Deficiency Judgments in California and the “sold out junior” can the second come back at you despite the one action rule?
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.
What if you short sale the property instead of letting it go to foreclosure? Well, this is where the new California laws come in (Sb 931 – which protects from deficiency judgments following the short sale of the first mortgage - and SB 458 which protects against deficiency judgments from a second lien holder that agrees/consents to a short sale). These are the subject of separate blog post. Many people think these laws may actually reduce the numbers of short sales the lenders will agree to. These code section added ccp 580e.
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.
Happy New Year.
HUD seeks revenge against major loan servicers…….welcome to the pissed off club boys!! LOL
FORECLOSURE FRAUD / FORECLOSURE GATE (THIS IS GETTING EMBARASSING)! IS THIS REALLY THE GOOD OLE UNITED STATES OF AMERICA GREATEST ASSET? 
Listen in on our upcoming FORECLOSURE GATE blog radio show on HUD and their beef against lenders and loan servicers. These financial institutions are the most UN-LOVED companies in the United States, but they walk and talk like their doody comes out in plastic bags. How do they pull this off? Amazing? Now HUD is upset, what can they do about it? Here is a link to the story about the foreclosure mess on Huffington Post Here is one HUD Settlement Agreement with a Bank (notice how criminal penalties are not settled – but this all seems to go the wayside). Here is some background on Deutsche and their subsidiary MortgageIT and their run-in with Department of Justice / HUD.
Some Candid thoughts about life, and foreclosure defense…….
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.
PEACE OUT.
STEVE VONDRAN, ESQ.
ARIZONA AND CALIFORNIA
FORECLOSURE AND BANKRUPTCY LAWYER
Deed in Lieu of Foreclosure – Yes, sometimes you can get them!
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).
Click here to see a Sample Grant Deed in Lieu of Foreclosure and Estoppel Affidavit that we recently obtained in one of our foreclosure cases. Normally, before you can ever hope to get a deed in lieu, you must exhaust efforts to sell your house.
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.
Here is some information on how a Deed in Lieu might affect your credit score.
FHA RELEASE SERVICING GUIDELINES FOR FANNIE FREDDIE LOANS………BASICALLY AMOUNTS TO MORE WINDOW DRESSING – “CATCH ERRORS AND FIX THEM.”
ITS ALL ABOUT THE MONEY – THE ANSWER TO 99 OUT OF 100 QUESTIONS IS “MONEY”
We all know the Bankers hate regulations and do not want to comply with any of them (no, I am not joking for the sake of coming up with a blog post, I can verify on a good majority of my files failure to comply with RESPA and TILA – two of the main laws they have to deal with). They routinely snub their noses at these laws and force you into court if you want to do something about. That is big business folks. Now the FHA releases some new guidelines for mortgage servicers for Fannie Freddie Loans. Man, I read it and it sounded great, but then I realized all it basically says is to try to ferret out errors and if their are errors, to fix them. Wow, that is just the kind of regulation with TEETH that will surely make these loan servicers stand up straight. Yeah right. More window dressing. In fact., this business is full of window-dressing (things the bankers say that sound great, but which don’t really mean anything).
(1) Like Bank of America talking about principal reduction
(2) Like foreclosure moratoriums and then they sell the note and let someone else foreclose on you
(3) Like a TARP bailout that funds Wall Street bonuses while telling Main Street this ones for you
(4) Like HAMP trial plan mods that come your way making you think you have accomplished a loan modification
(5) Like the servicer saying “don’t worry, we have extended your sale date” (oops, looks like the trustee sold your house maam)
These are just a few that come to mind………yes, there is alot of WINDOW DRESSING in the loss mitigation business. Anything the Bankers or Politicians can say to appease the masses is what they will do. As far as stopping the fraud in the system, and robosigners, the lies and deceit….I am not sure this can be fixed even if they want to. Without proof of ownership of the loan with right to foreclose (i.e. that they “lender” has the note and deed of trust) the whole system is based on lies and cover-up and yet entities like MERS will defend the system to no end.
Anyway, despite the banker commercials that show the white picket fences, and kids and dogs running around the yard, don’t believe everything you see – that is window dressing too!
FORECLOSURE LAWYER – MICHAEL PINES FACING PROBLEMS (The bar says he is a danger to the public – meanwhile, he teaches the public).
WE HAD PREVIOUSLY COMMENTED ON MICHAEL PINES AND HIS BREAKING INTO HOMES OF HIS CLIENTS. NOW IT APPEARS HE IS FACING OTHER ISSUES, SUCH AS BANKRUPTCY, THAT ARE MAKING THINGS TOUGH FOR HIM AND HIS CLIENTS. WE WILL POST MORE ONCE WE KNOW MORE ABOUT THE STORY.
UPDATE: 3/15/11: The California State Bar seeks to take law license of Michael T. Pines – while Michael Pines Seeks to Hold Foreclosure Seminars telling more lawyers his secrets. Here is an email I keep getting (over and over and over again):
SECOND UPDATE: California State Bar places Pines on inactive status.
__________________________________________________
SUCCESSFUL
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A UNIQUE, TWO DAY, WEEKEND SEMINAR FOR ATTORNEYS AND HOMEOWNERS
March 12th and 13th, 2011
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The Leading Expert in Foreclosure Relief
www.precedentlegalsystems.com
SATURDAY, MARCH 12TH FOR ATTORNEYS ONLY: CONTINUING EDUCATION CREDIT AVAILABLE IN CALIFORNIA AND OTHER STATES
SUNDAY, MARCH 13TH TWO SESSIONS FOR HOME OWNERS AND ATTORNEYS
SATURDAY, MARCH 12TH FOR ATTORNEYS ONLY: CONTINUING EDUCATION CREDIT AVAILABLE IN CALIFORNIA AND OTHER STATES
9:00 A.M. – 6:00 P.M.
CONTINENTAL BREAKFAST INCLUDED
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SUNDAY, MARCH 13TH TWO SESSIONS FOR HOME OWNERS AND ATTORNEYS
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1:30 p.m. to 4:30 p.m. with one hour of questions
$99 Register In Advance
$129 At The Door
760‐453‐0131 FOR MORE INFO.
HOTEL ROOMS AVAILABLE
For Michael in the News:
www.pinesandassociates.com
http://articles.latimes.com/2011/jan/14/business/la‐fi‐foreclosure‐lawyer‐20110114
http://www.getsmartaboutbanks.com/2010/10/dylan‐ratigan‐msnbc‐fraudclosure‐video‐with‐attorneys‐michael‐pines‐and‐matt‐weidner/
Published by Cutting Edge Resources for Successful Foreclosure Relief
www.precedentlegalsystems.com
As the leading expert in foreclosure relief, attorney Michael T. Pines continually monitors the strategies of the banks and the government. His latest methods can only be learned at PRECEDENT Legal Systems™
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ABOUT MICHAEL T. PINES
Michael T. Pines’ is the leading expert in foreclosure relief. His first rate experience combined with his aptitude for cutting edge, case winning strategies have truly made him a maverick in his field. He continually monitors the real estate market, economic climate as well as the strategies of the banks and government to ensure his innovative methods are timely, relevant and highly effective.
Michael has been a lawyer for over 30 years and has had a real estate license for over 20 years. He handled litigation against the Resolution Trust Corporation (“RTC”) during the last real estate savings and loan crisis and has been able to see firsthand how history has repeated itself; proactively positioning himself within the distressed real estate and assets environment, providing resolutions to buyers and asset holders.
He is a successful trial attorney with many victories in front of judges and juries. Michael has argued hundreds of cases at all levels of the courts including the Supreme Court of California. In Barrington v. A.H. Robbins, Michael changed the law in the state of California regarding statutes of limitation. He also successfully argued cases that resulted in published decisions at the Courts of Appeal. Michael handled complex real estate and insurance litigation involving the insolvency of Glacier General Assurance Company, Cal‐Farm Insurance Company, Allied Insurance Company, and others. He recovered tens of millions of dollars for his clients in those cases and established himself as one of the few experts in “financial guarantee bonds” insuring real estate transactions.
Just a few years ago, Michael himself was a fraud victim of EMC Mortgage Corporation. In taking action, Michael discovered he was not alone, and the loan servicer was fined $28 million in early 2008 by the Federal Trade Commission (“FTC”). Most recently, Michael is representing homeowners and real estate investors, obtaining favorable motions in cases of predatory lending and mortgage fraud.
Through his teachings, Michael is facilitating the achievements of many attorneys around the country practicing foreclosure relief law. He is consulting with the top class action law firms in the country, empowering them with his winning techniques.
By constantly broadening his knowledge, Michael is working to find fair solutions regarding this real estate crisis for homeowners, the government, and others.
He has become a nationally recognized public figure:
http://articles.latimes.com/2011/jan/14/business/la‐fi‐foreclosure‐lawyer‐20110114
http://www.getsmartaboutbanks.com/2010/10/dylan‐ratigan‐msnbc‐fraudclosure‐video‐with‐attorneys‐michael‐pines‐and‐matt‐weidner/
Michael T. Pines is the Lead Attorney for Precedent Legal Systems.
–
Pines & Associates
Michael T. Pines
701 Palomar Airport Rd., Suite #300
Carlsbad, CA 92011
Office: 760-453-0131
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Is it better to die (or win) on offense or die on defense? How monday night football relates to foreclosure defense.
Okay, so I am digressing. This blog post is not about foreclosure defense. Not about real estate law. I have a very simple question to ask. IS IT BETTER TO DIE ON OFFENSE OR DIE ON DEFENSE (not that death is ever good, and it is not inevitable). I would argue it is best to win, and on offense. Here is the situation. I use the Football Game Analogy.
I have been watching football games for about 40 years. When I was young, I lived in San Antonio Texas, and I was a HUGE Dallas Cowboys fan. I Loved football in all forms. But I have been watching games a long time and at times, a it seems to me a common scenario often unfolds:
THE TEAM ON DEFENSE IS TIED, OR LOSING. THE OPPONENT HAS THE BALL AND THEY ARE MARCHING DOWN THE FIELD. THE CLOCK IS DWINDLING WITH EVERY PLAY. THE TEAM THAT IS ON THE OFFENSE IS LOVING LIFE. WHY? THEY ARE ON THE TEAM ON THE MARCH AND THE CLOCK IS DWINDLING. IS THIS SO HARD TO FIGURE OUT. THE TEAM ON DEFENSE SITS AROUND AND TRIES TO DEFEND AS THE TEAM ON THE OFFENSE MOVES INSIDE THE 20 AND THEN INSIDE THE 10.
At this point, the clock usually dwindles down to a minute or two. The defense puffs its chest and pretends they are going to make a goal line stand, ala the Pittsburg stealers “iron curtain” a bygone team of destiny.
