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 settings. There is no statute of limitations when a defense is raised in a judicial foreclosure setting, and a three year statute of limitations (starting from the date of the violation) if a Plaintiff raises an affirmative claim in civil court following initiation of a non-judicial foreclosure. There are also limits on placing “pre-payment penalties” into loans other than “qualified mortgages.”
(iii) TILA SECTION 130 - Amends the statute of limitations period for private actions from the current 1 year – to 3 years. This helps a bit. This section also protects creditors and assignees of the loan from lawsuits if the borrower is convicted of fraud in obtaining the loan. Statutory damages are raised to 4,000 plus costs and attorney fees.
Note: Other changes to TILA include (1) ARM loans must get notice of interest rate adjustments six months prior to the adjustment, and (2) New disclosures required for ARM loans that have an escrow account. (3) There are also changes to HOEPA but since there are not many of these loans, I won’t waste the time going into it. (4) Servicers must apply payments made on a consumer’s account as of the date of receipt of such payment and (5) Servicers must respond quickly to requests for payoff.
(b) Real Estate Settlement Procedures Act (“RESPA”): There are a few not worthy changes to RESPA. (1) there is a requirement for the loan servicer to promptly respond (within 10 business days) to requests to identify the holder of your loan under 15 U.S.C. 1641 et seq. (typically the banks have gone to great lengths to conceal this basic fact a borrower should be entitled to know. (2) The servicer of a federally related mortgage may not charge a fee for responding to a Qualified Written Request (“QWR”), (3) Servicer must timely correct errors pointed out to them, and (4) QWR response timeframes are reduced (5) business days to acknowledge receipt of a QWR and 30 days to correct or conduct an investigation. However, there is a provision allowing the Servicer to request an extension of 15 days.
PENALTIES FOR VIOLATING RESPA: A borrower may need to show a pattern and practice of non-compliance and if so they may recover for “each such failure” in an amount of their actual damages, and any additional damages not to exceed $2,000 and fees and costs.
(3) FEDERAL PRE-EMPTION ARGUMENT IS REDUCED: In the past, National Banks (such as Wells Fargo, Chase, Bank of America, etc.) have argued in essence that their banking activities should not be subject to scrutiny and that any state causes of action should not be considered by the judge and should be dismissed on the grounds that the cause of action is “pre-empted” by the 1864 National Banking Act. Yeah, they use a law that is over 140 years old to try to shield them from liability, and the judges for the most part have went along with it as a matter of law. The subsidiaries and affiliates of the National Banks also got to piggyback on the pre-emption argument and immunize themselves for a good deal of liability. Now, the Dodd Frank Act seeks to curtail some of that and eliminates protections for subsidiaries and affiliates of National Banks. Now, state consumer protection laws WILL NOT be pre-empted by federal laws unless the state law directly or indirectly discriminates against the national bank or significantly interferes with the exercise of banking powers. Of course, this will have to be litigated to find out the parameters of this law. Also, if another federal law expressly requires pre-emption (ex. FCRA), then the state law can still be preempted.
(4) NEW HAMP RULES: Basically there is supposed to be a NPV test posted on line so you can see if you qualify. You are also supposed to get a copy of your NPV test results if you are denied. Since I see no mandatory requirements to provide a loan modification to any borrower, I will leave the HAMP sections up to you to review.
ANYWAY, THOSE ARE THE BRAOD STROKES. IT IS ALSO NOT CLEAR WHEN THE ACT GOES INTO EFFECT BUT MANY ARGUE IT IS IN EFFECT NOW. THUS, THIS IS A LAW TO LOOK AT IF YOU ARE FACING FORECLOSURE AND NEED TO KNOW IF YOU HAVE ANY RIGHTS THAT MAY PROTECT YOU WHILE BATTLING IT OUT WITH YOUR LOAN SERVICER.
Copyright 2011 The Law Offices of Steven C. Vondran, P.C. All Rights Reserved. Phone (877) 276-5084.
Show me the money following the private non-judicial foreclosure sale – California Civil Code Section 2924j
The Trustee is the entity that conducts the private trustee sale under the power of sale contained in the Deed of Trust (if you default on your loan payment, you agree to allow the lender or their successors and assigns to conduct a private trustee sale without need to file a judicial foreclosure). But if you owe, let’s say $500,000 on your first mortgage, and do not have a second mortgage, and let’s say the house sells for one million dollars, who gets that extra $500,000? Well naturally it should be the borrower, as this was their equity in the property. That being said, there is a statutory scheme in California which discusses what the trustee must do in such a situation to make sure the surplus funds are handled correctly.
(a) Unless an interpleader action has been filed, within 30
days of the execution of the trustee's deed resulting from a sale in
which there are proceeds remaining after payment of the amounts
required by paragraphs (1) and (2) of subdivision (a) of Section
2924k, the trustee shall send written notice to all persons with
recorded interests in the real property as of the date immediately
prior to the trustee's sale who would be entitled to notice pursuant
to subdivisions (b) and (c) of Section 2924b. The notice shall be
sent by first-class mail in the manner provided in paragraph (1) of
subdivision (c) of Section 2924b and inform each entitled person of
each of the following:
(1) That there has been a trustee's sale of the described real
(2) That the noticed person may have a claim to all or a portion
of the sale proceeds remaining after payment of the amounts required
by paragraphs (1) and (2) of subdivision (a) of Section 2924k.
(3) The noticed person may contact the trustee at the address
provided in the notice to pursue any potential claim.
(4) That before the trustee can act, the noticed person may be
required to present proof that the person holds the beneficial
interest in the obligation and the security interest therefor. In the
case of a promissory note secured by a deed of trust, proof that the
person holds the beneficial interest may include the original
promissory note and assignment of beneficial interests related
thereto. The noticed person shall also submit a written claim to the
trustee, executed under penalty of perjury, stating the following:
(A) The amount of the claim to the date of trustee's sale.
(B) An itemized statement of the principal, interest, and other
(C) That claims must be received by the trustee at the address
stated in the notice no later than 30 days after the date the trustee
sends notice to the potential claimant.
(b) The trustee shall exercise due diligence to determine the
priority of the written claims received by the trustee to the trustee'
s sale surplus proceeds from those persons to whom notice was sent
pursuant to subdivision (a). In the event there is no dispute as to
the priority of the written claims submitted to the trustee, proceeds
shall be paid within 30 days after the conclusion of the notice
period. If the trustee has failed to determine the priority of
written claims within 90 days following the 30-day notice period,
then within 10 days thereafter the trustee shall deposit the funds
with the clerk of the court pursuant to subdivision (c) or file an
interpleader action pursuant to subdivision (e). Nothing in this
section shall preclude any person from pursuing other remedies or
claims as to surplus proceeds.
(c) If, after due diligence, the trustee is unable to determine
the priority of the written claims received by the trustee to the
trustee's sale surplus of multiple persons or if the trustee
determines there is a conflict between potential claimants, the
trustee may file a declaration of the unresolved claims and deposit
with the clerk of the superior court of the county in which the sale
occurred, that portion of the sales proceeds that cannot be
distributed, less any fees charged by the clerk pursuant to this
subdivision. The declaration shall specify the date of the trustee's
sale, a description of the property, the names and addresses of all
persons sent notice pursuant to subdivision (a), a statement that the
trustee exercised due diligence pursuant to subdivision (b), that
the trustee provided written notice as required by subdivisions (a)
and (d) and the amount of the sales proceeds deposited by the trustee
with the court. Further, the trustee shall submit a copy of the
trustee's sales guarantee and any information relevant to the
identity, location, and priority of the potential claimants with the
court and shall file proof of service of the notice required by
subdivision (d) on all persons described in subdivision (a).
The clerk shall deposit the amount with the county treasurer or,
if a bank account has been established for moneys held in trust under
paragraph (2) of subdivision (a) of Section 77009 of the Government
Code, in that account, subject to order of the court upon the
application of any interested party. The clerk may charge a
reasonable fee for the performance of activities pursuant to this
subdivision equal to the fee for filing an interpleader action
pursuant to Chapter 5.8 (commencing with Section 70600) of Title 8 of
the Government Code. Upon deposit of that portion of the sale
proceeds that cannot be distributed by due diligence, the trustee
shall be discharged of further responsibility for the disbursement of
sale proceeds. A deposit with the clerk of the court pursuant to
this subdivision may be either for the total proceeds of the trustee'
s sale, less any fees charged by the clerk, if a conflict or
conflicts exist with respect to the total proceeds, or that portion
that cannot be distributed after due diligence, less any fees charged
by the clerk.
(d) Before the trustee deposits the funds with the clerk of the
court pursuant to subdivision (c), the trustee shall send written
notice by first-class mail, postage prepaid, to all persons described
in subdivision (a) informing them that the trustee intends to
deposit the funds with the clerk of the court and that a claim for
the funds must be filed with the court within 30 days from the date
of the notice, providing the address of the court in which the funds
were deposited, and a telephone number for obtaining further
Within 90 days after deposit with the clerk, the court shall
consider all claims filed at least 15 days before the date on which
the hearing is scheduled by the court, the clerk shall serve written
notice of the hearing by first-class mail on all claimants identified
in the trustee's declaration at the addresses specified therein.
Where the amount of the deposit is twenty-five thousand dollars
($25,000) or less, a proceeding pursuant to this section is a limited
civil case. The court shall distribute the deposited funds to any
and all claimants entitled thereto.
(e) Nothing in this section restricts the ability of a trustee to
file an interpleader action in order to resolve a dispute about the
proceeds of a trustee's sale. Once an interpleader action has been
filed, thereafter the provisions of this section do not apply.
(f) "Due diligence," for the purposes of this section means that
the trustee researched the written claims submitted or other evidence
of conflicts and determined that a conflict of priorities exists
between two or more claimants which the trustee is unable to resolve.
(g) To the extent required by the Unclaimed Property Law, a
trustee in possession of surplus proceeds not required to be
deposited with the court pursuant to subdivision (b) shall comply
with the Unclaimed Property Law (Chapter 7 (commencing with Section
1500) of Title 10 of Part 3 of the Code of Civil Procedure).
(h) The trustee, beneficiary, or counsel to the trustee or
beneficiary, is not liable for providing to any person who is
entitled to notice pursuant to this section, information set forth
in, or a copy of, subdivision (h) of Section 2945.3.
WHAT IS THE ORDER OF PRIORITY FOR PAYING OUR SURPLUS FUNDS FOLLOWING A FORECLOSURE SALE?
