued to proceed with the case.
The Plaintiff thereafter sought to reopen the bankruptcy to schedule the alleged debt, and then to discharge it. The Court held that although it is permissible to reopen a bankruptcy to afford further relief to the debtor, there was no need to do so in this case as the alleged debt was already discharged. The Court discussed 11 U.S.C. 524(a) discharge injunction which the court stated: “operates as an injunction against any post-discharge enforcement of any discharged claim as a matter of federal law.” The court went on to state that: “reopening this case to permit determination of whether this creditor should be liable for a violation of the discharge injunction is appropriate.”
A similar case in the 9th Circuit Court of Appeals reached a similar conclusion. In the case of Beezley v. California Land Title Co. (In re Beezley), 994 F.2d 1433, 1434 (9th Cir. 1993) (per curiam), the court was faced with another no-asset Chapter 7 bankruptcy case and a subsequent action to collect on a debt following the bankruptcy discharge. In Beezley, the alleged creditor (who had obtained a default judgment prior to the filing of the chapter 7 bankruptcy, but who was omitted on the schedule of creditors), sought to recover from the debtor and enforce the debt following the Chapter 7 discharge order. The debtor raised the defense of discharge. Ultimately the legal issue was whether or not the bankruptcy debt was discharged in the no-asset chapter 7. The Court discussed the difference between debts that are automatically discharged in a chapter 7 no-asset case –whether scheduled or not, (11 U.S.C. 523(a)(3)(A)), from those that are not automatically discharged if unscheduled, (11 U.S.C. 523(a)(3)(B)). Debts covered under Section “A” are automatically discharged whether they are scheduled or not in the no-asset chapter 7 case. Debts that fall under Section “B” (basically debts that result from intentional fraud, willful injury, false statement or embezzlement) may arguably survive the discharge, but it is Plaintiff’s burden to prove such exemption, the failure of which results in a discharge violation.
Section 524 of the bankruptcy code is clear and unambiguous as to what is required to prove a violation of the discharge injunction order under section 727 of the Bankruptcy Code:
“A discharge “operates as an injunction against the commencement or continuation of an action . . . to collect, recover or offset any [discharged] debt as a personal liability of the debtor.” 11 U.S.C. § 524(a)(2). A party who knowingly violates the discharge injunction can be held in contempt under Section 105(a) of the Bankruptcy Code.See Renwick v. Bennett, (In re Bennett), 298 F.3d 1059, 1069 (9th Cir. 2002). The party “seeking contempt sanctions has the burden of proving, by clear and convincing evidence, that the sanctions are justified . . . ‘[T]he movant must prove that the creditor (1) knew the discharge injunction was applicable and (2) intended the actions which violated the injunction.’” ZiLOG, Inc. v. Corning (In re ZiLOG, Inc.), 450 F.3d 996 (9th Cir. 2006) (citations omitted).
This gives you a general idea of the way a California bankruptcy court might review these types of cases where a lawsuit is filed, or collection efforts are taken after the discharge in the no-asset Chapter 7 bankruptcy case. If you are facing an aggressive creditor seeking to collect on a debt following your bankruptcy discharge, consider contacting our firm to discuss. You may have legal rights to assert against the creditor. We can be reached at (877) 276-5084. Ask for “ATTORNEY STEVE” – More bankruptcy information can be found at Ultimate BK.
Okay, here comes the latest window dressing of the day and a settlement that may force what the banks should have done voluntarily and that is give principle reductions to California homeowners. Here is a link to the mortgage settlement with the California Attorney General. Here are a few snippets from the Attorney General on the settlement:
- “California families will finally see substantial relief after experiencing so much pain from the mortgage crisis,” said Attorney General Harris. “Hundreds of thousands of homeowners will directly benefit from this California commitment.”
- “This outcome is the result of an insistence that California receive a fair deal commensurate with the harm done here. We insisted on homeowner relief for Californians and demanded enforceability so homeowners actually see a benefit that will allow them to stay in their homes, and preserved our ability to investigate banker crime and predatory lending,” continued Harris.
Here is the part of the press release that concerns me:
As part of the separate California guarantee, banks must enact a minimum of $12 billion in principal reductions for California homeowners. Failure to achieve this minimum level of reductions will result in substantial cash payments of up to $800 million that the banks will have to pay to the state.
So apparently 12 billion is earmarked for homeowner principal reduction, but if, just if, the banks don’t give that amount then they pay 800 million (a much small amount) TO THE STATE? Is this a back door way to give California a BAILOUT?? Somebody please talk to me here? Am I missing something? Now I have not seen any draft of the settlement agreement as this settlement just came out, but something seems amiss with a clause like this.
The next issue is WHO GETS THE PRINCIPAL REDUCTION? WHAT IS THE CRITERIA? WILL THE IMPLEMENTATION BE FAIR? HOW WILL THIS WORK?
Well, according to the press release not all counties will be included in the principal reduction program (okay, then who gets it)? Here is what the press release says:
County-specific payments are based on the number of homeowners and the depth of the foreclosure crisis. It is estimated that homeowners in the following counties will accrue the following level of benefits over the three-year life of the commitment.
- Los Angeles: $3.92 billion
- Riverside: $1.59 billion
- San Bernardino: $1.13 billion
- Sacramento: $820 million
- Stanislaus County: $368 million
Here are other details made public (and my comments in bold):
The financial benefits of this historic agreement extend to homeowners whose loans are owned or serviced by one of the five largest mortgage lenders.
HARRIS SAID: “I will continue to fight for principal reductions for the approximately 60 percent of California homeowners whose loans are owned by Fannie Mae and Freddie Mac,” Attorney General Harris added.
- More than $12 billion is guaranteed to reduce the principal on loans or offer short sales to approximately 250,000 California homeowners who are underwater on their loans and behind or almost behind in their payments.
Supposedly there will be major relief in the first year of the program.
- $849 million is estimated to be dedicated to refinancing the loans of 28,000 homeowners who are current on their payments but underwater on their loans.
So how will they decide who gets to reap the benefit of an underwater refi? This money would go fast.
- $279 million will be dedicated to offering restitution to approximately 140,000 California homeowners who were foreclosed upon between 2008 and December 31, 2011.
Who qualifies for restitution? What is the criteria? How much will each person get? What type of violations must you have?
- $1.1 billion is estimated to be distributed to homeowners for unemployed payment forbearance and transition assistance as well as to communities to repair the blight and devastation left by waves of foreclosures, targeted at 16,000 recent foreclosures.
- $3.5 billion will be dedicated to relieving 32,000 homeowners of unpaid balances remaining when their homes are foreclosed.
What? 32,000 homeowners will have their mortgages cancelled? Is that what I am hearing? Is this a lottery?
- $430 million in costs, fees and penalty payments.
I suppose this goes to the state and is badly needed.
OH, AND THE SETTLEMENT CREATES 42 MORE JOBS:
California will expand its Mortgage Fraud Strike Force, adding to the more than 42 members already working on the team.
California Foreclosure Case – Lona v. Citibank (scroll to the bottom) Okay, we have been talking about predatory lending for some time now. We have talked about California homeowners being steered into loans that virtually guaranteed their foreclosure sale. We have talked about lenders and real estate brokers that falsely stated income on loan applications, and we have talked about non-judicial foreclosure sales and the challenges involved in trying to set aside the foreclosure sale, including the lender “tender” rule (the rule that the banks argue in almost every foreclosure case basically arguing to the judge that you cannot challenge the foreclosure sale unless you tender the full balance of your loan). Of course very few people have the financial ability to pay the lender off on the loan, much less a borrower in default on a mortgage loan. At any rate, the Lona cases that recently came down from the California Court of Appeals (yes, the decision what thankfully cited for publication) takes an interesting view of stated income loans, the underwriting of these loans, and the tender rule in California (and its exceptions which the court was adept in pointing out). So here goes, here are the facts of Lona v. Citibank. The borrower was Mr. Lona, who apparently was of mexican decent and had an 8th grade education. He also apparently had two pieces of property, both in foreclosure. As to the foreclosure case at issue, Lona originally had a loan in the amount of 1.24 million dollars. In January of 2007 Lona claimed he was responding to an advertisement to refinance his loans. In response to the ads, Lona contacted the loan broker (First net mortgage) and applied for a loan. The loan application was for what we call a “stated income loan” (this is where the borrower states the amount his gross monthly income is and/or sometimes the unscrupulous loan broker will just fill this in themselves). At any rate, the loan application stated that Lona made $20,000 per month ($240,000 per year) when this in fact, apparently was not true (he was a mechanic at a mushroom farm). Lona claimed his annual income was only $40,000 ($3,333 per month). The loan was ultimately approved based on these figures, and both a first and second mortgage were originated. The first mortgage was for 1.125 million and was a 5/1 adjustable rate mortgage (loan was fixed for five years then would adjust). The CAP on the loan was 13.25% and the interest rate was 8.25%. The monthly payment on the first mortgage alone was $12,381.36. The second mortgage was a 15-year fixed mortgage in the amount of $350,000 and had a 12.25% interest rate and $327,000 Balloon Payment. In a nutshell, Lona claimed he could barely read english, did not read his loan documents, and that such were not adequately explained to him. Nevertheless, he signed the loan documents and 5 months later he was in default on the loans (keep in mind the monthly combined payment on the loans was $12,381.36 over 4x’s his monthly income). At some point after the loan was originated, the loan was sold to Citibank (probably part of a securitized loan scheme, but this is not confirmed) and EMC became the loan servicer of the loan. The lender thereafter initiated foreclosure proceedings (filed a notice of default and notice of sale etc.) and sold the house via non-judicial foreclosure sale in August of 2008. The house apparently went back to Citibank who recorded a trustees deed upon sale and thereafter moved to evict Lona from the property. Lona, however, did not go quietly into the foreclosure night. Instead, he filed a civil suit alleging a variety of causes of action, and basically sought to set aside the foreclosure sale (these were the two claims that survived demurrer and which were remaining against Citibank and EMC). The trial court found for Defendants in their motion for summary judgment, basically arguing that Defendant’s could not tender the loan balance, and must be held liable for his own actions in signing the loan. The court also noted that the borrower had been living in his house for free for some time. Further, the trial court ruled there was no evidence of any procedural irregularity or prejudice to the California homeowner Plaintiff. The Plaintiff appealed the grant of summary judgment arguing essentially that there was no requirement to tender the loan balance because the loan itself (and deed of trust) was illegal and unconscionable / unenforceable given that only his income was used to qualify him for the loan and that his credit did not warrant such a loan. He also argued that given this, he did not need to tender the loan balance to try to set aside the foreclosure sale. The unlawful detainer proceeding was consolidated with the Civil Action. The Courts holding in Lona v. Citibank The Court reversed the trial court and sent the case back for a trial on the merits. The court ruled there was no tender requirement because the Plaintiff was attacking the very validity of the debt (which is one of the exception to the tender rule) and that there was a question of material fact as to the unconscionable / illegal nature of the loan contract. In addition, there was a failure of Defendant to meet its burden for summary judgment on these issues, and the tender argument of Plaintiff was not addressed. Here is some key language pulled from the case:
I. Elements of a Cause of Action to Set Aside Trustee’s Sale
After a nonjudicial foreclosure sale has been completed, the traditional method by which the sale is challenged is a suit in equity to set aside the trustee’s sale. (Anderson v. Heart Federal Sav. & Loan Assn. (1989) 208 Cal.App.3d 202, 209-210.) Generally, a challenge to the validity of a trustee’s sale is an attempt to have the sale set aside and to have the title restored. (Onofrio v. Rice (1997) 55 Cal.App.4th 413, 424 (Onofrio), citing 4 Miller & Starr, Cal. Real Estate (2d ed. 1989) Deeds of Trusts & Mortgages, § 9.154, pp. 507-508.) On summary judgment, a “defendant . . . has met his or her burden of showing that a cause of action has no merit if that party has shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to that cause of action.” (Code Civ. Proc., § 437c, subd. (p)(2).) Neither the parties’ briefs nor the papers they filed below on the motion for summary judgment discuss the elements of an equitable cause of action to set aside a foreclosure sale. The parties do not cite any cases that expressly set forth the elements. “ ‘It is the general rule that courts have power to vacate a foreclosure sale where there has been fraud in the procurement of the foreclosure decree or where the sale has been improperly, unfairly or unlawfully conducted, or is tainted by fraud, or where there has been such a mistake that to allow it to stand would be inequitable to purchaser and parties.’ ” (Lo v. Jensen (2001) 88 Cal.App.4th 1093, 1097-1098 (Lo), quoting Bank of America etc. Assn. v. Reidy (1940) 15 Cal.2d 243, 248; see also Angell v. Superior Court (1999) 73 Cal.App.4th 691, 700.) Case law instructs that the elements of an equitable cause of action to set aside a foreclosure sale are: (1) the trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the party attacking the sale (usually but not always the trustor or mortgagor) was prejudiced or harmed; and (3) in cases where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the amount of the secured indebtedness or was excused from tendering. (Bank of America etc. Assn. v. Reidy, supra, 15 Cal.2d at p. 248; Saterstrom v. Glick Bros. Sash, Door & Mill Co. (1931) 118 Cal.App. 379, 383 (Saterstrom) [trustee’s sale set aside where deed of trust was void because it failed to adequately describe property]; Stockton v. Newman (1957) 148 Cal.App.2d 558, 564 (Stockton) [trustor sought rescission of the contract to purchase the property and the promissory note on grounds of fraud]; Sierra-Bay Fed. Land Bank Ass’n v. Superior Court (1991) 227 Cal.App.3d (1991) 227 Cal.App.3d 318, 337 (Sierra-Bay) [to set aside sale, “debtor must allege such unfairness or irregularity that, when coupled with the inadequacy of price obtained at the sale, it is appropriate to invalidate the sale”; “debtor must offer to do equity by making a tender or otherwise offering to pay his debt”]; Abadallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1109 (Abadallah) [tender element]; Munger v. Moore (1970) 11 Cal.App.3d 1, 7 [damages action for wrongful foreclosure]; see also 1 Bernhardt, Mortgages, Deeds of Trust and Foreclosure Litigation (Cont.Ed.Bar 4th ed. 2011 supp.) § 7.67, pp. 580-581 and cases cited therein summarizing grounds for setting aside trustee sale.) Justifications for setting aside a trustee’s sale from the reported cases, which satisfy the first element, include the trustee’s or the beneficiary’s failure to comply with the statutory procedural requirements for the notice or conduct of the sale. (Knapp, supra, 123 Cal.App.4th at pp. 96-99 [alleged irregularity in default notice and sale notice]; Sierra-Bay Fed. Land Bank Ass’n v. Superior Court, supra, 227 Cal.App.3d (1991) 227 Cal.App.3d at p. 337 [to set aside sale, “debtor must allege such unfairness or irregularity that, when coupled with the inadequacy of price obtained at the sale, it is appropriate to invalidate the sale”]; 6 Angels, Inc. v. Stuart-Wright Mortgage, Inc. (2001) 85 Cal.App.4th 1279, 1284 [“mere inadequacy of price, absent some procedural irregularity that contributed to the inadequacy of price or otherwise injured the trustor, is insufficient to set aside a nonjudicial foreclosure sale”].) Other grounds include proof that: (1) the trustee did not have the power to foreclose (Bank of America v. La Jolla Group II (2005) 129 Cal.App.4th 706 [trustee’s sale invalid because borrower and lender had entered into agreement to cure default; loan was therefore current and lender did not have right to foreclose]; Dimock v. Emerald Properties (2000) 81 Cal.App.4th 868, 878 (Dimock) [where original trustee completed trustee’s sale after being replaced by new trustee, sale was void because original trustee no longer had power to convey property]); (2) the trustor was not in default, no breach had occurred, or the lender had waived the breach (System Inv. Corp. v. Union Bank (1971) 21 Cal.App.3d 137, 154 (System) [borrower was not in default because it was excused from performance by lender’s prior breach of contract; bank waived amount allegedly due]; Van Noy v. Goldberg (1929) 98 Cal.App.604 [debt had not matured]); or (3) the deed of trust was void (Saterstrom, supra, 118 Cal.App. at p. 383 [trustee’s sale set aside where deed of trust was void because it failed to adequately describe property]; Stockton, supra, 148 Cal.App.2d at p. 564 [trustor sought rescission of promissory note on grounds of fraud]; see also 1 Bernhardt, Mortgages, Deeds of Trust and Foreclosure Litigation, supra, § 7.67, pp. 580-581. We shall discuss this element further in section V. B. of this opinion.
A. Assertion That Loans Were Not Unconscionable
As a third ground for their motion, Citibank and EMC challenged the allegations of Lona’s second amended complaint that the trustee’s sale was “ ‘improperly held . . . due to the unconscionable and illegal nature of the loan agreement and deed of trust.’ ” The moving parties did not specify which element of the cause of action this part of their motion addressed. Arguably, it implicated both the first and third elements of the cause of action. Lona contends that the trustee’s sale should be set aside on the grounds that the loan was void ab initio because it was unconscionable and that he was excused from the tender requirement because the loan was unconscionable.First, Citibank and EMC argued that a trustee’s sale could not be set aside for unconscionability because the only basis for setting aside a trustee’s sale is irregularity in the foreclosure procedure. We have already rejected that contention. Second, Citibank and EMC argued that Lona failed to establish that the loans were unconscionable. In essence, they asked the court to find, as a matter of law, that the loans and deeds of trust were not unconscionable. Before proceeding further, we review general principles governing the “judicially created doctrine of unconscionability.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113 (Armendariz), abrogated in part on another ground in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __, __ [131 S.CT. 1740, 1746].) “Unconscionability analysis begins with an inquiry into whether the contract is one of adhesion. [Citation.] ‘The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’ ” (Ibid.) The record here suggests that the deeds of trust and the notes were contracts of adhesion. They appear to be standard forms that were drafted by the lender or others and presented to Lona for signature. There was no evidence in the record that Lona had any role in negotiating the terms of the contracts. “If the contract is adhesive, the court must then determine whether ‘other factors are present which, under established legal rules—legislative or judicial—operate to render it [unenforceable].’ [Citation.] ‘Generally speaking, there are two judicially imposed limitations on the enforcement of adhesion contracts or provisions thereof. The first is that such a contract or provision which does not fall within the reasonable expectations of the weaker or “adhering” party will not be enforced against him. [Citations.] The second—a principle of equity applicable to all contracts generally—is that a contract or provision, even if consistent with the reasonable expectations of the parties, will be denied enforcement if, considered in its context, it is unduly oppressive or “unconscionable.” ’ [Citation.] Subsequent cases have referred to both the ‘reasonable expectations’ and the ‘oppressive’ limitations as being aspects of unconscionability.” (Armendariz, supra, 24 Cal.4th at p. 113.) “In 1979, the Legislature enacted Civil Code section 1670.5, which codified the principle that a court can refuse to enforce an unconscionable provision in a contract. [Citation.] As section 1670.5, subdivision (a) states: ‘If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.’ ” (Armendariz, supra, 24 Cal.4th at p. 114.) Subdivision (b) of the statue provides: “When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination.” “ ‘[U]nconscionability has both a “procedural” and a “substantive” element,’ the former focusing on ‘ “oppression” ’ or ‘ “surprise” ’ due to unequal bargaining power, the latter on ‘ “overly harsh” ’ or ‘ “one-sided” ’ results. [Citation.] ‘The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.’ [Citation.] But they need not be present in the same degree. ‘Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.’ [Citations.] In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Armendariz, supra, 24 Cal.4th at p. 114.) Absent unusual circumstances, evidence that one party has overwhelming bargaining power, drafts the contract, and presents it on a take-it-or-leave-it basis is sufficient to demonstrate procedural unconscionability and require the court to reach the question of substantive unconscionability, even if the other party has market alternatives. (Gatton v. T-Mobile USA (2007) 152 Cal.App.4th 571, 586.) In their motion, Citibank and EMC asserted that Lona voluntarily entered into the loans and received the benefits of the loan and that it was undisputed that he signed the loan documents, which set forth the terms of the loans. The defendants focused on Lona’s allegations that the loans were unconscionable because of the potential increase in the interest rate on the first loan from 8.25 to 13.25 percent and the balloon payment on the second loan. Citibank and EMC argued that these terms “had no impact whatsoever on [Lona’s] inability to make the monthly Loan payments,” because the interest rate on the first loan was fixed at 8.25 percent for the first five years and the balloon payment was not due for 15 years and Lona defaulted within the first year after entering into the loans. We are not persuaded that the increase in the interest rate on the first loan or the amount of the balloon payment on the second loan are sufficient in and of themselves to support the claim that the loans were unconscionable. However, Citibank and EMC’s assertion that these allegedly unconscionable terms of the loan did not cause the default does not necessarily dispose of Lona’s claim that the loans were void ab initio because they were unconscionable. In addition to alleging unconscionability based on the interest rates and balloon payment provision, the second amended complaint alleged that the loans were unconscionable and illegal because they “were made to [Lona] without reasonable consideration of his ability to repay the loans . . . given his income at the time” and that the interest rate “far exceeded what was reasonable given his credit rating at the time of application.” Citibank and EMC’s motion did not address these allegations. The moving parties presented no evidence regarding Lona’s income, credit rating, or credit worthiness. And when Lona raised these factual issues in response to the motion for summary judgment, the moving parties did not respond; they did not discuss Lona’s evidence or provide any legal argument regarding the impact of that evidence. They did not file anything in reply. In our view, the defendants failed to meet their burden on summary judgment because their motion failed to address all of the allegations of the Lona’s second amended complaint regarding the alleged illegality of the loan. On summary judgment, an alternative method by which a defendant may meet its burden of showing that an essential element of the plaintiff’s claim cannot be established is to present evidence that the plaintiff “does not possess and cannot reasonably obtain, needed evidence.” (Aguilar, supra, 25 Cal.4th at p. 854.) But unlike federal law, summary judgment law in California requires the defendant to present evidence, and not simply point out through argument, that the plaintiff does not possess and cannot reasonably obtain the needed evidence. (Aguilar, at p. 854.) Such evidence may consist of the deposition testimony of the plaintiff’s witnesses, the plaintiff’s factually devoid discovery responses, or admissions by the plaintiff in deposition or in response to requests for admission that he or she has not discovered anything that supports an essential element of the cause of action. (See Villa v. McFerren (1995) 35 Cal.App. 4th 733, 749; Leslie G. v. Perry & Associates (1996) 43 Cal.App.4th 472, 482; Union Bank v. Superior Court (1995) 31 Cal.App.4th 573, 590.) At the hearing on the summary judgment motion, Citibank and EMC argued that there was no evidence to support Lona’s allegations, that Lona had not alleged any facts that would create triable issues, and that Lona relied on conclusions and not facts, which was not enough to avoid summary judgment. Citibank and EMC’s evidence in support of their motion for summary judgment consisted of the loan documents and documents related to the trustee’s sale, as well as the declaration of an employee of EMC describing and authenticating the documents. They did not submit any discovery responses by Lona. To the extent that their summary judgment motion relied on the claim that Lona had no evidence to support the allegations of his complaint, Citibank and EMC relied solely on argument and did not present the type of evidence necessary to demonstrate that Lona did not possess and could not reasonably obtain, needed evidence. (Aguilar, supra, 25 Cal.4th at p. 854.) Thus, Citibank and EMC failed to meet their burden on summary judgment to show that Lona had no evidence that supported his claims. In addition, with regard to this ground, the record reveals triable issues of material fact. In opposition to the motion for summary judgment, Lona presented evidence that he had only an eighth grade education, his English was limited, no one explained the documents to him, and he did not understand what he was signing. He presented evidence that, while the loan brokers told him what the initial interest rate and monthly payments were, they did not tell him how high the interest rate could increase on the first loan and that no one explained the balloon payment to him. The loan documents appear to be on standard, pre-printed forms in English and there is no evidence Lona had any role in negotiating the terms of the loan. In our view, this was sufficient evidence of unequal bargaining power, oppression or surprise to raise a triable issue regarding procedural unconscionability. In addition, there was uncontradicted evidence that Lona earned only $40,000 per year at the time the loans were approved, that only his income was considered in qualifying for the loan, and that the monthly payments were approximately four times his monthly income. Given the extreme disparity between the amount of the monthly loan payments and Lona’s income, this was sufficient to create a triable issue on the question of whether the loans were overly harsh and one-sided and thus substantivelyunconscionable. And while this evidence may not ultimately be persuasive at trial, in this case, it was sufficient to defeat the motion for summary judgment. Since Citibank and EMC failed to address all of the allegations of the complaint regarding the alleged unconscionability of the loans and failed in their burden to show that Lona did not have any evidence to support his claims, we cannot say that they have met their burden of demonstrating that the loans and deeds of trust were not unconscionable as a matter of law. In addition, Lona submitted sufficient evidence to raise a triable issue with regard to the alleged unconscionable nature of the transaction. Our holding does not mean that a borrower may defeat a motion for summary judgment in an action to set aside a trustee’s sale merely by alleging that he or she did not understand the terms of the loan documents signed or could not afford the loan. In this case, the primary reasons for reversing the summary judgment are the moving parties’ failure to address all of the allegations of the second amended complaint and their failure to properly demonstrate that Lona had no evidence to support his claims. In addition, after Lona’s opposition argued that the loan was void for illegality at the time of signing and submitted evidence that demonstrated an extreme disparity between Loan’s income and the amount of his monthly payments, Citibank and EMC made no effort to address this evidence, with argument or legal authority.