The main problems at this point, and with this approach, are:
(1) Defense is losing ground and time is running out
(2) The Offense has the momentum and they are marching home to the goal line
(3) The Defense is beat up, tired, and thinking of a cold brew
(4) The sweet taste of victory is in the mouths of the offense (mainly because they are tied, or have the lead, and the clock is dwindling and the defense is beat and they know it)
So what happens next? The offense, (usually within field goal range at this point), marches on. The defense continues to puff its chest, and suck wind, pretending they are going to make some kind of goal line stand.
NOW WHAT I PROPOSE – IS THAT THE DEFENSE (IF THEY WILL BE WITHIN 8 POINTS AFTER ALLOWING A TOUCHDOWN) SHOULD SIMPLY DO A MEXICAN STYLE “OLE” AND LET THE OTHER TEAM SCORE SO THEY CAN GET THE BALL BACK, AND SO THAT THEY CAN THEN GO ON THE OFFENSE. IF THEY CAN GO ON THE OFFENSE TO GET THE POINTS BACK AND POTENTIALLY TIE THE GAME AT THE OTHER END, THIS, IN MY MIND, IS A MUCH BETTER RESULT. DIE ON OFFENSE, NOT DEFENSE. THE DEFENSE IS ALREADY BEAT, AND THERE IS RARELY A “GOAL LINE STAND.” LET THE OFFENSE TAKE A SHOT.
The game I am referring to is the Monday Night Football game between the Packers and the Bears (September 27, 2010). LOOK IT UP. The Bears had the Packers tied with just a minute or two remaining. The Bears backed the Packers up to the goal line with like a minute to spare. (YEAH, IT WAS PRETTY OBVIOUS THE BEARS WOULD SCORE – AT LEAST A FIELD GOAL TO WIN IT – AND LEAVE ABOUT 10 SECONDS FOR THE PACKERS TO WORK WITH). The Packers coach chose THE AGE-OLD “goal line stand” approach as if the 20 yard field goal was not inevitable (I mean, comeon, what are the stats on this, for sure they score 3 points to win it)? To boot, there was like 30-45 seconds left. Yeah, great time for a “goal line stand” when a field goal wins the game.
As predictable, the Bears scored the touchdown and kicked off with like 4 seconds left. Good luck. The Packers did some old ‘Stanford style’ flick and pitch routine to try to save the day, but this amounted to little more than a 4 seconds of a circus act. The Bears won, with their offense. The Packers lost, trying to pretend their was some goal line defense to be had and maybe they would miraculously block the filed goal click. Didn’t happen. Rarely does.
My point is, WHY NOT LET THE BEARS SCORE, GO UP BY 8, AND AT LEAST GET ABOUT A MINUTE BACK TO TRY TO GO BACK AND SCORE A TOUCHDOWN, AND DO THE TWO-POINT CONVERSION. IN OTHER WORDS, WHY NOT DIE ON AN AGGRESSIVE OFFENSE, THAN DIE WITH A TIRED DEFENSE? AREN’T OFFENSES TRAINED ON THE “TWO-MINUTE DRILL?” DIE WITH THEM AT THE HELM.
MAYBE FORECLOSURE DEFENSE IS THE SAME WAY. WHY GET BEATEN DOWN, BATTERED, LIED TO, TRICKED, SPIT ON, DECEIVED, PLAY VICTIM TO A TRIAL PLAN MODIFICATION FRAUD SCHEME, HAVE SOME PRETENDER LENDER WHO COULD NEVER PRODUCE CREDENTIALS TO JUSTIFY THEY OWN YOUR LOAN FORECLOSE ON YOU, ETC.? MAYBE THE BEST FIGHT IS ON THE OFFENSE – SWINGING FOR ALL ITS WORTH. MAYBE IT IS BETTER TO WIELD THE SWORD THAN BE STABBED BY ONE IN A CORNER. MAYBE YOU NEED TO GO ON THE OFFENSIVE FOR A CHANGE, BREAK THE OLD CYCLES, AND STOP TAKING THE PUNCHES SQUARELY ON THE FOREHEAD? MAYBE IT IS BETTER TO DIE (IF THAT IS POSSIBLY THE END RESULT) ON OFFENSE, THAN TO GET TRAMPLED ON DEFENSE?
Although I loved football, my talent was in baseball. As they taught me in the Cincinnati Reds organization many years ago, “sometimes the best defense is a good offense.”
Just something to think about. NFL coaches pass the baton just like everyone else. They cannot break the cycles of what they have been taught. They may cite statistics or whatever to justify their “goal line stand” with one minute remaining but people who have been watching the game know this approach is painful to watch. Just my lousy two cents for whatever it is worth.
PS I would welcome a rebuttal with football statistics – tell me how my logic is flawed in regard to football games. At any rate, at the end of the day, having the other team ram home the win on a tired defense seems to be a anti-climatic outcome, at least to me.
I tried to email the Packers coach, but there was no email link to be found. I just want to know. Why do you do that? What is the rationale? What are the stats? Is this good TV? Is this good sport? For my money, I want a chance to win, to take charge of my destiny, not just to watch the clock run out on some pretend defense. Makes me wonder what the late great Packers coach Vince Lombardi would have done. He said: “destiny is not a matter of chance, it is a matter of choice……it is not something to wish for, it is something to be attained.” What would he have done?
To many people, saving the family home from foreclosure is something to be attained.
I welcome reader comments.
Steve Vondran
Can a lender or their agent (ex, the loan servicer) pursue a non-judicial foreclose on real property via exercising the power of sale contained in the deed of trust, if the alleged creditor has only the note and no assignment and recording of the deed of trust (the security for payment of the note)? Understanding California Civil Code Section 2932.5.
Can a lender or their agent (ex, the loan servicer) pursue a non-judicial foreclose on real property via exercising the power of sale contained in the deed of trust, if the alleged creditor has only the note and no assignment and recording of the deed of trust (the security for payment of the note)? Understanding California Civil Code Section 2932.5.
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.
Steve Vondran is a California Real Estate Lawyer who is licensed to practice law in California and Arizona. He also holds a real estate broker’s license in California and Arizona and has a background in mortgage brokering and commercial real estate. HE can be reached at steve@vondranlaw.com or (877) 276-5084.
________________________________________________________________
First, let’s get some general rules on the table that lenders and their attorneys will rely on when seeking to foreclose on your property:
(1) There is no obligation to produce the original note if a lender seeks to conduct a private trustee sale (i.e. a non-judicial foreclosure that relies on the power of sale contained in the deed of trust). In other words, do not try to file for an injunction in a court of law to fight the lender and challenge whether or not they own the loan, because you have no right to ask who is foreclosing on you in a private sale. Sad yes, but such is the law. Therefore, in a non-judicial foreclosure setting, there is no way to force them to prove they are in fact your creditor with the right to foreclose. Their mere allegation that they have the note is all they need if you challenge them at this stage, and do not expect the judge to rule otherwise.
See our Blog posting on this page for more details: http://www.foreclosuredefenseresourcecenter.com/2010/03/can-a-california-homeowner-demand-that-the-lender-or-loan-servicer-produce-the-note-as-a-foreclosure-defense-strategy/.
(2) In support of their right to foreclose non-judicially, lenders like to use the “security follows the note” argument and line of cases to support their position that if they merely allege that they have the note, then that must also mean they have the security interest (i.e. the deed of trust or mortgage) whether or not the security interest is/was specifically assigned to them – normally by MERS who originally records the security interest in as many as 60 million mortgages across the United States. For this proposition they usually cite two cases: (a) Carpenter v. Longan, 83 U.S. 271, 275 (1873); and (b) Restatement Third of Property (Mortgages) Section 5.4 (1997). Note that these pre-date most loan securitization.
LONGAN: In Longan the United States Supreme Court held: “The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.” Note, this case says only that assigning the note also assigns the security (i.e. the right to foreclose). The case does NOT say that the POWER OF SALE is also assigned when a note is assigned. This is important, because without the power of sale, a lender should be relegated to conducting a JUDICIAL FORECLOSURE SALE AND NOT A PRIVATE TRUSTEE SALE USING THE POWER OF SALE.
RESTATMENT: It appears to be the general rule in California that the transfer of a mortgage note transfers with it the related mortgage – “the mortgage follows the note” as they say. The RESTATEMENT (THIRD) OF PROPERTY (MORTGAGES) § 5.4 (1997), relied on by many lenders in their briefs, states: “a transfer of an obligation secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise.” The rationale is to avoid economic waste to the lender and avoid a windfall to the borrower if the note and mortgage are split – rendering the mortgage note unsecured. The Restatement also cites the case of Carpenter v. Longan, 83 U.S. 271 (1827) “all the authorities agree that the debt is the principal thing and the mortgage an accessory.”
These cases seem to give the lenders wide latitude to just merely claim they own the note (they never want to show it) and have the Court agree that the security naturally follows (whether or not the deed of trust was assigned, acknowledged, and recorded) and that the lender therefore has standing to lift a stay in bankruptcy court. If the lender can show proof of the original promissory note in the BK lift-stay motion, I would say I might agree. But again, they will not want to show the note, and it is up to the BK judge to demand they show this critical piece of evidence before they allow a creditor to lift the automatic stay. If you want legal authority take a look at In re Hwang, 396 B.R. 757 (C.D. California 2008. I have attached a link to my case brief on this important case: http://www.producethenoteattorney.com/2010/05/in-re-hwang-an-overview-of-motion-for-relief-from-automatic-stay-real-party-in-interest-and-constitutional-standing-requirements-in-a-california-bankruptcy-court/
But is the same true if a homeowner files for an injunction trying to prevent a lender from conducting a non-judicial foreclosure sale where there is simply no proof the lender has physical possession of the note and the chain of title does not indicate any assignment or recording of the deed of trust (i.e. the power of private sale never conveyed per 2932.5)?
Applying Constitutional law standards, States are always free to grant more rights and freedoms that the United States Supreme Court may grant, but states cannot provide less. I would argue that is what California did when it enacted Civil Code Section 2932.5 by requiring an actual assignment and recording of the deed of trust if the lender/mortgagee wants to exercise the power of sale and conduct a private trustee sale – Notice of Default / Notice of Sale – outside the watchful eye of the Court (as would be required in a judicial sale). In other words, if a lender wants to foreclose in a non-judicial private trustee sale fashion, it would seem they need both the endorsed note and physical possession of such – or, physical possession of the note endorsed in blank – AND the assignment of the deed of trust duly acknowledged and recorded as required under California Civil Code Section 2932.5. Without both, I would argue a lender is relegated to a judicial foreclosure sale only, and the Court should enjoin the attempted and threatened private trustee sale. At least that is my honest opinion and it would be great if it worked out that way. There is not a lot of case law on this curious code section.