(a) The trustee, or the clerk of the court upon order to the
clerk pursuant to subdivision (d) of Section 2924j, shall distribute
the proceeds, or a portion of the proceeds, as the case may be, of
the trustee's sale conducted pursuant to Section 2924h in the
following order of priority:
(1) To the costs and expenses of exercising the power of sale and
of sale, including the payment of the trustee's fees and attorney's
fees permitted pursuant to subdivision (b) of Section 2924d and
subdivision (b) of this section.
(2) To the payment of the obligations secured by the deed of trust
or mortgage which is the subject of the trustee's sale.
(3) To satisfy the outstanding balance of obligations secured by
any junior liens or encumbrances in the order of their priority.
(4) To the trustor or the trustor's successor in interest. In the
event the property is sold or transferred to another, to the vested
owner of record at the time of the trustee's sale.
(b) A trustee may charge costs and expenses incurred for such
items as mailing and a reasonable fee for services rendered in
connection with the distribution of the proceeds from a trustee's
sale, including, but not limited to, the investigation of priority
and validity of claims and the disbursement of funds. If the fee
charged for services rendered pursuant to this subdivision does not
exceed one hundred dollars ($100), or one hundred twenty-five dollars
($125) where there are obligations specified in paragraph (3) of
subdivision (a), the fee is conclusively presumed to be reasonable.
AS YOU CAN SEE, THE TRUSTOR ONLY GETS WHAT IS LEFT AFTER OTHER PEOPLE ARE PAID. THE TRUSTOR IS NUMBER 4 IN LINE OF PRIORITY.
NOTE HOW THIS CASE POINTS OUT YOU MAY NEED TO ACT FAST TO GET YOUR SURPLUS MONEY. BUT THE CASE DOES MENTION YOU MAY HAVE A RIGHT TO PURSUE YOUR SURPLUS FUNDS IN ANOTHER VENUE USING OTHER LEGAL THEORIES (such as tort and contract). To this point the Court stated:
“BofA‟s reliance on section 2924j, subdivision (b), is also misplaced. This subdivision clearly provides the statutory remedies to recover surplus funds are not exclusive, and it authorizes common law tort and contract actions when appropriate. BofA sued for breach of the trustee‟s statutory duties”
FINALLY, HERE IS A JUDICIAL COUNSEL COURT FORM (MC-095 – PETITION AND DECLARATION REGARDING UNRESOLVED CLAIMS AND DEPOSIT OF UNDISTRIBUTED SURPLUS PROCEEDS OF TRUSTEES SALE)
The preceding is for the exclusive use of attorneys only. Our firm does not make any representations as to the accuracy of the legal analysis, opinions contained herein, or as to the current state/status of any case cited herein. This is general legal information only. Copyright 2011 The Law Offices of Steven C. Vondran, P.C. – All Rights Reserved. Steve Vondran practices law in California and Arizona where he is licensed to practice. He is a former real estate broker in both states, and has previous experience in originating loans. He currently represents commercial and residential property owners in Foreclosure and Bankruptcy Litigation. He can be heard on BlogTalkRadio (Foreclosure Meltdown Radio Show), and on his two main websites http://www.ForeclosureDefenseResourceCenter.com and http://www.UltimateBK.com. The Law Offices of Steven C. Vondran, P.C., has offices in Newport Beach, Beverly Hills, Fresno, San Francisco, and Phoenix, Arizona. Phone (877) 276-5084. We still handle Wachovia and World Savings Pick-a-pay loans on a contingency fee basis. Certain conditions apply
Another amazing tale of lender arrogance and failure to follow the law. This time, the culprit is PHH Mortgage (DBA Coldwell Banker Mortgage). The story is old, common, typical and simple to understand. Soldier buys a house and gets hooked up on automatic payment system. Payments are kept current. Later, lender claims payments are late, and soldier is forced to clear up his name and to try to contact the servicer to fix the error. Of course, there is little help offered and lots of hold time with customer servicer. Eventually, negative credit is reported against the soldier. Amazing? Yeah.
So after several go-rounds to fix the problem, the guy gets tired of it, hires a lawyer, and files a lawsuit. Lender of course is arrogant, denies all wrongdoing and takes the case to jury trial. End result – Verdict for Plaintiff, and 20 million dollar punitive damage award against Coldwell Banker. When will these companies get it right and start treating people like human beings?
When we take on a new case, we normally send notary demand letters to the notaries who allege to have verified the signatures of those signing the Substitution of Trustee, and Assignment of Deed Of Trust. These are critical foreclosure-related real estate documents that need a valid notary in order to be recordable. What we have been finding, over and over again, when we ask for proof of the notary log (which under California law the notary is REQUIRED to keep) is the following types of responses:
(1) No response
(2) the Notary “lawyer’s up”
(3) We are informed no logs were kept (even by notaries who have been practicing for 20+ years)
(4) We are informed the notaries were “mistaken” and believed that since no fees were being charged (really?), that they thought they did not have to keep a log. Was that taught in notary class?
It is a truly amazing epidemic when you realize (a) the Banks cannot produce the endorsed chain of notes to prove they are legally permitted to enforce your note and (b) the notaries who notarize critical foreclosure documents (that must be duly acknowledged and recorded) cannot keep a notary log making the signature highly suspect. If the signor was not properly identified by the notary, (identification in their presence), or someone signed the name of another person without their authority, then you have issues of fraud and forgery that potential taint the foreclosure process. These things must be looked at because we live in a new day and age where the law was brushed aside in the rush to foreclose in mass, and people who were trained to do a job decide to do it another way “on generals orders.” The generals are of course the mighty financial institutions and loan servicers that decided the law was nothing more than a nuisance.
(a) (1) A notary public shall keep one active sequential
journal at a time, of all official acts performed as a notary public.
The journal shall be kept in a locked and secured area, under the
direct and exclusive control of the notary. Failure to secure the
journal shall be cause for the Secretary of State to take
administrative action against the commission held by the notary
public pursuant to Section 8214.1.
(2) The journal shall be in addition to, and apart from, any
copies of notarized documents that may be in the possession of the
notary public and shall include all of the following:
(A) Date, time, and type of each official act.
(B) Character of every instrument sworn to, affirmed,
acknowledged, or proved before the notary.
(C) The signature of each person whose signature is being
(D) A statement as to whether the identity of a person making an
acknowledgment or taking an oath or affirmation was based on
satisfactory evidence. If identity was established by satisfactory
evidence pursuant to Section 1185 of the Civil Code, the journal
shall contain the signature of the credible witness swearing or
affirming to the identity of the individual or the type of
identifying document, the governmental agency issuing the document,
the serial or identifying number of the document, and the date of
issue or expiration of the document.
(E) If the identity of the person making the acknowledgment or
taking the oath or affirmation was established by the oaths or
affirmations of two credible witnesses whose identities are proven to
the notary public by presentation of any document satisfying the
requirements of paragraph (3) or (4) of subdivision (b) of Section
1185 of the Civil Code, the notary public shall record in the journal
the type of documents identifying the witnesses, the identifying
numbers on the documents identifying the witnesses, and the dates of
issuance or expiration of the documents identifying the witnesses.
(F) The fee charged for the notarial service.
(G) If the document to be notarized is a deed, quitclaim deed,
deed of trust affecting real property, or a power of attorney
document, the notary public shall require the party signing the
document to place his or her right thumbprint in the journal. If the
right thumbprint is not available, then the notary shall have the
party use his or her left thumb, or any available finger and shall so
indicate in the journal. If the party signing the document is
physically unable to provide a thumbprint or fingerprint, the notary
shall so indicate in the journal and shall also provide an
explanation of that physical condition. This paragraph shall not
apply to a trustee’s deed resulting from a decree of foreclosure or a
nonjudicial foreclosure pursuant to Section 2924 of the Civil Code,
nor to a deed of reconveyance.
(b) If a sequential journal of official acts performed by a notary
public is stolen, lost, misplaced, destroyed, damaged, or otherwise
rendered unusable as a record of notarial acts and information, the
notary public shall immediately notify the Secretary of State by
certified or registered mail. The notification shall include the
period of the journal entries, the notary public commission number,
and the expiration date of the commission, and when applicable, a
photocopy of any police report that specifies the theft of the
sequential journal of official acts.
(c) Upon written request of any member of the public, which
request shall include the name of the parties, the type of document,
and the month and year in which notarized, the notary shall supply a
photostatic copy of the line item representing the requested
transaction at a cost of not more than thirty cents ($0.30) per page.
Note the time and date of the signing is missing. Also, the Date of the document. Finally, the document claims to be a “jurat” but there are specific requirements for a Jurat to ensure the signor personally appeared, and that an oath was administered to the signor attesting that the document was correct. Here is what a jurat is supposed to look like:
State of California
County of ________________
Subscribed and sworn to (or affirmed) before me on this _____ day of _______, 20__,
by _______________________, proved to me on the basis of satisfactory evidence to be
the person(s) who appeared before me.
Notary Public Signature Notary Public Seal
Following the investigation into the fraudulent mortgage practices of loan servicers following the “robosigner” and notary fraud epidemic (which is nothing more than a few “mistakes” or “deficiencies if you ask HSBC according their recent statements) the 50 states attorney generals have been preparing and have recently agreed on a “term sheet” (available here) of loan servicer demands that are supposed to interject more good faith into the loss mitigation, loan servicing and foreclosure marketplace and help in the other following ways:
(1) Servicers would be required to show their math on why you were denied a loan modification and provide the denial in writing to you so you can challenge it if their math is wrong;
(2) Servicers would not be able to close using the “incomplete documentation” defense that they love to use right before foreclosing;
(4) After a borrower makes three trial period payments, they get a permanent modification (this would prevent all the “HAMP scams” we have been ranting and raving about on our other website http://www.TrialPlanFraud.com (hopefully you didn’t think I was making that stuff up).
(5) Borrowers in the loss mitigation process would have a SINGLE POINT OF CONTACT. Which would hopefully reduce the “I am missing documents” nonsense many borrowers hear when working with multiple low-paid loss mitigators.
These are the broad strokes, read the term sheet for full details. We will see how this plays out over the next several months and see if there are any real changes.
Right now, the Office of the Comptroller of the Currency – “OCC” (which regulates the banks and FDIC) of course does not want any meaningful penalties for violations. The CFPB wants $20 billion for penalties. That is where the rubber hits the road. We will keep you posted. Till then, don’t let your guard down when dealing with loan servicers. Document everything, and if you are facing a sale date, seek legal help before the sale (like pursing an injunction, TRO or filing bankruptcy to stop the sale). I am sure they will continue with many of the same games.