B. Tender Requirement
Because the action is in equity, a defaulted borrower who seeks to set aside a trustee’s sale is required to do equity before the court will exercise its equitable powers. (MCA, Inc. v. Universal Diversified Enterprises Corp. (1972) 27 Cal.App.3d 170, 177 (MCA).) Consequently, as a condition precedent to an action by the borrower to set aside the trustee’s sale on the ground that the sale is voidable because of irregularities in the sale notice or procedure, the borrower must offer to pay the full amount of the debt for which the property was security. (Abadallah, supra, 43 Cal.App.4th at p. 1109; Onofrio, supra, at p. 424 [the borrower must pay, or offer to pay, the secured debt, or at least all of the delinquencies and costs due for redemption, before commencing the action].) “The rationale behind the rule is that if [the borrower] could not have redeemed the property had the sale procedures been proper, any irregularities in the sale did not result in damages to the [borrower].” (FPCI RE-HAB 01 v. E & G Investments, Ltd. (1989) 207 Cal.App.3d 1018, 1022.)
C. Exceptions to the Tender Requirement
There are, however, exceptions to the tender requirement. Our review of the case law discloses four exceptions. First, if the borrower’s action attacks the validity of the underlying debt, a tender is not required since it would constitute an affirmation of the debt. (Stockton, supra, (1957) 148 Cal.App.2d at p. 564) [trustor sought rescission of the contract to purchase the property and the promissory note on grounds of fraud]; Onofrio, supra, 55 Cal.App.4th at p. 424.) Second, a tender will not be required when the person who seeks to set aside the trustee’s sale has a counter-claim or set-off against the beneficiary. In such cases, it is deemed that the tender and the counter claim offset one another, and if the offset is equal to or greater than the amount due, a tender is not required. (Hauger, supra, (1954) 42 Cal.2d at p. 755.) Third, a tender may not be required where it would be inequitable to impose such a condition on the party challenging the sale. (Humboldt Savings Bank v. McCleverty (1911) 161 Cal. 285, 291 (Humboldt). In Humboldt, the defendant’s deceased husband borrowed $55,300 from the plaintiff bank secured by two pieces of property. The defendant had a $5,000 homestead on one of the properties. (Id. at p. 287.) When the defendant’s husband defaulted on the debt, the bank foreclosed on both properties. In response to the bank’s argument that the defendant had to tender the entire debt as a condition precedent to having the sale set aside, the court held that it would be inequitable to require the defendant to “pay, or offer to pay, a debt of $57,000, for which she is in no way liable” to attack the sale of her $5,000 homestead.(Id. at p. 291.) Fourth, no tender will be required when the trustor is not required to rely on equity to attack the deed because the trustee’s deed is void on its face. (Dimock, supra, 81 Cal.App.4th at p. 878 [beneficiary substituted trustees; trustee’s sale void where original trustee completed trustee’s sale after being replaced by new trustee because original trustee no longer had power to convey property].) In their motion for summary judgment, Citibank and EMC asserted that Holland v. Pendleton Mtge. Co. (1943) 61 Cal.App.2d 570, 577-578 (Holland) establishes another exception to the tender requirement. Although one treatise interprets the case that way (see 4 Miller & Starr, Cal. Real Estate (3d ed. 2000) Deeds of Trust, § 10:212, p. 686), we do not agree that Holland establishes an exception to the tender rule, since the tender requirement was not at issue in Holland and the court did not discuss the tender requirement. We discuss Holland nonetheless because Citibank and EMC relied on it in their motion. In Holland, the trustee’s sale was continued four times and the property was sold to the beneficiary/lender. (Holland, supra, 61 Cal.App.2d at p. 573.) The court held the sale was void because the trustee had not complied with the statutory requirements for noticing the fifth and actual sale date. (Id. at pp. 575-577.) After the sale, the trustor remained in possession of the property and paid the lender $35 per month. (Id. at p. 577.) The parties disputed whether the payments were rent or were made pursuant to a new agreement with the lender to redeem the property. (Ibid.) In light of the irregularities in the notice of the sale, the appellate court held that the trustor should be allowed to set aside the sale. It also directed the trial court to determine whether the parties had entered into a new agreement and the nature of the monthly payments, and ordered that any amounts due be paid “after judgment.” (Id. at pp. 577-578.) Although the court did not discuss the tender requirement, the treatise authors have interpreted Holland as holding that a court “may permit the trustor to set aside the foreclosure sale on condition that payment be made after entry of judgment.” (4 Miller & Starr, Cal. Real Estate, supra, Deeds of Trust § 10:212, p. 686.) In our view, the appellate court in Hollandwas providing guidance to the trial court on remand regarding the monthly payments and did not establish a fifth exception to the tender requirement.
D. Analysis of Tender Requirement Element
We begin our analysis by reviewing the allegations of Lona’s second amended complaint (hereafter “complaint”). Lona alleged that the trustee’s “sale was improperly conducted due to fraudulent conduct of the foreclosing party and the unconscionable and illegal nature of the loan agreement and deed of trust . . . . The loan agreements were void for illegality from the inception and . . . voidable based on the unconscionable nature of the loans [and] violation of stated Public Policy.” The complaint also alleged that Lona was “excused from tendering the cure amount prior to seeking equitable relief, due to the fraudulent conduct of the foreclosing party, its failure and refusal to comply with statutory pre-requisites to the right to foreclose and the illegal and unconscionable nature of the contract.” Thus, the complaint alleged both irregularity in the foreclosure process and illegality of the underlying contract. In their summary judgment motion, Citibank and EMC attacked the tender requirement element of Lona’s cause of action and argued that his cause of action to set aside the trustee’s sale failed because he did not tender the amounts due on the first loan before filing suit and that none of the exceptions to the tender requirement applied. Citibank and EMC’s arguments regarding the exceptions to the tender requirement cited and distinguished Holland and Humboldt but failed to discuss the exception relating to the legality of the loan and the validity of the debt, which Lona relied on in his complaint. In opposition to the motion, Lona argued that there were other exceptions to the tender rule, including those set forth in Stockton and Hauger. He argued that he was not required to tender to seek equitable remedies or damages because: (1) the deed of trust “was illegal from the time of formation and therefore, unenforceable and non-assignable”; and (2) his “claims would offset any amounts claimed to be due under the void agreements.” Thus, Lona’s opposition relied on two exceptions to the tender requirement that Citibank and EMC had not addressed. Lona also argued that a tender was not required because his claim was based on the illegality of the loan contract, and not any irregularity in noticing or conducting the trustee’s sale. As noted, the issues on summary judgment are framed by the pleadings. (Varni, supra, 35 Cal.App.4th at pp. 866-867.) To prevail on their summary judgment motion, Citibank and EMC had to show that Lona could not establish the tender requirement element of his cause of action by showing both that Lona had not tendered and that the exceptions to the tender requirement that Lona relied on in his complaint did not apply. It was undisputed that Lona did not tender the amounts due before filing suit. Citibank and EMC failed to meet their initial burden on summary judgment because their motion was based on the exception in Humboldt and the holding in Holland, which Lona’s complaint did not rely on, and did not address the exception from Stockton (tender not required when borrower’s action attacks validity of debt), which was the exception that Lona had pleaded in his complaint. We hold that Citibank and EMC did not meet their burden of showing that Lona could not state a cause of action to set aside the trustee’s sale on the ground that he could not establish the tender requirement because their motion did not address the exceptions to that element that Lona relied on in his complaint. A defendant that moves for summary judgment has the burden to show that it is entitled to judgment with respect to all theories of liability asserted by the plaintiff. (Lopez v. Superior Court(1996) 45 Cal.App.4th 705, 717.)
 It is important at this juncture to note that Lona did not allege any separate tort claims for fraud or contract claims based on the alleged unconscionability of the loans against Citibank or EMC. The only remaining cause of action against those defendants was Lona’s equitable claim to set aside the trustee’s sale.
 At the hearing on the motion, the attorneys seemed to agree that the loan application indicated that Lona made $20,000 per month. However, neither party placed the loan application into evidence and the only evidence in the record relating to Lona’s income was his deposition testimony. Lona’s counsel told the court that there was a factual dispute whether Lona knew what the loan application stated and whether Lona was responsible for the alleged misrepresentation regarding his income in the loan application. Unfortunately, Lona neglected to provide the court with evidence that supported these assertions. Since there is no evidence in the record regarding the entries in the loan application, we do not consider them in evaluating the propriety of granting summary judgment. Even were the application in the record, it appears there would be a factual dispute regarding the amount of Lona’s monthly income–whether it was $240,000 per year ($20,000 per month) as purportedly stated in the loan application or $40,000 per year as Lona testified in deposition.
 The Humboldt court stated that the “defendant would be subjected to very evident injustice and hardship if her right to attack the sale were made dependent upon an offer by her to pay the whole debt. The debt was not hers, and she was not liable for any part of it. Her only interest was in the homestead property, which [was worth] $5,000, while the property in which she had no interest was worth over $57,000. The debt amounted to $57,618.30.” (Humboldt, supra, 161 Cal. at p. 291.)
 Although Lona’s complaint did not expressly plead the exception in Hauger (tender not required where trustor’s counter claim is greater than the amount due on the loan), he did pray for both compensatory and punitive damages. Arguably, that exception is also encompassed by the pleadings.
Need to learn more about California Short Sale trends for 2012 – Listen in to our real estate radio show free?
We have a great show coming up on the VONDRAN LEGAL HOUR (out internet real estate radio show). Listen in as we invite California short sale realtor Allen Brodetsky of Boutique Realty onto the show to discuss the important foreclosure prevention topic of Short Sales and how they work. Many homes in California cannot be saved via foreclosure, modification , or bankruptcy, in these cases, it is wise to have a working knowledge of how a short sale works, and when you might want to consider going that route.
Here are some of the topics we hope to cover which I believe are the most frequently asked California short sale questions:
1. What are you seeing out there – trends in California short sales?
2. Are lender’s doing short sales?
3. Who is your favorite and least favorite lender/servicer in re to
4. What happens when there is a first and second mortgage? (are
lenders still doing these)?
5. How long does it take to get a short sale approved on average?
6. Who pays for a short sale? Are there up front fees?
7. Some people want to hire their “uncle joe” (cousin realtor) to do
a short sale – are there any pitfalls in that approach?
8. Talk to me about “arms length transactions” (this is a problem we
run into from time to time as a law firm) – Do you see lender/
servicers allow family and friends to make short sale deals?
9. What are the benefits of a short sale vs foreclosure?
10. I hear now that there are refinances for underwater homes – do
you know about that program?
11. In your experience, are banks foreclosing faster now or not?
12. Are the servicer/lenders offering any cash incentives (“cash for keys”) to the homeowner in exchange for a short sale?
13. Do you negotiate HAFA short sales?
Allen Brodetsky is a CALIFORNIA SHORT SALE REALTOR with experience in the short sale trenches. There is no cost to listen in to the show. Simply click on the Vondran Legal Hour link above. We look forward to hearing from you.
We have said all along that notes are getting passed around like a whiskey bottle at a frat party. Fine, the banks are allowed to sell your loans to another party. But you are legally entitled to get notice of this transfer to a new assignee of a consumer loan. Yes, it is a legal right you have, even if you are in default, and even if you are in foreclosure. This is a law passed that amends TILA (reg Z) 15 U.S.C. 1641 – specifically section 131(g), and which states that you are entitled to get this notice. We have seen many a case where there simply is no notice and one day some new financial institution (including securitized loan trusts) literally appear out of thin air and demand payment at the threat of foreclosure. It is your right to ask them who they are and ask when they bought the loan and where the transfer disclosure statement is or where it was sent.
If they fail to provide this statement, you could be entitled to $4,000 statutory damages and can seek your attorney fees. This law is part of the “Helping Families Save their Homes Act” and became effective on 5/19/09 when President Obama signed the law. The law applies to “principal dwellings of a consumer” (won’t apply to commercial loans) whether the loan be a first mortgage or junior mortgage. The law requires the loan assignee (the seller has no obligation) to notify the consumer borrower of the sale or transfer of the loan within 30 days.
Contents of the notice must include:
Identity, address and phone number of the assignee
Date of the transfer of the loan
Contact information of the agent with authority to act on behalf of the assignee
The location of the place where the transfer of the ownership of the debt is recorded
Any other relevant information regarding the assignee
NOTE: Section 130(a)- 15 U.S.C. 1640(a) lays out the civil penalties for a violation of the act, which include $4,000 and attorney fees may be sought.
The federal reserve board (which implements TILA) has not yet appeared willing to clarify any of the section 131 ambiguities, so some of this may shake out in litigation.
Hello everyone. We almost made it to 2012, a year that promises more of the same in the foreclosure and short sale business. We should continue to see a trend with more foreclosures, more short sales, and more problems dealing with the major lenders and loan servicers. This article discusses the problem of liability following foreclosure or short sale in California. This is a very important topic and one that needs to be considered when you are creating a “loss mitigation plan” to deal with your distressed property. Please keep in mind the following is only general information, and is not legal advice, or a substitute for legal advice. We offer paid consultations that can evaluate your situation, every situation is unique and different.
We have talked about many of these issues before, and we have discussed the general rule in California (ccp 58od) which discusses there can be no deficiency liability to the first mortgagee when they foreclose non-judicially. And we have discussed ccp 580b which discussed how “purchase money” is protected from deficiency judgments in California, whether the lender seeks to foreclose judicially, or even non-judicially (the lender may elect their remedy), and we have also discussed ccp 726 the so called “one-action rule” which states that a secured lender must seek to foreclose on the “security first” before seeking to recover their debt in another manner.
But how do all these rules apply where you have a second mortgage that is secured by a deed of trust, but the second mortgage is underwater and technically does not secure any equity in your property (ex. you owe 500k on a first and 100k on a second mortgage. The second mortgage was taken out after the first and is not purchase money – and the property has a fair market value of $300k). In this scenario, if there is a foreclosure sale that sells the property to a third party, the first mortgagee would get 300k and the second mortgage holder (i.e. the junior lien holder) would get nothing. As we discussed, if the second mortgage is purchase money then the second is simply out of luck.
But if the second mortgage was a HELOC, and not purchase money (a topic for another blog) then the second mortgage holder may have options against you. As noted above, the “one action rule” in California (ccp 726) states that the secured lender must exercise on their security first, but what about the second. In the above scenario, the first foreclosed following the default on the loan, and the second stood silently by with no real options. Sure the second could have sought to foreclose using their power of sale, but the first mortgage holder still would have got the sale proceeds.
This is what we call the case of the “sold out junior” lien. After the foreclosure sale occurred, the second lien holder was left holding nothing but an unsecured debt (their lien is stripped following the foreclosure sale so clear title can pass to the purchaser, usually at the trustee sale). Thus, the debt became unsecured and the second lien holder has never had an opportunity to take an “action” for the purpose of the one action rule. So what options do they have? Well, they have the option to then “sue on the note” and come after you for the amount of the debt owed. Will they do this? Who knows. They might just want to sell your debt to a collection agency to let them try to collect from you. We do see this happening (even on protected purchase money loans).
As an example of how this might work is the case of Bank of America National Trust and Savings Association v. Charles Graves, California Court of Appeal, 4th District Court case. In this case, the above scenario basically happened (with the one small exception that the second lien holder started foreclosure proceedings, but then stopped because the first decided to foreclose). At issue was the one action rule and the second lien holders options – whether they could sue the borrower for the deficiency judgment. The Court held the second mortgagee could sue the borrower on the note (a non purchase money loan). Here is what the court said:
Here, the Bank contends it was entitled to proceed directly against the debtors because, through no fault of its own, it was a sold-out junior lienor. Accordingly, it argues that the defenses raised by the debtors, based on the ‘one form of action rule’ (§ 726) and the antideficiency statutes (§§ 580a, 580b, 580d) do not apply. The Graveses contend the Bank was not a sold-out junior lienor because its own action in postponing its trustee’s sale deprived it of that status.
“The term “sold-out junior lienor” refers to the situation in which a senior lienholder forecloses its lien, eliminating the junior lienor’s security interest. “A senior foreclosure sale conveys the property free of all junior [51 Cal. App. 4th 612] liens …. Thus, the junior no longer has a lien on the property, and the security has been entirely destroyed. A sold-out junior thus holds security that has ‘become valueless’ and is permitted to sue directly on the note.” (Bernhardt, Cal. Mortgage and Deed of Trust Practice (Cont.Ed.Bar 2d ed. 1990) § 4.8, pp. 193-194.)”
In the leading case of Roseleaf Corp. v. Chierighino, supra Chief Justice Traynor held, “The ‘one form of action’ rule of section 726 does not apply to a sold-out junior lienor [citations], nor does the three-months limitation of section 580a. [Citations.] There is no reason to compel a junior lienor to go through foreclosure and sale when there is nothing left to sell……….”The prohibition against a deficiency judgment does not apply to the beneficiary of a junior deed of trust whose security has been rendered valueless by a foreclosure sale of the property under a senior encumbrance. After the security has been lost by the foreclosure sale of the senior lien, the junior lienor can sue the debtor directly on the promissory note, which is then considered unsecured.” (4 Miller & Starr, Cal. Real Estate (2d ed. 1989) § 9:156, p. 531; see also 3 Witkin, Summary of Cal. Law (9th ed. 1987) Security Transactions in Real Property, § 159, pp. 658-659.).”
So as you can see, the non-purchase money unsecured lender may have rights to come back after you in California following a foreclosure sale by the first.
At any rate, what happens if the second sues you? Many people will then consider or at least review the potential for:
1. Working it out with the creditor or negotiating the debt down and paying off the second.
2. Some may consider filing bankruptcy. (ex. in a chapter 7 the unsecured debt can be potentially wiped out and discharged)
3. If sued on the note, some will raise the defense of recoupment (TILA), standing, FDCPA, or raise the 726 affirmative defense, etc.
These are just some options.
I hope you found this article helpful as far as understanding some of the basic principles at play. If you need a foreclosure or short sale lawyer to review your options contact us at (877) 276-5084. You can get video information through our Foreclosure Warrior website. This is an advertisement and communication.
Here is an interesting one. My friend brought over a mailer he just received from Bank of America which informs him that he may be entitled to money damages if he was in foreclosure between January 1, 2009 and December 31, 2010 and was “financially injured” by acts of the banks. Some examples they provide of what may constitute “FINANCIALLY INJURED” include:
The mortgage balance at the time of foreclosure was more than you actually owed (they wouldn’t do that now would they)?
You were doing everything the modification agreement required, but the foreclosure still happened (say it ain’t so Joe)
The foreclosure action occurred while you were protected by bankruptcy (you mean a “stay violation”?)
You requested assistance/modification, submitted complete documents on time, and were waiting for a decision when the foreclosure sale occurred (that’s real cool)
Fees charged or mortgage payments were inaccurately calculated, processed, or applied
The foreclosure action occurred on a mortgage that was obtained before active duty military service began and while on active duty, or within 9 months after the active duty ended.
These are the examples provided in their mailer piece – which is referred to in one section as “errors, misrepresentations or other deficiencies in the foreclosure process.” Is this their definition of WRONGFUL FORECLOSURE? We have been wondering for a long time what wrongful foreclosure was. So apparently if one of these acts happened to you, AND IF YOU WERE FINANCIALLY INJURED then you might be entitled to an independent review that could result in a check being sent to you. Just what the maximum amounts available are is unclear, and it is not clear how you will prove you were financially injured. In the lawsuits we have filed, lenders typically argue that THEY WERE THE ONES INJURED NOT YOU. So it will be interesting to see how this plays out.
Noticeably missing from their list of examples of “situations that may have led to financial injury” are:
Foreclosing on your with bogus foreclosure documents
Foreclosing on you while not following the California Foreclosure laws
Foreclosing on you after you rescinded your loan under TILA (and had the clear ability to tender the loan balance)
Foreclosing on elder homeowners who were trapped in an exploding option arm (negam loan)
At any rate, this is at least an attempt to by BofA to reach out (albeit forced by the Federal Regulators / OCC & Federal Reserve) to try to right the wrong so we will have to see how it plays out. If anyone has any stories from the trenches on this program please let us know so we can share the results. The stated deadline to apply is April 30, 2012. We can only wonder if Wells Fargo, Citi, Chase and other lenders are being forced to follow suit.
CALIFORNIA SHORT SALE UPDATE – SB 931 and SB 458 prohibits deficiency judgments following short sales in California!
Well, many of the lenders and servicers were not great about doing loan modifications (even though they got their bailout), what about short sales? Will they do short sales without seeking deficiency judgments from California borrowers? In the past junior lien holders may have required cash contributions or required the borrower to carry a note of they wanted to do a short sale. However, recently California has passed two laws that help California homeowners facing foreclosure:
(1) SB 931 – This bill prohibited deficiency judgments by the first mortgage holder following a short sale transaction (a short sale is when you owe more than your house is worth and the bank allows you to sell it and the bank takes the loss). We will talk about mortgage debt forgiveness in another blog post and whether or not that may trigger any tax liability for forgiven debt. But the point is that SB 931 prevents the senior lien holder from pursuing a deficiency judgment where they agree to allow you to short sale your property. Note: we have seen situations where the defaulting borrower can afford their mortgage payment, but because they are upside down, the lender or loan servicer of the securitized loan refuses to short sale. Sometimes, where there is a second mortgage, the junior lien holder refuses to release the lien and the short sale never goes through. At any rate, SB 931 mererly states that where they DO AGREE to the short sale, they cannot come back after you for a deficiency judgment (which is the difference between what you owed the lender and what they actually got for the property in the short sale).
So, SB 931 was great where all you had was a first mortgage and no second mortgage (also called a junior lien). But what about when you had a first and second and the second wanted to come back at you for the deficiency judgment? SB 931 did not account for that scenario.
(2) SB 458 – This law came in and plugged the hole and basically states that the second or junior lien holder cannot come back at you for a deficiency judgment following a short sale. So this make a short sale a very attractive proposition right now (especially since a short sale is better on your credit score). The real question is whether or not the junior lienholder will still agree to the short sale, or whether they will be more inclined to NOT AGREE to the short sale where a borrower has assets that might be worth going after. There are also questions about whether or not the lender or loan servicer will seek contributions from the buyer of the property, or even commission reductions to the real estate agent. These are some things we will have to wait and see how lenders respond. In the meantime, this is hope for homeowners, and falls in line with HAFA which prohibits deficiency judgments.
So we may see a boom in short sale transactions in the year 2012 given these new laws, and where the mortgage debt forgiveness act may come into play to protect certain borrowers from having a taxable event when it comes to the shortsale. If you are not sure where you stand, or whether a short sale is in your best interest, give us a call. We can consult you in regard to liability in regard to the short sale. We may also be able to negotiate with your junior lien holder if they have sued you for a deficiency judgment arguing these laws and section 580 (e) of the code. A California short sale lawyer can help you look out for your best interest and avoid deficiency liability traps.