Let’s take a look at 2932.5 and tell me if you agree. First off, here is a link to the law I am talking about so we can all take a look at it. It is short and sweet so do not be intimidated. http://law.onecle.com/california/civil/2932.5.html I have pasted the law below if you are the type of person who hates opening up links:
“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.”
Looks to me like the power of sale (i.e. the right to pursue a private judicial foreclosure sale) requires an assignment of the deed of trust and recording of such in the County recorder’s office. If that is not what this law means, then what does it mean? In other words, if a lender conducts a private trustee sale and the chain of title reflects that there has been no assignment or recording of the deed by that lender or its agent, wouldn’t that make the private sale voidable and subject to set aside? See our blog piece on the “lender please don’t make me tender” rule before you get excited. Here is a link to that post.
http://www.foreclosuredefenseresourcecenter.com/2010/03/phoenix-foreclosure-lawyer/
Bolstering this position that the deed of trust must be assigned, acknowledged, and recorded before exercising the private power of sale in California is the case of Strike v. Transwest Discount Corp, 92 CA3d, 735 (1979). In this case the court held:
“A recorded assignment of note and deed of trust vests in the assignee all of the rights, interests of the beneficiary (Musgrave v. Renkin, 180 Cal. 785 [183 P. 145]) including authority to exercise any power of sale given the beneficiary (Civ. Code, § 858)…… The power of sale here derived from the instrument itself. (Civ. Code, § 2932; McDonald v. Smoke Creek Live Stock, 209 Cal. 231).”
Therefore, I would think you have at least a fair argument that a lender seeking to foreclose non-judicially, outside the Courts presence (as in a judicial foreclosure), that they would need to be able to establish that the deed of trust was properly assigned and recorded in addition to owning the note, although as discussed above they don’t have to show the note. If there is no proof of recorded assignment of the security in the County Recorder’s office, I would argue the lender has only the right to foreclose judicially (subject to a four year statute of limitations**), and by filing the Notice of Sale and Notice of Default, the lender has indicated that they are not willing to go that route. The problem is, if you filed for an injunction, they would probably just quickly assign and record the deed of trust killing the argument altogether. If any one else has any other opinions or interpretations, or even case law, I would love to see/hear it.
** There are time limits to file a judicial foreclosure as stated in the case of Aviel v. Ng, 161 Cal.App.4th 809, (2008) where the Court held: “The running of the statute of limitations on an obligation underlying a mortgage or deed of trust bars judicial foreclosure of the mortgage as well as an action to enforce the obligation. Cal.Civ.Code § 2911(1).”
For now, suffice it to say, this might be something to look into or argue if you are going all out and trying to save your home from foreclosure. Before filing any civil lawsuit, you should consult with a real estate or foreclosure lawyer to determine whether you have proper legal grounds to file a lawsuit.
One way this popped up in a bankruptcy case was the lender sought to record the assignment of the deed of trust while the borrower was in bankruptcy court and protected by the automatic stay. We are arguing that this is an attempt to perfect its right to non-judicially foreclose (i.e. they are trying to comply with 2932.5 to get the right to foreclose non-judicially) and that such action to perfect its interest violates Bankruptcy Code Section 362 which prohibits the following:
(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;
(4) any act to create, perfect, or enforce any lien against property of the estate;
(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;
(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;
Again, just trying to give you some things to think about as you fight to save your home from foreclosure. Although the security may follow the note and that may be fine to judicially foreclose, perhaps that security interest must be assigned, acknowledged and recorded in order to preserve the right to conduct the private non-judicial trustee sale under the power of sale contained in the security. The deed of trust itself may also have some language you need to look at that that may dictate other rights.
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NOTICE: The foregoing information is general legal information only and shall not be relied upon as legal advice, or a substitution for legal advice. If you have specific legal questions about your foreclosure case you should seek out the advice of a real estate attorney. In addition, the information posted above may not be 100% complete, accurate or up-to-date. Law is always changing. The Law Offices of Steve Vondran is licensed to practice law in the state of Arizona and California and only seeks to solicit and serve Clients in these two states. Steve Vondran, Esq. is a licensed attorney and real estate broker in California and Arizona. He can be reached by email at steve@vondranlaw.com or toll free (877) 276-5084. This is an advertisement and communication pursuant to State Bar Rules. Please do not send us private or confidential information through any of our above-listed websites. Sending us an email does not create an attorney-client relationship (only signing a legal retainer will do this). Copyright 2010 – Law Offices of Steven C. Vondran – All Rights Reserved.
FORECLOSURE CASES INVOLVING MERS – LEGAL BRIEFING OF CASE BY CALIFORNIA AND ARIZONA FORECLOSURE LAWYER STEVE VONDRAN.
The foregoing is just my personal interpretation/opinion of the case and is not intended to be construed as legal advice or a susbstitute for legal advice. For specific questions consult a foreclosure and/or bankruptcy lawyer. Attorney Steve Vondran is licensed to practice law in California and Arizona. He is also a real estate broker in each state, and is on Neil Garfield’s Living Lies Websites under “lawyers who get it.”
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Kessler Case: LANDMARK NATIONAL BANK V. KESSLER, 40 Kan. App. 2d 325, 192 P.3d 177 (2008).
LINK: Here is a link to the Case: http://www.kscourts.org/Cases-and-Opinions/opinions/ctapp/2008/20080912/98489.htm
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I. Key Facts
This case involved a judicial foreclosure involving a Kansas Homeowner. In Kansas a foreclosure must proceed in a Court of law (Called a “judicial foreclosure”). The homeowner had both a first and second loan. The holder of the first mortgage was Landmark National Bank. The holder of the second mortgage was Millenia Mortgage, who had sold their interest to Sovereign Bank.
After the foreclosure lawsuit was filed, neither the homeowner nor Millenia Mortgage responded, prompting Landmark National Bank (the holder of the first mortgage) to seek an entry of default and order to sell the property.
Well, MERS and Sovereign Bank (the alleged holder of the second mortgage) both protested and filed a motion to set-aside the default an moved to intervene into the case (they did not argue that they should have been joined by Landmark). MERS claimed to have legal title to the mortgage for both Millenia and Sovereign Bank and therefore claimed they were a “necessary party” to the foreclosure action and should have been a party to the lawsuit.
II. Legal Issue
Whether a party (MERS) who lends no money, collects no money, and has no other interest in real property, other than potentially as a nominee, is a necessary party to a judicial foreclosure action such that their motion to intervene should have been granted by the trial court?
III. Courts Holding: NO
(1) A party is not contingently necessary in a mortgage-foreclosure lawsuit when that party is called the mortgagee in a mortgage but is not the lender, has no right to the repayment of the underlying debt, and has no role in handling mortgage payments.
IV. Rational
(1) The Court first discussed the traditional nature of a mortgage:
“A mortgage grants a title or lien against a property as security for the payment of a debt or the performance of a duty. The “mortgagor” is the borrower who grants a mortgage in exchange for a loan; the “mortgagee” is the lender who gives the loan secured by the mortgage. See Black’s Law Dictionary 1031, 1034 (8th ed. 2004). The mortgagee is so well understood as the lender that Black’s Law Dictionary defines a “foreclosure” as an action brought by the lender/mortgagee: a foreclosure is a “legal proceeding to terminate a mortgagor’s interest in property, instituted by the lender (the mortgagee) either to gain title or to force a sale in order to satisfy the unpaid debt secured by the property.” Black’s Law Dictionary 674. Similarly, the tie between a mortgage and an underlying debt is so intrinsic that Kansas law provides that “[t]he assignment of any mortgage . . . shall carry with it the debt thereby secured.” K.S.A. 58-2323. Indeed, an assignment of a mortgage without the debt transfers nothing. 55 Am. Jur. 2d, Mortgages § 1002. Thus, the mortgagee, who must have an interest in the debt, is the lender in a typical home mortgage.”
(2) The Court went on to discuss the way MERS is setup with its member banks and how loans are traded, bought, and sold on the secondary loan market. Here is what the Court said:
“But for reasons thought beneficial by a group of lenders who trade mortgages, the form of mortgage used in this case designates an entity that is not the lender as the mortgagee. See MERSCORP, Inc. v. Romaine, 8 N.Y.3d 90, 96, 828 N.Y.S.2d 266, 861 N.E.2d 81 (2006) (MERS was established by large lenders to allow easy electronic trading and tracking of mortgages). Specifically, the mortgage says that the mortgagee is MERS, though “solely as nominee for Lender.” Does this mean that MERS really was the mortgagee, even though it didn’t lend money or have any rights to loan repayments? Assuming so, MERS argues that it was a necessary party to the foreclosure and that the foreclosure must be set aside. But the premise upon which MERS bases this argument is flawed.”
(3) The Court then discussed what MERS actually does, and is, and concluded that at best, under the mortgage at issue, MERS could be no more than a nominee (or agent for “the principal, the “lender”)
“What is MERS’s interest? MERS claims that it holds the title to the second mortgage, not the real estate. So it does, but only as a nominee. In terms of the roles that we’ve discussed in the mortgage business, MERS holds the mortgage but without rights to the debt. The district court found that MERS was merely an agent for the principal player, Millennia. While MERS objects to its characterization as an agent, it’s a fair one.
MERS had no right to the underlying debt repayment secured by the mortgage; MERS did not even act as the servicing agent to receive the payments and remit them to the lender. MERS’s right to act to enforce the mortgage was strictly limited: if “necessary to comply with law or custom,” MERS could foreclose the mortgage or enter a release of the mortgage. MERS certainly could not act at odds to its principal, the lender (emphaSis added). Its role fits the classic definition of an agent: one “‘authorized by another to act for him, or intrusted with another’s business.’” In re Tax Appeal of Scholastic Book Clubs, Inc., 260 Kan. 528, 534, 920 P.2d 947 (1996) (quoting Black’s Law Dictionary 85 [4th ed. 1968]).
Only one Kansas case has discussed the meaning of nominee in any detail. In Thompson v. Meyers, 211 Kan. 26, 30, 505 P.2d 680 (1973), the court noted that the meaning of the term may vary from a pure straw man or limited agent to one who has broader authority.
But whatever authority the nominee may have comes from the delegation of that authority by the principal. In its ordinary meaning, a nominee represents the principal in only a “nominal capacity” and does not receive any property or ownership rights of the person represented. See, e.g., Cisco v. Van Lew, 60 Cal. App. 2d 575, 583-84, 141 P.2d 433 (1943); see also Applebaum v. Avaya, Inc., 812 A.2d 880, 889 (Del. 2002) (referring to nominees “as agents of the beneficial owners”). The Millennia mortgage does not purport to give MERS any greater rights than normally given a nominee. The mortgage says that MERS acts “solely as nominee for Lender.” There is no express grant of any right to MERS to transfer or sell the mortgage or even to assign its duties as nominee. Nor does MERS obtain any right to the borrower’s payments or even a role in receiving payments.”