Yet another case regarding a lying Bank (people, please, please, please do not believe a word your bank or loan servicer tells you, they want to make money and they will lie to you). Who should be surprised anymore? Anyway, in the case of Aceves v. U.S. Bank as Ttrustee, etc., a borrower was in a Chapter 7 bankruptcy and was contemplating converting her bankruptcy to a Chapter 13 to try to save her house from foreclosure. AS WE HAVE TALKED ABOUT ON OTHER WEBSITES, FILING FOR CHAPTER 13 BANKRUPTCY PROTECTION GIVES YOU A CHANCE TO SAVE YOUR HOME BY MAKING LOAN PAYMENTS AND CATCHING UP ON ARREARS. The Chapter 7 bankruptcy is a liquidation and is tougher to try to save your home from foreclosure.
At any rate, the borrower was in the Chapter 7 and considering converting the case to a chapter 13. During the Bankruptcy case, the bank informed the debtor that if she refrained from converting the case to a chapter 13, that “we would work with you” (on loss mitigation and loan modification). Based on that statement, the debtor did not fight the motion to lift the automatic stay in bankruptcy court, and the stay was lifted and the house was sold. Thereafter, U.S. Bank as trustee for a securitized loan trust, refused to work with the borrower following the foreclosure sale, and instead followed through with a eviction (unlawful detainer action). Welcome to the friendly face of banking.
The borrower brought suit for quiet title, slander of title, fraud, promissory estoppel, and declaratory relief. U.S. Bank did what all banks do, they filed a demurrer (which basically is there way of saying you have no case and trying to get the judge to dismiss the case without leave to amend).
The Court discussed the Bank’s legal argument:
“U.S. Bank filed a demurrer separately attacking each cause of action and the requested remedies. Aceves filed opposition. At the hearing on the demurrer, Aceves’s attorney argued that Aceves and her husband “could have saved their house through bankruptcy,” but “due to the promises of the bank, they didn’t go those routes to save their house. That’s the whole essence of promissory estoppel. Prior to [American Home's November 12, 2008] letter, there’s numerous phone contacts and conversations with [American Home], which was the agent for U.S. Bank, regarding, ‘Yes, once we get leave, we will work with you, … and they did not work with her at all.’ ” The trial court replied: “The foreclosure took place. There’s no promissory fraud or anything that deluded [Aceves] under the circumstances.” On October 29, 2009, the trial court entered an order sustaining the demurrer without leave to amend and a judgment in favor of U.S. Bank. Aceves filed this appeal.”
At the end of the day, the Court did not go along for the ride agreeing with the Bank’s B.S. Instead, the Court laid down the applicable law of fraud and promissory estoppel as it relates to loan modifications:
A. Promissory Estoppel“ ‘The elements of a promissory estoppel claim are “(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” (Advanced Choices, Inc. v. State Dept. of Health Services (2010) 182 Cal.App.4th 1661, 1672, 107 Cal.Rptr.3d 470.)1. Clear and Unambiguous Promise “ ‘[A] promise is an indispensable element of the doctrine of promissory estoppel. The cases are uniform in holding that this doctrine cannot be invoked and must be held inapplicable in the absence of a showing that a promise had been made upon which the complaining party relied to his prejudice. The promise must, in addition, be ‘clear and unambiguous in its terms.’ ” (Garcia v. World Savings, FSB (2010) 183 Cal.App.4th 1031, 1044, 107 Cal.Rptr.3d 683, citation omitted.) “To be enforceable, a promise need only be ‘ “definite enough that a court can determine the scope of the duty and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages.” ’ … It is only where ‘ “a supposed ‘contract’ does not provide a basis for determining what obligations the parties have agreed to, and hence does not make possible a determination of whether those agreed obligations have been breached, [that] there is no contract.” ‘ ” (Id. at p. 1045, 107 Cal.Rptr.3d 683, citation omitted.) “[T]hat a promise is conditional does not render it unenforceable or ambiguous.” (Ibid.)5 U.S. Bank agreed to “work with [Aceves] on a mortgage reinstatement and loan modification” if she no longer pursued relief in the bankruptcy court. This is a clear and unambiguous promise. It indicates that U.S. Bank would not foreclose on Aceves’s home without first engaging in negotiations with her to reinstate and modify the loan on mutually agreeable terms.U.S. Bank’s discussion of Laks v. Coast Fed. Sav. & Loan Assn. (1976) 60 Cal.App.3d 885, 131 Cal.Rptr. 836 misses the mark.
There, the plaintiffs applied for a loan and relied on promissory estoppel in arguing that the lender was bound to make the loan. The Court of Appeal affirmed the dismissal of the case on demurrer, explaining that the alleged promise to make a loan was unclear and ambiguous because it did not include all of the essential terms of a loan, including the identity of the borrower and the security for the loan. In contrast, Aceves contends U.S. Bank promised but failed to engage in negotiations toward a solution of her loan problems. Thus, the question here is simply whether U.S. Bank made and kept a promise to negotiate with Aceves, not whether, as in Laks, the bank promised to make a loan or, more precisely, to modify a loan. Aceves does not, and could not, assert she relied on the terms of a modified loan agreement in forgoing bankruptcy relief. She acknowledges that the parties never got that far because U.S. Bank broke its promise to negotiate with her in an attempt to reach a mutually agreeable modification. While Laks turned on the sufficiency of the terms of a loan, Aceves’s claim rests on whether U.S. Bank engaged in the promised negotiations. The bank either did or did not negotiate. Further, U.S. Bank asserts that it offered Aceves a loan modification, referring to the offer it made the day before the auction.
That assertion, however, is of no avail. Aceves’s promissory estoppel claim is not based on a promise to make a unilateral offer but on a promise to negotiate in an attempt to reach a mutually agreeable loan modification. And, even assuming this case involved a mere promise to make a unilateral offer, we cannot say the bank’s offer satisfied such a promise in light of the offer’s terms and the circumstances under which it was made. 2. Reliance on the Promise8 Aceves relied on U.S. Bank’s promise by declining to convert her chapter 7 bankruptcy proceeding to a chapter 13 proceeding, by not relying on her husband’s financial assistance in developing a chapter 13 plan, and by not opposing U.S. Bank’s motion to lift the bankruptcy stay. 3. Reasonable and Foreseeable Reliance9 “ ‘Promissory estoppel applies whenever a “promise which the promissor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance” would result in an “injustice” if the promise were not enforced….’ ” (Advanced Choices, Inc. v. State Dept. of Health Services, supra, 182 Cal.App.4th at pp. 1671-1672, 107 Cal.Rptr.3d 470, citation omitted, italics added.) “[A] party plaintiff’s misguided belief or guileless action in relying on a statement on which no reasonable person would rely is not justifiable reliance…. ‘If the conduct of the plaintiff in the light of his own intelligence and information was manifestly unreasonable, … he will be denied a recovery.’ ” (Kruse v. Bank of America (1988) 202 Cal.App.3d 38, 54, 248 Cal.Rptr. 217, citation omitted.) A mere “hopeful expectation cannot be equated with the necessary justifiable reliance.” (Id. at p. 55, 248 Cal.Rptr. 217.) We conclude Aceves reasonably relied on U.S. Bank’s promise; U.S. Bank reasonably expected her to so rely; and it was foreseeable she would do so. U.S. Bank promised to work with Aceves to reinstate and modify the loan. That would have been more beneficial to Aceves than the relief she could have obtained under chapter 13.
The bankruptcy court could have reinstated the loan-permitted Aceves to cure the default, pay the arrearages, and resume regular loan payments-but it could not have modified the terms of the loan, for example, by reducing the amount of the regular monthly payments or extending the life of the loan. (See 11 U.S.C. § 1322(b)(2), (3), (5), (c)(1); 8 Collier on Bankruptcy, supra, 1322.06, 1322.07, 1322.09 -, 1322.16 & fn. 5, pp. 23-24, 31-32, 34-42, 55-56.) By promising to work with Aceves to modify the loan in addition to reinstating it, U.S. Bank presented Aceves with a compelling reason to opt for negotiations with the bank instead of seeking bankruptcy relief. (See Garcia v. World Savings, FSB, supra, 183 Cal.App.4th at pp. 1041-1042, 107 Cal.Rptr.3d 683 [discussing justifiable reliance].)We emphasize that this case involves a long-term loan secured by a deed of trust, one in which the last payment under the loan schedule would be due after the final payment under a bankruptcy plan. (See 11 U.S.C. § 1322(b)(5).) Aceves had more than 28 years left on the loan, and a bankruptcy plan could not have exceeded five years. In contrast, if a case involves a short-term loan, where the last payment under the original loan schedule is due before the final payment under the bankruptcy plan, the bankruptcy court has the authority to modify the terms of the loan. (See 11 U.S.C. § 1322(c)(2); In re Paschen (11th Cir.2002) 296 F.3d 1203, 1205-1209; 8 Collier on Bankruptcy, supra, 1322.17, pp. 57-58; March et al., Cal. Practice Guide: Bankruptcy (The Rutter Group 2010) 13:396, p. 13-45; compare id. 13:385 to 13:419, pp. 13-42 to 13-48 [discussing short-term debts] with id. 13:440 to 13:484, pp. 13-49 to 13-54 [discussing long-term debts].)