CALIFORNIA TRUSTEE SALE AND THE TILA RECOUPMENT DEFENSE
First off, what is recoupment under the Federal Truth in Lending Law?
We have talked on many other blog posts about the Federal Truth in Lending Act (“TILA”) and the one year right to statutory damages (which can be equitably tolled under some circumstances) and we have discussed TILA rescission which provides an “extended three year right to rescind the mortgage loan in a refinance transaction on a primary residence if certain “material violations” are present) – this right generally speaking cannot be extended and some courts require that the TILA lawsuit be FILED within three years. This blog post discusses a different legal right under TILA, which is the right to assert the defense of recoupment when a creditor initiates an action seeking to collect on a debt.
The goal of the defense is to reduce the amount you owe the creditor. In a successful action, the party raising the recoupment defense can seek reasonable attorney fees so there is also an economic incentive to raise the defense where applicable so that it may be easier to find an attorney willing to take the case.
As one California court discussed Recoupment is:
“A defense arising out of some feature of the transaction upon which the plaintiff’s action is grounded.” TILA provides that the one-year statute of limitations on damages claims “does not bar a person from asserting a [TILA] violation in an action to collect the debt … as a matter of defense by recoupment or set-off in such action, except as otherwise provided by State law .” 15 U.S.C. § 1640(e) (emphasis added). See also 15 U.S.C. § 1635(i)(3) (“Nothing in this subsection affects a consumer’s right of rescission in recoupment under State law.”). Under California law, a claim for recoupment may be brought as a “defense” to an “action,” notwithstanding that the claim might otherwise be barred by the statute of limitations if brought as an independent action. CAL. CODE CIV. PRO. § 431.70. See the unreported case of Alakozai v. Valley Credit Union, No. C 10–02454 HRL, 2010 WL 5017173, (N.D.Cal. Dec.3, 2010) (quoting Beach v. Ocwen Fed. Bank, 523 U.S. 410, 415, 118 S.Ct. 1408, 140 L.Ed.2d 566 (1998)).
So essentially, where you have TILA violations (ex. under-disclosure of the APR, finance charge, total of payments, etc.) these violations must normally be brought within ONE YEAR in order to obtain actual and statutory damages. In limited circumstances, this can be tolled. However, when a debtor is responding to a creditor action (ex. a lawsuit, or a proof of claim in a bankruptcy court) to collect a debt, the one-year statute of limitations does NOT APPLY given the language contained in the underlined section above.
Can you argue the defense of recoupment in California when the lender seeks a non-judicial foreclosure – is that an action that allows the recoupment defense?
Short answer – probably not. Here is one California Federal Case which dismissed the TILA recoupment claim when raised in response to a non-judicial foreclosure action. Amaro v. Option One Mortgage, 2009 WL 103302, U.S. Dist. Ct. (CD Cal 2009):
“Plaintiff argues the doctrine of recoupment allows her to raise the claim, despite bringing it beyond the statute of limitations period. (See Opp’n at 8.) According to Plaintiff, “a party may assert recoupment as a defense after a statute of limitations period has lapsed.” (Id.) Plaintiff argues she may use this defense affirmatively in this case because she brings it in response to Defendant’s non-judicial foreclosure proceeding. (Id.) Plaintiff’s contention lacks merit. A party may bring a claim for recoupment after TILA’s one-year statute of limitations period has expired, but only as a defense in an action to collect a debt. 15 U.S.C. § 1640(a). Here, Plaintiff’s affirmative use of the claim is improper and exceeds the scope of the TILA exception, permitting recoupment as a defensive claim only. See id.; Beach v. Ocwen Fed. Bank, 523 U.S. 410, 415-16, 118 S.Ct. 1408, 140 L.Ed.2d 566 (1998). Accordingly, the Court grants Defendant’s Motion with respect to Plaintiff’s first claim, without leave to amend.
Another California Court put it this way:
Recoupment is “a defense arising out of some feature of the transaction upon which the plaintiff’s action is grounded.” Alakozai v. Valley Credit Union, No. C 10–02454 HRL, 2010 WL 5017173, (N.D.Cal. Dec.3, 2010) (quoting Beach v. Ocwen Fed. Bank, 523 U.S. 410, 415, 118 S.Ct. 1408, 140 L.Ed.2d 566 (1998)). TILA provides that the one-year statute of limitations on damages claims “does not bar a person from asserting a [TILA] violation in an action to collect the debt … as a matter of defense by recoupment or set-off in such action, except as otherwise provided by State law.” 15 U.S.C. § 1640(e) (emphasis added). The Court must, therefore, determine if Defendant’s non-judicial foreclosure is an “action” and, relatedly, whether Plaintiff’s claim properly may be characterized as a “defense” to such “action.”
The general rule is that “[w]hen the debtor hales the creditor into court, the claim by the debtor is affirmative rather than defensive.” See Ortiz v. Accredited Home Lenders, Inc., 639 F.Supp.2d 1159, 1165 (S.D.Cal.2009). Specifically, in non-judicial foreclosure cases, federal district courts in California conclude that “non-judicial foreclosures are not ‘actions’ as contemplated by TILA.”4 Ortiz, 639 F.Supp.2d at 1165 (S.D.Cal.2009); Alakozai, 2010 WL 5017173; Lima v. Wachovia Mortg. Corp., No. C09–4798TEH, 2010 WL 1223234, (N.D.Cal. Mar.25, 2010). Indeed, TILA itself defines an “action” as a court proceeding. Ortiz, 639 F.Supp.2d at 1165 (citing 15 U.S.C. § 1640(e)). Thus, insofar as Plaintiff asserts recoupment in response to Defendant’s non-judicial foreclosure, her claim is not properly deemed a “defense” to an “action” for purposes of avoiding the applicable statute of limitations. (See Harris v. Wells Fargo, 2011 WL 1134216). For another example, see Lima v. Wachovia Mortgage Corp. (unreported). 2010 WL 1223234 (Cal. ND 2010).
NOTE: Keep in mind, in most cases in California, non-judicial foreclosure is the chosen foreclosure remedy (as opposed to judicial foreclosure which is also an option, but which is expensive and allows for these types of TILA recoupment claims) so raising a TILA recoupment claim will not likely save the home for foreclosure or provide any other meaningful remedy.
Are there any circumstances where the Defense of Recoupment may arise in California?
Sure, if any lender seeks to haul you into Court to collect on a mortgage debt, it may be wise to consult a predatory lending attorney and discuss a TILA audit of your loan file. In these circumstances, recoupment may be raised as a defense or to offset the creditors claims.
Another possibility is in a bankruptcy court. This is something your attorney should explore. For example, if you have filed Chapter 13 bankruptcy and the lender has filed a proof of claim (“an action”) you can file an adversary proceeding or take other appropriate measure to raise the defense of recoupment.
Here is one case that discussed recoupment in Chapter 13 bankruptcy (in re Coxson 43 F. 3d 189 (5th Circuit 1995):
“Commonwealth argues that the Coxsons’ TILA claim fails the second step of the test in Bull because the claim was not raised defensively. Commonwealth argues that the Coxsons “hauled” Commonwealth into court and initiated this lawsuit, and therefore the TILA claim is used offensively, rather than defensively. The district court disagreed, holding that the Coxsons filed this suit in response to Commonwealth’s filing of a proof of claim in the bankruptcy court and its foreclosure actions. The district court reasoned that filing a proof of claim is “an action to collect the debt,” and therefore the TILA claim was timely under 15 U.S.C. § 1640(e). We agree with the district court’s analysis. In this case, Commonwealth’s and the Coxsons’ claims arise from the same underlying transaction, the contract for financing the Coxsons’ home. See Plant v. Blazer Financial Services, Inc., 598 F.2d 1357, 1361 (5th Cir.1979); Maddox v. Kentucky Finance Co., 736 F.2d 380, 383 (6th Cir.1984). The mere fact that the Coxsons were the plaintiffs in the case below does not preclude the finding that their TILA claim was raised defensively. See, e.g., In re Jones, 122 B.R. 246 (plaintiff permitted to raise TILA recoupment claim defensively). Furthermore, Texas state courts have held that a TILA claim may be asserted defensively as a recoupment action against a lender attempting to enforce contractual obligations. Garza v. Allied Finance Co., 566 S.W.2d 57, 62-63 (Tex.Civ.App.-Corpus Christi 1978); Cooper v. RepublicBank Garland, 696 S.W.2d 629, 634 (Tex.Civ.App.-Dallas 1985) (holding that recoupment claim was raised defensively in response to creditor’s foreclosure efforts). We find that the TILA claim was not barred by the statute of limitations, and therefore remand the issue for consideration of the merits of the claim.
A similar outcome resulted in Davis v. Wells FargoFinancial, Chapter 13 case (case# 2:11-CV-02766-WMA – Aug. 2011) Northern District of Alabama. In that case, Wells Fargo filed the proof of claim against the debtor in chapter 13 bankruptcy case. The debtor filed an adversary proceeding for violations of TILA (failing to accurately disclose finance charge and APR). Wells Fargo moved to dismiss arguing the claim for damages was not brought within the one year statute of limitations under 1640 (e). The court held that 1640 (e) did not apply to recoupment claims asserted defensively. The Court held that the defense of recoupment DID APPLY as the proof of claim was the affirmative action that the debtor was responding to, and it was proper to seek damages, and attorney fees as permitted under TILA.
This might be important in some cases to help the debt reduce the amount of the debt owed which could make the chapter 13 plan viable (many chapter 13 plans fail and get converted to chapter 7’s). Recall as we have discussed in previous posts that in a chapter 13, you still have to bring your mortgage current and your arrears current over the life of the chapter 13 plan.
For example, if you have a HOEPA violation – which is an egregious form of TILA violation (high cost loans), you could seek actual and statutory damages and special enhanced damages (that might help offset the arrearages) as well as attorney fees.
A couple other notes:
(1) If you are in a chapter 13 consider having a TILA audit performed on your loan. You may have grounds to file an adversary proceeding raising the defense of recoupment following the proof of claim filed by the creditor. If for some reason the creditor does not file a proof of claim, there is some legal authority for filing a proof of claim on behalf of the creditor. See Federal Rules of Bankruptcy Procedure 3004. Note the time restrictions.
(2) In a chapter 7 there is some case law suggesting that a Motion for Relief from the Automatic stay in Bankruptcy is not an “action” to collect the debt and the defense of recoupment could not be raised. As one example, see Chabot v. Washington Mutual – 2007 WL 1412490 (Bankr. D. Mont. May 10, 2007) which held that such an action by the creditor is merely an action to “seek relief from the automatic stay” and not to collect a debt.
(3) Assignees of loans (ex. the securitized loan trust that is normally seeking to foreclose on you) are normally liable under TILA so be prepared to rebut that argument if you are a foreclosure defense attorney reading this.
(4) There is authority for raising a defense of recoupment in a chapter 13 even after the chapter 13 plan is confirmed. One such case is Elliot v. ITT, 150 B.R. 36 (N.D. Ill 1992).
(5) Talk to your bankruptcy attorney about whether you should list the debt as “disputed” on the bankruptcy petition and/or list the debt as “exempt.” Keep in mind, in a chapter 7 bankruptcy case, all pre-petition claims belong to the trustee so this is something you will need to keep it mind. If it is exempt claim, you may be able to bring the claim yourself. If not, the trustee can do what they want with the claim, including pursue it, or abandon it.
Hopefully this has been a helpful overview. To discuss TILA audits, predatory lending, adversary proceedings and the like, contact us at (877) 276-5084. This is an advertisement and communication. Article was written by Steve Vondran, Esq. All copyrights reserved. This is general legal information only and should not be relied on as legal advice.
PREEMPTIVE LAWSUIT TO ENJOIN THREATENED FORECLOSURE AND QUIET TITLE IN CALIFORNIA GETS THE BOOT
In a continuing series of defeats for California homeowners the Robinson case shot down another attempt at preventing a “pretender lender” from foreclosing. (Robinson v. Countrywide Home Loans,
130 Cal.Rptr.3d 811, Court of Appeal, Fourth District, Division 2, California (Sept. 12, 2011).
Some homeowners in California continue to challenge MERS and their role in the foreclosure process and “wrongful initiation of foreclosure.” These types of suits may also seek to quiet title. Here is a recent case that denied the right to pursue that legal theory. Here are the facts of the case as discussed in the opinion
The following facts are alleged in plaintiffs’ complaint:
In October 2007, plaintiffs borrowed $380,000 from lender SBMC Mortgage to finance the purchase of real estate. In connection with that transaction, they executed a promissory note, which was secured by a deed of trust. The deed of trust identifies SBMC Mortgage as the lender and identifies T.D. Service Company as the trustee. It identifies MERS as “acting solely as a nominee for Lender and Lender’s successors and assigns,” and states that “MERS is the beneficiary under this Security Instrument.” The deed of trust further states that “Borrower [i.e., plaintiffs] 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. In December 2008 and January 2009, Countrywide, identifying itself as a debt collector and the servicer of the loan on the noteholder’s behalf, notified plaintiffs that their loan was delinquent. Plaintiffs’ attorney wrote to Countrywide requesting information concerning the loan, including a copy of the note, documents evidencing any sale, transfer, or assignment of the note, and a beneficiary statement and payoff demand statement pursuant to Civil Code section 2943. Countrywide requested more time to respond but did not provide the requested documents before notifying plaintiffs, on February 27, 2009, that their loan was in default and had been referred to Countrywides foreclosure management committee for review. On February 11, 2009, however, ReconTrust, purporting to act as agent for the beneficiary of the deed of trust, had recorded a notice of default and election to sell the property under the deed of trust, stating that plaintiffs were in default and that the present beneficiary had elected to cause the property to be sold. Despite further requests, Countrywide failed to identify the current beneficiary on the note and deed of trust.
Plaintiffs alleged that their promissory note was “sold and resold” on the secondary mortgage market, and that as a result, it had become difficult or impossible to ascertain the actual owner of the beneficial interest in the note. They alleged that the identity of the person or entity that currently holds an ownership interest is unknown. They alleged that because Countrywide failed to comply with its statutory duty to provide them with the documents they requested, they did not know to whom they owed the obligation to repay the loan. They alleged on information and belief that “a person purporting to be the rightful current beneficiary, by virtue of a purported assignment from MERS,” authorized an agent to cause the notice of default and election to sell to be recorded. They alleged on information and belief that SBMC did not assign the note to MERS and did not authorize MERS or any other person to assign the note to anyone on its behalf. They alleged on information and belief that the person or entity who directed the initiation of the foreclosure process was not the note’s rightful owner and was acting without the rightful owner’s authority.
On or about June 1, 2010, plaintiffs filed a second amended complaint, alleging wrongful initiation of foreclosure (first cause of action), violation of Civil Code section 2943, subdivision (b)(1) (fourth cause of action) and unfair business practices (fifth cause of action). Plaintiffs also sought declaratory relief (second cause of action) and to quiet title (third cause of action).
The California court of Appeals disagreed with Plaintiff and in citing the Gomes case held:
“Plaintiffs allege in their first and second causes of action that the entity which initiated foreclosure proceedings had no legal authority to do so because it was not either the current beneficiary of the deed of trust or the agent of the current beneficiary.Plaintiffs contend that section 2924, subdivision (a)(1)(C) “by necessary implication” provides that a borrower who is subject to foreclosure under a deed of trust may file an action to challenge the foreclosing party’s standing to do so.The balance of their argument is that MERS had no legal authority to initiate a foreclosure. The issues plaintiffs raise concerning MERS and the securitized mortgage market were recently discussed in Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 121 Cal.Rptr.3d 819 (Gomes ), review denied May 18, 2011.There, the court concluded that the plaintiff failed to identify a legal basis for an action to determine whether MERS had authority to initiate a foreclosure proceeding. (Id. at pp. 1154–1157, 121 Cal.Rptr.3d 819.) We agree with the Gomes court that the statutory scheme (§§ 2924–2924k) does not provide for a preemptive suit challenging standing. Consequently, plaintiffs’ claims for damages for wrongful initiation of foreclosure and for declaratory relief based on plaintiffs’ interpretation of section 2924, subdivision (a), do not state a cause of action as a matter of law.(Gomes, supra, at pp. 1152, 1154–1157, 121 Cal.Rptr.3d 819.)
Moreover, even if such a statutory claim were cognizable, the second amended complaint does not state facts upon which such a claim could be based as to MERS and Countrywide. The complaint alleges that foreclosure proceedings were initiated by ReconTrust, not by Countrywide or MERS. It does not allege that ReconTrust purported to act as an agent for MERS or for Countrywide. Rather, it alleges that ReconTrust purported to act as agent for an unnamed beneficiary which purported to have been assigned the note and deed of trust by MERS (i.e., the beneficiary is alleged to be an entity other than MERS). The notice of default is not contained in the record, and the complaint does not state the name of the beneficiary on whose behalf ReconTrust purported to act. Accordingly, even if a statutory action for damages or for declaratory relief were available to challenge the standing of the foreclosing entity, the second amended complaint does not allege any facts upon which such an action could be based with respect to Countrywide or MERS.
The judgment was affirmed. Costs on appeal were awarded to defendants Countrywide Home Loans, Inc. and Mortgage Electronic Registration Systems, Inc. Again, the Courts are not interested in allowing defaulting Plaintiff homeowners to challenge legal standing to foreclose (essentially a variation of the “produce the note“) defense in a civil non-judicial foreclosure setting.
For unbiased legal information for California homeowners facing foreclosure visit our video information website at http://www.ForeclosureWarrior.com. We also have pleadings and video case briefs for California foreclosure lawyers.
This case involves another challenge to a non-judicial foreclosure sale in California. The basic facts of this case are that a borrower initially took out a loan with New Century Mortgage which loan was accompanied by a MERS deed of Trust (MERS was the nominee of the lender and its successors and assigns under the deed of trust and also listed as the beneficiary). The Trustee under the Deed of Trust was First American Title Compamy.
After a default of the $600,000 purchase loan taken out by borrower HYUNH in 2006, the following sequence of recorded documents occurred:
(1) 8/3/07 a Notice of Default was recorded by Quality Loan Service Corporation (QLSC) – Note that the trustee under the Deed of Trust was First American Title;
(2) 8/30/07Assignment of Deed of Trust was recorded (MERS assigned its beneficial interest to Avelo Mortgage) – Note the typical assignment of the Deed of Trust together with “notes therein” (The Fontenot case sees this as proper even though MERS does not, and has never held any note in its possession).
(3) 11/9/07Notice of Sale by QLSC.
(4) 11/9/07 (same day but after the Notice of Sale was recorded) Substitution of Trustee was recorded substituting QLSC for First American Title (note, apparently this document was executed on 8/2/07 prior to the notice of default being recorded by QLSC);
Thereafter, the property was sold at non-judicial foreclosure trustee sale on 7/08. The purchaser at the foreclosure sale was Avelo Mortgage, allegedly paying 400k for the property. Avelo recorded the Trustees Deed upon sale.
After the sale, HYUNH (the original borrower), Quitclaimed his interest to Ferguson (the Plaintiff in this action) on 6/27/09. Ferguson recorded his Quitclaim deed on 7/1/09 and brought suit to Quiet Title against Avelo Mortgage arguing the foreclosure sale was illegal as Avelo received no valid interest from MERS in the Assignment of Deed of Trust since MERS had no note to assign, and thus Avelo had no authority to foreclose. Under this theory, Ferguson argued there was no requirement to tender the full amount of the loan balance to try to set aside the foreclosure sale and claim the property as his own since he was challenging the foreclosure “sale” and not the foreclosure “procedure”. In addition, Ferguson argued there can be no tender rule requirement where Avelo is not the true beneficiary (since they never got the note. Ferguson also sued HYUNH for fraud.
The Court disagreed with the Plaintiff Ferguson, and held that the tender rule applies whether or not Avelo had any note. Here is the relevant language of the case:
(3) The power of sale in a deed of trust allows a beneficiary recourse to the security without the necessity of a judicial action. (See Melendrez v. . . . Investment, Inc. (2005) 127 Cal.App.4th 1238, 1249 [26 Cal.Rptr.3d 413].) Absent any evidence to the contrary, a nonjudicial foreclosure sale is presumed to have been conducted regularly and fairly. (Civ. Code, § 2924.) However, irregularities in a nonjudicial trustee’s sale may be grounds for setting it aside if they are prejudicial to the party challenging the sale. (See Lo v. Jensen (2001) 88 Cal.App.4th 1093, 1097-1098 [106 Cal.Rptr.2d 443]; see also Angell v. Superior Court (1999) 73 Cal.App.4th 691, 700 [86 Cal.Rptr.2d 657] [“`In order to challenge the sale successfully there must be evidence of a failure to comply with the procedural requirements for the foreclosure sale that caused prejudice to the person attacking the sale.’”].) Setting aside a nonjudicial foreclosure sale is an equitable remedy. (Lo v. Jensen, supra, 88 Cal.App.4th at p. 1098 ["A debtor may apply to a court of equity to set aside a trust deed foreclosure on allegations of unfairness or irregularity that, coupled with the inadequacy of price obtained at the sale, mean that it is appropriate to invalidate the sale."].) A court will not grant equitable relief to a plaintiff unless the plaintiff does equity. (See Arnolds Management Corp. v. Eischen (1984) 158 Cal.App.3d 575, 578-579 [205 Cal.Rptr. 15]; see also 13 Witkin, Summary of Cal. Law (10th ed. 2005) Equity, § 6, pp. 286-287.) Thus, “[i]t is settled that an action to set aside a trustee’s sale for irregularities in sale notice or procedure should be accompanied by an offer to pay the full amount of the debt for which the property was security.” (Arnolds Management Corp. v. Eischen, supra, 158 Cal.App.3d at p. 578; see also FPCI RE-HAB 01 v. E & G Investments, Ltd. (1989) 207 Cal.App.3d 1018, 1022 [255 Cal.Rptr. 157] [rationale behind tender rule is that irregularities in foreclosure sale do not damage plaintiff where plaintiff could not redeem property had sale procedures been proper].)
However, a tender may not be required where it would be inequitable to do so. (See Onofrio v. Rice (1997) 55 Cal.App.4th 413, 424 [64 Cal.Rptr.2d 74]; see also Dimock v. Emerald Properties (2000) 81 Cal.App.4th 868, 876-878 [97 Cal.Rptr.2d 255] [when new trustee has been substituted, subsequent sale by former trustee is void, not merely voidable, and no tender needed to set aside sale].) Specifically, “`if the [plaintiff's] action attacks the validity of the underlying debt, a tender is not required since it would constitute an affirmative of the debt.’” (Onofrio v. Rice, supra, 55 Cal.App.4th at p. 424.)
Appellants contend they are not challenging irregularities in the foreclosure proceeding. Rather, they argue that respondent is not the holder of the underlying promissory note and therefore cannot invoke the tender rule against them. In their complaint, appellants alleged that New Century remains in possession of the promissory note and that appellants owe no obligation to respondent. On appeal, appellants contend that whether respondent holds the promissory note is a factual dispute, and sustaining respondent’s demurrer presupposes that respondent has authority to enforce the loan obligation. They assert that while MERS had the authority to transfer its beneficial interest under the deed of trust, there is no evidence that MERS, which was acting as a nominee of New Century, held the promissory note and was authorized to assign the note itself to respondent.
The role of MERS is central to the issues in this appeal. “`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.’” (Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1151 [121 Cal.Rptr.3d 819] (Gomes v. Countrywide), quoting Mortgage Electronic Registration Systems, Inc. v. Nebraska Dept. of Banking & Finance (2005) 270 Neb. 529 [704 N.W.2d 784, 785].)