(4) The Court concluded that MERS was not a necessary party to the foreclosure action
“MERS and Sovereign correctly note that a foreclosure judgment may be set aside for failure to join a contingently necessary party. E.g., Wisconsin Finance v. Garlock, 140 Wis. 2d 506, 512, 410 N.W.2d 649 (1987). For the purposes of our case, a party is contingently necessary under K.S.A. 60-219 if the party claims an interest in the property at issue and the party is so situated that resolution of the lawsuit without that party may “as a practical matter substantially impair or impede [its] ability to protect that interest.” The real issue is that of the lender, the true mortgagee, to protect its security interest against the property. Whether MERS may act as a nominee for the lender, either to bring a foreclosure suit or for some other purpose, is not at issue in Landmark’s foreclosure lawsuit. Moreover, an agent for a disclosed principal is not a necessary party to a lawsuit adjudicating the substantive rights of the principal. Hotel Constructors, Inc. v. Seagrave Corp., 99 F.R.D. 591, 592 (S.D.N.Y. 1983); Liles v. Winters Independent School District, 326 S.W.2d 182, 188 (Tex. App. 1959).”
What principles of law might derive from this case?
(1) At least as to the loan in question, MERS is no more than an agent for a disclosed principal (who is the “lender”). In the context of securitized loans, it is often impossible to tell who the real “lender” is, that is, the company that was the source of funds for the loan. Typically, the original “lender” in a MERS loans, lends none of their own money an sells the loan usually in the first few days, and a review of the “lender’s” balance sheet may not reveal that the original lender in fact lent any money at all, and was instead being used to generate a security instrument that would be sold on Wall Street.
(2) A “necessary party” (in this case to a judicial foreclosure) is one who has a real interest in the property and needs to protect that interest. MERS has no financial interest in a loan as pointed out by the Court, because it collects no money, lends no money etc. For this reason, MERS should stop pretending it is the “beneficiary” under a Deed of Trust just because the Deed o Trust recites this, and just because the borrower supposedly agrees to this when they signed the Deed of Trust as the MERS representative discussed in their email to me. This court at least does not buy that line of thinking.
(3) If MERS is not a necessary party to a transaction, and only plays a role as a nominee it should not be trying to lift automatic stays in a bankruptcy Court (this is an attempt to assert third party standing) and they should not be deemed a “real party in interest” to a bankruptcy proceeding. However, if MERS insists on being acting as if it is a “beneficiary” perhaps they should be listed on the bankruptcy schedules so that any liability to them will be discharged.
(4) This case seems to suggest that MERS can only be an “agent” if it is directed so or authorized by a know principal, who is the lender. Again, MERS comment on my website says that all member banks who trade MERS loans have authorized MERS to act on their behalf.
(5) The role as MERS as “nominee” (agent for principal, the lender) is not clear. They could be nothing more than a straw man according to the judge. Therefore, when MERS acts in any capacity, their acts should be closely scrutinized. Perhaps this makes sense why MERS is signing loan modification agreements, but are they singing on behalf of a principal (lender) who has specifically authorized their acts? What are they attempting to accomplish? Make sure they are being clearly “authorized” by a principal to act on their behalf. Even so, please see our other blog posting on the Arkansas MERS case which seems to indicate that MERS can only be the agent for the “original lender” and not all subsequent MERS members that may come into ownership of the loan (even though the Note and Deed of Trust are normally separated after origination resulting in, as the Court put it: “[t]he assignment of any mortgage . . . shall carry with it the debt thereby secured.” K.S.A. 58-2323. Indeed, an assignment of a mortgage without the debt transfers nothing. 55 Am. Jur. 2d, Mortgages § 1002.
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HELPFUL FORECLOSURE DEFENSE LINKS:
To see some of other other websites dealing with the financial crisis please review the following websites:
(1) www.OptionArmLawyer.com (potential attacks against the predatory option arm loan – aka “Pick-a-Prey”)
(2) www.TrialPlanFraud.com (tackling issues involved with what we call trial-plan shennanigans)
(3) www.BKAttorneyS.net (BK Attorney Steve – Chapter 7 Bankruptcy information for Arizona and California Homeowners)
(4) www.RescindMyLoan.net (website that discusses Truth in Lending Rescission information)
(5) www.LoanModRadio.com (site which features foreclosure defense issues in streaming audio)
(6) www.ProduceTheNoteAttorney.com (general information on the “Produce the Note” foreclosure defense strategy that is running rampant on the Internet)
(7) www.ArizonaBankruptcyResourceCenter.com
(8) www.FoclosureDefenseResourceCenter.com
(10) www.AdversaryProceeding.com
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Some legal cases we are able to accept in a contingency fee basis. Certain select cases are listed on www.ContingencyCase.com an online legal directory for lawyers who will consider taking cases on a contingency fee basis in a variety of legal areas. There is no guarantee we will be able to take your case on contingency fee.
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KEYWORDS: ARIZONA FORECLOSURE DEFENSE / CALIFORNIA FORECLOSURE DEFENSE / SUING ON A OPTION ARM LOAN / PREDATORY LENDING LAWSUIT / INJUNCTION AGAINST FORECLOSURE / STOPPING A FORECLOSURE SALE / FORENSIC LOAN AUDIT / PHOENIX FORECLOSURE LAWYER / PHOENIX FORECLOSURE ATTORNEY / ORANGE COUNTY FORECLOSURE ATTORNEY / ORANGE COUNTY FORECLOSURE LAWYER / LIS PENDENS / QUALIFIED WRITTEN REQUEST / DEBT VALIDATION LETTER / TRUTH IN LENDING LAWYER / TILA LAWYER / FORENSIC LOAN AUDIT / SECURITIZED LOAN / MERS LOAN / RESCIND MY LOAN IN BANKRUPTCY / PHOENIX CHAPTER 7 BANKRUPTCY LAWYER / CHAPTER 13 BANKRUPTCY / STANDING / REAL PARTY IN INTEREST / NEWPORT BEACH FORECLOSURE LAWYER / SHORT SALE / QWR / RESPA
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As a consequence we are able to serve Arizona loan modification and foreclosure clients in the following Arizona cities:
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NOTICE:
The foregoing information is general legal information only and shall not be relied upon as legal advice, or a substitution for legal advice. If you have specific legal questions about your foreclosure case you should seek out the advice of a real estate attorney. In addition, the information posted above may not be 100% complete, accurate or up-to-date. Law is always changing. The Law Offices of Steve Vondran is licensed to practice law in the state of Arizona and California and only seeks to solicit and serve Clients in these two states. Steve Vondran, Esq. is a licensed attorney and real estate broker in California and Arizona. He can be reached by email at steve@vondranlaw.com or toll free (877) 276-5084. This is an advertisement and communication pursuant to State Bar Rules. Please do not send us private or confidential information through any of our above-listed websites. Sending us an email does not create an attorney-client relationship (only signing a legal retainer will do this).
PRODUCE THE NOTE IN A BANKRUPTCY COURT – CAN YOU CALL MERS AND OTHER “PRETENDER LENDERS” OUT IN A BANKRUPTCY COURT?
IN THIS DAY AND AGE OF “MERS LOANS” (WHERE THE MORTGAGE ELECTRONIC REGISTRATION SYSTEMS – A MERE SOFTWARE COMPANY – POSES AS A BENEFICIARY OF A LOAN), CAN WE TRULY ACKNOWLEDGE ANY ALLEGED BENEFICIARY OF A LOAN AS BEING A “CREDITOR” IN A BANKRUPTCY SETTING?
Attorney Steve Vondran can be reached at steve@vondranlaw.com or (877) 276-5084. Mr. Vondran is licensed to practice law in California and Arizona and is currently assisting homeowners in foreclosure defense, predatory lending, bankruptcy, and loan modification (Arizona only). The following is general legal information only, and not legal advice.
MY NAME IS MERS AND I AM THE BENEFICIARY OF YOUR LOAN, NO I MEAN THE NOMINEE OF YOUR LENDER AND ITS SUCCESSORS AND ASSIGNS, I CAN LIFT THE AUTOMATIC STAY IN BANKRUPTCY – DO NOT CHALLENGE ME! RESPECT MY AUTHORITY.
Yes, to a certain degree we have been calling this “produce the note” bankruptcy style (or to be more accurate, “prove you are a creditor”). Here is a general overview of what we are talking about here. If you have a MERS loan (check your deed of trust see if it lists MERS as the nominee of the lender and its successor and assigns and the beneficiary of the loan), and you are thinking of filing Bankruptcy Chapter 7, give this article a close review.
We are a debt relief agency and we help people file for Bankruptcy Protection under the Bankruptcy Code. The following article is general legal information only and may not be current, up-to-date or accurate as law can be subject to interpretation and is constantly evolving. In addition, this article is not legal advice and not to be construed as a substitution for legal advice. If you have specific legal questions, please contact a bankruptcy lawyer or real estate lawyer or foreclosure lawyer as your case may require.
MERS IN BANKRUPTCY – RIP OPEN THE CURTAIN AND LETS SEE THE “WIZARD OF OZ” STANDING THERE WITH NOTHING BUT SMOKE AND MIRRORS.
WHAT IS MERS?
MERS stands for the Mortgage Electronic Registration System. They are essentially a software company that was set up to track the transfer (sale) of loan ownership rights, and loan servicing rights where loans are originated and transferred (sold) on the secondary market.
Where you see MERS pop up in the loan context is look on your deed of trust, if you see it say something similar to the following you have a MERS loan:
“MERS is the nominee of the lender, its successors and assign. MERS is the beneficiary.”
That is typically what you will see. Yes, you may be scratching your head like we do in our foreclosure defense work and asking yourself the following question, HOW IS IT THAT MERS IS BOTH A NOMINEE OF THE LENDER AND THE BENEFICIARY? It is a bit strange, but basically MERS is trying to hedge its bets. Where it needs to be an agent (nominee) it will act as an agent. Where they want to pretend to be the beneficiary, it will put the beneficiary hat on. Yes, MERS gets to be whoever it wants to be, or at least we should say that MERS can pretend to be whoever it wants to be in regard to loan foreclosure, trying to life a stay in bankruptcy etc.
Yes, MERS is assuming you will not challenge them, or that you do not have the money to challenge them, and/or that the judge will go right along with them in a civil lawsuit or allow them to lift the automatic stay in a bankruptcy setting.
Alas, there is the rub, people are starting to learn about MERS, and trying to find ways to challenge them. Our firm is also putting forth some new strategies to take on MERS, and MERS-related loans.