The modification of a short-term loan may include “lienstripping,” that is, the bifurcation of the loan into secured and unsecured components based on the value of the home, with the unsecured component subject to a “cramdown.” (See In re Paschen, supra, 296 F.3d at pp. 1205-1209; 8 Collier on Bankruptcy, supra, 1322.17, pp. 57-58; see also March et al., Cal. Practice Guide: Bankruptcy, supra, 13:370 to 13:371.1, p. 13-41 [discussing lienstripping].) If a lien is “stripped down,” the lender is “only assured of receiving full [payment] for the secured portion of the [bankruptcy] claim.” (In re Paschen, supra, 296 F.3d at p. 1206.)4. DetrimentU.S. Bank makes no attempt to hide its disdain for the protections offered homeowners by chapter 13, referring disparagingly to Aceves’s bankruptcy case as “bad faith.” But “Chapter 13′s greatest significance for debtors is its use as a weapon to avoid foreclosure on their homes. Restricting initial … access to Chapter 13 protection will increase foreclosure rates for financially distressed homeowners. Loss of homes hurts not only the individual homeowner but also the family, the neighborhood and the community at large. Preserving access to Chapter 13 will reduce this harm.“Chapter 13 bankruptcies do not result in destruction of the interests of traditional mortgage lenders. Under Chapter 13, a debtor cannot discharge a mortgage debt and keep her home. Rather, a Chapter 13 bankruptcy offers the debtor an opportunity to cure a mortgage delinquency over time-in essence it is a statutorily mandated payment plan-but one that requires the debtor to pay precisely the amount she would have to pay to the lender outside of bankruptcy. Under Chapter 13, the plan must provide the amount necessary to cure the mortgage default, which includes the fees and costs allowed by the mortgage agreement and by state law. Mortgage lenders who are secured only by an interest in the debtor’s residence enjoy even greater protection under 11 U.S.C. § 1322(b)(2)…. Known as the ‘anti-modification provision,’ [section] 1322(b)(2) bars a debtor from modifying any rights of such a lender-including the payment schedule provided for under the loan contract…. [Cf. 11 U.S.C. § 1322(c)(2) [bankruptcy court has authority to modify rights of lender, including payment schedule, in cases involving short-term mortgages]; see pt. II.A.3, ante.]“Even though a debtor must, through reinstatement of her delinquent mortgage by a Chapter 13 repayment plan …, pay her full obligation to the lender, Chapter 13 remains the only viable way for most mortgage debtors to cure defaults and save their homes.
Mortgage lenders are extraordinarily unwilling to accept repayment schedules outside of bankruptcy. There is no history to support any claim that lenders will accommodate the need for *517 extended workouts without the pressure of bankruptcy as an option for consumer debtors. Reducing the availability of [C]hapter 13 protection to mortgage debtors is most likely to result in higher foreclosure rates, not in greater flexibility by lenders.” (DeJarnatt, Once Is Not Enough: Preserving Consumers’ Rights To Bankruptcy Protection (Spring 1999) Ind. L.J. 455, 495-496, fn. omitted.)“It is unrealistic to think mortgage companies will do workouts without the threat of the debtor’s access to Chapter 13 protection. The bankruptcy process is still very protective of the mortgage industry. To the extent that the existence of Chapter 13 protections increases the costs of mortgage financing to all consumers, it can and should be viewed as an essential form of consumer insurance….” (DeJarnatt, Once Is Not Enough: Preserving Consumers’ Rights To Bankruptcy Protection, supra, Ind. L.J. at p. 499 13 We mention just a few of the rights Aceves sacrificed by deciding to forgo a chapter 13 proceeding. First, although Aceves initially filed a chapter 7 proceeding, “a chapter 7 debtor may convert to a case[ ] under chapter 13 at any time without court approval, so long as the debtor is eligible for relief under the new chapter.” (1 Collier on Bankruptcy, supra,1.06, p. 24, italics added; accord, March et al., Cal. Practice Guide: Bankruptcy, supra, 5:1700 to 5:1701, 5:1715 to 5:1731, pp. 5(II)-1, 5(II)-3 to 5(II)-5; see 11 U.S.C. § 706(a).) In addition, Aceves could have “cured” the default, reinstating the loan to predefault conditions. (See In re Frazer (9th Cir. BAP 2007) 377 B.R. 621, 628; In re Taddeo (2d Cir.1982) 685 F.2d 24, 26-28; 11 U.S.C. § 1322(b)(5); March et al., Cal. Practice Guide: Bankruptcy, supra, 13:450, p. 13-50.) She also would have had a “reasonable time”-a maximum of five years-to make up the arrearages. (See 11 U.S.C. § 1322(b)(5), (d); 8 Collier on Bankruptcy, supra, 1322.09, pp. 39-40; March et al., Cal. Practice Guide: Bankruptcy, supra,13:443, p. 13-49.) And, by complying with a bankruptcy plan, Aceves could have prevented U.S. Bank from foreclosing on the property. (See 8 Collier on Bankruptcy, supra, 1322.09 to 1322.09, 1322.16, pp. 34-37, 55-56.).
“Indeed, the bottom line of most Chapter 13 cases is to preserve and avoid foreclosure of the family house. (In re King (Bankr.N.D.Fla.1991) 131 B.R. 207, 211; see also March et al., Cal. Practice Guide: Bankruptcy, supra, 8:1050, 8:1375 to 8:1411, pp. 8(II)-1, 8(II)-42 to 8(II)-47 [discussing automatic stay]; In re Hoggle (11th Cir.1994) 12 F.3d 1008, 1008-1012 [affirming district court order denying lender's motion for relief from automatic stay]; Lamarche v. Miles (E.D.N.Y.2009) 416 B.R. 53, 55-62 [affirming bankruptcy court order denying landlord's motion to set aside automatic stay]; In re Gatlin (Bankr.W.D.Ark.2006) 357 B.R. 519, 520-523 [denying lender's motion for relief from automatic stay].)U.S. Bank maintains that even if Aceves had pursued relief under chapter 13, she could not have afforded the payments under a bankruptcy plan. But the complaint alleged that, with the financial assistance of her husband, Aceves could have saved her home under chapter 13. We accept the truth of Aceves’s allegations over U.S. Bank’s speculation. (See Hensler v. City of Glendale, supra, 8 Cal.4th at p. 8, fn. 3, 32 Cal.Rptr.2d 244, 876 P.2d 1043.)5. Absence of Consideration141516 U.S. Bank argues that an oral promise to postpone either a loan payment or a foreclosure is unenforceable. We have previously addressed that argument, stating: “ ‘[I]n the absence of consideration, a gratuitous oral promise to postpone a sale of property pursuant to the terms of a trust deed ordinarily would be unenforceable under [Civil Code] section 1698.’ (Raedeke v. Gibraltar Sav. & Loan Assn. (1974) 10 Cal.3d 665, 673 [111 Cal.Rptr. 693, 517 P.2d 1157], italics added.) The same holds true for an oral promise to allow the postponement of mortgage payments. (California Securities Co. v. Grosse (1935) 3 Cal.2d 732, 733 [46 P.2d 170] [applying Civil Code section 1698].) However, the doctrine of promissory estoppel is used to provide a substitute for the consideration which ordinarily is required to create an enforceable promise.
“The purpose of this doctrine is to make a promise binding, under certain circumstances, without consideration in the usual sense of something bargained for and given in exchange….” ’ (Raedeke, supra, 10 Cal.3d at p. 672 [111 Cal.Rptr. 693, 517 P.2d 1157].) ‘ “Under this doctrine a promisor is bound when he should reasonably expect a substantial change of position, either by act or forbearance, in reliance on his promise, if injustice can be avoided only by its enforcement….” ’ ” (Sutherland v. Barclays American/Mortgage Corp. (1997) 53 Cal.App.4th 299, 312, 61 Cal.Rptr.2d 614; accord, Garcia v. World Savings, FSB, supra, 183 Cal.App.4th at pp. 1039-1041, 107 Cal.Rptr.3d 683.) We further commented: “When Raedeke and California Securities Co. were decided, Civil Code section 1698 provided in its entirety: ‘A contract in writing may be altered by a contract in writing, or by an executed oral agreement, and not otherwise.’ … In 1976, a new section 1698 was enacted which states in part: ‘A contract in writing may be modified by a contract in writing … [or] by an oral agreement to the extent that the oral agreement is executed by the parties…. Nothing in this section precludes in an appropriate case the application of rules of law concerning estoppel ….’ ” (Sutherland v. Barclays American/Mortgage Corp., supra, 53 Cal.App.4th at p. 312, fn. 8, 61 Cal.Rptr.2d 614, citations omitted.) Our earlier analysis in Sutherland applies here.1718
Finally, a promissory estoppel claim generally entitles a plaintiff to the damages available on a breach of contract claim. (See Toscano v. Greene Music (2004) 124 Cal.App.4th 685, 692-693, 21 Cal.Rptr.3d 732.) Because this is not a case where the homeowner paid the funds needed to reinstate the loan before the foreclosure, promissory estoppel does not provide a basis for voiding the deed of sale or otherwise invalidating the foreclosure. (See Garcia v. World Savings, FSB, supra, 183 Cal.App.4th at p. 1047, 107 Cal.Rptr.3d 683, distinguishing Bank of America v. La Jolla Group II (2005) 129 Cal.App.4th 706, 711-714, 28 Cal.Rptr.3d 825.)B. Remaining Claims. The elements of fraud are similar to the elements of promissory estoppel, with the additional requirements that a false promise be made and that the promisor know.
TALES OF A FORECLOSURE MILL – ITS ALL ABOUT SPEED AND GREED – OH, AND FALSITIES
Here are some highlights of the David Stern Foreclosure Lawyer Rise and Fall.
(1) David Stern is a Florida Lawyer who handles foreclosure and eviction cases on behalf of many of the largest lenders in the United States (ex. Wells Fargo, Bank of America, Citibank, GMAC) and also handled foreclosure cases for Fannie Mae and Freddie Mac (yes, even the government thought highly of Mr. Stern and his foreclosure law firm). Here is a story CNN did on his “foreclosure factory”. His firm handled thousands upon thousands of foreclosures on behalf of his clients and he has been quoted as saying “we take these loans from the cradle to the grave.” He also apparently owns a luxury yacht which rumor has it he was going to call “Su casa is me casa” (translation – your home is my home). Now there is nothing wrong about being a foreclosure lawyer working for the big banks, but the question is whether or not there is integrity in the foreclosure process, and whether or not the law is being followed. After all, lawyers are agents of the court and have professional duties to act fairly, honestly, and ethically. When they don’t, the lawyer jokes ensue, as do the investigations.
(3) When filing a lawsuit, there needs to be certain documents filed with the court (ex. affidavits), and certain documents recorded in the chain of title (ex. assignment of deed of trust). Many of these documents are notarized (giving the appearance of legitimacy) and some documents are signed under penalty of perjury (perjury is a crime, if anyone ever chooses to pursue it).
(4) There is evidence and deposition testimony that certain managers and secretaries and other persons (who often times who act as Vice Presidents for other companies like MERS) at the Florida law firm of David Stern may have fabricated and falsified documents, and signed documents without have any knowledge of the contents when such was required and used notary stamps without following notary laws. In other words, there was alot of practices going on that may have been illegal at least according to other websites in the blogosphere. Some of these people claim to have signed a thousand or more documents a day without reviewing anything and while just following orders. In fact, the deposition of some of these people, affectionately known as robosigners, have been shown on other websites and on youtube.
