Tag Archives: 2924

The NEW Sevicing abuse cases california Jan1, 2013

10 Dec

Abuses by Mortgage Service Companies

Although predatory lending has received far more attention than abusive servicing, a significant percentage of consumer complaints over loans involve servicing, not origination. For example, the director of the Nevada Fair Housing Center testified that of the hundreds of complaints of predatory lending issues her office received in 2002, about 42 percent involved servicing once the loan was transferred

Abusive Mortgage Servicing Defined:

Abusive servicing occurs when a servicer, either through action or inaction, obtains or attempts to obtain unwarranted fees or other costs from borrowers, engages in unfair collection practices, or through its own improper behavior or inaction causes borrowers to be more likely to go into default or have their homes foreclosed. Abusive practices should be distinguished from appropriate actions that may harm borrowers, such as a servicer merely collecting appropriate late fees or foreclosing on borrowers who do not make their payments despite proper loss mitigation efforts. Servicing can be abusive either intentionally, when there is intent to obtain unwarranted fees, or negligently, when, for example, a servicer’s records are so disorganized that borrowers are regularly charged late fees even when mortgage payments were made on time.

Abusive servicing often happens to debtors who have filed a Chapter 13 Bankruptcy Plan and are in the process of making payments under the Plan. If you suspect that your mortgage servicer is abusing your relationship by charging unnecessary fees while you are paying off your Chapter 13 Plan, call us. We can help.

There is significant evidence that some Mortgage servicers have engaged in abusive behavior and that borrowers have frequently been the victims. Some servicers have engaged in practices that are not only detrimental to borrowers but also illegal Such abuse has been documented in court opinions and decisions, in the decisions and findings of ratings agencies, in litigation and settlements obtained by government agencies against prominent servicers, in congressional testimony, and in newspaper accounts of borrowers who claim to have been mistreated by servicers. The abusive servicing practices documented in these sources include improper foreclosure or attempted foreclosure, improper fees, improper forced-placed insurance, and improper use or oversight of escrow funds .

Improper foreclosure or attempted foreclosure

Because servicers can exact fees associated with foreclosures, such as attorneys’ fees, some servicers have attempted to foreclose on property even when borrowers are current on their payments or without giving borrowers enough time to repay or otherwise working with them on a repayment plan Furthermore, a speedy foreclosure may save servicers the cost of attempting other techniques that might have prevented the foreclosure.

Some servicers have been so brazen that they have regularly claimed to the courts that borrowers were in default so as to justify foreclosure, even though the borrowers were current on their payments. Other courts have also decried the frequent use of false statements to obtain relief from stay in order to foreclose on borrowers’ homes. For example, in Hart v. GMAC Mortgage Corporation, et al., 246 B.R. 709 (2000), even though the borrower had made the payments required of him by a forbearance agreement he had entered into with the servicer (GMAC Mortgage Corporation), it created a “negative suspense account” for moneys it had paid out, improperly charged the borrower an additional monthly sum to repay the negative suspense account, charged him late fees for failing to make the entire payment demanded, and began foreclosure proceedings.

Improper fees

Claiming that borrowers are in default when they are actually current allows servicers to charge unwarranted fees, either late fees or fees related to default and foreclosure. Servicers receive as a conventional fee a percentage of the total value of the loans they service, typically 25 basis points for prime loans and 50 basis points for subprime loans In addition, contracts typically provide that the servicer, not the trustee or investors, has the right to keep any and all late fees or fees associated with defaults. Servicers charge late fees not only because they act as a prod to coax borrowers into making payments on time, but also because borrowers who fail to make payments impose additional costs on servicers, which must then engage in loss mitigation to induce payment.

Such fees are a crucial part of servicers’ income. For example, one servicer’s CEO reportedly stated that extra fees, such as late fees, appeared to be paying for all of the operating costs of the company’s entire servicing department, leaving the conventional servicing fee almost completely profit The pressure to collect such fees appears to be higher on subprime servicers than on prime servicers:

Because borrowers typically cannot prove the exact date a payment was received, servicers can charge late fees even when they receive the payment on time Improper late fees may also be based on the loss of borrowers’ payments by servicers, their inability to track those payments accurately, or their failure to post payments in a timely fashion. In Ronemus v. FTB Mortgage Services, 201 B.R. 458 (1996), under a Chapter 13 bankruptcy plan, the borrowers had made all of their payments on time except for two; they received permission to pay these two late and paid late fees for the privilege. However, the servicer, FTB Mortgage Services, misapplied their payments, then began placing their payments into a suspense account and collecting unauthorized late fees. The servicer ignored several letters from the borrowers’ attorney attempting to clear up the matter, sent regular demands for late fees, and began harassing the borrowers with collection efforts. When the borrowers sued, the servicer submitted to the court an artificially inflated accounting of how much the borrowers owed.