The analogy for MERS (pretender lenders) can also be extended to Trustees of Securitized trusts (as pointed out in California State bar MCLE units taught by Neil Garfield, a lawyer who can probably be called the “father of produce the note theory”). The point being that a trustee of a securitized trust who does not have the original promissory note, transferred and endorsed, along with an assignment of the note and deed of trust (the note and deed of trust are supposed to be assigned together for “the note without the deed of trust is a legal nullity” according to some legal cases. For example, where a trustee of a securitized trust cannot show proper transfer of the note and deed of trust, no one in their right mind should just assume that because the Trust claims to hold the loan, that they should be treated as a legitimate “creditor” in a bankruptcy case.
The point becomes, in this day and age, we are finding it increasingly difficult to find out WHO THE HOLDER OR OWNER OF YOUR LOAN IS. WHO IS ENTITLED TO PAYMENTS? WHO IS ENTITLED TO FORECLOSE ON YOU? WHO IS REQUIRED TO CONTACT YOU PURSUANT TO CALIFORNIA CIVIL CODE SECTION 2923.5 TO TRY TO WORK OUT LOAN MODIFICATIONS WITH YOU BEFORE THEY FORECLOSE? WHO DO YOU SUE WHEN YOU ARE FILING A TRUTH IN LENDING RESCISSION CASE TO FORCE THEM TO GIVE BACK THE MONEY THEY MADE AS PART OF THEIR TENDER OBLIGATION.
What we have found to be absolutely amazing in our work as a foreclosure defense and loss mitigation law firm is that when you contact your lender as ask them what should be a relatively simple and straight-forward question such as “WHO IS THE OWNER OF MY LOAN I WANT TO TALK TO THEM ABOUT A LOAN MODIFICATION” many California and Arizona homeowners will typically get the same answer: NONE OF YOUR BUSINESS……OR SORRY, WE CANNOT TELL YOU…….OR SORRY, WE DO NOT KNOW……OR, YES WE OWN IT, WHEN IN FACT THEY DONT.
If you think I am kidding, call your lender or more likely, your loan servicer and ask them who owns your loan. They may insist that Fannie Mae or Freddie Mac owns your loan. Both fannie and freddie have a loan lookup tool and you can google this to see of they “own your loan.” Of course, the result you will get you will have to take on faith, because you will not be able to download a copy of your note assigned to them, or a copy of your deed of trust assigned to them. Instead, Fannie Mae and Freddie Mac will be asking you to take it for granted that when they tell you they are the owner of your loan, that that is true and indisputable. If you ask for proof however, they will likely tell you to “pound sand.”
The rationale of many lenders seems to be this: “you took out a loan……you know you owe somebody……..that somebody might as well be us…….and there is no obligation for us to “show the note” in order to conduct a private trustee sale in California and Arizona (unfortunately the case law backs them up on this wild assertion) and if you try to file for an injunction to stop the foreclosure sale, we will point out the case law that says an original copy of the promissory note is not required in seeking to foreclosure in a non-judicial foreclosure sale. THAT MY FRIENDS IS BASICALLY WHAT YOU ARE UP AGAINST.
Meanwhile, Attorneys like me would like you to know that things are not always as they seem to be. Remember the Wizard of OZ? The guy behind the curtain that wanted you to believe he was the ultimate authority and not subject to challenge? Well, the lenders, loan servicers and MERS like to do the same thing when in comes to acting like they have all the credentials to prove their right to ACT IN RESPONSE TO REQUESTS FOR LOAN MODIFICATIONS, SHORT SALES, DEED-IN-LIEU OR FORECLOSURE, IN PRIVATE NON-JUDICIAL FORECLOSE SALES, TRYING TO LIFT AUTOMATIC STAYS IN BANKRUPTCY COURTS, AND EVEN EVICT PEOPLE FOLLOWING AN UNLAWFUL SALE BY A PRETENDER LENDER AS NEIL GARFIELD CALLS THEM.
In short, it is time to start asking the tough questions, and making these guys answer them with honesty, and in accordance with commercial law and other legal standards and making them PROVE they are the true creditor, or an agent of the true creditor when them come pushing people around in loss mitigation settings (even after they got their real nice bailout that saved their asses from bankruptcy and embarrassment).
IS MERS THE BENEFICIARY OF A LOAN?
As mentioned above, MERS is NOT A LENDER…….NOT A BENEFICIARY OF ANY LOAN. They did not lend you any money; they do not accept your loan payments, they do not discuss loan modifications or short-sales with you. Again, MERS is nothing more than a software company that is essentially made up of its member banks who like to hide behind the “MERS Curtain.” The use of MERS allows the TRUE OWNER of the loan to remain anonymous. That way, nobody knows who to go sue, unless and until a borrower goes into a default in which case MERS will ask one of its members to step forward and act as the creditor of the loan and move to foreclose. Until that day, you will never likely learn who “holds your loan or who “holds your loan” or who “the creditor or beneficiary of your loan is.” Again, the big banks, lenders, and wall street investors (who typically are the loan beneficiary as they are the ones seeking your loan payments after the servicer takes its cut) do not want you to know about them, because they do not want to answer for any predatory lending claims you may have. They would rather hide in the shadows for 4 or 5 years until statutes of limitations run, collecting your loan payments, trading your loan as many times as possible, and basically just living covertly off your interest payments.
Court cases have come down that have basically stated that MERS is NOT A BENEFICIARY OF A LOAN JUST BECAUSE IT CALLS ITSELF A BENEFICIARY UNDER YOUR DEED OF TRUST (CALLING A PIG A HORSE DOES NOT MAKE IT SO). AT BEST, COURTS WHO HAVE HEARD “MERS CASES” HAVE NORMALLY HELD THAT MERS MAY BE AN AGENT (NOMINEE) BUT THEIR CLAIM TO CREDITOR OR BENEFICIARY STATUS IS NOT MUCH MORE THAN SMOKE AND MIRRORS. We have discussed the Arkansas MERS case and Kansas Supreme Court Case on other blogs. We have also addressed “MERS BANKRUPTCY CASES” which have held that MERS does not have “standing” to lift an automatic stay in a bankruptcy court and that MERS is not a “real party in interest” in a BK case.
MERS hates these cases, even though it touts some of their alleged “successes” and the MERS TRIAL STRATEGY AND MERS LEGAL PRIMER on their website (assuming the article is still up there).
At any rate, do not expect MERS to stop, and as we discussed above, TRUSTEES OF A SECURITIZED LOAN TRUST (who like MERS cannot produce the note and assignment of deed of trust properly endorsed and transferred) should also not be acknowledged as TRUE CREDITORS who can do whatever the heck they want in private foreclosure sale settings, short sales, loan modifications, deed-in-lieu-of-foreclosure and in bankruptcy courts in California and Arizona where we are licensed to practice law. Note, we only serve loan modification clients in Arizona since California passed SB94 which essentially was the lenders way of putting loss mitigation representative out of business. That being said, we still file lawsuits seeking money damages, injunctions, TILA rescission, elder abuse cases, file lis pendens, file trial plan breach of contract cases seeking specific performance of the trial plan agreement, and force them to prove their creditor status (standing and real party in interest) in a BK Chapter 7 case where a debtor has legitimate debts (including deficiency judgment liability) that they seek to wipe out.
IF MERS IS NOT THE BENEFICIARY OF THE LOAN, THEN WHO IS?
This is the million dollar question. The Beneficiary is normally the party entitled to payment on your loan. Recall in the normal loan situation you have the Trustor (who is the borrower) and the Trustee (who has the power of sale given to them by the borrower) and the Trustee (who is the beneficiary of the loan, and the one who loaned the money).
This is the typical arrangement in a deed-of-trust setting. Mortgages are different and have only a mortgagor (the borrower) and the mortgagee (again, the bank that normally lends its own money).
It used to be the case (before securitized loans, and the secondary loan market) that banks would lend their money and then hold the loan, servicing it, and foreclosing on it if need be. The would, of course, hang on to your promissory note (which is evidence of the debt obligation) and would record the deed of trust in the local County Recorder’s office as evidence of the security interest in the loan. If you went into default on the loan, the bank would send you a notice of default or a notice of sale, and eventually they would foreclose on you. You never really had any reason to question who the owner or your loan was, or who your creditor was under this type of arrangement (which is often called “portfolio loans” or “whole loans.”).
Fast forward to the present, where you have loan brokers and “lenders” involved in many transactions, and the “lenders” typically do not loan any of their own money (yes, this sounds strange) but typically they will have entered into an agreement with another company who has agreed to buy, or otherwise fund your loan perhaps through a credit line, or perhaps by another agreement linking to a wall street investor.
WHAT? Yes, this means when you though your lender was “lending you money” often times there was no money lent by the original “lender” and your loan (at least the note part of it) was assigned or transferred through the secondary loan market where investment banks would carve up your note with other notes (called fractionalized notes) and create investment products for investors on wall streets to invest in (the products can essentially be called “tranches” and your loan, or a fractionalized portion of your loan is in one or more tranches). The tranches would be rated by Moody’s or Standard and Poor and investors on wall street (such as pension funds, foreign investors, insurance companies, and even investment bankers themselves) would purchase these up, thereby purchasing the right to your payments.
If you are savvy, you may be asking yourself, BUT WHAT ABOUT THE DEED OF TRUST – THE SECURITY FOR THE LOAN, WAS THAT TRANSFERRED TOO? Recall, we said the note and deed of trust has to be transferred together or it could be construed as a “legal nullity.” Well, as we discussed above, MERS often records the Deed of Trust and this is never assigned along with the promissory note to the investment trust that now supposedly holds your loan. So, they were separated.
This is one of the main points of contention, if it is a “legal nullity” to separate the note and deed of trust, doesn’t this mean that they securitized trust, or even the wall street investor who may have purchased an interest in your loan payments, does not have a right to enforce the debt they claim is owed (even though they may use the services of a specialized “loan servicer” who gets paid a percentage of each loan payment to act as if they work as the “agent of the beneficiary?”). Doesn’t this mean that neither the loan servicer (who has also tried to act as beneficiary on occasions), nor the trustee of the securitized trust, nor the wall street investor, nor MERS is a true “creditor” if they cannot produce both the transferred and endorsed promissory note, and the assigned deed of trust? Well, that seems to be a fair proposition.
So, if you are filing a bankruptcy petition (again, you must have bona fide good faith debts to discharge) and you are LISTING YOUR CREDITORS ON YOUR BK SCHEDULES(BOTH SECURED AND UNSECURED CREDITORS) WHAT EXACTLY ARE YOU SUPPOSED TO DO? List these companies and entities as “creditors” or list their alleged debts as “disputed” and list their alleged debts as “unsecured? Is it malpractice to grant these types of entities “creditor status” merely because they say they are a horse, and act like a horse, and their notice of default says they are a horse and their notice of sale say they are a horse, and their loss mitigation documents and HAMP agreements state they are the horse, when in fact, because they do not have the note properly endorsed and assigned along with the deed of trust they are just a pig? Should we take everything for granted, and give the Wizard of Oz the status they seek?