(5) Word on the street is that the Florida Attorney General’s offices (civil investigations unit) is investigating whether or not there were any unfair and deceptive business practices going on, while the Florida state bar is also potentiallly reviewing Mr. Stern and his practices. Mr. Stern is also facing his own lawsuits (one for securities fraud for DJSP enterprises), potentially harming his pocketbook as well.
(a) There is a probably a David Stern in every state – that’s why we scrutinize foreclosure documents. If they did it wrong they should be forced to do it over instead of being allowed to foreclose based on false documents, forgeries, roosigners, and notary fraud.
(b) The cream always rises to the top, while the sediment sinks to the bottom. As we have been trying to tell the Courts, the law applies to everyone, even big banks and their foreclosure cronies. When the law is not followed, they should have to own up for their legal violations and they must be held accountable to the State Bar, and the Attorney General’s office.
(c) If they move the investigation from civil into criminal, the “foreclosure king” could well become the “jailhouse queen.”
(d) Greed, for lack of a better word, is not always good – to refute the quote from the movie Wall Street.
(e) Irony: Apparently Mr. Stern is now, or has been late on a 12 million dollar line of credit with Citibank and so now he is in default. I wonder if he expects a fair process?
Just an amazing story from the foreclosure trenches. We will be doing a Foreclosure Radio show on him later this month telling the story of how he hit the highest heights, only to be shot down in flames. We will post the link here when the show is archived. Or, you can stay in tune here: ATTORNEY STEVE VONDRAN FORECLOSURE MELTDOWN SHOW.
I have reviewed some of the online materials on the Pacer website and it appears Dykstra filed for Chapter 11 Bankruptcy Protection, but later the case was converted to a Chapter 7 Bankruptcy. The trustee of the bankruptcy assserted that Dykstra failed to appear at the first scheduled 341 Creditor hearing and also sought a TRO to prevent Dykstra from liquidating assets. There are a few adversary proceedings on file, but there is no indication that I was able to find, that Dykstra had actually filed any predatory lending claims or any mortgage fraud lawsuits. If anyone has any information on any lawsuits Mr. Dykstra has filed in any State, Federal or Bankruptcy Court, please let us know as we would like to track the progress of the case.
Update: Dykstra has sued – the case is Dykstra v. JPMorgan, 10-cv-02413, filed in the U.S. District Court, Southern District of New York (Manhattan). You can look the case up on Pacer.gov. It appears Dykstra’s attorney filed the case, and then shortly thereafter, voluntarily dismissed the case without prejudice.
One of the legal requirements when a Defendant is filing a motion, pleading etc. with a Federal Court, is that in their “first appearance” or first motion or pleading to the Court, they have to disclose who they represent, who the owners of the company are and whether or not they have insurance. This is in regard to a California case I am talking about. In a recent case we have a law firm representing ONe West bank, FSB, that we sued as a Defendant to rescind our loan under Truth in Lending Law. When we later learned One West bank was not the owner of the loan (after nine months of the law firm pretending Wells were the owners of the loan), we finally learned the loan was in a HSBC securitized loan trust. So we added HSBC as a Defendant prompting a removal to federal court. In their first pleading filed with the Federal District Court, the included a Corporate disclosure statement (see attached document) under Rule 7.1 of the Federal Rules of Civil Procedure (FRCP). Under the Local Rules for the District Court, additional requirements applied to the disclosure filing (namely including any insurance companies that might be liable for damages, costs, or attorney fees in the case).
We contested their filing which, according to the law “must” be filed (with the required appropriate information) “in their first” pleading addressed to the Court. We pointed out that they failed to list the TRUE OWNER of One West bank, FSB (which is One West bank Group, LLC and their investors), and that they only filed one copy with the Court. Here is what we wrote:
“Upon Removal, the Federal Rules of Civil Procedure Apply and govern procedure after removal. See F.R.CivP. 81(c), and Willy v. Coastal Corp., 503 U.S. 131, 135-136, 112 S.Ct. 1076, 1079, L.Ed.2d 280 (1992). This would include the Federal Rules, and their counterpart Local Rules. In fact, Federal Rule of Civil Procedure (Rule 7.1) is quite clear:
“A nongovernmental corporate party must file 2 copies of a disclosure statement that:
(1) identifies any parent corporation and any publicly held corporation owning 10% or more of its stock; or
(2) states that there is no such corporation.
(b) Time to Filing; Supplemental Filing.
A party must:
(1) file the disclosure statement with its first appearance, pleading, petition, motion, response, or other request addressed to the court; and
(2) promptly file a supplemental statement if any required information changes.”
The Central District Local Rule 7.1-1 further supplements the federal rule and requires the additional disclosure:
“including any insurance carrier which may be liable in whole or in part (directly or indirectly) for a judgment that may be entered in the action or for cost of defense.” (emphasis added).
Counsel for Defendants have failed to provide two copies of this disclosure in their first appearance, and this prevents this Court from making informed decisions as to recusal.
Plaintiff hereby alleges, on information and belief, that Defendant OneWest Bank, FSB, is “wholly owned” owned by another company (OneWest Bank Group, LLC) that has not been properly disclosed in their first request to this court as required by law. (See attached Exhibit “B” which is a true and correct copy of a printout from the OneWest Bank Website which printout is incorporated herein by reference).
This document admits that “OneWest Bank Group LLC, which wholly owns OneWest Bank, FSB” yet knowing this, Defendants refused to disclose this to the Court. The Attached Exhibit B lists a host of entities that the Court has not properly considered in determining whether recusal may be proper, and Defendant has failed to identify the insurance carriers for any of the owners and entities listed in the corporate press release.
Since it is too late to go back and file such a disclosure, Defendants motion to dismiss and its notice of remand must be overruled, and rejected, and Plaintiff is entitled to judgment on the Pleadings, or in the alternative to remand back to State Court in the Torrance Courthouse. Plaintiffs therefore move the Court to strike Defendant’s Motion and for Judgment on the allegations of Plaintiff’s Complaint for failure of the Defendant to comply with the mandatory disclosure requirements of the Federal Rules of Civil Procedure.
WHEREFORE, the debtors respectfully pray of the Court as follows:
A. That this court strike Defendant’s Motion to Dismiss for failure to comply with the mandatory F.R.Civ.P. 7.1 and Local Court Rule 7.1-1;
B. For Judgment on the Pleadings for allegations contained in Plaintiff’s complaint; and (in the alternative), as to their Motion for Remand;
C. As an alternative to dismissing the case, that this case be remanded back to State Court (Torrance Courthouse);
D. That Plaintiff be awarded reasonable attorney fees in the amount of $1,500 in bringing this motion;
E. That Plaintiff’s have such other and further relief as the Court may deem just and proper.
We will keep you posted as to where we get on this legal challenge. The Bank argues you must make your payments and honor your contract, and they argue all sorts of laws must be followed in Court. But when you call them out for not following the law and the rules, then it is a different story. Then the law is just a technicality that gets in the way. This is what we mean by watching them like a hawk and calling them out when the violate the law. In this case, the judge has not had the proper opportunity to know just who the real interested parties are, who the insurance company is, and whether or not the judge should recuse him/herself.
WHO CAN THAT BE KNOCKING AT MY DOOR? Is MERS trying to foreclose on you?
Gomes v. Countrywide, MERS and Recontrust
MERS is an interesting entity. They call themselves both the “nominee of the lender” (who never lent any money in most cases) and “their successors and assigns” (even though it is not known who the successor or assign of the loan-turned-bond would be). In the same instrument, MERS calls itself a “beneficiary” (which is also completely false and nonsensical because by MERS own admission they do not own the note, hold the note, or have any right to transfer the note, and they do not collect your loan payment, and they do not lose money if your mortgage payment is not made. But yet they argue that by signing the deed of trust, approximately 6o million homeowners across the nation have magically appointed or named MERS to the the agent (nominee) of another party. It is not even clear how you can appoint a second party to the the agent of a third party.
Adding more controversy into the debate, MERS often assigns a deed of trust “and the notes therein” when it assigns your deed of trust (usually at the time the foreclosure is taking place) and usually assigning your DOT and the notes therein to a securitized loan trust that argues it is the holder and owner of your loan (even though this is akin to a bigfoot sighting an in fact, I do not believe anyone has seen a complete and unbroken chain of endorsement of the note from the originator of the loan up to the securitized loan trust. These are things Max Gardner and Neil Garfield, expert lawyers in their respective fields, often teach.
Yet even given this controversy, there is a mix of opinion amongst courts and legal scholars as to just what role MERS is allowed to play in the foreclosure game. We have talked about other MERS cases on our website if you google “Vondran MERS.” So now we have another case, this time out of the California Court of Appeals, 4th District, which says MERS can foreclose on residences in California. Heck, in California Wallmart, Target, and BestBuy can foreclose on your if they wanted to given the Courts view that “produce the note” or “show me the note” (original note) as they call it, has been beaten down by the California and Arizona judiciary. So no proof is required to foreclose on anyone in California. You owe a debt and so it should not be an issue what the financial institutions want to do. You already allowed them to turn your loan into a stock to be sold on Wall Street, and that is all you need to know (if you ask them their opinion).
So let’s talk about the Gomes decision. In Gomes, the defaulting borrower brought a lawsuit to stop MERS from foreclosing arguing the note-holder (securitized loan trust) never authorized MERS to foreclose in their name.
The Court first discussed the role of MERS:
The role of MERS is central to the issues in this appeal. As case law explains,
“MERS is a private corporation that administers the MERS System, a national electronic
registry that tracks the transfer of ownership interests and servicing rights in mortgage
loans. Through the MERS System, MERS becomes the mortgagee of record for
participating members through assignment of the members’ interests to MERS. MERS is
listed as the grantee in the official records maintained at county register of deeds offices.
The lenders retain the promissory notes, as well as the servicing rights to the mortgages.
The lenders can then sell these interests to investors without having to record the
transaction in the public record. MERS is compensated for its services through fees
charged to participating MERS members.” (Mortgage Elec. Registration Sys. v.
“A side effect of the MERS system is that a transfer of an interest in a mortgage loan
between two MERS members is unknown to those outside the MERS system.” (Jackson
v. Mortgage Elec. Registration Sys., Inc. (Minn. 2009) 770 N.W.2d 487, 491.)”
IN OTHER WORDS, THE LOAN SERVICERS PLAY A BIG GAME TO HIDE THE TRUE IDENTITY OF THE ALLEGED OWNER OF YOUR LOAN WHEN THERE IS A MERS LOAN INVOLVED. MERS CLAIMS TO ACCURATELY TRACK LOAN OWNERSHIP AND SERVICING RIGHTS.