(4) Appellants cite two federal cases for the proposition that MERS, as the nominee of the lender under a deed of trust, does not possess the underlying promissory note and cannot assign it, absent evidence of an explicit authorization from the original lender. (See Saxon Mortgage Services, Inc. v. Hillery (N.D.Cal., Dec. 9, 2008, No. C-08-4357) 2008 U.S.Dist. Lexis 100056; see also In re Agard (Bankr. E.D.N.Y. 2011) 444 B.R. 231.) Not all courts agree on this issue and appellants do not distinguish nor address other cases that have upheld MERS’s ability to assign a mortgage. (See US Bank, N.A. v. Flynn(N.Y.Sup. 2010) 27 Misc.3d 802 [897 N.Y.S.2d 855, 859] [assignee of MERS has standing to initiate foreclosure proceeding because where "an entity such as MERS is identified in the mortgage indenture as the nominee of the lender and as the mortgagee of record and the mortgage indenture confers upon such nominee all of the powers of such lender, its successors and assigns, a written assignment of the note and mortgage by MERS, in its capacity as nominee, confers good title to the assignee and is not defective for lack of an ownership interest in the note at the time of the assignment"]; see also Crum v. LaSalle Bank, N.A. (Ala.Civ.App. 2009) 55 So.3d 266, 269.) We are not bound by federal district and bankruptcy court decisions, and the cases cited by appellants are in direct conflict with persuasive California case law.
In Gomes v. Countrywide, supra, 192 Cal.App.4th 1149, plaintiff Gomes obtained a loan from KB Home Mortgage Company (KB Home) to finance a real estate purchase. He executed a promissory note secured by a deed of trust naming KB Home as the lender and MERS as KB Home’s nominee and beneficiary under the deed of trust. (Gomes v. Countrywide, supra, 192 Cal.App.4th at p. 1151.) The deed of trust contained a provision granting MERS the power to foreclose and sell the property in the event of a default. (Ibid.) Gomes defaulted on his payments and was mailed a notice of default by ReconTrust, which identified itself as an agent for MERS. Attached was a declaration signed by Countrywide Home Loans, acting as the loan servicer. (Ibid.) Gomes filed suit against Countrywide Home Loans, ReconTrust and MERS for wrongful initiation of foreclosure, alleging MERS did not have authority to initiate the foreclosure because it did not possess the note and was not authorized by its current owner to proceed with foreclosure. (Id. at p. 1152.) Defendants demurred, arguing, among other things, that Gomes was required to plead tender to maintain a cause of action for wrongful foreclosure and that the terms of the deed of trust authorized MERS to initiate a foreclosure proceeding. The trial court sustained the demurrer without leave to amend. (Ibid.)
On appeal, the court affirmed the order, finding that Gomes could not seek judicial intervention in a nonjudicial foreclosure before the foreclosure has been completed. (Gomes v. Countrywide, supra, 192 Cal.App.4th at p. 1154.) Nonetheless, the appellate court reached the merits of Gomes’s claim as an independent ground for affirming the order sustaining the demurrer. The court rejected Gomes’s argument that MERS lacked authority to initiate the foreclosure procedure because the deed of trust explicitly provided MERS with the authority to do so. The court found that 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.” (Id. at p. 1157.) Thus, Gomes acknowledged MERS’s authority to foreclose by entering into the deed of trust. (Ibid.)
Just as in Gomes v. Countrywide, the deed of trust in this case specifically states: “Borrower 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; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.”
(5) Appellants concede that MERS had the authority to assign its beneficial interest to respondent.Accordingly, respondent had the same authority to initiate foreclosure proceedings. And while Gomes v. Countrywide did not address the tender issue, it does not follow that a beneficiary may initiate nonjudicial foreclosure proceedings under a deed of trust without the original promissory note, but cannot seek tender from a defaulting borrower attempting to set aside the foreclosure. Although California courts have not resolved this issue (see Miller & Starr, Cal. Real Estate (3d ed. 2010-2011 Supp.) Deeds of Trust and Mortgages, § 10:39:10, p. 4), several federal district courts in this state have upheld a beneficiary’s authority to initiate foreclosure proceedings and invoke the tender rule against a defaulting borrower, even when the beneficiary is not the holder of the original promissory note. Those courts have noted that “California law `does not require possession of the note as a precondition to [nonjudicial] foreclosure under a Deed of Trust.’” (Jensen v. Quality Loan Service Corp. (E.D.Cal. 2010) 702 F.Supp.2d 1183, 1189; see also Odinma v. Aurora Loan Services (N.D.Cal., Mar. 23, 2010, No. C-09-4674 EDL) 2010 U.S. Dist. Lexis 28347; see also 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, p. *21 [MERS, as nominee of lender, has authority to initiate nonjudicial foreclosure without underlying promissory note].) Moreover, in cases involving an assignment of a deed of trust from MERS to a third party, courts have invoked the tender rule despite arguments that MERS did not have the authority to assign its interest under the deed of trust without the promissory note. (See Lai v. Quality Loan Service Corp.(C.D. Cal., Aug. 26, 2010, No. CV 10-2308 PSG (PLAx)) 2010 U.S. Dist. Lexis 97121.) Appellants offer no authority, state or federal, to support the legal loophole they claim for defaulting borrowers and their successors.
Appellants also argue that respondent was not authorized to substitute Quality as the trustee prior to becoming the beneficiary under the deed of trust. Quality initiated the foreclosure proceedings when it was not the trustee and therefore had no legal right to do so. Under a deed of trust, the trustee may be substituted by a “substitution executed and acknowledged by: (A) all of the beneficiaries under the trust deed, or their successors in interest. . .; or (B) the holders of more than 50 percent of the record beneficial interest of a series of notes secured by the same real property or of undivided interests in a note secured by real property equivalent to a series transaction, exclusive of any notes or interests of a licensed real estate broker that is the issuer or servicer of the notes or interests or of any affiliate of that licensed real estate broker.” (Civ. Code, § 2934a, subd. (a)(1).)
(6) We agree with appellants that respondent did not have the authority to execute a substitution of trustee until MERS assigned the deed of trust to it. Thus, Quality’s August 3, 2007 notice of default was defective. Nonetheless, Huynh had more than three months to satisfy his obligation before Quality executed a notice of sale. The substitution of trustee was effective when respondent became the beneficiary under the deed of trust and when the substitution was recorded on November 9, 2007. (Civ. Code, § 2934a, subd. (a)(4) [“From the time the substitution is filed for record, the new trustee shall succeed to all the powers, duties, authority, and title granted and delegated to the trustee named in the deed of trust.”].) Thus, the notice of sale was valid.Quality then completed the foreclosure in July 2008, long after its substitution as trustee took effect. This situation is distinct from other cases that have voided a nonjudicial foreclosure sale when a party other than the trustee initiated the proceeding and completed the sale without having been substituted in as the trustee. (See Pro Value Properties, Inc. v. Quality Loan Service Corp. (2009) 170 Cal.App.4th 579, 583 [88 Cal.Rptr.3d 381]; see also Dimock v. Emerald Properties, supra, 81 Cal.App.4th at pp. 876-878 [foreclosure sale void where original trustee completed foreclosure sale after being replaced by new trustee].) Appellants offer no authority for the proposition that the defective nature of the initial notice of default corrupted all subsequent steps in the nonjudicial foreclosure proceeding such that the sale was void, not merely voidable.
Thus, this ruling seems to leave open a tiny door for situations where the wrong trustee sells the property at foreclosure sale. In those situations, the sale may be VOID with no obligation to tender. So, looking for grounds to challenge the Substitution of Trustee may be one of the few remaining challenges in California to either enjoin or set aside a wrongful foreclosure sale despite courts recognizing the the foreclosure procedure must be valid.
The Court cited Tender statute in California:
(8) A tender is an offer of performance made with the intent to extinguish the obligation. (Civ. Code, § 1485.) It must be unconditional (Civ. Code, § 1494) and offer full performance to be valid (Civ. Code, § 1486). Civil Code section 1512 provides: “If the performance of an obligation be prevented by the creditor, the debtor is entitled to all the benefits which he would have obtained if it had been performed by both parties.”
NOTE: I do not believe the “tender rule” is a hard and fast rule. You have to look at what your facts are. Some cases have held that a tender may not be required where it would be inequitable to do so. (See Onofrio v. Rice (1997) 55 Cal.App.4th 413, 424; see also Dimock v. Emerald Properties (which was actually cited by the Ferguson court) (2000) 81 Cal.App.4th 868, 876-878 [which held that there was no requirement to tender when the wrong trustee sells the property, in these instances, the sale is VOID, not merely VOIDABLE, and no tender was needed to challenge the VOID sale].) There are other cases that talk about VOID vs. VOIDABLE. However, you need to be aware of the rule, and there will be tender challenges raised in almost every case of wrongful foreclosure so there has to be a strategy, and cases to deal with that. Also, where the Plaintiff’s lawsuit challenges the validity of an alleged underlying debt, tender is not required since it would constitute an affirmation of the debt.” See Onofrio v. Rice, supra, 55 Cal.App.4th at p. 424.
NOTE2: This case also discussed the requirements of a Quiet Title lawsuit in California:
(2) Here, appellants sought to quiet title against respondents and set aside the trustee sale at which respondents purchased the property. In order to state a viable cause of action for quiet title, a complaint must include: “(a) A description of the property that is the subject of the action. . . . [¶] (b) The title of the plaintiff as to which a determination under this chapter is sought and the basis of the title. . . . [¶] (c) The adverse claims to the title of the plaintiff against which a determination is sought. [¶] (d) The date as of which the determination is sought. . . . [¶] (e) A prayer for the determination of the title of the plaintiff against the adverse claims.” (Code Civ. Proc., § 761.020.) To bring an action to quiet title a plaintiff must allege he or she has paid any debt owed on the property. Shimpones v. Stickney (1934) 219 Cal. 637, 649 [“[A] mortgagor cannot quiet his title against the mortgagee without paying the debt secured.”].) The complaint must also be verified (sworn under oath).
This is a second blog post dealing with various legal challenges to the MERS registration system and their ability to initiate a foreclosure in California. We previously discussed on our blog the holding in the Fontenot case, which also made it tougher to challenge a wrongful foreclosure sale. In this case, the borrower obtained a loan in 2004 through the “lender” KB Home Mortgage. In the Deed of Trust, MERS was identified as the “nominee for the lender, its successors and assisgns” and the Deed of Trust also stated “MERS is the beneficiary under this security instrument.” This is typical MERS language. When the borrower fell behind on mortgage payments a Notice of Default was recorded by Recontrust Co. on 3/10/09. Prior to the foreclosure sale, Gomes, the Plaintiff, initiated a legal action to try to prevent the sale. The Defendants do what they will normally do – file a demurrer and argue the tender rule. They also said the legal challenge was invalid because “produce the note” may not be used as a legal theory to defend against a non-judicial foreclosure sale. The Court agreed on all counts. The Plaintiff argued MERS had no proof it owned the note, and no proof it had authority from the noteholder to initiate the foreclosure sale. The Court disagreed. In so holding, the Court is basically saying it is not your right to know who is foreclosing on you because you gave MERS authority to do whatever the lender could do when you signed the Deed of Trust.
Here is some language from the case:
1. Gomes Has Not Identified a Legal Basis for an Action to Determine Whether MERS Has Authority to Initiate a Foreclosure Proceeding:
(1) 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), 830 [30 Cal.Rptr.2d 777] (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), 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), 1098; see alsoMoeller, 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."].)
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.
As we have talked about many times on various blog posts “produce the note” will not stop a civil foreclosure, but may rear its head as a standing and real party in interest issue in a bankruptcy setting. The Court continued:
Gomes Agreed in the Deed of Trust That MERS Is Authorized to Initiate a Foreclosure Proceeding
As an independent ground for affirming the order sustaining the demurrer, we conclude that even if there was a legal basis for an action to determine whether MERS has authority to initiate a foreclosure proceeding, the deed of trust—which Gomes has attached to his complaint—establishes as a factual matter that his claims lack merit. As stated in the deed of trust, Gomes agreed by executing that document that MERS has the authority to initiate a foreclosure. 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 assurance that MERS is authorized to proceed with a foreclosure at the time it is initiated. Gomes’s agreement that MERS has the authority to foreclose thus precludes him from pursuing a cause of action premised on the allegation that MERS does not have the authority to do so.
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), 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. 12, 2010, No. 2:09-cv-01476-MCE-GGH) 2010 U.S.Dist. Lexis 2037, p. *22, citation omitted.) Following this same approach, we conclude that Gomes’s first and second causes of action lack merit for the independent reason that by entering into the deed of trust, Gomes agreed that MERS had the authority to initiate a foreclosure.
The only real glimmer of hope from the Gomes case is that the Court discussed the Ohlendorf decision (backdating of the Assignment of Deed of Trust) which was not alleged by the Plaintiff:
For instance, in Ohlendorf, the plaintiff alleged wrongful foreclosure on the ground that assignments of the deed of trust had been improperly backdated, and thus the wrong party had initiated the foreclosure process. (Ohlendorf, supra, 2010 U.S.Dist. Lexis 31098 at pp. *22-*23.) No such infirmity is alleged here.
Taking this case, with the Ferguson case, Fontenot and others, it is still a difficult feat to try to stop or overturn a wrongful foreclosure sale in California. Some of the best legal challenges may well exist in a bankruptcy court.
Fontenot v. Wells Fargo Bank, N.A. Court of Appeals of California, First District, Division One (2011).
Well we have been talking about wrongful foreclosure, the role of MERS and irregularities in the foreclosure process for years now. The Fontenot case recently decided by the California Court of Appeals offers good language for lenders, servicers and MERS. This case can be seen as another case in the lender foreclosure toolbox, along with the Gomes case, and the Ferguson case.
A homeowner who was in default, and who was promised a modification, (but ultimately was foreclosed on), brought a lawsuit alleging wrongful foreclosure based on irregularities in the chain of title and challenging MERS in various capacities. The trial court upheld the foreclosure, and so did the court of appeal.
Specifically, the Plaintiff was challenging the Assignment of Deed of Trust from MERS to HSBC (the trustee of the securitized loan trust). The Assignment of Deed of Trust states (as most do) that the Assignment of Deed of Trust is made together with “the notes therein.” Plaintiff argued that MERS had no promissory note to transfer and as such, there was no transfer of the note, and a transfer of the ADOT by itself (without the note) was a meaningless act. Case law was cited for this proposition. As such, Plaintiff argued that HSBC never got the note, and was thus not in the position to foreclose on the property. Also, Plaintiff argued this fact made the Substitution of Trustee (in favor of NDEX West, LLC), improper as only the beneficiary can substitute the trustee. If the substitution of trustee was not proper, it appears Plaintiff was arguing that would also invalidate the Notice of Default. At any rate, based upon this, Plaintiff asserted the eventual non-judicial foreclosure sale was invalid and must be set-aside.
California Court of Appeal Holding
The Court completely disagreed with Plaintiff and essentially stated that the borrower appoints MERS as beneficiary in a nominee capacity in the Deed of Trust. And since the Deed of Trust empowers MERS to take any action the lender can take (when law or custom requires it) that MERS can assign the deed of trust and the “notes therein” even though MERS itself may hold no note at all. This was based on the concept that MERS can transfer the note on behalf of the lender even if it does not have the note. Which is strange because the note was supposed to be in the HSBC early on in the securitization process. At any rate, the Court found nothing improper in this and said:
Second, the complaint alleges MERS lacked the authority to assign the note because it was merely a nominee of the lender and had no interest in the note. Contrary to plaintiff’s claim, the lack of a possessory interest in the note did not necessarily prevent MERS from having the authority to assign the note. While it is true MERS had no power in its own right to assign the note, since it had no interest in the note to assign, MERS did not purport to act for its own interests in assigning the note. Rather, the assignment of deed of trust states that MERS was acting as nominee for the lender, which did possess an assignable interest. A “nominee” is a person or entity designated to act for another in a limited role—in effect, an agent. (Born v. Koop (1962) 528; Cisco v. Van Lew (1943) 60 Cal.App.2d 575, 583-584.) The extent of MERS’s authority as a nominee was defined by its agency agreement with the lender, and whether MERS had the authority to assign the lender’s interest in the note must be determined by reference to that agreement. (See, e.g., van’t Rood v. County of Santa Clara (2003), 571 [agency typically arises by express agreement]; Anderson v. Badger (1948) 84 Cal.App.2d 736, 743 [existence and extent of agent's duties are determined by the agreement between agent and principal]; Civ. Code, § 2315 [agent has such authority as principal confers upon agent].) Accordingly, the allegation that MERS was merely a nominee is insufficient to demonstrate that MERS lacked authority to make a valid assignment of the note on behalf of the original lender.
Plaintiff also argues any purported assignment by MERS was invalid under the common law of secured transactions. Her argument rests on the general principle that because the security for a debt is “a mere incident of the debt or obligation which it is given to secure” (Hayward Lbr. & Inv. Co. v. Naslund(1932) 125 Cal.App. 34, 39), the assignment of an interest in the security for a debt is a nullity in the absence of an assignment of the debt itself. (E.g., Kelley v. Upshaw (1952), 192; 4 Witkin, Summary of Cal. Law (10th ed. 2005) Security Transactions in Real Property, § 105, p. 899.) The assignment of the deed of trust, however, expressly stated that MERS assigned its interest in the deed of trust “[t]ogether with the note or notes therein described or referred to.” Accordingly, to plead a claim on this ground plaintiff was required to allege this assignment to HSBC was invalid. Because, as discussed above, plaintiff failed adequately to plead such invalidity, she failed to state a cause of action for wrongful foreclosure on the ground HSBC did not receive an assignment of both the note and its security.
There is a further, overriding basis for rejecting a claim based solely on the alleged invalidity of the MERS assignment. Plaintiff’s cause of action ultimately seeks to demonstrate that the nonjudicial foreclosure sale was invalid because HSBC lacked authority to foreclose, never having received a proper assignment of the debt. In order to allege such a claim, it was not enough for plaintiff to allege that MERS’s purported assignment of the note in the assignment of deed of trust was ineffective. Instead, plaintiff was required to allege that HSBC did not receive a valid assignment of the debt in any manner. Plaintiff rests her argument on the documents in the public record, but assignments of debt, as opposed to assignments of the security interest incident to the debt, are commonly not recorded. The lender could readily have assigned the promissory note to HSBC in an unrecorded document that was not disclosed to plaintiff.To state a claim, plaintiff was required to allege not only that the purported MERS assignment was invalid, but also that HSBC did not receive an assignment of the debt in any other manner. There is no such allegation.
As you can see, part of the problem may have been insufficient allegations. In addition to this, the Court also discussed a few other potential obstacles to a Plaintiff succeeding in a wrongful foreclosure case in California. Specifically, the court cited to the Ferguson case which held that irregularities in the foreclosure process cannot be made unless the borrower pleads willingness and ability to “tender” the balance of the loan. We have talked about the “tender rule” in many other blog posts. To this point the Court stated:
We also note a plaintiff in a suit for wrongful foreclosure has generally been required to demonstrate the alleged imperfection in the foreclosure process was prejudicial to the plaintiff’s interests. (Melendrez v. D & I Investment, Inc., supra, 127 Cal.App.4th at p. 1258; Knapp v. Doherty, supra, 123 Cal.App.4th at p. 86, fn. 4 [“A nonjudicial foreclosure sale is presumed to have been conducted regularly and fairly; one attacking the sale must overcome this common law presumption `by pleading and proving an improper procedure and the resulting prejudice‘”], italics added; Lo v. Jensen (2001), 1097-1098 [collusion resulted in inadequate sale price]; Angell v. Superior Court (1999), 700 [failure to comply with procedural requirements must cause prejudice to plaintiff].) Prejudice is not presumed from “mere irregularities” in the process. (Meux v. Trezevant (1901) 132 Cal. 487, 490.) Even if MERS lacked authority to transfer the note, it is difficult to conceive how plaintiff was prejudiced by MERS’s purported assignment, and there is no allegation to this effect. Because a promissory note is a negotiable instrument, a borrower must anticipate it can and might be transferred to another creditor. As to plaintiff, an assignment merely substituted one creditor for another, without changing her obligations under the note. Plaintiff effectively concedes she was in default, and she does not allege that the transfer to HSBC interfered in any manner with her payment of the note (see, e.g., Munger v. Moore (1970) 7-8 [failure by lender to accept timely tender]), nor that the original lender would have refrained from foreclosure under the circumstances presented. If MERS indeed lacked authority to make the assignment, the true victim was not plaintiff but the original lender, which would have suffered the unauthorized loss of a $1 million promissory note.
Again, there were no allegations to help the Plaintiff. Which sends a signal to Plaintiffs challenging a wrongful foreclosure – BE PREPARED TO EXPLAIN HOW YOU WERE PREJUDICED by irregularities in the process. The Court also went on to discuss what Plaintiff argued was an ambiguity in the Deed of Trust in regard to the function MERS assumes – THE COURT DISAGREED:
Finally, plaintiff contends the deed of trust wasambiguous because it designated MERS as both the “`nominee for the beneficiary’ “and as the “beneficiary.” An entity cannot be, plaintiff argues, both an agent and a principal. The record does not support the claimed ambiguity. Contrary to plaintiff’s assertion, the deed of trust did not designate MERS as both beneficiary of the deed of trust and nominee for the beneficiary; rather, it states that MERS is the beneficiary, acting as a nominee for the lender. There is nothing inconsistent in MERS’s being designated both as the beneficiary and as a nominee, i.e., agent, for the lender. The legal implication of the designation is that MERS may exercise the rights and obligations of a beneficiary of the deed of trust, a role ordinarily afforded the lender, but it will exercise those rights and obligations only as an agent for the lender, not for its own interests. Other statements in the deed of trust regarding the role of MERS are consistent with this interpretation, and there is nothing ambiguous or unusual about the legal arrangement. Plaintiff’s argument appears to be premised on the unstated assumption that only the owner of the promissory note can be designated as the beneficiary of a deed of trust, but she cites no legal authority to support that premise.
The Court also discussed how the beneficiary of a loan is normally the “owner of the loan” but that MERS could still use the “beneficiary” designation in the Deed of Trust and act as the beneficiary:
Ordinarily, the owner of a promissory note secured by a deed of trust is designated as the beneficiary of the deed of trust. (11 Thompson on Real Property (2d ed. 1998) § 94.02(b)(7)(i), p. 346.) Under the MERS System, however, MERS is designated as the beneficiary in deeds of trust, acting as “nominee” for the lender, and granted the authority to exercise legal rights of the lender. This aspect of the system has come under attack in a number of state and federal decisions across the country, under a variety of legal theories. The decisions have generally, although by no means universally, found that the use of MERS does not invalidate a foreclosure sale that is otherwise substantively and procedurally proper.
Interesting is the last section of this “sale that is otherwise substantively and procedurally proper.” But under what grounds can someone raise a challenge to the substantive or procedure taken? When you do, you face the “tender rule” which this Court also raised to firm up the opinion (citing the Ferguson case):
A different type of MERS challenge was addressed in Ferguson v. Avelo Mortgage, LLC (2011) (Ferguson ). The Fergusonplaintiffs were tenants in a home sold at a nonjudicial foreclosure sale. Originally, MERS was designated as a nominee and beneficiary in the deed of trust. On August 3, Quality Loan Service Corporation (Quality) recorded a notice of default, although there was no indication in the public record of Quality’s authority to act with respect to the property at the time. The defendant, Avelo Mortgage, LLC (Avelo), had executed a substitution of trustee designating Quality as trustee the prior day, August 2, but that substitution was not recorded until months later, on November 9. Further, at the time Avelo executed the substitution, there was similarly no indication in the public record of its authority to act. Only several weeks later, on August 22, did MERS assign its interest under the deed of trust to Avelo. Notice of the trustee’s sale was delivered on November 4 and recorded the same day as the substitution of trustee designating Quality, November 9. The trustee’s sale occurred in July of the following year. (Id. at p. 1621.)