This is the question, this is the legal issue. These guys should be FORCED to prove they are legitimate and valid creditors given what we know of securitized loans.
WHY IS MERS SHIELDING THE IDENTITY OF THE TRUE BENEFICIARY OF THE LOAN?
Again, MERS was setup to assist its member banks to track loan servicing and ownership rights. They also help hide the identity of the true holder of the loan (the true beneficiary) as these parties only want an interest in your loan payment stream, and certainly do not want to end up a Plaintiff in a Truth in Lending rescission case (where they may actually have to give you your money back). So MERS helps aid this function, and MERS also allows members to buy, sell, and trade your loan without ever having to RECORD THE TRANSFERS OF THE NOTE AND DEED OF TRUST in the County Recorder.
Yes, this can deprive a County of essential revenues it needs for valuable social services) but it aids the bank in saving money so of course that is of paramount importance, at least to the banks.
MERS does other things as well, like advising its member banks on who to win lawsuits, and join MERS as a party when litigation ensues. They have it all planned out. It is only recently when MERS has started losing a few cases that its power, or lack of power, is coming to light, and the curtain is being pulled back. For now, they still feel they have power over the estimated 60 MILLION MERS LOANS THAT WERE ORIGINATED IN THE PAST DECADE OR SO.
CAN THE TRUSTEE OF A TRUST BE A BENEFICIARY OF A LOAN?
Again, this is a good question, under Commercial law standards, the note and the deed of trust would need to be assigned to the trust and as we know, this rarely appears to happen. In our foreclosure defense work, we will often hear “the trust owns the loan” or “Duetsche Bank as Trustee of the trust is the owner of the loan.” Again, they want you to take this on face value, admit you are in default of your loan, and give way to them because they are the entity billowing smoke up into the air, and angling the mirrors to blind your sight. As we have stated, in the past maybe you would give them credence for this type of ownership assertion. In this day and age of MERS, securitized loans, mortgage backed securities, CDO’s, etc., you have to ask questions and demand proof before you believe a word you hear. This is especially true in a BK filing.
There was a good Arizona bankruptcy Case that came down that talked about how a Securitized Trust could own a loan if the note and deed of trust were securitized, and if that occurs, then a loan servicer (GMAC in that case) would be able to claim standing in a Bankruptcy Court, and would be a real party in interest. We will be posting our brief of the Arizona case shortly. Google “Vondran Arizona Bankruptcy Lawyer Prove you are a Creditor” that should take you there. This is a pretty nice case that talks about what is legally required to prove standing in a Bankruptcy Court in a manner that would allow an entity to lift a foreclosure stay in bankruptcy court. In that case GMAC was basically told to go home as they had no standing in the Bankruptcy Court and was NOT a REAL PARTY IN INTEREST. So yes, these things CAN be challenged, and SHOULD be challenged in a Bankruptcy Court. The game playing, although allowed to be perpetrated in a private trustee sale, may have to come to a halt in a federal bankruptcy court, as it should.
ARE THERE ANY WAYS TO DETERMINE WHO THE OWNER OR HOLDER OF MY LOAN IS?
Sure, you can try using some of the ways we do to “ferret out the true holder of the loan….the true creditor…..the true beneficiary. You have to ask questions, and ASK THE LENDER OR LOAN SERVICERS IN WRITING. Here are a few of the things we do in our “Creditor Validation” and “Debt Validation” efforts.
Send in a Qualified Written Request under RESPA Section 6 (we have talked about QWR’s in other blog posts) where a bona fide billing or accounting dispute exists.
Send a request to identify the holder of the loan or master loan servicer under 15 U.S.C. 1641(f)
Send a debt validation letter demanding the “lender” validate their alleged debt, including identifying the holder of the loan, and producing the note and assignment of deed of trust.
Send in beneficiary demand letters.
If these letters go unanswered, or not answered in detail, of course this would raise suspicion, and doubt (again, what do they have to hide except the truth, namely that they are not valid legal creditors, and cannot prove such in some cases). This would also potentially create legal violations under TILA and RESPA and may turn them into potential defendants in a civil lawsuit if a proper predatory lending, or wrongful foreclosure case is brought. We call this MAKING THEM DO WORK TO JUSTIFY THEIR EXISTENCE AND JUSTIFY THEIR ASSERTIONS. Again, if they cannot answer these relatively simple questions and producing the proper documentation of their creditor status, how can we as bankruptcy lawyers treat them as legitimate secured creditors in a bankruptcy setting?
IF WE CANNOT ASCERTAIN THE IDENTITY OF THE TRUE HOLDER OF MY LOAN, AND IF WE ARE FILING CHAPTER 7 BANKRUPTCY SHOULD THE ALLEGED LENDER OR LOAN SERVICER BE TREATED AS A “CREDITOR” (EITHER SECURED ON UNSECURED) ON MY BANKRUPTCY CHAPTER 7 PETITION?
This is what we are saying above. Where good faith, bona fide legal challenges exist, although you may not be able to raise these in private non-judicial trustee sale settings (i.e. “there is no obligation to produce the note to pursue a private trustee sale”), I have not seen any requirement that says YOU MUST TREAT YOUR LENDER AS A BONA FIDE SECURED CREDITOR ON YOUR BANKRUPTCY APPLICATION FOR YOU KNOW YOU OWE SOMEBODY MONEY AND IT MIGHT AS WELL BE BANK OF AMERICA, OR CHASE, OR WELLS FARGO, ETC.
Consult with your bankruptcy Attorney to ask them how they handle MERS loans. You can also contact Attorney Steve Vondran’s office (offices in Phoenix, Arizona and Newport Beach, California servicing the Greater Phoenix / Scottsdale area and all areas of California) to discuss your case.
WHAT HAPPENS IF WE LIST THE ALLEGED LOAN CREDITOR / BENEFICIARY AS UNSECURED AND CHALLENGE THE DEBT AS DISPUTED?
This is another important issue, if they are not the true creditors, and their debt is challenged on a bankruptcy petition, then what happens next? How is this handled in a BK Court? Contact our office to setup a attorney consultation. Toll Free (877) 276-5084.
ARE THERE ANY CASES THAT TALK ABOUT MERS LOANS AND PRETENDER LENDERS?
Yes, there are a good number of MERS cases that come out of Bankruptcy Courts. Our office, and its BK clerk are working to brief these cases and present a discussion on our blogs located at www.LoanModRadio.com, www.AdversaryProceeding.com, www.ForeclosureDefenseResourceCenter.com, and www.BKAttorneys.net.
Please check these sites for more information. There are also some good cases that have come out of California, Arizona, Kansas, and Arkansas that we will be highlighting on our foreclosure defense blogs. So stay posted or subscribe to our newsletter at Loan Mod Radio (the foreclosure defense show we used to air on California Angels Radio).
IS IT MALPRACTICE NOT TO CHALLENGE YOUR ALLEGED CREDITOR IN A BK SETTING WHERE THE LOAN AT ISSUE IS A MERS LOAN?
Again, for now this is an open question. If you are a BK attorney, perhaps you should be challenging MERS loans and demanding true creditors, lenders and beneficiaries prove such before allowing them to lift a stay in bankruptcy Court. Perhaps you should be charging an extra fee (whether your client can afford it or not – yes there are extra costs above and beyond your normal BK Chapter 7 fee), and perhaps you can use an outside firm like mine to conduct PROOF OF CLAIM CHALLENGES, ENGAGE IN STAY LITIGATION, OR TO FILE ADVERSARY PROCEEDINGS TO CHALLENGE THE EXTENT OR VALIDITY OF A LIEN. To those BK attorneys in California or Arizona (where we are licensed to practice law) who want to discuss co-counseling MERS cases, we are available for discussion at (877) 276-5084.
CONCLUSION – MERS (AND OTHER “PRETENDER LENDERS” AS NEIL GARFIELD CALLS THEM) IN BANKRUPTCY COURT.
In the world of securitized loans where the note and deed of trust is often separated by the use of MERS (the software company) and where it is often not clear who holds your loan or who your lender might be (this is often kept a big secret), it may be time to consider whether you should challenge these entities claims that they are your true creditor who is owed the money, and who has the right to foreclose on your loan, or lift your automatic stay in a bankruptcy court. The ramifications of taking such a position may threaten the “Wizard of Oz” hiding behind the loan curtain, but it also may work to your ultimate benefit. It is not clear who Bankruptcy Judges will treat such claims, but where you have a good faith belief the alleged “creditor” is just trying to pull a fast one because “you owe somebody it just might as well be me” and where you have bona fide debts, including potential deficiency judgment liability you want to discharge, perhaps the Bankruptcy Court may be your “court of last resort” to “make them produce the note.” These are strategies our firm is willing to investigate, consider, and allege where appropriate.
Also, you may want to bookmark a good reference site for Produce the Note issues – http://www.ProduceTheNoteAttorney.com.
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This is an advertisement and communication pursuant to state bar rules. No guarantees or representations as to any case outcome are ever given, and no predications made. Every case, lender, servicer, property, borrower, jury, and legal theory is different. Please do not email confidential information as there is not guarantee of confidentiality and no attorney-client relationship is formed until and unless a retainer agreement is signed by Client and Attorney .
We got a restraining order preventing Bank of America from foreclosing on property today. Why? Lenders cannot be trusted.
Pretty typical story…..client is denied a loan modification, but still working in good faith in the loss mitigation system. Lender could basically care less and cannot be trusted NOT to foreclosure on Client. Where does this leave us? Where does this leave my client who is doing nothing more than working in good faith to save their home from foreclosure and do the right thing to short sale the property? Well, if it were possible to trust that bank of america would extend the foreclosure sale date and work in good faith, then perhaps resorting to the legal system, and litigation would not have to be the chosen path. Unfortunately, the lenders, including Bank of America in this case (and their agent Cal-Western Reconveyance Corporation) cannot be trusted to do the right thing. A foreclosure will normally hurt ones credit more than a short sale will, and a short sale may put a homeowner into a position to buy another house again in a shorter amount on time. Apparently this is too lofty of a goal for borrowers and homeowners in this day and age. And these greedy lenders who got bailed out, and who are at least partly to blame for the financial meltdown and the massive loss of real estate equity, are more than happy to take their money and run while scoffing at borrowers who are late on their mortgage payments, even following an exploding ARM loan or option arm loan.
So, while the lenders got their way with SB94, and kicked lawyers out of the loss mitigation system, and prevented guys like me from legitimately helping homeowners who needed help navigating the messy, and sometime corrupt loss mitigation system, their bad faith, and failure to deal fairly and honestly in cleaning up the mortgage meltdown has actually kept us in the game fighting to help owners wherever possible, including as we did today, filing a lawsuit to obtain an injunction to stop foreclosure where the foreclosure laws were not followed (in this case in regard to substitution of trustee) and where the lender sees these laws as a mere “technicality” that does not need to be followed where a loan is in default.