GOMES DEED OF TRUST GAVE MERS THE RIGHT TO FORECLOSE ACCORDING TO THE COURT:
“The deed of trust that Gomes signed states that “Borrower [i.e., Gomes]
understands and agrees that MERS holds only legal title to the interests granted by
Borrower in this Security Instrument, but, if necessary to comply with law or custom,
MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to
exercise any or all of those interests, including, but not limited to, the right to foreclose
and sell the Property . . . .”
NEXT, THE COURT DISCUSSED THE CLAIM BEING PURSUED BY GOMES:
“The first cause of action is titled “Wrongful Initiation of Foreclosure.” In that
cause of action, Gomes states that he “does not know the identity of the Note’s beneficial
owner” — as he believes that KB Home Mortgage Company sold it on the secondary
mortgage market. He alleges on information and belief that “the person or entity who
directed the initiation of the foreclosure process, whether through an agent of MERS or
otherwise, was neither the Note’s rightful owner nor acting with the rightful owner’s
authority.” In short, the first cause of action alleges, on information and belief, that
MERS did not have authority to initiate the foreclosure because the current owner of the
Note did not authorize MERS to proceed with the foreclosure.
“The second cause of action seeks declaratory relief on the issue of whether “Civil
Code section 2924, subdivision (a)] allows a borrower, before his or her property is sold,
to bring a civil action in order to test whether the person electing to sell the property is, or
is duly authorized to so by, the owner of a beneficial interest in it.” Although designated
a cause of action for declaratory relief, the second cause of action appears to serve simply
as a legal argument in support of the first cause of action. Specifically, the second cause
of action alleges that section 2924, subdivision (a) provides the legal authority for Gomes
to assert the claim he has made in the first cause of action, namely that MERS lacks the
authority to initiate the foreclosure process because it was not authorized to do so by the
owner of the Note.”
AS YOU CAN SEE, THE PLAINTIFF GOMES APPARENTLY TRIED AN ARGUMENT SIMILAR TO “SHOW ME THE ORIGINAL NOTE SO I KNOW WHO THE LENDER IS.” As we have discussed, California and Arizona courts (the two states where we practice law) have shot down this legal theory although THIS SEEMS TO BE A FAIR QUESTION, YOU ARE THE BANK, DO YOU OWN MY LOAN, AND DO YOU HAVE THE RIGHT TO FORECLOSE ON ME? THE COURTS WILL NOT ENTERTAIN THIS LINE OF QUESTIONING IN THE FORECLOSURE PROCESS (although even a small claims court would demand proof of an IOU or contract in certain cases).
The Defendants in GOMES filed a demurrer raising the typical arguments:
Demurring to the first cause of action, Defendants
argued, among other things, that (1) to maintain a cause of action for wrongful
foreclosure, Gomes must allege that he is able to tender the full amount due under the
every aspect of exercise of the power of sale contained in a deed of trust.” (I. E.
Associates v. Safeco Title Ins. Co. (1985) 39 Cal.3d 281, 285.) “The purposes of this
comprehensive scheme are threefold: (1) to provide the creditor/beneficiary with a quick,
inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the
debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly
conducted sale is final between the parties and conclusive as to a bona fide purchaser.”
(Moeller, at p. 830.) “Because of the exhaustive nature of this scheme, California
appellate courts have refused to read any additional requirements into the non-judicial
foreclosure statute.” (Lane v. Vitek Real Estate Industries Group (E.D. Cal. 2010) 713
F.Supp.2d 1092, 1098; see also Moeller, at p. 834 [“It would be inconsistent with the
comprehensive and exhaustive statutory scheme regulating nonjudicial foreclosures to
incorporate another unrelated cure provision into statutory nonjudicial foreclosure
AND THEN THE COURT DELIVERED THE PAYLOAD:
“By asserting a right to bring a court action to determine whether the owner of the
Note has authorized its nominee to initiate the foreclosure process, Gomes is attempting
to interject the courts into this comprehensive nonjudicial scheme. As Defendants
correctly point out, Gomes has identified no legal authority for such a lawsuit. Nothing
in the statutory provisions establishing the nonjudicial foreclosure process suggests that
such a judicial proceeding is permitted or contemplated.
In his declaratory relief cause of action, Gomes sets forth the purported legal
authority for his first cause of action, alleging that Civil Code section 2924,
subdivision (a), by “necessary implication,” allows for an action to test whether the
person initiating the foreclosure has the authority to do so. We reject this argument.
Section 2924, subdivision (a)(1) states that a “trustee, mortgagee, or beneficiary, or any
of their authorized agents” may initiate the foreclosure process. However, nowhere does
the statute provide for a judicial action to determine whether the person initiating the
foreclosure process is indeed authorized, and we see no ground for implying such an
action. (See Lu v. Hawaiian Gardens Casino, Inc. (2010) 50 Cal.4th 592, 596 [legislative
intent, if any, to create a private cause of action is revealed through the language of the
statute and its legislative history].) Significantly, “[n]onjudicial foreclosure is less
expensive and more quickly concluded than judicial foreclosure, since there is no
oversight by a court, ‘[n]either appraisal nor judicial determination of fair value is
required,’ and the debtor has no postsale right of redemption.” (Alliance Mortgage Co. v.
Rothwell (1995) 10 Cal.4th 1226, 1236.) The recognition of the right to bring a lawsuit
to determine a nominee’s authorization to proceed with foreclosure on behalf of the
noteholder would fundamentally undermine the nonjudicial nature of the process and
introduce the possibility of lawsuits filed solely for the purpose of delaying valid
THE COURT THEN POINTED TO GOMES DEED OF TRUST AND THE COURT HELD GOMES HAD SPECIFICALLY AUTHORIZED THE FORECLOSURE SALE:
“Specifically, Gomes agreed that “MERS (as nominee
for Lender and Lender’s successors and assigns) has . . . the right to foreclose and sell the
Property.” The deed of trust contains no suggestion that the lender or its successors and
assigns must provide Gomes with assurances that MERS is authorized to proceed with a
foreclosure at the time it is initiated.”
THE COURT ALSO FOOTNOTED TO THE BOGUS MERS ARGUMENT (ALSO MADE IN THE DEED OF TRUST WHICH IS CONSIDERED TO BE THE OPERATIVE FORECLOSURE DOCUMENT IN THE GOMES CASE) THAT IT IS A “BENEFICIARY” OF THE LOAN.
As the parties discuss, some federal district courts have observed
that although identified as a “beneficiary” in a deed of trust, the role of MERS is not
acting as a beneficiary as that term is commonly used, and that MERS in fact acts as a
nominee, and thus an agent of the beneficiary. (See, e.g., Roybal v. Countrywide Home
Loans, Inc. (D. Nev., Dec. 9, 2010, No. 2:10-CV-750-ECR-PAL) 2010 U.S. Dist. Lexis
131287, *11 [“there is a near consensus among district courts in this circuit that while
MERS does not have standing to foreclose as a beneficiary, because it is not one, it does
have standing as an agent of the beneficiary where it is the nominee of the lender, who is
the true beneficiary”]; Weingartner, supra, 702 F.Supp.2d at p. 1280 [“Calling MERS a
‘beneficiary’ is both incorrect and unnecessary . . . ,” and “[c]ourts often hold that MERS
does not have standing as a beneficiary because it is not one, regardless of what a deed of
trust says, but that it does have standing as an agent of the beneficiary where it is the
nominee of the lender (who is the ‘true’ beneficiary).”
THE COURT DID WHAT SOME OTHER COURTS HAVE DONE WHEN FACED WITH THIS “PART OF WHAT WE SAY IN THE DEED OF TRUST IS TRUE AND PART OF WHAT WE SAY IS FALSE” ARGUMENT AND PERMIT THE NOMINEE LANGUAGE TO BE CONTROLLING WHEN IT COMES TO FORECLOSURE.
Relying on the terms of the applicable deeds of trust, courts have rejected similar
challenges to MERS’s authority to foreclose. In Pantoja v. Countrywide Home Loans,
Inc. (N.D. Cal. 2009) 640 F.Supp.2d 1177, the federal district court pointed out that in the
deed of trust, the plaintiff “distinctly granted MERS the right to foreclose through the
power of sale provision, giving MERS the right to conduct the foreclosure process under
[Civil Code s]ection 2924,” and therefore “[s]ince Plaintiff granted MERS the right to
foreclose in his contract, his argument that MERS cannot initiate foreclosure proceedings
is meritless.” (Id. at pp. 1189, 1190.) Similarly, another court pointed out that “[u]nder
the mortgage contract, MERS has the legal right to foreclose on the debtor’s property. . . .
MERS is the owner and holder of the note as nominee for the lender, and thus MERS can
enforce the note on the lender’s behalf.” (Morgera v. Countrywide Home Loans, Inc.
AND WITH THAT THE GOMES COURT AFFIRMED THE LOWER COURT DECISION AND REFUSED LEAVE TO AMEND.
(1) Check your Deed of Trust, did you grant MERS the right to foreclose?
(2) Do you have grounds to rescind your loan under TILA? (refinance loan within the last three years and ability to tender)
(3) Keep an eye eye out for other MERS cases as the Courts are not in unanimous agreement about MERS and the scope of their agency authority or whether the scheme actually violates well established principles of agency law.
(4) If you are getting close to a foreclosure date, perhaps you are a chapter 13 bankruptcy candidate. In a bankruptcy setting MERS and the securitized loan trustee that claims to own and hold your note may not have it so easy and you may be able to challenge their legal standing to file a proof of claim in a chapter 13 proceeding, and challenge whether or not they are a real party in interest. I doubt MERS and the securitized trustee will welcome your challenge like they do the “produce the note” foreclosure strategy that they can easily defeat on a demurrer or motion to dismiss.
(5) There are a few letters you can send out to your loan servicer, MERS, and the securitized loan trust before you are foreclosed on that may help set up a chapter 13 attack.
(6) Never wait before its too late to get a foreclosure or bankruptcy game plan. The time to act is before you get a Notice of Sale or Notice of Default.
(7) As always, never trust a word your lender or loan servicer says. They want to foreclose, rather than assist, in most cases.
COPYRIGHT 2011 – ALL RIGHTS RESERVED LAW OFFICES OF STEVEN C. VONDRAN
CALIFORNIA GOLF CASE LEAVES DOOR OPEN FOR HOLE IN ONE!