Affirming the grant of a demurrer, the court initially addressed the issue of tender, concluding that the plaintiffs were required to allege tender of the amount due under the note when bringing an action to void a nonjudicial foreclosure sale. (Ferguson, supra, 195 Cal.App.4th at p. 1624.) It then turned to two arguments concerning MERS’s role: MERS lacked the power to foreclose because it was not the holder of the underlying promissory note, and the sale was invalid because the foreclosing parties did not have authority to proceed as a result of the irregularities in the documentation. Citing a series of federal district court decisions, the court first held that MERS was entitled to initiate foreclosure despite having no ownership interest in the promissory note because it was the beneficiary under the deed of trust. (Id. at pp. 1626-1627.) Turning to the second issue, the court agreed with the plaintiffs that the notice of default was defective because Avelo lacked legal authority to execute a substitution of trustee until it had been assigned MERS’s interest under the deed of trust. The court found the notice of sale valid under Civil Code section 2934a, subdivision (b), however, because the notice of sale was not recorded prior to the substitution of trustee. (Ferguson, at p. 1628 & fn. 5.) Given the three-month cure period between the recording of the notice of default and notice of sale and the long delay after the recordation of the substitution of trustee before the sale was concluded, the court declined to invalidate the foreclosure on the basis of the irregular documentation. (Ibid.).
Taking these internal citations at face value, when can the substance or procedure of a foreclosure be challenged? Only if you can tender the full loan balance, and were prejudiced by the recorded documents appears to be this Court’s answer. If true, what incentive is there for any lender or loan servicer, or MERS to follow any of the non-judicial foreclosure laws if there is no way to challenge bona fide irregularities that may arise (or can we call it failure to strictly follow the California non-judicial foreclosure laws)? In other words, how does this holding square up with other holdings in California?
In Miller v. Cote, 179 Cal.Rptr. 753, (Ct of App. Fourth Dist. Div. 2 1982), the Court, in calling the notice of default fatally defective stated: “The procedure for foreclosing on security by a trustee’s sale pursuant to a deed of trust is set forth in Civil Code section 2924, et seq. The statutory requirements must be strictly complied with, and a trustee’s sale based on a statutorily deficient notice of default is invalid. (System Inv. Corp. v. Union Bank (1971) 21 Cal.App.3d 137, 152-153, 98 Cal.Rptr. 735; see California Mortgage and Deed of Trust Practice (Cont.Ed. Bar 1979) s 6.40, p. 295; see also Bisno v. Sax (1959) 175 Cal.App.2d 714, 720, 346 P.2d.
At any rate, I understand if you have a borrower in default, with no ability to ever repay the loan, bring it current, etc., and you can never count on a loan modification, but what about those California homeowners who DO have the ability to make their loan payments, but were told to miss their payments if they wanted help in a loan modification, and who were forced into default. If these people want to try to bring their loans current or challenge the foreclosure process they will have a tough time doing so. Of course they can just pay up and bring the loan current, but what happens alot of times is the house is sold when the homeowner is told they are in review. In this case, the house is sold and the tender rule cited in this case can be arguably used against the borrower. This is not far fetched. We get calls all the time from people who were told not to pay and then their house was sold. This case makes it tougher to set these sales aside where irregularities in the sale can be properly alleged. Here, it does not appear the Court was buying the irregularity arguments raised by Plaintiff which focused on the role of MERS. To provide extra emphasis, the Court cited tot he recently decided Gomes case which also validated the role of MERS in that case:
In Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App. 4th(Gomes), the plaintiff sought to prevent foreclosure on his home. He sued MERS, among others, alleging he was unaware of the identity of the owner of his promissory note, but believed the owner had not authorized MERS to proceed with the foreclosure. The plaintiff sought to enjoin foreclosure in the absence of proof that MERS was authorized by the note’s owner to proceed. (Id. at p. 1152.) The court rejected the claim on both procedural and substantive grounds. With respect to the former, the court concluded the “`comprehensive’” statutory framework regulating nonjudicial foreclosure, Civil Code sections 2924 through 2924k, did not require the agent of a beneficial owner, such as MERS, to demonstrate that it was authorized by the owner before proceeding with foreclosure, at least in the absence of a factual allegation suggesting the agent lacked authority. (Gomes, at pp. 1155-1156.) As the court reasoned, Civil Code section 2924, subdivision (a)(1), which states that a trustee, mortgagee or beneficiary, or an agent of any of them, may initiate foreclosure, does not include a requirement that an agent demonstrate authorization by its principal. (Gomes, at pp. 1155-1156.) The court also found no substantive basis for the challenge, noting, as here, the plaintiff had agreed in the deed of trust that MERS could proceed with foreclosure and nonjudicial sale in the event of a default. Because the deed of trust did not require MERS to provide further assurances of its authorization prior to proceeding with foreclosure, the plaintiff was not entitled to demand such assurances. (Id. at p. 1157.)
As you can see, the lender toolbox will have some cases ready for the California homeowner who wishes to challenge a trustee sale on wrongful foreclosure grounds. Fontenot, Gomes, and Ferguson.
California Foreclosure Lawyers Tools, Pleadings, Sample Letter and more to help you fight the good fight!
For those who have not heard, we have launched a foreclosure warrior website that aims to give consumers in California information on foreclosure, short sales, litigation and more. The information is general information and is in video format to make it easier to enjoy. The foreclosure warrior website also contains valuable documents for California foreclosure, bankruptcy and real estate lawyers.
California TRO Injunction Package – $595 - If you have clients seeking to stop the foreclosure sale of their home, and you have valid legal grounds to file a lawsuit, here are the materials you will need to seek to obtain a TRO (temporary restraining order) and preliminary injunction. Complete with intel from the foreclosure trenches from Attorney Steve Vondran. These tips, insights and sample pleadings will save you alot of time if you have never been through the foreclosure TRO process in California. Certain additional local rules may apply, but this is a good collection of documents to assist you.
Here is what you get in this valuable kit:
1. 14 page TRO and Injunction checklist (guide-sheet with tips)
2. Sample Notice of TRO to opposing parties
3. TRO / OSC application (with sample memorandum of points and authorities)
CALIFORNIA WRONGFUL FORECLOSURE CASE LAW ON FORECLOSURE WARRIOR
For California real estate, bankruptcy and predatory lending lawyers we have sample foreclosure pleadings, TRO applications, lift stay motions and now we have added California case law to put in your homeowner defense toolbox.
You can visit our Foreclosure Defense website where you can access case law ready for you to cut an paste into your complaints, demurers, motions to dimiss and other legal pleadings.
Here is a short snippet of the case law you will get when you sign up:
OTHER GROUNDS TO SET ASIDE FORECLOSURE SALE
(5) In the case of Bank of America National Trust & Savings Association v. Reidy, 15 Cal. 2d. 243, 248 (1940), the Court held:
It is the general rule that courts have power to vacate a foreclosure sale where there has been fraud in the procurement of the foreclosure decree or where the sale has been improperly, unfairly or unlawfully conducted, or is tainted by fraud, or where there has been such a mistake that to allow it to stand would be inequitable to purchaser and parties. Sham bidding and the restriction of competition are condemned, and inadequacy of price when coupled with other circumstances of fraud may also constitute ground for setting aside the sale. (Haley v. Bloomquist, 204 Cal. 253 [268 Pac. 365]; Dealey v. East San Mateo Land Co., 21 Cal. App. 39 [130 Pac. 1066]; Bernheim v. Cerf, 123 Cal. 170 [55 Pac. 759]; Packard v. Bird, 40 Cal. 378; Goodenow v. Ewer, 16 Cal. 461 [76 Am. Dec. 540].).
(6) In re Worcester, 811 F.2d 1224, 1228, (1987) the Court held:
Under California law, “gross inadequacy of price coupled with even slight unfairness or irregularity is a sufficient basis for setting the sale aside.” Whitman v. Transtate Title Co., 165 Cal.App.3d 312, 323, 211 Cal.Rptr. 582, 589 (1985); see also Sargent v. Shumaker, 193 Cal. 122, 129-30, 223 P.2d 464, 467 (1924).
The property here sold well below the published bid, and raises a presumption of irregularity.
REMEMBER, WHENEVER THERE IS A WRONGFUL FORECLOSURE, SEE IF YOU CAN ARGUE MUNGER V. MOORE AND SECTION 3333 DAMAGES (EX. MONEY THEY HAD TO PUT OUT FOR ATTORNEY IN UNLAWFUL DETAINER CASE, AND CURRENT CASE, AND ANY OTHER DAMAGES “WHETHER FORESEEABLE OR NOT”). California Civil Code Section 3333.
ATTORNEY STEVE PLEADING FOR LAWYERS FIGHTING A MOTION TO LIFT THE AUTOMATIC STAY
To our Attorney brothers and sisters who know the “lenders” and loan servicers are often trying to pull fast ones in bankruptcy courts both in filing bogus proofs of claims and in seeking to lift the automatic stay in bankruptcy court when they have no standing and cannot prove they are the real party in interest to file the motion I am offering my lift-stay motion with memorandum of points and authorities available on my Foreclosure Warrior (Foreclosure Defense training for lawyers website).
Here is a sample clip from my motion:
(i) The issue of standing, in the context of a motion to lift the automatic stay in regard to an alleged failure to pay on a promissory note requires analysis of California Commercial Code law.
There are two threshold questions for establishing standing: (1) has movant established an interest in the promissory note; and (2) is the movant entitled to enforce the note? See In re Wilhelm, 407 B.R. at 392; In re Aniel, No.09-30452DM, 2010 WL 1609923 (Bankr. N.D. Cal. April 21, 2010). There is no way to determine whether a moving party is a party in interest, real party in interest, or has standing sufficient to show a colorable claim without consulting the applicable state law that dictates which party has the right to enforce a loan. In California, Commercial Code Section 3301 sets forth those Persons who are Entitled To Enforce a negotiable instrument (hereinafter “PETE”):
“Person entitled to enforce” an instrument means:
(a) the holderof the instrument;
(b) a nonholder in possession of the instrument who has the rights of a holder,
(c) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3309 or subdivision (d) of Section 3418. (ex. lost note)
A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument. (emphasis added). The definition of “holder” can be found in Cal. Commercial Code Section 1201(a)(21):
“Holder,” means the person in possession of a negotiable instrument that is payable either to bearer or, to an identified person that is the person in possession.
California Lift Stay Opposition Motion and Memorandum of Points and Authorities (18 pages): This pleading is “battle tested” in the Central District Bankruptcy Court in California. Loan Servicer (Chase) motion to lift the automatic stay was DENIED. This document has most of the major bankruptcy cases that deal with note ownership up to 2011. In re Hwang; In re Weisband, In re Veal, in re Walker, etc. The focus is on 9th circuit cases, but there are others as well. This document will save you a TON of time in trying to get all the cases together and organize an opposition to a motion to lift the automatic stay. The document flows nicely from real party in interest, to standing, to arguing about assigning a deed of trust without the note (all the major cases on that point of law are included). Simply get your facts in there and you are ready to have a great motion.
TIPS ON ATTACKING THE OFTEN-PREDATORY CALIFORNIA OPTION ARM LOAN
For attorneys fighting the good fight for homeowners stuck trying to modify predatory option arm loans, I have created an 8 page guide that explains the things I look for when trying to decide whether or not to sue the broker and originating lender.
The full version of this document can be purchased at Foreclosure Warrior Attorney Document Store:
Option Arm Lawyer’s Checklist – things to Look for and to allege in regard to challenging predatory negative amortization loans in California.
INTRODUCTION: Just in case you don’t know what an option arm loan is, it is a loan that typically gives the borrower more than one option as far as making a monthly payment is concerned. For example, and what is typical, is that the borrower can make a “minimum” monthly payment that is based on a “teaser rate” (meaning they can make a loan payment based upon a really loan starting interest rate, like 1.25% for example). Meanwhile the “note rate” may be 8%.
So what happens is, when they make the minimum monthly payment (as many California borrowers due – a lot of people are focused on a monthly budget) which is based on the teaser interest rate (and NOT on the 8% note rate), the interest they are not paying gets tagged on to their loan balance, raising the size of the loan balance.
This is all fine and dandy until the loan hits a certain “cap” (usually 115% or 125% of the original loan balance) and then the loan magically “recasts” and the borrower is stripped of their different options for making a monthly payment, and they are REQUIRED to now pay the full loan balance based on the full amount of the loan (including all the negative amortization) and they MUST pay this at the note rate of 8% for example.
The obvious result of this is “payment shock” to most borrowers who then cannot afford the payment (which can often TRIPLE in size) and foreclosure and loss mitigation (an ugly process) is what awaits most borrowers at this time.
The issue for purposes of this article becomes, at what point is all this predatory and to what extent can a broker or lender be held liable for the loan, the surrounding disclosures (which we see there is often a lack of disclosures, confusing disclosures, ambiguous disclosures, and often times no disclosures at all).
The following are the types of things I look for in seeing if there is a valid cause of action that can be leveled against the broker and/or originating lender of these types of loans.
The full version of this document can be purchased at Foreclosure Warrior Attorney Document Store:
FACTORS I LOOK FOR TO SEE IF THERE IS GROUNDS TO SUE A BROKER OR LENDER IN CALIFORNIA FOR PLACING A BORROWER INTO AN OPTION ARM LOAN:
∆ I always start off by saying to potential clients that the option arm loan is NOT necessarily predatory and that it depends who the borrower(s) are that impacts my assessment of whether the loan is predatory or not
California Truth in Lending Lawyer vindicates client’s rights in regard to predatory option arm loan!
We have discussed the nasty negam (option arm loans in other blog posts). See our other website OptionArmLawyer.com. These loans are nasty when given to the average ordinary individual. I have said before, if a person is a real estate investor and has multiple properties, the loan may not be toxic as to that type of investor, who most people will consider to be savvy enough to figure out the actual loan terms and nature of the loan. In those cases, the investor likely used the loan as a cash flow tool, and/or was considering holding the property short term and flipping it. That is what I have seen. To these investors holding negam loans, the jury may have no sympathy.
But as to the large numbers of people who relied on their broker to get the the best loan for their financial circumstances, and those who rely on the guidance of a real estate broker to assist them in identifying the best loan product for their needs, the “option arm loan (sometimes called the “pick-a-pay” – this is what Wachovia called it), is a risk y financial product, and in most cases was not a loan well suited to the borrower.
We could go on an on about the features of the loan, and the recast features, etc., but suffice it to say, when borrowers are “steered” into these types of loans by real estate brokers and lenders who are looking to make big commissions, and high yields, then the loan becomes at issue as does the broker, and the disclosures and counseling the borrower was provided. Another nasty class of predatory lending (which we have seen and vindicated in the past), is senior citizens who have had 30 year fixed loans, and then a broker convinces them the negative amortization loan is in their best interest, often without ever even considering the reverse mortgage.
At any rate as the link shows below, we have recently brought home a nice judgement in a PREDATORY LENDING / TRUTH IN LENDING lawsuit filed against California real estate brokers and their companies in regard to these types of loans, and borrowers who trusted the broker and did not see the hit coming.
The names have been redacted for privacy purposes and for purposes of seeking to collect on the judgement.
Noteworthy in the case was the judges question (prior to issuing the judgement) in regard to why my Client should not be considered the “predatory borrower” (because they took cash out on the loan).
To learn more about our response, and how we took the judgement home with an eventual finding that we “clearly and conspicuously” proved each of our causes of action, go to our Attorney education website Foreclosure Warrior.
We provide a checklist of things we looked at and argued to take down the predatory brokers. The site also contains foreclosure training videos for California lawyers.
Past successes on any case, is no guarantee as to future success on any case. The above is for illustrative purposes only. Every case, lender, judge, jury, legal theory is different and no guarantees of any particular result can ever be given.
More from the “who owns my loan” series. This time, it is the Arizona Supreme Court that is hearing oral arguments regarding whether or not assignments evidencing who owns your loan must be recorded prior to a lender can pursue a non-judicial foreclosure. Here is an article that deals with some of the high points of the debate. The Court will rule on the issues at a later date and we will keep you posted when we hearing something. This comes on the heels of Arizona trying to pass a law (SB 1259) that forces the so-called “lenders” of securitized loans and other loans to record proof of ownership with the County Recorder before they seek to foreclose. The law did not get passed likely due to the financial lobby that of course does not want such a law passed.
http://azstarnet.com/article_64c6ed66-f336-5bfc-972e-65740509e6cd.html We talked on another blog post about Arizona SB 1259 that was trying to require proof of ownership recorded before a lender could foreclose. The debate marches on. As a society, do we care if a bank is allowed to foreclose in a private non-judicial foreclosure sale if it cannot legally produce evidence that it is the owner of the loan, or should be not be concerned with whether or not the true owner of the loan is foreclosing because the borrower is in default of a loan with no way to repay it? As it stands now the “produce the note” or “show me the note” or “who owns my loan” argument does not have much if any traction as far as trying to prevent a non-judicial foreclosure sale. The issue may have more life in a bankruptcy court where issues such as “standing” and who the “real party in interest” is to pursue a motion to lift the automatic stay, or to file a proof of claim in a bankruptcy case. To this extent, we have discussed the in Re Veal case which we will try to thoroughly blog on soon. This is a very interesting case that deals with proof of loan ownership, standing and real party in an Arizona Bankruptcy Case. Stay tuned.
IS YOUR LENDER OR LOAN SERVICER DANGLING THE HAMP PERMANENT MODIFICATION CARROT IN FRONT OF YOUR NOSE?
HAMP TRIAL PLAN SCHEME – Saying they “will” modify the loan if trial payments are made proves crucial.
We have talked about this many times before on our website Trial Plan Fraud. That is, Banks and loan servicers promising to modify your loan if you make your HAMP trial plan payments on time.
We get this scenario over and over. The HAMP modification agreement itself will normally promise the modification if all payments are made (but the contract is subject to a bunch of little trap-holes put in place so the loan servicer can always try to back out of the modification without having to perform). Sometimes this is also buttressed over the phone by statements from some “loss mitigation specialist” or “foreclosure specialist” who promises you that you qualify for the loan modification and if you just make the trial payments “you will be good” or “we won’t foreclose.” This is going on left and right in my honest opinion. After all, it is a “clever” way to get people who may not be making their mortgage payment (potential strategic defaulters) into making some payments and that is with the false promise of loan mod assistance. So yes, trying to get a loan modification can often turn into a game of poker with your lender. You both end up telling each other certain things, some of which may or may not be true. That’s what happens when money is on the line, monthly payments versus the return on investment to investors in mortgage backed securities.
At any rate, in the case of Jackmon v. America’s Servicing Company, Case No. C 11-03884 CRB, (CA Northern District 2011) the Court did not go for this approach. The fact that the servicer refused to return the signed agreement to the borrower was not enough to allow the servicer to get out of the hot water. The borrower made more than the required trial plan payments, and although she faced eviction following the foreclosure sale, the court issued an injunction preventing the eviction from taking place, based on the allegations that the borrower was entitled to, and promised a final HAMP modification. So, when the Servicers are not playing fair, it may just so happen that you have some legal rights.
NOTE: The Court required a bond be posted and required $2,648 monthly protection payments. Something you should always consider before filing a predatory lending lawsuit or wrongful foreclosure lawsuit seeking a TRO and Injunction.
Okay, so it has taken us a little while to get around to discussing this law. We wanted to take a little time to let things develop and see if this law had any real significance to it. Here is what we now know.
This was signed into law by President Obama on May 20, 2009. The law originally contained a provision allowing bankruptcy judges to modify mortgage loans (of course, that is too drastic for the banks, and so the provision, although initially providing some good window dressing for some politicians was eventually dropped).
The act is supposed to help stem the tide of foreclosures. Some of the ways this is supposed to happen is By excluding home mortgage debt from the current Chapter 13 maximum debt limitations (if you have too much secured debt, you cannot file for Chapter 13, and must seek a more expensive Chapter 11); and the Hope for Homeowners program is supposed to be expanded. These are some of the provisions. The one I am going to focus on in this blog is the new requirement to notify homeowners when their mortgage is sold.
This new requirement comes under Section 404:
SEC. 404. NOTIFICATION OF SALE OR TRANSFER OF MORTGAGE LOANS. (a) IN GENERAL.—Section 131 of the Truth in Lending Act (15 U.S.C. 1641) is amended by adding at the end the following:
NOTICE OF NEW CREDITOR.— ‘‘(1) IN GENERAL.—In addition to other disclosures required by this title, not later than 30 days after the date on which a mortgage loan (includes closed end and open end loans) is sold or otherwise transferred or assigned to a third party, the creditor that is the new owner or assignee of the debt shall notify the borrower in writing of such transfer, including—
(A) the identity, address, telephone number of the new creditor;
(B) the date of transfer;
(C) how to reach an agent or party having authority to act on behalf of the new creditor;
(D) the location of the place where transfer of ownership of the debt is recorded; and
(E) any other relevant information regarding the new creditor.
(2) DEFINITION.—As used in this subsection, the term ‘mortgage loan’ means any consumer credit transaction that is secured by the principal dwelling of a consumer.’’.
(b) PRIVATE RIGHT OF ACTION.—Section 130(a) of the Truth in Lending Act (15 U.S.C. 1640(a)) is amended by inserting ‘‘subsection (f) or (g) of section 131,’’ after ‘‘section 125.
A private right of action exists for failure to comply with the requirements of this new subsection 131(g) of TILA may result in civil liability for actual damages, legal fees and 4k statutory damages under Section 130(a) of TILA.
So what does this mean? This new subsection requires that after May 20, 2009, purchasers or assignees of mortgage loans secured by a mortgagor’s principal dwelling must provide written notice of each sale, transfer, or assignment no later than 30 days after such sale, transfer or assignment occurs. In other words, you are entitled to know if your note is sold, and who it was sold to. If not, you could be entitled to money damages.
MERS has maintained that it tracks loan ownership and servicing rights. They have indicated they can help compliance with this statute by generating notices whenever a “transfer of beneficial rights” occurs on its system, and they will generate a notice. That should make everyone feel comfortable.
If you feel your rights may have been violated under this section, contact a truth in lending lawyer.
The following are general guidelines I consider when filing for a TRO / Injunction in a California Foreclosure civil. This information is for California real estate, foreclosure and bankruptcy attorneys only.
A couple of quick things: First, make sure you have good legal grounds to file the lawsuit that you are basing your TRO on. You cannot file a lawsuit for the sole purpose of delay, and realize it is doubtful you will file a civil suit and get immediate results. So, you need a realistic client that can afford to pay to support and ongoing litigation (often against several named large financial institutions who will usually hire a medium to large law firm to assist them). That firm will likely want to bill a lot of hours, so you have to be cognizant of that. You also need a game plan for settling the case and to me, a realistic client who does not want their house for free. Courts are reluctant to go there and you should probably ask a lot of questions to make sure your client does not have this mindset, or objective in mind.
So, the first thing you might want to do is go to the intake process, ask a lot of questions, and decide if filing a lawsuit is the best course of action. Bankruptcy may be a better option in a good number of cases, assuming there are valid legal debts worth discharging.
THE FOLLOWING ARE THE GENERAL STEPS I LOOK TO. REMEMBER YOU HAVE TO CHECK YOUR LOCAL RULES, AND MAKE SURE THERE ARE NO SPECIAL REQUIREMENTS. WITH TIME OF THE ESSENCE, THERE IS LITTLE ROOM FOR ERRORS.
CALL AND GET A COURT DATE AND FIND OUT IF THEY HAVE ANY SPECIAL PROCEDURES. If you are filing for an ex parte hearing, you need to find out where the lawsuit will be filed, and see whether or not there are certain days the court will hear your ex parte motion. Is there a particular judge? A special process that must be followed (I have seen this vary so it makes sense to call the Court and tell them what you are trying to do and ask for their help in informing you of their times, dates, and procedures).
UCC PRESENTMENT OF THE ORIGINAL PROMISSORY NOTE DEMAND
My Client signed a promissory note that is treated as a negotiable instrument as defined under the Uniform Commercial Code (“UCC”), including under the California Commercial Code. The above entities are and have been purporting to have the legal right to collect on the promissory note signed by my Client. My Client disputes this fact and under California Commercial Code Section 3502 you are required to present for inspection the original promissory note that evidence your legal right to collect on the debt you are claiming is owed to you. In order to verify such claims, and to inspect the note, including its specific terms, conditions and clauses, My client is hereby demanding to inspect the note in regard to the mortgage loan referenced above.
Under California Commercial Code Section 3502(a)(1):
(a) Dishonor of a note is governed by the following rules:
(1) If the note is payable on demand, the note is dishonored if presentment is duly made to the maker and the note is not paid on the day of presentment. (emphasis added).