Is in not true that we let murderers out of jail for “technicalities”? Yet, a technicality such as a foreclosure law does not need to be followed because the bank is powerful with pockets full of bailout cash, while the homeowner is often broke. Is this really the way things should be? Is this justice?
At any rate, where a homeowner is fighting to do the right thing, and where the lender resists, we are here to help urge the courts to do “that which ought to be done.”
Today, the homeowner won…..tommorrow the battle over the preliminary injunction rages on. We will keep you posted.
KEEP FIGHTING THE GOOD FIGHT PEOPLE. TOUGH TIMES DO NOT LAST, BUT TOUGH PEOPLE DO.
CALLING ALL WORLD SAVINGS AND WACHOVIA OPTION ARM LOANS………
RUNNING OUT OF TIME FOR WACHOVIA AND WORLD SAVINGS OPTION ARM LOANS
This is an update for all of our Clients who have World Savings and Option Arm Loans. As you may have heard on our radio show www.LoanModRadio.com (The Foreclosure Defense Show), we have been successful helping many homeowners who have World Savings and Option Arm Loans get loan modifications without charging any advance fees. Please note, our program may only be last another month or so for reasons beyond our control.
We have documentable principal reduction (however this is no guarantee of such) in a good number of cases where the Wachovia or World Savings Homeowner was upside-down in their properties and a principal loan balance reduction was needed to make the modification work.
THIS MAY BE OUR LAST CALL FOR LOAN MODIFICATIONS FOR WORLD SAVINGS OPTION ARM LOANS AND WACHOVIA OPTION ARM LOANS. IF YOU HAVE ONE OF THESE TYPES OF LOANS CALL US TO DISCUSS OUR FANTASTIC LOAN MODIFICATION PROGRAM.
PART OF THE REASON FOR OUR SUCCESS ON THE OPTION ARM LOANS COMES FROM OUR UNDERSTAND OF THESE PREDATORY LOANS. YOU CAN LEARN MORE ABOUT NEGATIVE AMORTIZATION OPTION ARM LOANS AT WWW.OPTIONARMLAWYER.COM
QUIET TITLE 101 – A GENERAL OVERVIEW OF CALIFORNIA QUIET TITLE LAW
QUIET TITLE ACTIONS IN CALIFORNIA – A BASIC OVERVIEW
The following is general legal information and is not to be construed as legal advice or a substitute for legal advice. The information below many not be complete, accurate, or up-to-date as law can, and does frequently change. For specific questions about your quiet title case, contact a real estate or foreclosure defense attorney to review the facts of your case.
Steve Vondran, Esq. practices Real Estate, Foreclosure Defense & Bankruptcy Law in Phoenix, Arizona, and California where he is licensed to practice law. He can be reached atsteve@vondranlaw.com or (877) 276-5084.
CALIFORNIA QUIET TITLE LAW – A GENERAL OVERVIEW
The statutory provisions for Quiet Title in California can be found in the California Code of Civil Procedure Sections 760.10-760.060. A Quiet Title action is basically a legal action that seeks to “quiet title” to property where adverse claims are made against the property. For example, where a lender wrongfully forecloses on a property and claims the property as their own, but the homeowner challenges this.
Here is the California Quiet Title Statutory Law (there are also cases interpreting these quiet title provisions). Bolded and italics material are provided by me:
760.010. As used in this chapter:
(a) “Claim” includes a legal or equitable right, title, estate, lien, or interest in property or cloud upon title.
(b) “Property” includes real property, and to the extent
applicable, personal property.
760.020. (a) An action may be brought under this chapter to establish title against adverse claims to real or personal property or any interest therein.
(b) An action may be brought under this chapter by parties to an agreement entered into pursuant to Section 6307 or 6357 of the Public Resources Code to confirm the validity of the agreement.
(c) Nothing in this section shall be construed to limit the right of members of the public to bring or participate in actions challenging the validity of agreements entered into pursuant to Section 6307 or 6357 of the Public Resources Code.
760.030. (a) The remedy provided in this chapter is cumulative and not exclusive of any other remedy, form or right of action, or proceeding provided by law for establishing or quieting title to property.
(b) In an action or proceeding in which establishing or quieting title to property is in issue the court in its discretion may, upon motion of any party, require that the issue be resolved pursuant to the provisions of this chapter to the extent practicable.
760.040. (a) The superior court has jurisdiction of actions under this chapter.
(b) The court has complete jurisdiction over the parties to the action and the property described in the complaint and is deemed to have obtained possession and control of the property for the purposes of the action with complete jurisdiction to render the judgment provided for in this chapter.
(c) Nothing in this chapter limits any authority the court may have to grant such equitable relief as may be proper under the circumstances of the case.
760.050. Subject to the power of the court to transfer actions, the proper county for the trial of an action under this chapter is:
(a) Where the subject of the action is real property or real and personal property, the county in which the real property, or some part thereof, is located.
(b) Where the subject of the action is personal property, the county in which the personal property is principally located at the commencement of the action or in which the defendants, or any of them, reside at the commencement of the action.
760.060. The statutes and rules governing practice in civil actions generally apply to actions under this chapter except where they are inconsistent with the provisions of this chapter.
CALIFORNIA QUIET TITLE LAW SUMMARY
So, in short, the main purpose of a quiet title action is to establish title against adverse claims to real property or personal property. As set forth above, the remedy of quiet title can be combined with other causes of action or other remedies. And, in any action or proceeding in which establishing or quieting title to property is in issue, the court may, in its discretion and on the motion of any party, require that the issue be resolved pursuant to the California Code Of Civil Procedure provisions relating to quiet title actions.
In regards to proper jurisdiction for a California quiet title lawsuit, the quiet title lawsuit must be brought in the superior court of the county where the real property is located. Once the Quiet Title Action is before the court, the court has complete power to determine title issues.
NOTE: SECTION 761.020-761.040 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE SETS FORTH SPECIFIC PLEADING REQUIREMENTS AND LIS PENDES RULES WHEN FILING A QUIET TITLE LAWSUIT. THE RULES CAN BE FOUND HERE:
761.010. (a) An action under this chapter is commenced by filing a complaint with the court.
(b) Immediately upon commencement of the action, the plaintiff shall file a notice of the pendency (THIS IS THE “LIS PENDENS” WE HAVE TALKED ABOUT THIS IN OTHER BLOG ARTICLES) of the action in the office of the county recorder of each county in which any real property described in the complaint is located.
LIS PENDENS NOTE (NOW CALLED THE NOTICE OF PENDENCY OF ACTION): This lis pendens puts other parties on notice of your claim to real property and usually stops anyone from buying or selling your real property while the lawsuit is pending. The lis pendens can later be removed, or dissolved by Court order. Please note, there are very specific requirements for filing a lis pendens that you will need to be familiar with (google “vondran lis pendens” for more information).
761.020. The complaint shall be verified and shall include all of the following:
(a) A description of the property that is the subject of the action. In the case of tangible personal property, the description shall include its usual location. In the case of real property, the description shall include both its legal description and its street address or common designation, if any.
(b) The title of the plaintiff as to which a determination under this chapter is sought and the basis of the title. If the title is based upon adverse possession, the complaint shall allege the specific facts constituting the adverse possession.
(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. If the determination is sought as of a date other than the date the complaint is filed, the complaint shall include a statement of the reasons why a determination as of that date is sought.
(e) A prayer for the determination of the title of the plaintiff against the adverse claims.
REQUIREMENTS OF THE DEFENDANTS ANSWER TO A CALIFORNIA QUIET TITLE LAWSUIT:
761.030. (a) The answer shall be verified and shall set forth:
(1) Any claim the defendant has.
(2) Any facts tending to controvert such material allegations of the complaint as the defendant does not wish to be taken as true.
(3) A statement of any new matter constituting a defense.
(b) If the defendant disclaims in the answer any claim, or suffers judgment to be taken without answer, the plaintiff shall not recover costs.
761.040. (a) The defendant may by cross-complaint seek affirmative relief in the action.
(b) If the defendant seeks a determination of title as of a date other than the date specified in the complaint, the cross-complaint shall include the date and a statement of the reasons why a determination as of that date is sought.
PARTIES IN A CALIFORNIA QUIET TITLE ACTION (PARTY ISSUES).
California Code of Civil Procedure Section 762.010-762.090 states that the when filing the Quiet Title Lawsuit, the Plaintiff must name as defendants all persons known or unknown claiming an interest in the property and other rules regarding proper parties in a quiet title action are addressed in these sections.
Here are those Sections:
762.010. The plaintiff shall name as defendants in the action the persons having adverse claims to the title of the plaintiff against which a determination is sought.
762.020. (a) If the name of a person required to be named as a defendant is not known to the plaintiff, the plaintiff shall so state in the complaint and shall name as parties all persons unknown in the manner provided in Section 762.060.
(b) If the claim or the share or quantity of the claim of a person required to be named as a defendant is unknown, uncertain, or contingent, the plaintiff shall so state in the complaint. If the lack of knowledge, uncertainty, or contingency is caused by a transfer to an unborn or un-ascertained person or class member, or by a transfer in the form of a contingent remainder, vested remainder subject to defeasance, executory interest, or similar disposition, the plaintiff shall also state in the complaint, so far as is known to the plaintiff, the name, age, and legal disability (if any) of the person in being who would be entitled to the claim had the contingency upon which the claim depends occurred prior to the commencement of the action.
762.030. (a) If a person required to be named as a defendant is dead and the plaintiff knows of a personal representative, the plaintiff shall join the personal representative as a defendant.
(b) If a person required to be named as a defendant is dead, or is believed by the plaintiff to be dead, and the plaintiff knows of no personal representative:
(1) The plaintiff shall state these facts in an affidavit filed with the complaint.
(2) Where it is stated in the affidavit that such person is dead, the plaintiff may join as defendants “the testate and intestate
successors of ____ (naming the deceased person), deceased, and all persons claiming by, through, or under such decedent,” naming them in that manner.
(3) Where it is stated in the affidavit that such person is believed to be dead, the plaintiff may join the person as a defendant, and may also join “the testate and intestate successors of ____ (naming the person) believed to be deceased, and all persons claiming by, through, or under such person,” naming them in that manner.
762.040. The court upon its own motion may, and upon motion of any party shall, make such orders as appear appropriate:
(a) For joinder of such additional parties as are necessary or proper.
(b) Requiring the plaintiff to procure a title report and designate a place where it shall be kept for inspection, use, and copying by the parties.
762.050. Any person who has a claim to the property described in the complaint may appear in the proceeding. Whether or not the person is named as a defendant in the complaint, the person shall appear as a defendant.