This is the Golf Case – California Golf, L.L.C. v. Cooper (2008) 163 Cal.App.4th 1053. Without going into details on the facts, suffice it to say a party wanted to hold a trustee liable for wrongful foreclosure. The Defendants argue there is no remedy available to the Plaintiff because the non-judicial foreclosure statutes in California do not permit such remedies. To this point the Court stated:
“Respondents rely on statements in three cases which, they argue, indicate that the Legislature intended to occupy the field of nonjudicial foreclosure sales and permit no further remedies. (I. E. Associates v. Safeco Title Ins. Co. (1985) 39 Cal.3d 281, 285; Residential Capital v. Cal-Western Reconveyance Corp., supra, 108 Cal.App.4th at p. 821; Moeller v. Lien (1994) 25 Cal.App.4th 822, 834.) Before addressing the cases on which respondents rely, a brief overview of the purposes of the statutes governing nonjudicial foreclosure is appropriate. [163 Cal.App.4th 1070].
This case analysis is just this authors opinion and is not legal advice or a substitute for legal advice. If you are facing foreclosure or bankruptcy you need a competent lawyer who understands foreclosure law.
Civil Code sections 2924 through 2924k provide a comprehensive framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust.‘ This comprehensive statutory scheme has three purposes: ‘ “(1) to provide the creditor/beneficiary with a quick, inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser.” (Melendrez v. D & I Investment, Inc. (2005) 127 Cal.App.4th 1238, 1249-1250.)
The Court then went on to discuss whether this is in fact a comprehensive statutory scheme for non-judicial foreclosure sale in California and whether or not any remedies may exist for a party who is claimed to be injured by a wrongful foreclosure sale (in this case the borrower was seeking certain remedies under the Uniform Commercial Code – UCC).
“In each of the cases on which respondents rely, the court did not conclude that no remedies outside those provided by the nonjudicial foreclosure statutes are available simply because the Legislature intended to occupy the field. Instead, the court also considered the policies advanced by the statutory scheme, and whether those policies would be frustrated by the allowance of the additional remedy. (I. E. Associates v. Safeco Title Ins. Co., supra, 39 Cal.3d at pp. 288-289 concluding that expanding the notice obligations of the trustee would not be supported by policy; Residential Capital v. Cal-Western Reconveyance Corp., supra, 108 Cal.App.4th at pp. 827, 829 declining to “graft a tort remedy onto a comprehensive statutory scheme in the absence of a compelling justification for doing so,” and concluding that the addition of the proposed remedy would not fit within the comprehensive statutory scheme; (Moeller v. Lien, supra, 25 Cal.App.4th at p. 834 (concluding that “it would be inconsistent with the comprehensive and exhaustive statutory scheme regulating nonjudicial foreclosures to incorporate another unrelated cure provision into statutory nonjudicial foreclosure proceedings”). It is clear, then, that the mere existence of a comprehensive statutory scheme does not necessarily eliminate all further remedies without the consideration of the relevant policy concerns. Indeed, California courts have repeatedly allowed parties to pursue additional remedies for misconduct arising out of a nonjudicial foreclosure sale when not inconsistent with the policies behind the statutes. In Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1231, our Supreme Court concluded that a lender who obtained the property with a full credit bid at a foreclosure sale was not precluded from suing a third party who had fraudulently induced it to make the loan. The court concluded that ” ‘the antideficiency laws were not intended to immunize wrongdoers from the consequences of their fraudulent acts’ ” and that, if the court applies a proper measure of damages, ” ‘fraud suits do not frustrate the antideficiency policies because there should be no double recovery for the beneficiary.’ ” (Id. at p. 1238.) In South Bay Building Enterprises, Inc. v. Riviera Lend-Lease, Inc.[163 Cal.App.4th 1071] (1999) 72 Cal.App.4th 1111, 1121, the court held that a junior lienor retains the right to recover damages from the trustee and the beneficiary of the foreclosing lien if there have been material irregularities in the conduct of the foreclosure sale. (See also Melendrez v. D & I Investment, Inc., supra, 127 Cal.App.4th at pp. 1257-1258; Lo v. Jensen (2001) 88 Cal.App.4th 1093, 1095 (a trustee’s sale tainted by fraud may be set aside.)
The Golf case then keeps open the possibility that as long as a Plaintiff is not seeking a remedy inconsistent with the California Foreclosure Laws, that they Court should see fit to permit such a remedy and this case the Court recognized the UCC remedy. The Court said:
“Considering the policy interests advanced by the statutory scheme governing nonjudicial foreclosure sales, and the policy interests advanced by Commercial Code section 3312.”
If you want to have your options reviewed, fill out our loss mitigation form at http://www.AttorneySteve.net (Sorry, California and Arizona properties only). We are once again taking Wachovia and World Savings Pick-a-Pay and Option Arm loans (negative amortization loans) on a CONTINGENCY FEE BASIS. You can check out our profile on ContingencyCase.com.
The foregoing information is general legal information only and shall not be relied upon as legal advice, or a substitution for legal advice. If you have specific legal questions about your foreclosure case you should seek out the advice of a real estate attorney. In addition, the information posted above may not be 100% complete, accurate or up-to-date. Law is always changing. The Law Offices of Steve Vondran is licensed to practice law in the state of Arizona and California and only seeks to solicit and serve Clients in these two states. Steve Vondran, Esq. is a licensed attorney and former licensed real estate broker in California and Arizona. He can be reached by email at firstname.lastname@example.org or toll free (877) 276-5084. This is an advertisement and communication pursuant to State Bar Rules. Please do not send us private or confidential information through any of our above-listed websites. Sending us an email does not create an attorney-client relationship (only signing a legal retainer will do this).
In California, the state legislature passed SB 1137 in 2008 to try to stem the tide of the unnecessary foreclosures (aka The Perata Mortgage Relief Act). The idea was to force loan servicers (who are servicing loans on behalf of so-called lenders who supposedly own your loan and have the endorsed copy of the note in their physical possessions) to contact defaulting borrowers prior to filing a notice of default and to “assess” and “explore” potential opportunities for loan workouts. There is therefore a “due diligence” requirement that servicers must follow before trying to foreclose on California homeowners. Once they make these required contacts, they can then bring down the guillotine and foreclose. Like everything else in the loan modification business crafted by legislators pretending to provide help to homeowners in distress, the law does not REQUIRE any modifications be given, and we know that many of the pooling and servicing agreements may not even allow for modifications. So it is questionable whether the law is much more than window dressing, but it is a law on the books.
In California, we have seen a slew of homeowners want to turn a non-judicial foreclosure sale into a judicial foreclosure sale by filing suit to enjoin a foreclosure sale based on a violation of 2923.5. Some of the challenges being made under 2923.5 were/are challenges to the mortgagees, trustees, beneficiaries, or their authorized agents (hereafter, “lenders” or “servicers”) alleging the following grounds:
(1) The servicer or lender is simply failing to make the required contacts
(2) The lender servicer is failing to provide the required HUD phone number
(3) The servicer or lender refuses to file the declaration of compliance prior to filing the notice of default or foreclosing
(4) The declaration is false as it is signed by a robosigner
(5) The “declaration” is not made under penalty of perjury
These are the basic grounds that I have seen asserted in various lawsuits. The key case on point dealing with this declaration and what it means is Mabry v. Superior Court of Orange County, 185 Cal. App. 4th 208 (2010). In Mabry, a borrower in default sought to enjoin a private trustee sale by arguing a violation of 2923.5 in that the declaration of compliance did not outline the specific attempts made by the lender/servicer or their agent, and was not made under penalty of perjury. Here are a few snippets from the Court’s decision (Questions asked and answered by the Court):
(A) May section 2923.5 be enforced by a private right of action? “Yes. Otherwise the statute would be a dead letter.”
(B) Must a borrower tender the full amount of the mortgage indebtedness due as a prerequisite to bringing an action under section 2923.5? “No. To hold otherwise would defeat the purpose of the statute.”
(C) Is section 2923.5 preempted by federal law? “No — but, we must emphasize, it is not preempted because the remedy for noncompliance is a simple postponement of the foreclosure sale, nothing more.”
(D) What is the extent of a private right of action under section 2923.5? “To repeat: The right of action is limited to obtaining a postponement of an impending foreclosure to permit the lender to comply with section 2923.5.”
(E) Must the declaration required of the lender by section 2923.5, subdivision (b) be under penalty of perjury? No. Such a requirement is not only not in the statute, but would be at odds with the way the statute is written.
(F) Does a declaration in a notice of default that tracks the language of section 2923.5, subdivision (b) comply with the statute, even though such language does not on its face delineate precisely which one of the three categories set forth in the declaration applies to the particular case at hand? “Yes. There is no indication that the legislature wanted to saddle lenders with the need to “custom draft” the statement required by the statute in notices of default.”
(G) If a lender did not comply with section 2923.5 and a foreclosure sale has already been held, does that noncompliance affect the title to the foreclosed property obtained by the families or investors who may have bought the property at the foreclosure sale? “No. The Legislature did nothing to affect the rule regarding foreclosure sales as final.”
Okay, let’s take a look at just what this Court might be saying. (1) There is a private right of action for violating 2923.5 (if you are willing to pay an attorney to “postpone” the sale, (2) The lender or their agent need not specify the precise grounds employed in their due diligence efforts to satisfy the statute (i.e. they don’t have to say “we contacted the borrower 4 times at the following phone number”), (3) If the sale has already taken place, arguing a violation of 2923.5 probably won’t do much for your cause, and (4) If you bring a 2923.5 challenge before the sale, you do not have to “tender” the balance of the loan to take on your lender/servicer.
At the end of the day, if you have good grounds to assert a 2923.5 violation then perhaps you can postpone your sale. But the Mabry case does not appear willing to provide damages, and class action lawsuits are not permitted. So, chalk up another win for the lenders/servicers who can basically say they complied, and if they don’t comply, then you get the right to hire a lawyer to merely postpone the sale and make them do it over again. I suppose we should all be pleased that at least the Courts recognized there is a private right to file a lawsuit.
The case was recently appealed to the California Supreme Court, who declined to hear the appeal. For now, the Mabry appelate Court decision reigns as law. Other grounds to consider in challenging your alleged lender is filing for Chapter 13 bankruptcy and challenging the proof of claim in Bankruptcy Court or opposing the so-called lenders effort to lift the automatic stay. If these financial institutions cannot prove their legal standing and that they are the real party in interest to your loan, this may pave the way for an adversary proceeding in the bankruptcy court.