In addition, the Code states: “Upon demand of the person to whom presentment is made, the person making presentment must: (1) exhibit the instrument. (See California Commercial Code Section 3501(B)(2)(a)). This means the original note, with endorsements and allonges (if any) must be presented upon demand of the borrower/obligor, which is hereby made as discussed below.
TRYING TO GET LEGAL PROOF A VALID DEBT IS OWED TO THE PERSON (‘DEBT COLLECTOR”) THAT IS TRYING TO COLLECT YOUR MORTGAGE PAYMENTS?
Here is another issue that comes up in foreclosure defense work. Sometimes the loan servicer obtains your loan after it goes into default. Once that happens, they may send you collection calls or notices, or other communications designed to either directly, or indirectly collect payment on a debt (one court said sending a loan modification/workout letter was an activity designed to collect a debt). At any rate, when you get a collection activity and when the debt collector makes activity to collect a debt, they are required to send you a letter within 5 days verifying various things. They are also supposed to give you a “Miranda” notice that informs you that you have 30 days to dispute the debt and demand verification. This is something that you should do, and you should send a Notice of Dispute / Debt Validation letter within 30 days of being contacted. This is to preserve your legal rights, and it could create liability, perhaps even punitive liability as the court held in the Credigy case listed below. Failure to assert your rights in a timely fashion, normally means loss of the right.
Here is a snippet from our debt validation letter:
Under the Fair Debt Collection Practices Act (15 U.S.C. §1692 et seq. / Section 805 et seq.) (hereinafter “FDCPA”) when a “debt collector” initiates a communication designed to collect a debt, which may include by way of examples: making loss mitigation or collection phone calls to a borrower, mailing demand letters, sending intent to accelerate or foreclose letters, recording notices of default or notices of sale in some jurisdictions, or by making any other communication or demand designed to collect an alleged debt owed, including making offers of modifications, workouts, or trial modifications (See Gburek v. Litton Loan Servicing, LP, 08-3776, 7th Cir. (2010), holding that a loan workout letter designed to help avoid foreclosure was covered by the FDCPA even though not specifically demanding a payment of the debt as this was a letter designed to induce the payment of money to the Servicer).
Where a loan servicer becomes the loan servicer after the borrower is in default, the loan servicer is a “debt collector” and becomes obligated to comply with the Fair Debt Collection Practices Act in all respects. See Santoro v. CTC Foreclosure Serv. Corp., 12 F. App’x. 476, 480 (9th Cir. 2001); Kee v. R-G Crown Bank, 656 F. Supp. 2d 1348, 1354 (D. Utah 2009) (determining “that a loan servicer . . . is only a ‘debt collector’ within the meaning of the FDCPA if it acquires the loan after it is in default”). See also Alibrandri v. Fin. Outsourcing Servs., Inc., 333 F.3d 82 (2d Cir. 2003) (holding that a debt was in “default” and a service provider was a “debt collector”, by virtue of the service providers collection letter declaring the debt in default and informing the debtor that the service provide was, in fact, a debt collector).
My Client has reason to believe that the above referenced loan was obtained by the loan servicer AFTER the loan was in default status, and as such THIS MEANS THE ENTITY LISTED ABOVE HAS A LEGAL OBLIGATION TO COMPLY WITH THIS REQUEST IN A FULL, DETAILED, AND COMPREHENSIVE MANNER.
We then set forth our comprehensive list of demands to validate the debt. If you are an attorney and want a copy of this letter (AND MORE) to assist your clients, please sign up for our Foreclosure Warrior ATTORNEY Training Series that has these forms, pleadings, video case briefs, memorandums of law, foreclosure checklists, and more.
Why is this so important?
You should realize that California courts have also recognized punitive damages for blatant violations of the Act. See Rubin v. Account Control Technology, 865 F. Supp. 1443 (D. Nev. 1994). See also Fausto v. Credigy Services Corp, 598 F. Supp 2d, 1049 (N.D. Cal. 2009). Following a jury trial, the verdict consisted of $100,000 in actual damages and $400,000 in punitive damages.
HAVE YOU TOLD YOUR SERVICER LATELY, THAT YOU LOVE THEM? WHY NOT SEND THEM A QUALIFIED WRITTEN REQUEST SO THEY KNOW YOU ARE ALIVE!
A Qualified Written Request (“QWR”) can be a valuable tool to find out what is going on with your loan servicer. Most people now realize the entity you are trying to get a loan modification from is not really your “lender” as many people used to think. In reality, they are merely a “servicer” of your loan, collecting loan payments and transmitting them to the party entitled to collect your loan payment (or should we say the party that claims to be the owner of your loan). Just a few years back, many of the servicers pretended to be your lender, and would not disclose who they were servicing loans on behalf of (whether that is an “investor”, “creditor” or “beneficiary.”). Nowadays, they seem to admit more clearly than they had before, who they claim “owns your loan” or who “your investor” is.
But there is one thing most foreclosure defense lawyers know, and that is you have to KEEP AN EYE ON YOUR LOAN SERVICER. They make errors, tag on bogus fees, and also they are the party you typically have to work a loan modification and other loss mitigation tactics (such as short sale or deed in lieu of foreclosure) so there may be reasons you want to know what they are doing, and where accounting and billing errors are suspected, you need to hold their feet to the fire and make them justify their actions. Sending in the QWR is the one legal RIGHT you have to make them explain what is going on in the loan servicing back-room.
For our attorney colleagues in California and Arizona, we are offering for the first time a copy of our QWR. It begins like this (and is ready for you to paste onto your letterhead for easy use to assist your clients):
Re: Qualified Written Request under RESPA Section 6 in regard to subject Loan# XXXXXX for borrower(s) XXXXXXX and XXXXXX, for Real Property located at XXXXXXXX, CA 92706 (APN#_________).
THIS IS A LEGAL DEMAND AND A COPY OF THIS LETTER MUST BE FORWARDED TO YOUR LEGAL DEPARTMENT, OFFICE OF THE PRESIDENT, INVESTOR, EXECUTIVE RESOLUTION DEPARTMENT OR OTHER PROPER OFFICE FOR IMMEDIATE REVIEW, COMPLIANCE AND RESOLUTION.
To Whom It May Concern:
Please be advised that my office has been retained by XXXXXXXX to represent her in regard to her real property and loan as set forth above. Specifically, my client has the following concerns over your accounting and billing practices and hereby disputes each of the following:
(1) Monthly payment amount is not warranted by the terms of the note and deed of trust. The amount of the payment should be lower;
(2) The most recent monthly mortgage payment coupon reflects there is “late fees” of $_____ this is not correct, and not warranted.
(3) The most recent monthly mortgage payment coupon reflects there is “escrow shortage” of $_____ this is not correct, and not warranted.
(4) The most recent monthly mortgage payment coupon reflects there is “arrearages” of $_____ this is not correct, and not warranted.
(5) The Notice of Default, recorded with the _______ County Recorder’s Office on or around ______ date reflects arrearages owing of $________ this is not correct and is overstated by $______.
(6) There is evidence that you are not servicing this loan on behalf of the party legally required to enforce the note, and as such, you may be collecting loan payments that you are not legally entitled to, and which may require you to surrender.
[PUT ALL YOUR “BEAN-COUNTING” OR OTHER LOAN SERVICER DISPUTES HERE. MAKE THEM SHOW WHAT THE HECK THEY ARE DOING BEHIND CLOSED DOORS].
GIVEN THESE LEGITIMATE AND BONA FIDE ACCOUNTING AND BILLING CONCERNS OVER THE SERVICING OF MY CLIENT’S LOAN, MY CLIENT HAS INSTRUCTED ME TO SEND YOU THIS QUALIFIED WRITTEN REQUEST WHICH YOU MUST RESPOND TO IMMEDIATELY. YOUR FAILURE TO DO SO MAY RESULT IN LEGAL LIABILITY TO BOTH YOU AND THE ALLEGED OWNER OF MY CLIENTS LOAN.
I. QUALIFIED WRITTEN REQUEST UNDER RESPA SECTION 6 (12 U.S.C. § 2605(e)):
IF YOU ARE NOT USING A QUALIFIED WRITTEN REQUEST TO ASSIST YOUR FORECLOSURE AND BANKRUPTCY CLIENTS, YOU MAY BE MISSING OUT ON HUGE OPPORTUNITIES TO BENEFIT YOUR CLIENT.
SEND IN THE CLOWNS – THERE OUGHT (NOT) TO BE CLOWNS – WELL, MAYBE NEXT YEAR!
Many clients have called our offices asking us to discuss the mass joinder lawsuit. This was a new phenomena that started about a year ago or so. Some lawyers decided to start a service whereby they would charge advance fees to join a “mass joinder lawsuit.” According to the link on this site the mass joinder solicitations were designed to look like official government mail pieces. Many people (at least that I spoke with) told me they were informed they would get to stay in their houses for a long time without making a mortgage payment, and would have a good chance to get their mortgages reduced to market value. This approach works because it is EXACTLY what a homeowner is hoping for. So they request several thousand dollars to have you join the lawsuit and away you go.
Several months ago we told you the California State Bar was investigating these practices, but at the time we mentioned to just be vigilant, as there was no clear proof this was a mortgage rescue scam, or foreclosure rescue scam. Now, the State bar of California has raided the offices in Irvine, California where some of these attorneys and lawyers were operating. Apparently they collected millions of dollars in advance fees for loan modifications. We have highlighted other attorneys on our sites that think they can do whatever they want when it comes to accepting advance fees for loan modifications. These people who prey on California homeowners should be very concerned. It is coming home to roost in a big way.
At any rate, these attorney sent out approximately 2 million mailers, (according the complaint filed by California authorities), and facebook pages were also being used. 19 people were being investigated. Hundreds of thousands of people paid between 5k-10k for these services. Some persons had not even been joined to the lawsuit, and others had their homes foreclosed on after advance fees were paid. What a mess.
Here is a sample of portions of a demand letter we sent to set aside a foreclosure sale that occurred following a promise not to foreclose. The full copy of this letter is available for California Foreclosure and Real Estate Lawyers who subscribe to a platinum account on our Foreclosure Warrior website:
PURCHASER AT SALE
VIA FAX AND EMAIL
Re: Demand to Record Notice of Rescission of Trustee’s Deed and to Invalidate the Sale for Trustee Sale#__________ (CLIENT NAME) for real property located at __________________________________________.
Please be advised my office represents ________________ in regard to a wrongful foreclosure sale that has recently occurred. My Client had received both oral and written assurances and promises, through one of its representatives (NAME), confirming their agreement to postpone the sale date and their assertion that they were working on a modification.
This agreement to cure the default and postpone the sale was relied on by my client and now the foreclosure sale has occurred and a third party has purchased the property with a purported sale price of $____. Apparently there was no credit bid by the lender and the “published bid” was $822,192. This is a grossly inadequate sale price.
I am writing this letter to request that the above non-judicial foreclosure sale be set aside immediately and that any trustee’s deed be hereby cancelled/rescinded and that the status quo be preserved as it existed prior to the sale. All evidence in regard to this situation must be preserved in anticipation of potential litigation.
Under these circumstances, California law is clear that there is no requirement that my client “tender” the loan balance as a prerequisite to challenge this wrongful foreclosure. Legal support buttressing our position is as follows:
California Civil Code Section 2924g(C)(1)(C) states:
(c) (1) There may be a postponement or postponements of the sale Proceedings, including a postponement upon instruction by the Beneficiary to the trustee that the sale proceedings be postponed, at any time prior to the completion of the sale for any period of time not to exceed a total of 365 days from the date set forth in the notice of sale. The trustee shall postpone the sale in accordance with any of the following:
(A) Upon the order of any court of competent jurisdiction.
(B) If stayed by operation of law.
(C) By mutual agreement, whether oral or in writing, of any
trustor and any beneficiary or any mortgagor and any mortgagee.
(D) At the discretion of the trustee.
Here, there was a mutual agreement to postpone the sale, and (LENDER) has written evidence of such. Thus, there was an express written agreement NOT to foreclose as contemplated under 2924g(C)(1)(C).
(1) Whitman v. Translate Title Company, 165 Cal.App.3d 312, 211 Cal. Rptr. 582 (1985) in this case the Court dispensed with a tender requirement where a “substantial statutory right” was violated (namely, the Trustor’s rights pursuant to Cal. Civ. Code Section 2924g – the same code section cited above) and thus the Court essentially treated the sale as “void” requiring no tender.
(2) The Whitman holding is in line with the holding in…………
As discussed above, the remainder of the letter can be obtained by subscribing as a platinum member to the foreclosure warrior website.
If you are a lawyer in California representing California homeowners, undoubtedly you have been sending out demand for beneficiary statements to the lender or loan servicer. The “beneficiary” of the loan is required to respond. These are one of a handful of letters we send out to try to ferret out various information. Yes, even though a borrower may be in default and fighting foreclosure, they still have some legal rights worth exploring, and which answers to the questions may assist you in a future foreclosure lawsuit or bankruptcy adversary proceeding setting.
Here is a snippet of the sample demand letter:
LOAN SERVICER ADDRESS
SECURITIZED TRUST ADDRESS
VIA CERTIFIED MAIL
Re: Demand for Beneficiary Statement (Cal. Civ. Code 2943 et seq.) in regard to borrowers ___ and __ for real property located at __________.
THIS LETTER CONTAINS LEGAL DEMANDS THAT YOU MAY BE REQUIRED BY LAW TO COMPLY WITH. PLEASE FORWARD THIS LETTER TO YOUR LEGAL DEPARTMENT OF OTHER APPROPRIATE OFFICE FOR IMMEDIATE RESPONSE.
To whom it may concern:
Please be advised my office has been retained by borrowers __________ and ______ (“entitled persons”) who are the owners of real property located at ________________________________ (“subject property”) and in regard to a loan obligation which is hereby identified by the attached Exhibit “A” as account #_______________ (“subject loan”). The purpose of this letter is to demand that the “beneficiary” of my client’s subject loan respond to the following request, and produce the information requested below.
I. DEMAND FOR BENEFICIARY RESPONSE
The term “beneficiary” is defined under California Civil Code Section 2943 and elsewhere in California law as:
Our letter goes on from there to make several requests to clarify loan balances, escrow accounts, payoff amounts, etc.
If you are not making this written request, it may be worth reading California Civil Code Section 2943 to see if there is anything worthwhile that you can request to help your clients.
If they fail to comply, you are entitled to a whopping $300 in statutory damages.
Probably one of the first things you learn in foreclosure defense is how the lenders love the word TENDER. Basically tender is a word they throw around to the Courts whenever you say you want to challenge a foreclosure sale. The gist of it is that if you are defaulting borrower and something bad happens that results in foreclosure, and if you want to challenge that, they will argue to the judge (if you file a lawsuit) that you cannot make a valid legal challenge unless you can “tender the balance of the loan” that you owe on. Yeah, if they had their way they would require you to bring a sack of cash to court to make a legal challenge. The principle is based on the fact that the court should not overturn a sale for minor irregularities, if it just puts a borrower right back into a defaulting position and where that result is deemed inequitable.
However, we recently had a sale occur in violation of a promise not to foreclose, and here are a few of the cases we cited for the proposition that no tender was required to make our challenge. You should realize there are a lot of cases discussing tender, and the best I have been able to tell is that it is a fact intensive review, and depends on the facts of the case. So if you are facing this argument, you should seek out real estate or foreclosure counsel. Anyway, here are a couple of cases you can look at that we successfully cited to reverse or set aside a foreclosure sale following a written agreement not to foreclose.
(1) Whitman v. Translate Title Company, 165 Cal.App.3d 312, 211 Cal. Rptr. 582 (1985) in this case the Court dispensed with a tender requirement where a “substantial statutory right” was violated (namely, the Trustor’s rights pursuant to Cal. Civ. Code Section 2924g – the same code section cited above) and thus the Court essentially treated the sale as “void” requiring no tender.
(2) The Whitman holding is in line with the holding in the Little v. CFS Service Corp. 233 Cal.Rptr. 923, (1987) which discussed the difference between “substantially defective sales” (which are VOID and of no legal effect, – where no tender rule should apply – versus minor defects and irregularity, which are “voidable” and where arguably the tender rule might apply). There, a Notice of Sale defect was deemed substantial and prejudicial and thus the sale was declared VOID even as to a bona fide purchaser for value.
(3) Bank of America, N.A. v. LoJolla Group II, 129 Cal.App.4th 706 (2005), was another case which held that a foreclosure sale was void and invalid where the borrower had cured the default.
“We seriously doubt that the legislature intended to prevent lenders and borrowers from adjusting delinquencies by mutual consent.”
In addition, LaJolla held that either the Trustee or the beneficiary could record the notice of rescission. To this point the court held:
“The recordation of a notice of rescission is authorized by section 1058.5, subdivision (b):Where a trustee’s deed is invalidated by a pending bankruptcy or otherwise, recordation of a notice of rescission of the trustee’s deed … shall restore the condition of record title to the real property described in the trustee’s deed and the existence and priority of all lien holders to the status quo prior to the recordation of the trustee’s deed upon sale. Only the trustee or beneficiary who caused the trustee’s deed to be recorded, or his or her successor in interest, may record a notice of rescission.”
(4) In Residential Capital v. Cal–Western Reconveyance Corp. (2003) 108 Cal.App.4th 807, 134 Cal.Rptr.2d 162, a foreclosure auction was held mistakenly after the trustor and beneficiary agreed to postpone it but failed to inform the trustee of their agreement. The trustee then learned of the agreement and refused to deliver a deed to the high bidder. (Id. at pp. 811–812, 134 Cal.Rptr.2d 162.) The Court of Appeal affirmed the trial court’s ruling granting summary judgment against the bidder.
(5) In the case of Bank of America National Trust & Savings Association v. Reidy, 15 Cal. 2d. 243, 248 (1940), the Court held:“It is the general rule that courts have power to vacate a foreclosure sale where there has been fraud in the procurement of the foreclosure decree or where the sale has been improperly, unfairly or unlawfully conducted, or is tainted by fraud, or where there has been such a mistake that to allow it to stand would be inequitable to purchaser and parties. Sham bidding and the restriction of competition are condemned, and inadequacy of price when coupled with other circumstances of fraud may also constitute ground for setting aside the sale. (Haley v. Bloomquist, 204 Cal. 253 [268 Pac. 365]; Dealey v. East San Mateo Land Co., 21 Cal. App. 39 [130 Pac. 1066]; Bernheim v. Cerf, 123 Cal. 170 [55 Pac. 759]; Packard v. Bird, 40 Cal. 378; Goodenow v. Ewer, 16 Cal. 461 [76 Am. Dec. 540].).
(6) In re Worcester, 811 F.2d 1224, 1228, (1987) the Court held:
Under California law, “gross inadequacy of price coupled with even slight unfairness or irregularity is a sufficient basis for setting the sale aside.” Whitman v. Transtate Title Co., 165 Cal.App.3d 312, 323, 211 Cal.Rptr. 582, 589 (1985); see also Sargent v. Shumaker, 193 Cal. 122, 129-30, 223 P.2d 464, 467 (1924).
As you can see, there are exceptions to the “tender rule” in California.
The foregoing information is general information only and not specific legal advice. In addition, the cases may not be current or accurate as the law is open to change and interpretation. If you have specific questions about your case please discuss with a real estate or foreclosure lawyer.
The following is general information only and is not intended to serve as legal advice or a substitute for legal advice. These are only my opinions and the case law and theories presented below may not be current or valid. For specific legal advice pertaining to your foreclosure case please consult a real estate or foreclosure lawyer in your area.
SUBSTITUTION OF TRUSTEE LEGAL REQUIREMENTS UNDER CALIFORNIA LAW
In the Deed of Trust a “trustee” is appointed. The trustee has the power of sale under most deeds of trust. Usually your deed of trust will indicate that the “lender” has the authority to substitute the trustee. But what happens if your house is sold and you check the chain of title at your local county recorder’s office and you do not see a “Substitution of Trustee” document recorded prior to the sale? Do you have any rights to set aside the sale? Maybe.
Let’s take a look at these points I would argue if that happened and my client wanted to try to set aside the sale. Note, whether or not the house was sold to a third party (bona fide purchaser for value) or went back to the bank may make a big difference in this situation.
(i)The Foreclosure laws in California must be STRICTLY FOLLOWED or the Foreclosure Sale is Void.
In Miller v. Cote, 179 Cal.Rptr. 753, (Ct of App. Fourth Dist. Div. 2 1982), the Court, in calling the notice of default fatally defective stated:
“The procedure for foreclosing on security by a trustee’s sale pursuant to a deed of trust is set forth in Civil Code section 2924, et seq. The statutory requirements must be strictly complied with, and a trustee’s sale based on a statutorily deficient notice of default is invalid.(System Inv. Corp. v. Union Bank (1971) 21 Cal.App.3d 137, 152-153, 98 Cal.Rptr. 735; see California Mortgage and Deed of Trust Practice (Cont.Ed. Bar 1979) s 6.40, p. 295; see also Bisno v. Sax (1959) 175 Cal.App.2d 714, 720, 346 P.2d.
(ii) 2934a(1)(A) says “all beneficiaries” must execute the Substitution of Trustee (the applicable California law when a lender seeks to substitute the trustee and pursue a foreclosure sale), and the substitution of trustee document must be RECORDED to be effective, if not, the resulting sale is VOID.
(a) Only the beneficiary can substitute a Trustee under California Civil Code Section 2934a(a)(1), and such document must be recorded:
This section states:
“(a) (1) The trustee under a trust deed upon real property or an estate for years therein given to secure an obligation to pay money and conferring no other duties upon the trustee than those which are incidental to the exercise of the power of sale therein conferred, may be substituted by the recording in the county in which the property is located of a substitution executed and acknowledged by: (A) all of the beneficiaries under the trust deed, or their successors in interest….” (emphasis added).
Thus, it is clear, there can be no valid non-judicial foreclosure where the trustee under the original deed of trust is not properly substituted with a “recorded” document.
(iii) If there is no valid recorded substitution of Trustee, then the resulting foreclosure is VOID, and there is no obligation under California law to “tender” the loan balance to set aside the sale based on this technical violation to failure to strictly comply with 2934a(1)(A).
Again, California courts have spoken loud and clear on this issue. If a Substitution of Trustee is not valid, the resulting sale is VOID with no requirement for “tender”.See Dimrock v. Emerald Properties, 81 Cal.App.4th 868, 878 (2000), which held:
“In particular, contrary to the defendants’ argument, he was not required to tender any of the amounts due under the note” in order to attack a void trustee sale.
The Court in Dimrock further stated:
“To avoid confusion and litigation, there cannot be at any given time more than one person with the power to conduct a sale under a deed of trust” (emphasis added).
See also Pro Value Properties Quality Loan Service Corp., 170 Cal.App.4th 579 (2009).
Other California courts have also been willing to set aside foreclosure sales that violate the law or otherwise have serious irregularities without the requirement of tender. In the case of Whitman v. Translate Title Company, 165 Cal.App.3d 312, 211 Cal. Rptr. 582 (1985) the Court dispensed with a tender requirement where a “substantial statutory right” was violated (the Trustor’s one day right to extend the non-judicial foreclosure one business day pursuant to Cal. Civ. Code Section 2924g(c)(1)) and thus the Court essentially treated the sale as “void” requiring no tender.
This is in line with the holding in the Little v. CFS Service Corp. 233 Cal.Rptr. 923, (1987) which discussed the difference between “substantially defective sales” (which are VOID and of no legal effect, - where no tender rule should apply), versus minor defects and irregularity, which are “voidable” and where arguably the tender rule might apply). There, a Notice of Sale defect was deemed substantial and prejudicial and thus the sale was declared void even as to a bona fide purchaser for value.
Here, failure to execute or record a Substitution of Trustee, is a substantial defect and impacts a right afforded to borrowers to know who the trustee is that will sell their property at a foreclosure sale. As such, the sale is VOID and not merely VOIDABLE, and no tender is required to seek to file a lawsuit to set aside the sale.
(iv.) DAMAGES: where a sale fails to strictly comply with 2934a(1)(A) the sale violates the law and should be deemed an “illegal” sale under Munger v. Moore and all damages flowing from the illegal sale may be properly recovered.