762.060. (a) In addition to the persons required to be named as defendants in the action, the plaintiff may name as defendants “all persons unknown, claiming any legal or equitable right, title, estate, lien, or interest in the property described in the complaint adverse to plaintiff’s title, or any cloud upon plaintiff’s title thereto,” naming them in that manner.
(b) In an action under this section, the plaintiff shall name as defendants the persons having adverse claims that are of record or known to the plaintiff or reasonably apparent from an inspection of the property.
(c) If the plaintiff admits the validity of any adverse claim, the complaint shall so state.
762.070. A person named and served as an unknown defendant has the same rights as are provided by law in cases of all other defendants named and served, and the action shall proceed against unknown defendants in the same manner as against other defendants named and served, and with the same effect.
762.080. The court upon its own motion may, and upon motion of any party shall, make such orders for appointment of guardians ad litem as appear necessary to protect the interest of any party.
762.090. (a) The state may be joined as a party to an action under this chapter.
(b) This section does not constitute a change in, but is
declaratory of, existing law.
WHO BEARS THE BURDEN OF PROOF IN A CALIFORNIA QUIET TITLE ACTION? THE ANSWER WILL USUALLY DEPEND ON WHETHER DEFENDANT HOLDS LEGAL TITLE OR WHETHER TITLE IS DISPUTED.
In a California Quiet Title lawsuit (WHERE LEGAL TITLE VESTS IN DEFENDANTS), the Plaintiff must bear the burden of proof (this is the case in most civil lawsuits). The normal burden of proof in a civil lawsuit is “preponderance of the evidence.” However, in a Quiet Title action, the standard of proof is higher and the Plaintiff must establish its right to title by “CLEAR AND CONVINCING” proof. See California Evidence Code Section 662 which discusses the burden of proof in a Quiet Title case:
662. The owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof.
IF TITLE TO REAL PROPERTY IS “DISPUTED” (AS OPPOSED TO HAVING LEGAL TITLE HELD BY A DEFENDANT) THEN THE TYPICAL “PREPONDERANCE OF THE EVIDENCE” STANDARD WILL APPLY.
A JUDGEMENT IN A QUIET TITLE ACTION IS NORMALLY CONCLUSIVE ON ALL PARTIES KNOWN OR UNKNOWN WHO WERE PARTIES TO THE ACTION.
California Code of Civil Procedure Section 764.030 States:
764.030. The judgment in the action is binding and conclusive on all of the following persons, regardless of any legal disability:
(a) All persons known and unknown who were parties to the action and who have any claim to the property, whether present or future, vested or contingent, legal or equitable, several or undivided. Except as provided in Section 764.045, all persons who were not parties to the action and who have any claim to the property which was not of record at the time the lis pendens was filed or, if none was filed, at the time the judgment was recorded.
HOWEVER, A QUIET TITLE ACTION WILL NOT NORMALLY AFFECT TITLE TO PARTIES WHO WERE NOT A PARTY TO THE ACTION IF THEIR CLAIM WAS KNOWN, OR REASONABLY SHOULD HAVE BEEN KNOWN.
California Code of Civil Procedure Section 764.045 states:
764.045. Except to the extent provided in Section 1908, the judgment does not affect a claim in the property or part thereof of any person who was not a party to the action if any of the following conditions is satisfied:
(a) The claim was of record at the time the lis pendens was filed or, if none was filed, at the time the judgment was recorded.
(b) The claim was actually known to the plaintiff or would have been reasonably apparent from an inspection of the property at the time the lis pendens was filed or, if none was filed, at the time the judgment was entered. Nothing in this subdivision shall be construed to impair the rights of a bona fide purchaser or encumbrancer for value dealing with the plaintiff or the plaintiff’s successors in interest.
THERE ARE NO DEFAULT JUDGMENTS – EVIDENCE IS REQUIRED IN A QUIET TITLE LAWSUIT:
California Code of Civil Procedure Section 764.010 States:
764.010. The court shall examine into and determine the plaintiff’s title against the claims of all the defendants. The court shall not enter judgment by default but shall in all cases require evidence of plaintiff’s title and hear such evidence as may be offered respecting the claims of any of the defendants, other than claims the validity of which is admitted by the plaintiff in the complaint. The court shall render judgment in accordance with the evidence and the law.
Quiet Title Case: Mangindin v. Washington Mutual Bank, 637 F. Supp.2d 700, (N.D. Cal.) 2009.
QUIET TITLE IN THE FORECLOSURE CONTEXT: TENDER ISSUES
Under California law, a plaintiff seeking to quiet title in the face of a foreclosure must allege tender or an offer of tender of the amount borrowed. See Arnolds Management Corp v. Eischen, 158 Cal.App.3d 575, 578, 205 Cal.Rptr. 15 (1984). This may make Quiet Title a more difficult proposition in a foreclosure case.
QUICK SUMMARY OF CALIFORNIA QUIET TITLE LAW
(1) THE COMPLAINT AND ANSWER TO A QUIET TITLE ACTION MUST BE VERIFIED (ESSENTIALLY MEANING MADE UNDER OATH) AND NAME ALL KNOWN OR UNKNOWN PARTIES CLAIMING AN INTEREST IN THE PROPERTY.
(2) THE QUIET TITLE COMPLAINT MUST DESCRIBE THE PROPERTY WITH A LEGAL DESCRIPTION AND COMMON ADDRESS DESCRIPTION.
(3) PLAINTIFF IN A CALIFORNIA QUIET TITLE ACTION MUST SET FORTH WHAT THE ADVERSE CLAIMS (SETTING FORTH SPECIFIC FACTS) ARE AND WHAT TYPE OF DETERMINATION IS SOUGHT.
(4) QUIET TITLE ACTION MUST SET FORTH THE DATE THE DETERMINATION IS SOUGHT AND A PRAYER FOR RELIEF TO DETERMINE PLAINTIFF’S TITLE AGAINST THE ADVERSE CLAIMS.
(5) A QUIET TITLE LAWSUIT MUST BE BROUGHT IN THE PROPER COUNTY.
(6) ANY PERSON WHO CLAIMS AN ADVERSE INTEREST IN THE PROPERTY MAY JOIN IN THE LAWSUIT EVEN IF THEY WERE NOT NAMED AS A A DEFENDANT.
(7) A QUIET TITLE LAWSUIT REQUIRES PROPER USE OF THE LIS PENDENS PROCEDURE (NOTICE OF PENDENCY OF ACTION).
(8) IN A QUIET TITLE ACTION, THE OWNER OF LEGAL TITLE (CHECK THE TITLE REPORT) IS PRESUMED TO BE THE OWNER, AND THIS CAN ONLY BE REBUTTED BY A SHOWING OF CLEAR AND CONVINCING EVIDENCE TO THE CONTRARY.
(9) GENERALLY SPEAKING, THERE ARE NO JURY TRIALS IN A QUIET TITLE ACTION AS THESE ACTIONS ARE “EQUITABLE” IN NATURE (NOT SEEKING MONEY DAMAGES) SO THE COURT WILL DECIDE PLAINTIFF’S CLAIM AND EQUITABLE DEFENSES MAY BE ASSERTED BY OPPOSING PARTIES. THE EXCEPTION WOULD BE IF PLAINTIFF IS OUT OF POSSESSION OF THE PROPERTY AND IS FILING THE QUIET TITLE ACTION TO REGAIN POSSESSION – IN THESE CIRCUMSTANCES THE CLAIM MAY BE DEEMED “LEGAL” IN NATURE AND A JURY TRIAL MAY BE REQUESTED. SEE MEDEIROS V. MEDEIROS, 177 CAL APP. 2d 69, (1960). THE PRUDENT PRACTICE IS TO ALWAYS REQUEST A JURY TRIAL WHEN FILING A PLEADING IF THAT IS WHAT YOU WANT. RAISE IT OR WAIVE IT IS THE GENERAL RULE.
(10) GENERALLY SPEAKING, A JUDGMENT IN A QUIET TITLE LAWSUIT IS CONCLUSIVE AND BINDING ON ALL PARTIES TO THE LITIGATION, BUT MAY NOT BE BINDING ON PARTIES NOT INVOLVED IN THE QUIET TITLE LAWSUIT BUT WHOS CLAIMS WERE KNOWN OR REASONABLY APPARENT. THERE ARE NO DEFAULT JUDGMENTS – CLEAR EVIDENCE IS REQUIRED.
(11) IN A QUIET TITLE ACTION IN THE FORECLOSURE OF A RESIDENCE, THE COURT MAY REQUIRE THE PLAINTIFF TO “DO EQUITY” OR TENDER AMOUNTS OWED OR IN ARREARS OR PAY THE ENTIRE BALANCE. A PARTY CANNOT USUALLY “GET EQUITY” IF THEY DON’T “DO EQUITY”.
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Visit our other websites at www.RescindMyLoan.net / www.VondranLegal.com / www.OptionArmLawyer.com / www.BKAttorneyS.net / www.ForeclosureDefenseResourceCenter.com /www.ProduceTheNoteAttorney.com / www.TrialPlanFraud.com / www.LoanModificationRipoff.net / www.LoanModSolutions.net / www.VondranLaw.com / www.LoanModLegal.com (the Southern California Foreclosure Defense Radio Show).
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KEYWORDS: CALIFORNIA LIS PENDENS / PENDENCY OF ACTION / QUIET TITLE ACTION / CALIFORNIA QUIET TITLE LAWSUIT / BURDEN OF PROOF IN QUIET TITLE CASE / QUIET TITLE IN FORECLOSURE CASE / LAWSUIT TO QUIET TITLE / CALIFORNIA FORECLOSURE DEFENSE LAWYER / PHOENIX FORECLOSURE LAWYER.
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ATTORNEY FEES - IN MOST CASES WE CHARGE AN UP-FRONT RETAINER AND HOURY FEE. IN SOME CASES, HOWEVER, WE MAY BE ABLE TO CHARGE A CONTINGENCY FEE OR FLAT RATE FEE. FOR MORE INFORMATION ABOUT CONTINGENCY FEES YOU CAN CHECK US OUT AT WWW.CONTINGENCYCASE.COM AN ONLINE DATABASE OF CONTINGENCY LAWYERS WHO MAY AGREE TO TAKE YOUR CASE ON A CONTINGENCY FEE BASIS.
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THIS IS AN ADVERTISEMENT AND COMMUNICATION PURSUANT TO STATE BAR RULES. COPYRIGHT 2010 ALL RIGHTS RESERVED. WE ONLY SEEK TO SOLICIT CLIENTS IN ARIZONA AND CALIFORNIA WHERE THE LAW OFFICES OF STEVEN C. VONDRAN IS LICENSED TO PRACTICE LAW.
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