Truth in lending loan rescission lawsuits are also another avenue to investigate if you have a refinanced loan originated in the last three years. Although these loans are declining in numbers, they are still out there. More information about bankruptcy challenges can be found at http://www.UltimateBk.com
WRONGFUL FORECLOSURE IS A FUNGUS THAT IS SPREADING IN CALIFORNIA AND ARIZONA – ARE ROBISGNERS TO BLAME?
In California, the tort of wrongful foreclosure requires: (1) a legally owed duty to the Plaintiff by the foreclosing party (2) a breach of that duty (3) a causal connection between the breach of that duty and the injury the Plaintiff sustained, and (4) damages. California courts have further clarified this cause of action by stating: “We are inclined however, to believe that with respect to real property the Murphy case was articulating a rule that has been applied in other jurisdictions. That rule is that a trustee or mortgagee may be liable to the trustor or mortgagor for damages sustained where there has been an illegal, fraudulent or willfully oppressive sale of property under a power of sale contained in a mortgage or deed of trust. Munger v. Moore, 11 Cal. App. 3d 1, 7, 89 Cal. Rptr. 323, 326 (Cal. Ct. App. 1970)
The court in Munger appears to be saying that if the foreclosure was illegal, fraudulent or willfully oppressive then that foreclosure was wrongful and the party foreclosed on may be entitled to damages. According to California statutory and case law several types of damages are available to victims of wrongful foreclosures.
First, damages are measured by the value of the property at the time of the sale in excess of the mortgage lien against the property (i.e the equity in the property). Second, damages are available in the amount that is sufficient to compensate for all detriment proximately caused by the wrongful conduct.California Civil Code Section 3333. Third, the borrower may be able to obtain damages for emotional distress in a wrongful foreclosure action and if the borrower can prove by clear and convincing evidence that the servicer/trustee was guilty of fraud, oppression or malicepunitive damages may be awarded. Where there is a wrongful foreclosure, the borrower may seek punitive damages. In Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 345 [85 Cal.Rptr.3d 532, 554] the Court in acknowledging the right to seek punitive damages said:
“The jury concluded that the nonjudicial foreclosures instituted by the Kachlons were wrongful, and that in pursuing the foreclosure proceedings Mordechai acted “intentionally, fraudulently and in conscious and callous disregard for the rights of the Markowitzes.” These findings are tantamount to the finding of malice….” (emphasis added).
As such, it is clear in California, if the borrower can prove by clear and convincing evidence that the servicer or trustee was guilty of fraud, oppression or malice in its wrongful conduct, punitive damages may be awarded.
However, an action for the tort of wrongful foreclosure will lie if the trustor or mortgagor (borrower) can establish that at the time the power of sale was exercised or the foreclosure occurred, no breach of condition or failure of performance existed on the mortgagor’s or trustor’s part which would have authorized the foreclosure or exercise of the power of sale. See Munger v. Moore, 11 Cal.App.3d 1, 89 Cal.Rptr. 323 (Cal.App.1970). This seems to be an obstacle for many homeowners during this financial crisis. Many borrowers are behind on their payments and have fallen victim to predatory lending schemes or have stopped paying based on instructions from their lenders trying to qualify for loan modifications. But does default always mean the mere fact that you have fallen behind on your payments? This is an interesting issue we have discussed in other blogs the so-called “presentment” defense under the UCC.
First, for a mortgage to be in default, the borrower, or maker of the promissory note, must have dishonored the note. Under UCC §3-502 a promissory note is not dishonored until the maker refuses to pay it when presentment thereof is made. “Presentment” is defined by the UCC as “a demand to pay the instrument made by a person entitled to enforce an instrument.” The UCC also requires that “Upon demand of the person to whom presentment is made, the person making presentment must 1) exhibit the instrument” [emphasis added] (UCC 3-501(B)(2)(a))
Until the proper presentment is made the UCC requires that the “obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of the instrument were taken, and the following rules apply: …2) In the case of a note, suspension of the obligation continues until dishonor of the note or until it is paid.” (UCC 3-310(b) & A.R.S. 47-3310(b)) Therefore, the borrower is not in default until the lender can exhibit the instrument, proving dishonor. Default is not simply missing payments. It also includes refusal to pay after presentment has been made. Default must also include an exhibit of the instrument. Thus, the lender in a wrongful foreclosure suit cannot claim the borrower is in default unless they can produce the original note and deed of trust.
If true, this would produce additional problems for the lender/creditor. In fact, I recently reviewed one loan that has a UCC PRESENTMENT WAIVER (evidencing that this is an issue that at least one lender – in that case a reverse mortgage) has considered and apparently given credence to. According to California case law, the so-called lender would lose the right to foreclose on the security (real estate) if the obligation is unenforceable. Savings Bank v. Asbury (1897) 117 C 96, 48 P 1081; Trowbridge v. Love (1943) 58 CA 2d 746. As the theory goes, if the lender trying to foreclose on a property cannot prove default by producing the original note and deed of trust then they may not have the right to foreclose at all. IN FACT, IN SOME DEEDS OF TRUST (LIKE THIS ONE FOR A REVERSE MORTGAGE) THERE IS A SPECIFIC CLAUSE ASKING THAT THE BORROWER WAIVE THEIR “RIGHT” OF PRESENTMENT.
In fact, a recent Massachusetts court ruling invalidated two foreclosure sales based on a failure to prove proper documentation (unbroken chain of mortgage from the originator to the trust) proving the “lender” (the securitized loan trust) had the legal right to foreclose. See Ibanez v. U.S. Bank a recent landmark case from the Massachusetts Supreme Court.
DISCLAIMER: THIS IS ONLY A GENERAL LEGAL THEORY THAT WAS PRESENTED TO MY FIRM BY A 30 YEAR UCC LAW PROFESSOR FROM A MAJOR LAW SCHOOL. THE THEORY HAS NOT BEEN TESTED BY THIS AUTHOR AND YOU ARE ADVISED TO SEEK THE ADVISE OF COUNSEL BEFORE PURSUING THIS NOVEL THEORY.
In summary, where the Defendants fail to follow statutory law (ex. where you have notary fraud in the chain of title NOTICE OF DEFAULT, NOTICE OF SALE, ASSIGNMENT OF DEED OF TRUST, OR SUBSTITUTION OF TRUSTEE – and where the notary refuses to produce their notary transaction logs for a given transaction following a written request for such proof of valid signatures, etc.) this type of fraud can be argued to violate the duties set by the California foreclosure laws such as Civil Code Section 2924, 2934, and 2932.5 which require duly recorded documents be notarized and recorded with the County Recorder. Where you have false and forged signatures by robosigners, and a notary that does not verify a signing parties credentials, or signatures, and cannot produce a notary log, there may be a legal argument to be made that the resulting foreclosure sale was “fruit of the poisonous tree” as I like to say, and argue the sale was tainted with fraud, oppression, and breach of duties.
Here is a document that shows in the Deed of Trust for this reverse mortgage, the lender wanted the borrower to “waive their right” to demand presentment of the Note. Click on the attached link to see the document. To see our blog post on this topic click here:
HERE IS A LINK TO THE STORY. I COULD NOT RESIST SHARING THIS ONE. Shows that sometimes when you put the pressure on the right way (in the Courts and the “law of the press”) sometimes you might just get someones attention.
CHECK YOUR MERS ASSIGNMENT OF DEED OF TRUST (THE DEED OF TRUST PLACES AN ENCUMBRANCE ON THE PROPERTY) AND SUBSTITUTION OF TRUSTEE DOCUMENTS.
WHO SIGNED IT – SEARCH THE WEB – IS THIS PERSON (EX. SOME BOGUS VICE PRESIDENT FOR MERS) A KNOWN ROBOSIGNER? THERE ARE SOME TELL TALE SIGNS OF ROBOSIGNING THAT WE DISCUSS IN OTHER ARTICLES.
IF YOU HAVE YOUR SUSPICIONS, WHICH YOU SHOULD IN ALMOST EVERY CASE, THEN SEND THE NOTARY A DEMAND LETTER TO “PRODUCE YOUR NOTARY TRANSACTION LOG” FOR THAT PARTICULAR TRANSACTION.
WHEN THE NOTARY REFUSES TO PRODUCE IT – WHICH HAS HAPPENED IN EVERY SINGLE CASE WE HAVE DEALT WITH IN REGARD TO SECURITIZED LOANS, (WHICH ESSENTIALLY ADMITS THEIR WAS NO VALID LOGS KEPT, NO SIGNINGS IN FRONT OF THE NOTARY, AND NO IDENTIFICATION CHECKED, ETC.) YOU HAVE TO ASK YOURSELF, ARE THE NOTARIES AND THE SO-CALLED “LENDER” OR LOAN SERVICER (WHO THESE RECORDED DOCUMENTS ARE SUPPOSED TO BE SENT BACK TO AFTER RECORDING), ARE THEY COMMITTING A CRIME UNDER CALIFORNIA LAW?
YOU HAVE TO ASK YOURSELF WHAT IS GOING ON HERE, AND WHY ANY FORECLOSURE BASED ON THIS TYPE OF KNOWING AND INTENTIONAL ACTS OF NOTARY FRAUD SHOULD BE PERMITTED TO FORM THE FOUNDATION FOR A VALID FORECLOSURE. SHOULD THE COURTS REALLY GIVE ANY WEIGHT TO ANY DOCUMENT (LIKE A SUBSTITUTION OF TRUSTEE OR ASSIGNMENT OF DEED OF TRUST) THAT IS THE PRODUCT OF VERIFIABLE FRAUD?
LET’S TAKE A LOOK AT THE CALIFORNIA PENAL CODE:
115.5. Filing false or forged documents relating to single-family residences;
punishment; false statement to notary public
(a) Every person who files any false or forged document or instrument with the county
recorder which affects title to, places an encumbrance on, or places an interest secured by a
mortgage or deed of trust on, real property consisting of a single-family residence containing
not more than four dwelling units, with knowledge that the document is false or forged, is
punishable, in addition to any other punishment, by a fine not exceeding seventy-five thousand
(b) Every person who makes a false sworn statement to a notary public, with knowledge
that the statement is false, to induce the notary public to perform an improper notarial act
on an instrument or document affecting title to, or placing an encumbrance on, real property
consisting of a single-family residence containing not more than four dwelling units is guilty
of a felony.