The landmark case in wrongful foreclosure is the case of Munger v. Moore, 89 Cal.Rptr. 323 (1970), in this case the Court held:
“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.…..this rule of liability is also applicable in California, we believe, upon the basic principle of tort liability declared in the Civil Code that every person is bound by law not to injure the person or property of another or infringe on any of his rights.”
In assessing damages for the wrongful foreclosure, the Munger Court held:
“Civil Code Section 3333 provides that the measure of damages for a wrong other than breach of contract will be an amount sufficient to compensate the plaintiff for all detriment, foreseeable or otherwise, proximately occasioned by the defendant’s wrong.”
These are just a few cases that come to mind. There are probably other arguments that can be made, but the lenders are required to follow the law just like everybody else. If they don’t properly substitute the trustee, you may have rights. Again, keep in mind that litigation is expensive so you have to consult with an attorney to see if it even makes sense to attack the sale, and if the sale is set aside you have your old loan back and you need to have a plan to deal with that which does not COUNT ON and RELY ON getting a modification. No lender or servicer is required to give a loan modification.
In this situation, some people have discussed setting aside the sale and going in Chapter 13 to bring the loan current over 60 months. Others have looked into bringing the loan current. Remember, sometimes people are only late on their mortgage because the lender or servicer told them “you have to be late if you want to try to get a loan modification.” Where you have a solid game plan, it may be worth looking into whether or not you have technical grounds to try to set aside your foreclosure sale. In another article, we will discuss what it means when it says the “beneficiary” must execute and record the Substitution of Trustee.
We have just launched a new video learning website that seeks to provide unbiased video modules to help California and Arizona consumers understand and learn tips and insights that may help them deal with the foreclosure crisis. The website is called Foreclosure Warrior.
There are times in the life of a foreclosure defense attorney when you just can’t get things your way or get the resolution that you want, or that which you fought for.
This is a tough business and the playing field may not be level. In most cases, there is a default that has to be grappled with in one sense or another.
Sometimes you have really good people, and really good friends as clients, and yet the funds run out and we cannot continue the fight.
Being a lawyer is tougher than most people think. Most people think lawyers are rich arrogant people. Of course some are. Yet, some have hearts and believe in happy endings.
Sometimes law firm economics forces us, as your legal counsel, to exit a case even though we want to continue the fight and find a way to take the ship out of the stormy sea and into the safe harbor.
I guess that is life. Filled with ups and down, good and bad weather and both bountiful and dry days.
As my mom used to say, everything happens for a reason. All we can do is our best and that is expected of us.
For the cases we have had to substitute out of for lack of ability to afford an attorney, I sincerely apologize. I wish I didn’t have student loans, or bills to pay, but I do.
At the end of the day, I hope I have laid the ground work for a successful settlement and kept a roof over your head as long as I could. And ultimately, I hope you achieve a result that keeps a smile on your face and a spirit in your step.
Just know, I have done what I could to build rapport with opposing counsel (who are not always bad people as you might think) and tried to build as much credibility as possible into the case, to support your plight.
Are we always successful? Heck no, I wish I was. But in the final analysis, I just hope I have kept your faith in the rule of law, and in yourself, and led you to believe in the system we live in, as troubling as it seems at times, and given you reason to believe in attorneys that take up your cause, in good faith, with the best of tools they have to offer.
Sometimes, that is all I get out of this business. A good fight against really talented opponents arguing minute details of law that get parsed into tiny segments that can usually be interpreted several different ways, each with credibility, with the reality that no success is ever guaranteed either way, and relying simply on the art of persuasion that we learned best as kids.
Yes, living in the trenches, fighting the good fight, is really all we each have to offer in this world, and that is something I think we can all be proud of.
My mom had a book called, tough times never last….but tough people do. To me, I think that means stay strong, and don’t let clouds get in your way.
As always, keep the faith. Keep in mind the important things. You know what they are.
A Client of mine has a son in law school. He asked his mom to ask me what a day in the life of a foreclosure and bankruptcy lawyer was like. Although this is somewhat amateurish as videos go, here is my response. Hope you enjoy.
First, you start up with some good music, and some good tips about wedding rings (if you are married).
Next, you head on out the door – but gotta get the breakfast of champions first (don’t forget to ask for the egg)!
Then, its headed to the courthouse!
I love downtown Phoenix. A great place!!
More downtown Phoenix (wife points out “even Attorney Steve makes mistakes”).
Looking for parking in downtown Arizona, Attorney Steve ponders whether or not he is “Employee of the Month.”
Attorney Steve gets the documents he was looking for and he leaves the building.
Attorney Steve heads back to the office in Arizona.
Attorney Steve Vondran reaches out to help those in need! Seems he has not heard of Attorney Steve! LOL
Here is the ultimate nightmare for drinking and driving. This time, it hits a Arizona tax lawyer – Christopher R. Perry – who works for one of the big foreclosure firms (that work for the banks) – “Perry & Shapiro.”
You may have seen that name on a few foreclosure notices of substitutions of trustee.
Guy was supposedly having a few cocktails around 2:00 p.m. in the afternoon, when he left and was driving his NEW BMW when he smacked a lady pedestrian throwing her to the ground.
Making matters worse, he stopped his car and got out, took a look at the woman who lay there dying, looking for a minute or two, and then he hits the road.
There is one guy trying to stop him from leaving the scene, but amazingly, he leaves the scene in broad daylight with witnesses onlooking.
To make matters worse, the woman dies.
To make matters worse, it is caught on VIDEO TAPE (see below).
I think that’s what you call having a bad day.
At any rate, this points out the dangers of drinking and driving.
THE CASE OF THE BOGUS WORK ORDER – I had one client where the lender sent a contractor in to “bid on things that need fixing” and “fix the toilet” which by the way WAS NOT BROKE (yes, my client still had lawful possession of the home and was MAKING PROTECTION PAYMENTS). Well the “contractor” snuck into the side door with the dogs barking, and snuck into the house with his camera, as my client’s daughter was just coming out of the shower. The guy races out of the house, and goes back around to the front door and starts knocking on the door. Now you tell me what he heck is going on here. This is not a made up story. This whole system is completely out of control. Our saving grace? I just got past demurrer on wrongful foreclosure. We are doing some plumbing of our own. Just another tale from the foreclosure trenches ………
So if you steal a pack of gum from Target – you go to jail. Drink and Drive, you go to jail. But if you hijack the financial system, the taxpayers bail you out, and now we look to 500 year old laws to try to go after the perpetrators. What the crap is wrong with this country? Last I checked these “routine violations” were acts of fraud and forgery. But no one goes to jail for that. Instead, they get bailed out and get to pay each other fat bonuses and act like loan modification kings casting judgment on homeowners who got caught in the spider web of deceit. Man, this is crazy. And now all we get is “state officials” trying to “wield these routine violations” and turn them into money FOR THE STATE. WTF is going on here. This story means absolutely nothing. Like everything else that has come out over the last 4 years. Nothing but window dressing designed to make people think the banks are busted. THE WIZARD OF OZ!!! AM I RIGHT, OR AM I MAKING IT UP?
If so, please email them to us at email@example.com. We are conducting a foreclosure chain of title analysis and have this notary and signor on the assignment of deed of trust. You may also find them on the substitution of trustee document. Either way, whether you have notarized documents or not, we would appreciate obtaining copies of these known signatures for comparison purposes. All parties are presumed innocent and in compliance with the law.
We are willing to exchange what we have for yours.
The banks will argue almost anything to get past a demurrer in a wrongful foreclosure lawsuit. Some of the typical things we see the big firms saying in their pleadings include:
1. Borrower is just upset over real estate speculation gone wrong
2. The borrower admits they are in default so they have no legal rights
3. Borrower/Plaintiff cannot challenge any irregularities in the foreclosure sale unless he/she can tender the balance of the loan (i.e. have a sack of cash ready)
4. The Plaintiff cannot state any cognizable claim against the lender or loan servicer
5. The lender or loan servicer has done absolutely nothing wrong (robosigners, forgery, and notary fraud should not matter when a person is in default).
These are just some of the things we hear defense counsel state in the typical foreclosure defense legal pleading. A demurrer challenges the sufficiency of the complaint, and basically argues to the judge that “there ain’t no case at all.”
Whenever you file a foreclosure related lawsuit against the major banks or loan servicers, this is the first pleading you will normally go up against. The counsel for the banks and lenders will try to knock-out each cause of action one by one until there is nothing left. As a foreclosure and real estate lawyer, we try to show that each cause of action is sufficiently plead, and that there is legal grounds or merit to the cause of action and seek to move the case forward on those grounds (i.e. go into the discovery phase of the lawsuit).
Recently, after our Second Amended Complaint on a wrongful foreclosure case, we had the banks demurrer overruled on our request for wrongful foreclosure (and two other causes of action). This is what we are fighting for.
About Standing for Something – Or Falling for Anything!
Many people have asked me, how do you do it? Why do you fight for people facing foreclosure?
The cynic says “you are just a rotten lawyer that does everything for money.”
Really? I had an easy retainer tonight. Homeowner facing eviction, looking for hope and some issues worth looking into.
Well, I thoroughly examined the loan file, chain of title, and facts of the case, and at the end of the day, there were no legal challenges to be made.
I informed the client of such, and the client cried her heart out to me on the phone. Is this a easy message to deliver, or easy response to take?
I don’t think so. It hurts.
But I have to be honest. A legal challenge would amount to nothing more than throwing good money after bad.
In fact, I had two of these cases this week alone. It hurts, but at least the homeowners know they investigated their legal rights, and there were none to assert.
For some people, this brings peace of mind and closure.
Some people want to see what rights they have, if any.
On another vein, I also emailed back and forth with another attorney tonight who also practices in the area of foreclosure defense and bankruptcy law.
She asked me how it is I maintain the fight in two states (California and Arizona) who are creditor/bank friendly. She sent me a link as to how Arizona was backing down on their SB 1259 law that sought to force the banks to prove their chain of title before foreclosing. Of course we all know by now the banks have no ability to show a legal right to foreclose with a full endorsed note from the loan originator to the securitized loan trustee that claims to own the loan. Just pure legal fiction. But what can we do?
This attorney had just got done settling a foreclosure case on her end (Kudos – and she is proud of it rightfully so) and yet the settlement agreement
(as always) says the attorney must keep HUSH HUSH on the settlement. Should anyone really be surprised? If a homeowner is SO LUCKY to win their case, this MUST be KEPT A SECRET. The Banks do not want everyone to know HOW they won, what the cases were, or what the problem on their end was. Believe me, if there was no problem, they would not settle. Right?
Anyway, here is what I emailed to her:
I fight so I can truly live…..Just fought a judge 7 days in Paso Robles and finally got the TRO.
The truth is in the trenches….of each business…..behind the scenes…..unreported, just like your settlement.
Your truth is too big for prime time news. Would unsettle the waters.
Welcome to America.
At the end of the day, as one of my broker clients told me a few years back “YOU HAVE TO STAND FOR SOMETHING OR YOU WILL FALL FOR ANYTHING.”
I AM NOT WILLING TO FALL FOR THE FORECLOSURE NONSENSE I SEE ON A DAILY BASIS.
STEVE VONDRAN, ESQ.
ARIZONA AND CALIFORNIA
FORECLOSURE AND BANKRUPTCY LAWYER
In what appears to be another act of federal window dressing to put Americans and foreign investors at ease that our financial system is the best in the world and worthy of your investment dollars, the Federal Regulators (OTS, OCC, and FRB) have concluded their investigation into foreclosure practices of the major banks and loan servicers and have come up with a settlement order that is supposed to make us all feel good.
The basics of the settlement orders (which include banks such as Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, US Bank, One West, Aurora, ALL Y Financial (formerly GMAC), and yes, our good friend MERS (the software company) are as follows:
(1) The banks and servicers neither admit nor deny any liability (hmmm, that’s a good start – I wish DRE audits could end up that way)
(2) The banks are supposed to set up an independent consulting firm to review their individual practices and come up with a compliance game plan in 60 days (hmm, since they have sworn up and donw in court and elsewhere that they have done nothing wrong, not sure what their game plan will consist of)
(3) The game plan is supposed to address certain “unsafe and unsound acts” and “deficiencies” (I guess we can’t call it fraud – that is a bad word) such as:
False assignments of Deeds of Trust and transfer of other mortgage documents
False affidavits to Bankruptcy and Foreclosure Courts
Fix the robosigner problem
Better oversight of outsourced serviced providers and third party law firms who have assisted in foreclosure-gate
Improper notarization of records that have been submitted to courts and the county recorder’s offices across the country
Sounds great, but these banks and financial institutions have always claimed to be 100% clean, and have blamed borrowers and their attorneys for everything. We will have to wait and see what their independent investigations reveal and what their self-imposed compliance plan will detail.
Question: What about dealing with RESPA and TILA rights. Banks / Servicers could give a c*** about that either, at least generally speaking.
Also, there is supposed to be a compensation, remediation, and reimbursement for “wrongful foreclosures” committed between 2009-2010 (but no third party beneficiaries of the settlement agreement are allowed). There are no guidelines as to who qualifies, what the standards or criteria is, or what amounts will be paid.
There is also no mention of any private right of action – and third party beneficiary status under these agreements is negated. Just a bunch of self-enforcement back slapping and compliance window-dressing???
Taking this with the 50-States Mortgage Mess Settlement agreement with the state Attorney general’s (See mortgage mess settlement agreement) – which was another measure seeking to bring some fairness into this mess of a foreclosure system – shows the extent of the foreclosure problem in America. The banks, who gave risky loans to virtually anyone with a heartbeat (no document loans, false appraisals, negam loans, option arm loans, stated income loans, etc.) need to step up to the plate and honestly fix this system and compensate people who have been wrongfully foreclosed.
California Lenders, Loan Servicers, MERS and other foreclosing entities should ensure valid legal compliance with California Civil Code Section 2932.5 or risk have the foreclosure sale being declared VOID (with no obligation to tender). The following is Copyrighted 2011 by the Law Offices of Steven C. Vondran, P.C. ALL RIGHTS RESERVED. We can be reached at (877) 276-5084.
Okay, we have been waiting for some good cases to come out that clarify some of the more nebulous concepts in foreclosure defense law. But we just got a real nice decision that confirms what I have been saying al along (and which can be verified in previous posts I have made which go back as far as July 2010 – you can find one clip here on Timothy McCandless website). While everyone was talking about California Civil Code Section 2932.5 applying ONLY to mortgages, the California Southern District bankruptcy Court recently came down and said hogwash – THERE IS NO MEANINGFUL DISTINCTION BETWEEN A MORTGAGE AND A DEED OF TRUST. BOTH ARE NOTHING MORE THAN INSTRUMENTS THAT SECURE A RIGHT TO REPAYMENT OF MONEY. As such, 2932.5 applies to both mortgages and deeds of trusts (which is what most California and Arizona homeowners have – a recorded Deed of Trust in the County Recorder’s Office).
Okay, that is a lot of lawyer talk. But what on earth does it mean? Well, strap on your seat belt because here we g0: (1) First, what does California Civil Code Section 2932.5 actually say? Here is the code pasted in here for you (thankfully this section is short and sweet):
Where a power to sell real property is given to a
mortgagee, or other encumbrancer, in an instrument intended to secure
the payment of money, the power is part of the security and vests in
any person who by assignment becomes entitled to payment of the
money secured by the instrument. The power of sale may be exercised
by the assignee if the assignment is duly acknowledged and recorded.
Now, you have to read this section clearly. To state is as simple as I can, IF A DEED OF TRUST IS ASSIGNED, THE ASSIGNEE HAS THE POWER OF SALE AND THAT ASSIGNEE CAN FORECLOSE NON-JUDICIALLY (BY EXERCISING THE POWER OF SALE CONTAINED IN THE DEED OF TRUST). HOWEVER, IN ORDER TO ACTUALLY EXERCISE THAT POWER OF PRIVATE SALE, THE ASSIGNMENT OF DEED OF TRUST MUST BE “DULY ACKNOWLEDGED AND RECORDED.” To me, “duly” means that the assignment of trust is (a) not backdated with a retroactive effective date (which we see all the time and which the lenders argue is perfectly fine), and (b) not subject to the robosigner/notary fraud phenomena that lenders are trying to sweep under the rug as a mere “mistake” or “irregularity.” As you will see, the lenders have no problem with this code section, it is just that they argue it does not apply to assignments of DEEDS OF TRUST (they argue the section only applies to MORTGAGES given the “mortgagee” language used above. That’s what this Salazar case is mainly about. It should be noted, that if the assignee/beneficiary does not have the private power of sale they would still be entitled to conduct a “judicial foreclosure” in front of the court. Why don’t they do this? 1. Costly 2. Time Consuming, 3. You can raise defense and 4. You can challenge their standing, maybe even force them to show proof that the note was endorsed to their securitized loan trust. This would be a major feat for them and might expose the fraud perpetrated on the SEC, but that is another topic.
Facts of Salazar: The borrower entered into a 2005 loan transaction with Accredited Home Loans (the “lender” under the Deed of Trust). Under the Deed of Trust, you have the traditional nonsense of MERS claiming to be the beneficiary of the loan even though it never held the loan, never lent any money, and collects no payments, etc. MERS was the “nominee” under the Deed of Trust. At some point the borrower fell into default on the loan and MERS substituted the trustee (there was both Quality Loan Service and Litton Loan Service mentioned) on June 2009. After that, a private non-judicial foreclosure sale was conducted on 12/2009. US Bank National Association, as trustee of a securitized loan trust that claimed to be the beneficiary and owner of Plaintiff’s note, executed the trustees deed upon sale indicating US bank was the “foreclosing beneficiary.” Based upon this, and based upon their argument that 2932.5 does not apply to deed of trust, US bank claimed the foreclosure was proper and valid.
The borrower however, when faced with an unlawful detainer (eviction action) shortly following the sale, filed for Chapter 13 bankruptcy protection on 9/2010. This action triggered the automatic stay in bankruptcy court and put a halt to the foreclosure action. The borrower also filed a wrongful foreclosure state court action. While in Chapter 13 bankruptcy, US bank filed a motion for relief from the automatic stay arguing the house had been foreclosed upon lawfully, and that the property was therefore not essential to a chapter 13 reorganization/restructuring plan. The borrower (now referred to as the debtor in the bankruptcy proceeding) sought to oppose the motion for relief from stay and argued US bank had no standing to lift the stay and that the private non-judicial foreclosure sale was invalid and must be set aside so the house could be factored into a chapter 13 payment plan. The basis for arguing wrongful foreclosure was that California Civil Code Section 2932.5 was not complied with as there was NO RECORDED ASSIGNMENT OF DEED OF TRUST TO US BANK THAT COULD BE FOUND IN THE RECORDED CHAIN OF TITLE, AND THEREFORE THE FORECLOSURE SALE FAILED TO BE IN COMPLIANCE WITH THE CALIFORNIA FORECLOSURE LAWS. As usual, the banks argued this was nonsense and the stuff of novels.
Legal Issues for the Salazar Court to Decide:
(1) Whether US Bank could establish its “standing” to bring the motion for relief from the automatic stay?
(2) Whether the debtor retained any equitable interest in the property following the private non-judicial foreclosure sale and if so, whether such property was necessary to an effective chapter 13 reorganization? (if so, it would be proper to continue the automatic stay in effect until the issues and defenses of US Bank were raised/resolved in another proceeding).
(3) Whether it was proper to allow the unlawful detainer case to proceed in light of the facts of the case?
Courts Holding (Decision on the above issues):
(1) Yes, US bank could meet the “standing” requirements which the court described as a “minimal test” and which the Court found that US bank was a “party in interest” mainly because they had a recorded trustees deed and claimed the note was assigned (in blank) to them.
(2) Yes, the debtor retained an equitable interest in the property. The private non-judicial foreclosure sale was wrongful and VOID (no tender required to challenge) for FAILURE TO COMPLY WITH CALIFORNIA FORECLOSURE LAWS, SPECIFICALLY CALIFORNIA CIVIL CODE SECTION 2932.5 FOR FAILURE TO RECORD AN ASSIGNMENT OF DEED OF TRUST PRIOR TO CONDUCTING THE PRIVATE FORECLOSURE SALE. Given this violation, it was proper to deny the motion to lift the automatic stay in bankruptcy and to keep the stay in effect until it was learned whether or not the Debtor could put together a viable chapter 13 repayment plan.
The court rejected arguments that 2932.5 applied only to mortgages, and the court refused to follow the other federal court cases cited by the moving party US Bank (they cited NOthern and Eastern District cases that lent credence to this argument). Instead, the court decided the case as they felt the California Supreme Court would have decided the issue. Rather, citing to a host of secondary legal authorities, the court finds there is no functional distinction between mortgages and deeds of trust as each has the “same effect and economic function” (ex. Witkin Summary of California Law / Miller and Starr California Real Estate).
(3) No, the Court felt that since the foreclosure was probably void, and since the debtor may be able to save her home in a chapter 13 bankruptcy plan, that the stay should remain in effect until US banks defenses could be heard in state court or in an adversary proceeding. The court did mention that challenges to foreclosure sales “are barred if the issue is not raised in the unlawful detainer action.”
Basically, the Court was not buying the MERS as beneficiary argument. The Court said that the MERS private alternative to non-judicial foreclosure is trumped by California foreclosure statutory law to the extent MERS is inconsistent. I know MERS is aching on this decision also. The Court said the assignment of deed of trust must be recorded under 2932.5 despite MERS initial role under the Deed of Trust. Classic!! Just because MERS alleges to know how the owner of a loan is at any given time (which most experts see as pure folly), the court will not allow that to win the day. The court distinguished the recent Gomes v. Countrywide decision where MERS was allowed to foreclosure non-judicially. In Salazar the court said the deed of trust was vague and only allowed MERS to act where “necessary by law or custom” but the court said this does not allow a specific grant to foreclose non-judicially without following California statutory foreclosure procedure. The court simply stated that MERS was not the beneficiary at the time the foreclosure sale occurred as evidenced by the US Bank Trustee’s deed after sale which indicated “US BANK was the foreclosing beneficiary.”
In addition, the Court discussed how 2932.5 creates a “right” for a trustor to know who owns their loan (novel concept I know), whether you are talking about a mortgage or a deed of trust. The court said 2932.5 is to protect trustors (that is the borrower) “from confusion as to ownership of loans” and that borrowers are entitled to know about changes in beneficiary status. Recording the assignment of deed of trust serves this purpose and is therefore a legal requirement before initiating a non-judicial foreclosure. Again, keep in mind, even having an assigned deed of trust is no substitute for owning/holding the original fully endorsed promissory note. As the “security follows the note” the note should be an issue in every case if you can demand proof of such. Cases like In re Walker have discussed how the mere assignment of a deed of trust, without the note, is a legal nullity (but it seems courts don’t love this position since it would tear the mask off these lenders who lied to the SEC) and would probably send our stock market crashing. Note the Judge in Salazar cited In re Gavin (need chain of title of valid endorsements) and In re Wilhelm (lender must have an interest in the relevant note) in order to evidence their standing.
Food for thought
(1) Although the Courts, and each of them, may disagree on the law when it comes to foreclosure defense, the Salazar case does suggest to me that some courts are getting tired of all the lender, loan servicer, MERS securitized loan nonsense. This may bode well if you are facing foreclosure and need grounds for an injunction to enjoin the private non-judicial foreclosure sale. You may want to have us review your recorded chain of title for irregularities in the chain of title. Any lawyer that has been taking foreclosure cases in the past few years knows these types of violations are real, and not uncommon. As documents such as the ADOT need to be “duly acknowledged and recorded” under 2932.5 it might also be wise to send out notary “produce your transaction log” letters (assuming the state of the notary requires them to keep logs. We have more information about this topic on our website http://www.RobosignerAudits.com.
(2) If your house has been sold, and you think you can potentially catch up with your arrears and make your loan payment in a chapter 13 bankruptcy case, then that is another reason to have your recorded chain of title examined for irregularities in the ADOT. In Salazar the court stated that the debtor “gets prima facie evidence of ownership” of property where a foreclosure sale is void under 2932.5. Note that court was requiring adequate protection payments be made to US Bank while the legal wrangling continued.
(3) By filing a lawsuit (assuming you have valid legal grounds) you won’t likely win a million dollars or get your house for free, but you never know what might happen if your case goes to a jury.
(4) We have been saying all along, only courageous judicial opinions can help lawyers like me fight the foreclosure meltdown. We will be discussing this case on our Foreclosure Defense Radio Show (Google Vondran Foreclosure Meltdown Show).
(5) Although the lenders, and loan servicers always argue you have to “tender the balance of the loan” to challenge irregularities in the foreclosure process, the judge in Salazar disagreed and cited two cases stating no tender is required where a foreclosure sale is VOID (for failing to follow California Foreclosure laws in California Civil Codes Section 2020-2955 which the court referred to an an exhaustive list of California nonjudicial foreclosure law that must be complied with). The cases cited for the no-tender proposition include Bank of America v. LaJolla Group II, 129 Cal.App. 4th 706, 710,717 (5th Dist. 2005); and Dimrock v. Emerald Properties, 81 Cal. App. 4th 868, 874 (4th Dist. 2000). Remember, tender applies to challenging irregularities in the “sale” (2932.5 could be argued to challenge the “process” and compliance with the statutory law).
Here is the scenario, when a foreclosure is about to take place MERS (our friendly neighborhood software company) typically assigns a Deed of Trust to the party that supposedly owns your loan so that they can go ahead with a private non-judicial foreclosure sale. This assignment often takes place after the Notice of Default is filed. So, in order to make things appear nice and pretty and to try to convince everyone that the assignment was made before the Notice of Default was filed they will often indicate on the Assignment of Deed of Trust that it is “effective January 1, 2011″ (for example) although the assignment is notarized on the let’s say April 15, 2011.
If the assignment of deed of trust was “effective” on January 1, 2011 then why wasn’t it signed and notarized on that date? What happened on January 1, 2011 to make the assignment “effective?” Did the trustee of the securitized loan trust call MERS and tell them the assignment is effective, prepare the documents and we will notarize it in a few months? That seems unlikely. Yet this is the game they play. As Plaintiff counsel, this seems like another piece in the bogus scheme to foreclose on people by doing whatever they want, saying whatever they want, and expecting everyone to go quietly into the foreclosure night.
One court recently weighed in on this suspicious backdating of real estate documents, and stated that it may be improper and may taint the Notice of Default. The case of Ohlendorf v. American Home Mortgage Servicing, No. CIV. S092081 LKK/EFB (E.D. Cal.2010, Mar. 31, 2010), discussed this phenomena when MERS made TWO ASSIGNMENTS both with back-dated “effective dates”:
“Nonetheless, plaintiff may have stated a claim against defendants that they are not proper parties to foreclose. Plaintiff and AHMSI, Deutsche, and MERS have requested that the court take judicial notice of the assignment of deeds of trust which purport to assign the interest in the deed of trust first to AHMSI and then to Deutsche. As described above, the deed of trust listed MERS as the beneficiary. On June 23, 2009, T.D. recorded a notice of default that listed Deutsche as the beneficiary and AHMSI as the trustee. Nearly a month later, on July 20, 2009, MERS first recorded an assignment of this mortgage from MERS to AHMSI, which indicated that the assignment was effective June 9, 2009. Eleven seconds later, AHMSI recorded an assignment of the mortgage from AHMSI to Deutsche, which indicated that the assignment was effective June 22, 2009. The court interprets plaintiff’s argument to be that the backdated assignments of plaintiff’s mortgage are not valid, or at least were not valid on June 23, 2009, and therefore, Deutsche did not have the authority to record the notice of default on that date. Essentially, the court assumes plaintiff argues that MERS remained the beneficiary on that date, and therefore was the only party who could enforce the default.
While California law does not require beneficiaries to record assignments, see California Civil Code Section 2934, the process of recording assignments with backdated effective dates may be improper, and thereby taint the notice of default. Defendants have not demonstrated that these assignments are valid or that even if the dates of the assignments are not valid, the notice of default is valid. Accordingly, defendants motion to dismiss plaintiff’s wrongful foreclosure is denied insofar as it is premised on defendants being proper beneficiaries. As discussed below, defendant is invited, but not required, to file a motion addressing the validity of the notice of default given the suspicious dating in the assignments with respect to both their motion to dismiss and their motion to expunge the notice of pendency.”
Interestingly, in Ohlendorf, the Bank made the usual “tender” argument, but the Court did not require a tender and instead stated:
A. Failure to Allege Ability to Make Tender
Defendants AHMSI, ADSI, Deutsche, and MERS argue that all of plaintiff’ claims are barred by plaintiff’s failure to allege his ability to tender the loan proceeds. Defendants assert that Abdallah v. United Savings Bank, 43 Cal. App. 4th 1101, 51 Cal. Rptr. 2d 286 (1996), requires a valid tender of payment to bring any claim that arises from a foreclosure sale. Abdallah, however, merely requires an allegation to tender for “any cause of action for irregularity in the [foreclosure] sale procedure.” Id. at 1109. Here, plaintiff asserts no causes of action that rely on any irregularity in the foreclosure sale itself. Indeed, the only claim addressed by the motions that may concern irregularity in the foreclosure itself is the wrongful foreclosure claim, which the court rejects below. Accordingly, the court concludes that plaintiff need not allege tender, and defendants’ motion is denied on this ground
Other Courts have agreed with this type of analysis in regard to the vailidity of the Notice of Default and whether or not this makes a foreclosure wrongful. For example, in Castillo v. Skoba, Vice President of Aurora Loan Services, LLC 2010 WL 3986953 (N.D.Cal., November 30, 2010), the United States District Court in San Diego held (in granting an injunction to halt a foreclosure sale):
“The Court also concludes that Plaintiff is likely to succeed on the merits of his claim that neither Aurora nor Cal-Western had authority to initiate the foreclosure sale at the time the Notice of Default was entered. Under Cal. Civ.Code § 2924(a)(1), “the trustee, mortgagee, or beneficiary, or any of their authorized agents” are authorized to file a notice of default. Documents do not support a finding that either Cal-Western was the trustee or Aurora was the beneficiary on May 20, 2010 when the Notice of Default was recorded.
On a document dated May 17, 2010, MERS substituted Cal-Western as a trustee under the deed of trust. (Exh. 4) If Cal-Western had been trustee at this time, it would have had authority to conduct the foreclosure process. See Cal. Civ.Code § 2924(a)(1). However, this document was notarized on June 7, 2010, (id.), and thus it appears likely that Plaintiff can succeed on a claim that the substitution occurred no earlier than June 7.
Similarly, on June 8, 2010, MERS, the beneficiary under the deed of trust, executed an assignment of its beneficial interest to Aurora, with a backdated effective date of May 18, 2010. (Exh 6) Based on the face of this document, Plaintiff is likely to prevail on a claim that Aurora did not have authority to record the Notice of Default on May 20, 2010. See Ohlendorf v. Am. Home Mortg. Servicing, No. CIV. S-09-2081, 2010 U.S. Dist. LEXIS 31098 (E.D.Cal. Mar. 30, 2010) (recipient of backdated assignment may not have had authority to record Notice of Default). The power of sale in a nonjudicial foreclosure may only be exercised when a notice of default has first been recorded. See Cal Civ Code § 2924; see also 5-123 California Real Estate Law & Practice § 123.01. Here, the Notice of Default appears to be void ab initio. Therefore, any foreclosure sale based on a void notice of default is also void. Accordingly, the Court GRANTS Plaintiff’s motion and enjoins a foreclosure sale based on Defendants’ noncompliance with prerequisites to engage in a foreclosure sale set forth in Cal. Civ.Code § 2924.
What does all this mean? It means, if MERS is playing games with “effective dates” on your assignment of Deed of Trust that should at least be used to argue that the Notice of Default may be tainted. You really have to look at the recorded chain of title and see what you find. If there is improper backdating this may give rise to a challenge (not to the foreclosure “sale” – which requires tender), but to the foreclosure laws in California which require a valid Notice of Default before foreclosing. For this challenge, the Ohlendorf case says no tender need be alleged. For anyone that has been closely examining Assignments of Deed of Trusts involving securitized loans, this is an every day occurrence. They call it “retroactive effect” I call it complete nonsense. At least a few courts agree.
What is a Deed in Lieu of Foreclosure? Well basically, it is one of the options in the loss mitigation toolbox whereby instead of being foreclosed upon by your lender, loan servicer, or their agents, you can convey title and possession to your real property to the beneficiary in exchange for them not pursuing any deficiency judgment on the debt. Now, these can be hard to get because in many cases a bank will want to just either sell your property with a short sale, or else get clear title following a foreclosure sale (wherein all juniors liens are extinguished). This is one reason the beneficiary will want to insure that you do not have any junior liens on your property before they will accept the deed in lieu (yes, filling out the paperwork is not enough, you actually have to deliver the deed and they have to accept it in order for it to be effective).
What is interesting in regard to the above case where we were able to obtain a DIL is that our Client sought to do a short sale, but despite coming up with a great short sale offer, the bank declined to accept it and they stated they were going to foreclose on the property. In reviewing the chain of title, and the Notice of Sale, we realized Fannie Mae filed the Notice of Sale on the WRONG PROPERTY (they filed it against my clients property that was NOT in foreclosure). After writing a legal demand letter, we were eventually able to negotiate the deed-in-lieu as a compromise.
In accepting the Deed-in-Lieu, the beneficiary is able to avoid the costs of foreclosure and the borrower has the debt cancelled. This is the consideration for the deal. As you can see by viewing the attached Grant Deed, there is an “estoppel affidavit” that must be completed and notarized stating the conveyance is absolute and not intended as a mortgage or security and that all right, title, and interest is conveyed to the grantee. The recording of the grant deed raises a rebuttable presumption of delivery and acceptance by the grantee.
RONALD V. BANK OF AMERICA – MASS JOINDER HAS MASS APPEAL?
Mass joinder lawsuits against banks are circulating around the internet. People have been calling our office wanting to know if they are legitimate. It is hard to say, but there is one case that has seemed to garner the most attention.
That is the case of Ron vs. Bank of America. In this case, apparently there has been some initial success in at least getting past some initial motions to dismiss. There are hundreds of bank of america clients named on the lawsuit, and from what I can tell there are four law firms who have teamed together to represent the various clients.
It is clear that the “Produce the Note” or “Show me the Note” argument has been rejected in Arizona (as is also true in California). As the Arizona District court stated in Dumesnil v. Bank of America, 2010 WL 1408889:
“No Arizona court or any federal appellate court has decided this issue, but many district courts for the District of Arizona have rejected the “show me the note” argument. See Contreras v. U.S. Bank, No. CV09-0137-PHX-NVW, 2009 WL 4827016 (D.Ariz. Dec.15, 2009); Blau v. America’s Servicing Co., No. CV08-0773-PHX-MHM, 2009 WL 3174823 (D.Ariz. Sept.29, 2009); Goodyke v. BNC Mortgage, Inc., No. CV09-0074-PHX-MHM, 2009 WL 2971086 (D.Ariz. Sept.11, 2009); Garcia v. GMAC Mortgage, LLC, No. CV09-0891-PHX-GMS (D.Ariz. Aug. 31, 2009); Diessner v. Mortgage Elec. Registration Sys., 618 F.Supp.2d 1184 (D.Ariz.2009); Mansour v. Cal-Western Reconveyance Corp., 618 F.Supp.2d 1178 (D.Ariz.2009); but see Castro v. Executive Trustee Servs., LLC, No. CV08-2156-PHX-LOA, 2009 WL 438683 (D.Ariz. Feb.23, 2009). “Where the state’s highest court has not decided an issue, the task of the federal courts is to predict how the state high court would resolve it.” Dimidowich v. Bell & Howell, 803 F.2d 1473, 1482 (9th Cir.1986), modified at 810 F.2d 1517 (9th Cir.1987).”
The basic idea is the the foreclosure statutes are comprehensive and say exactly what needs to be done to foreclose in a private non-judicial foreclosure sale (ex. record and publish a notice of sale), and so no new requirements (such as produce the original wet ink signature) will be imposed. Result: Any entity can try to foreclose on your non-judicially when you are in default.
But, what happens if you can PROVE that the party seeking to foreclose has no right to do so (ex. what is Wallmart tries to foreclose on you)? Obviously Wallmart is not the owner of your loan, and does not work as a loan servicer on behalf of the owner of your loan, so what if they tried to foreclose on you non-judicially? Well, there is some authority in Arizona that just maybe, you can file a lawsuit for declaratory relief seeking a determination that Wallmart is not the party entitled to enforce your loan.
For example, in the case of Castro v. Executive Trustee Services, 2009 WL 438683 (United States Dist. Ct. of Arizona 2009) the Court eluded that there might be proper grounds to file a lawsuit for declaratory relief under State Law to determine whether or not MERS, or a foreclosure Trustee (Executive Trsutee Services in that case) is the proper party entitled to foreclose on a defaulting borrower. The Court failed to dismiss the borrowers claim on this ground, but stated the proper channel to go through was filing a state court declaratory relief action and showing proof that MERS and ETS (and by analogy anyone trying to foreclose on you) is not the holder of the loan or a non-holder of an instrument with the rights of the holder. Specifically, the Castro Court stated:
“Arizona law, set forth in its version of the Uniform Commercial Code on negotiable instruments, A.R.S. §§ 47-3301 et seq. and 3104, provides that a note qualifying as a negotiable instrument can be enforced by a “holder of the instrument” or a “nonholder in possession of the instrument who has the rights of a holder or a person not in possession of the instrument who is entitled to enforce the instrument ….” A.R.S. § 47-3301. According to the Complaint, neither ETS nor MERS is a holder of the note related to the subject deed of trust. The deed of trust indicates: “The Note means that Borrower [Plaintiffs] owes Lender [Home Loan Corp.] $240,000.00 ….” (Exh. A at 2; docket # 9-2) Based on the documents before the Court and because neither ETS nor MERS is allegedly a lawful holder of the note, it is a prerequisite to enforcing the note that ETS or MERS is a transferee in possession entitled to the rights of a holder. A.R.S. § 47-3301. Thus, in order to enforce the note under Arizona law, ETS or MERS must prove a sufficient transfer from the initial holder (originally Home Loan Corp. to whom the note was made payable by Plaintiffs) to ETS or MERS as a person or entity who is entitled to enforce the instrument. Id. Having elected to proceed via Rule 12(b)(6), rather than Rule 56, this portion of Defendants’ Motion will be denied because the record contains insufficient information to resolve the issue whether ETS or MERS is entitled to enforce the instrument as a matter of law. In an abundance of caution and in fairness to both Plaintiffs and Defendants, the Court will permit Plaintiffs to file an Amended Complaint to include specific facts explaining why Plaintiffs are entitled to a declaration that Defendants may not enforce the deed of trust and foreclose on Plaintiffs’ property based on Plaintiffs’ admitted default on the note. Amendment would allow Plaintiffs to identify Defendants’ conduct which violated Arizona law, include citations to controlling legal authority and directly allege valid claims they have against Intervenor JP Morgan Chase Bank or its predecessor-in-interest.”
This seems to open the door to raising a valid claim that the party seeking to foreclose is not a party entitled to do so. But as the court said, they will look for specific factual allegations, and citation to case law. Other cases (out of Arizona) have also lent support that if you have specific factual allegations you can allege, that show the wrong party is foreclosing, maybe you can get declaratory relief (what happens in that event is not clear). For example, in the case of Gomes v. Countrywide Home Loans, Inc., the Court acknowledged the Arizona Castro case and stated:
“In Castro, supra, 2009 WL 438683, 2009 U.S. Dist. Lexis 14134, the court allowed a claim for declaratory relief to proceed to determine whether the defendants were entitled to enforce a promissory note through nonjudicial foreclosure when the documents before the court indicated that the entities initiating the foreclosure process may not have had the rights of the holder of the note as required by Arizona law. (Id., 2009 WL 438683, 2009 U.S. Dist. Lexis 14134 at *15-16.) It is also significant that in each of these cases, the plaintiff’s complaint identified a specific factual basis for alleging that the foreclosure was not initiated by the correct party. Gomes has not asserted any factual basis to suspect that MERS lacks authority to proceed with the foreclosure. He simply seeks the right to bring a lawsuit to find out whether MERS has such authority. No case law or statute authorizes such a speculative suit.
At any rate, the Castro case at least provides some food for thought. While PRODUCE THE NOTE or SHOW ME THE ORIGINAL NOTE is a dead legal theory in regards to trying to stop a non-judicial foreclosure sale in Arizona, if you have SPECIFIC PROOF OR EVIDENCE THAT THE PARTY SEEKING TO FORECLOSE HAS NO LEGAL RIGHT TO DO SO UNDER THE ARIZONA COMMERCIAL CODE (A.R.S. 47-3301 etc.), then you may be able to file a lawsuit for declaratory relief.
This points out the need to try to obtain evidence that the foreclosing parties do not own the loan or have a right to enforce it. To this end, we send out a series of letters on behalf of Arizona homeowners demanding a few things that might help create a case for wrongful foreclosure. For example, a Qualified Written Request, a Demand for presentment of the original note to view its terms under the UCC, for validation of the debt (debt validation letter), and other things. If the lender or loan servicer fails to respond to these lawful requests, that may be helpful. In addition, if they provide responses that conflict with the recorded chain of title (or with other sites such as the fannie mae or freddie mac loan lookup tools), this also means something. These are just some things to consider if you are facing foreclosure in Arizona.
We serve our Arizona Clients who reside in the following cities:
Lake Havasu City
Here is the show from 60 minutes. The banks have been telling the judges that there is nothing done wrong here, and that it is just a bunch of defaulting borrowers making things up. Nobody is buying the story anymore. Not even the main stream media. What are we to do about this mess “sweatshops for phony foreclosure documents”?
I’M IN WITH AN AMERICAN WHORE
I LAID DOWN WHEN YOU SAID HEY SIR,
YOU COULD HAVE SO MUCH MORE
GOT ME RIGHT TO THE LINE
A GENTLE NUDGE BEGINS THE FALL
HEY, HOW COME YOU NEVER FELL AT ALL
FOOLISH CHILD, I’M FEELING LIKE A FOOLISH CHILD
HOW YOU PUSHED ME ON, OH THE BULLY HAS A BLINDED PAWN
AND I, I I …
I’M SEEING WHY YOU WERE SO FAST AND LOOSE FOR THE CLOSE
LOVE, YOUR BROKEN HOME
HEY SIR SO WISE WITH YOUR BIG DEGREE
I HEAR YOU’RE OUT THERE LIVING LARGE IN SOME VELVET ROPE RED CARPET SCENE
WELL I HOPE YOU ARE HAVING A VERY NICE TIME YOU LITTLE SHIT
THEY LOCKED US OUT OF OUR HOUSE WE CAN’T GET IN
FOOLISH CHILD, I’M FEELING LIKE A FOOLISH CHILD
WHERE HAVE YOU GONE, OH THE PAPER MAN WON’T LEAVE US ALONE
AND I, I I …
I’M HERE WITH MY FAMILY WE’RE BARELY AFLOAT
LOVE YOUR BROKEN HOME
I GUESS I MISREAD YOUR ROLE
PLEASE LET ME KNOW HOW I SHOULD TELL MY WIFE AND KIDS
IT’S TIME TO GO
FOOLISH CHILD, I’M FEELING LIKE A FOOLISH CHILD
WE’RE ALL ALONE
HEY MISTER IT’S YOUR FAMILY OF PAWNS
AND I, I I …
I AM NOT SURE WHERE YOU THOUGHT WE COULD GO
MY KIDS ARE TRYING TO OPEN UP THEIR FRONT DOOR
HEY FUCK YOU FOR IGNORING MY CALLS
LOVE, YOUR BROKEN HOME
The Dodd-Frank law was passed on July 22, 2010. The idea was to address consumer concerns with a focus on mortgage lending issues and in an effort to avoid future subprime mortgage crises (the band aids always come AFTER the chernobyl incident after everyone has made their money). The stated purpose of the act is “TO PROMOTE THE FINANCIAL STABILITY OF THE UNITED STATES BY IMPROVING ACCOUNTABILITY AND TRANSPARENCY IN THE FINANCIAL SYSTEM, TO END THE “TOO BIG TO FAIL” TO PROTECT THE AMERICAN TAXPAYER BY ENDING BAILOUTS AND TO PROTECT CONSUMERS FROM ABUSIVE FINANCIAL SERVICES PRACTICES”
Great, another reference to “transparency” – does anyone even know what that means anymore?
The following are what I see as the main highlights of the Dodd-Frank Act (Note, these are just the broad strokes – there are many, many details to this law that need to be consulted):
(1) TITLE X: The Act created the Consumer Financial Protection Bureau – “CFPB” (a self-contained until within the Federal Reserve Board). It is stated that the Federal Reserve Board will have no authority over the operating of the CFPB and should not have power to intervene into matters such as reviewing their rules or orders (we will see) but they are supposed to issue implementing guidelines by 1/21/13 (just about the time the financial crises slows down I presume). A Director will be appointed by the President – the same president Obama who bailed out the banks and cashed out the CEO’s (yipee more politics) for a fixed term of 5 years. The Federal Reserve Board will fund the CPFB in an amount determined by the Director appointed. The CFPB will have various functional units such as RESEARCH, CONSUMER AFFAIRS, and CONSUMER OUTREACH and offices that deal with EQUAL OPPORTUNITY, FINANCIAL EDUCATION, AND FINANCIAL PROTECTION OF OLDER AMERICANS.
NOTE: It will be interesting to see what, if anything they do about Robosigners, Notary Fraud, and HAMP scams just to name a few of the foreclosure issues – I am assuming there will be no call for banks to produce the note and I wonder what “financial education” we need since the banks are hardly lending any more money. NOTE: The CFPB is authorized to interpret and implement consumer financial protection laws (ex. TILA and RESPA) including the power to develop model disclosures and they will supposedly supervise companies covered by the act. The CFPB also has the broad authority to enact rules and orders, and initiate investigations (sort of like a Federal Department of Real Estate). Rulings made by the CFPB are superior and preempt “inconsistent” state laws unless the state law provides GREATER PROTECTIONS TO THE CONSUMER. Also, there is a provision that amends the National Bank Act (“NBA”) and the Home Owners Loan Act (“HOLA”) which effectively allow more preemption of state law (that normally hurts consumers when a state law gets preemption – we will be posting a separate blog on the pre-emption argument) when such a state laws is deemed to “discriminate” against federally chartered institutions (now we are worrying about banks being discriminated against?). The decision in Cuomo v. Clearing House Ass’n, LLC, 129 S. Ct. 2710 (2009) was incorporated into the Dodd Frank Act. In essence, the Cuomo case held that the OCC did not have exclusive rights to regulate the banks, that state laws could play a role in regards to fair lending practices.
It should also be noted that under the Dodd-Frank Consumer Protection Act, a majority of states have the power to commence a rule-making proceeding to adopt/change the law.
(2) TILTE XIV: Deals with Reforming the Anti-Predatory Lending Laws (which the banks could give a crap about now anyway) to add different definitions and meanings to TILA and RESPA and which allows the Federal Reserve Board (“FRB”) to adopt regulations that seek to halt unfair and deceptive loan practices (wait, i thought there were no deceptive loans, it was all the borrowers fault?). The following addressed RESPA and TILA:
(a) Truth in Lending Law (“TILA”):
(i) Adds new TILA Section 129B (provides consumers with a private right of action for improper “steering” by a mortgage originator into certain loans including loans with YSP that results in double compensation and/or compensation which varies based on the terms of the loan the consumer is placed in.
(ii) TILA 129C deals with ability to repay a loan (ex. loans that are difficult for a borrower to repay), and requires mortgage originators to (hold on to your shorts) make a “good faith” determination that a borrower has an ability to repay the loan based upon verified and documented information.
Note: the TILA section also specifically authorizes the TILA Defense of Recoupment or Set-off (for steering or ability to repay violations) to come into play regardless of the age of the TILA claim in either judicial or non-judicial foreclosure settin