Some servicers have sent out late notices even when they have received timely payments and even before the end of a borrower’s grace period Worse yet, a servicer might pocket the payment, such as an extra payment of principal, and never credit it to the borrower Late fees on timely payments are a common problem when borrowers are making mortgage payments through a bankruptcy plan

Moreover, some servicers have also added false fees and charges not authorized by law or contract to their monthly payment demands, relying on borrowers’ ignorance of the exact amount owed. They can collect such fees or other unwarranted claims by submitting inaccurate payoff demands when a borrower refinances or sells the house). Or they can place the borrowers’ monthly payments in a suspense account and then charge late fees even though they received the payment Worse yet, some servicers pyramid their late fees, applying a portion of the current payment to a previous late fee and then charging an additional late fee even though the borrower has made a timely and full payment for the new month Pyramiding late fees allows servicers to charge late fees month after month even though the borrower made only one late payment

Servicers can turn their fees into a profit center by sending inaccurate monthly payment demands, demanding unearned fees or charges not owed, or imposing fees higher than the expenses for a panoply of actions For example, some servicers take advantage of borrowers’ ignorance by charging fees, such as prepayment penalties, where the note does not provide for them Servicers have sometimes imposed a uniform set of fees over an entire pool of loans, disregarding the fact that some of the loan documents did not provide for those particular fees. Or they charge more for attorneys’, property inspection, or appraisal fees than were actually incurred. Some servicers may add a fee by conducting unnecessary property inspections, having an agent drive by even when the borrower is not in default, or conducting multiple inspections during a single period of default to charge the resulting multiple fees

The complexity of the terms of many loans makes it difficult for borrowers to discover whether they are being overcharged Moreover, servicers can frustrate any attempts to sort out which fees are genuine.

Improperly forced-placed insurance

Mortgage holders are entitled under the terms of the loan to require borrowers to carry homeowners’ insurance naming the holder as the payee in case of loss and to force-place insurance by buying policies for borrowers who fail to do so and charging them for the premiums However, some servicers have force-placed insurance even in cases where the borrower already had it and even provided evidence of it to the servicer Worse yet, servicers have charged for force-placed insurance without even purchasing it. Premiums for force-placed insurance are often inflated in that they provide protection in excess of what the loan.

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Escrow Account Mismanagement

One of the benefits of servicing mortgages is controlling escrow accounts to pay for insurance, taxes, and the like and, in most states, keeping any interest earned on these accounts Borrowers have complained that servicers have failed to make tax or insurance payments when they were due or at all. The treasurer of the country’s second largest county estimated that this failure to make timely payments cost borrowers late fees of at least $2 million in that county over a two-year span, causing some to lose their homes. If servicers fail to make insurance payments and a policy lapses, borrowers may face much higher insurance costs even if they purchase their own, non-force-placed policy. Worse yet, borrowers may find themselves unable to buy insurance at all if they cannot find a new insurer willing to write them a policy

You can make a claim for mortgage service abuse, and often the court will award actual and punitive damages. If you think you have been a victim of mortgage service abuse, contact us. We can help you make a claim.

Civil Code §2924.12(b) Right to Sue Mortgage Servicers for Injunctive Relief, Damages, Treble Damages, and Right to Attorney’s Fees. : )

5 Dec

prohabition-images

H. Right to Sue Mortgage Servicers for Injunctive Relief, Damages, Treble Damages, and Right to Attorney’s Fees

2013 is going to be a good year

One of the most important provisions of the Act from a lender’s perspective is that it provides borrowers with the right to sue mortgage servicers for injunctive relief before the trustee’s deed upon sale has recorded, or if it has already recorded, to sue for actual economic damages, if the mortgage servicer has not corrected any “material” violation of certain enumerated portions of the Act before the trustee’s deed upon sale recorded. (Civil Code §2924.12(a).) In an area that will certainly open up a Pandora’s Box of litigation, the Act does not define what constitutes a “material” violation of the Act. If a court finds that the violation was intentional, reckless or willful, the court can award the borrower the greater of treble (triple) damages or $50,000. (Civil Code §2924.12(b).) Furthermore, a violation of the enumerated provisions of the Act is also deemed to be a violation of the licensing laws if committed by a person licensed as a consumer or commercial finance lender or broker, a residential mortgage lender or servicer, or a licensed real estate broker or salesman. (Civil Code §2924.12(d).) Lastly, in a one-sided attorney’s fee provision that only benefits borrowers, the court may award a borrower who obtains an injunction or receives an award of economic damages as a result of the violation of the Act their reasonable attorney’s fees and costs as the prevailing party. (Civil Code §2924.12(i).) This provides all the more reason for lenders and mortgage servicers to comply with the terms of the Act. This provision for the recovery by only the borrower of their reasonable attorney’s fees makes it more likely that borrowers will file litigation against mortgage lenders or servicers than they otherwise would. Compliance is the lender’s or mortgage servicer’s best defense to litigation under the Act.

Significantly for lenders, as long as the mortgage servicer remedies the material violation of the Act before the trustee’s deed upon sale has recorded, the Act specifically provides that the mortgage servicer shall not be liable under the Act for any violation or damages. (Civil Code §2924.12(b) & (c).) The Act also clarifies that signatories to the National Mortgage Settlement who are in compliance with the terms of that settlement, as they relate to the terms of the Act, will not face liability under the Act. (Civil Code §2924.12(g).

 

Fix Income Inequality with $10 million Loans for Everyone the 99 solution

25 Apr

“I wonder how many audience members know that Bair’s plan is more or less exactly the revenue model for all of America’s biggest banks. You go to the Fed, get a buttload of free money, lend it out at interest (perversely enough, including loans right back to the U.S. government), then pocket the profit.” Matt Taibbi

From Rolling Stone’s Matt Taibbi on Sheila Bair’s Sarcastic Piece

I hope everyone saw ex-Federal Deposit Insurance Corporation chief Sheila Bair’s editorial in the Washington Post, entitled, “Fix Income Inequality with $10 million Loans for Everyone!” The piece might have set a world record for public bitter sarcasm by a former top regulatory official.

In it, Bair points out that since we’ve been giving zero-interest loans to all of the big banks, why don’t we do the same thing for actual people, to solve the income inequality program? If the Fed handed out $10 million to every person, and then got each of those people to invest, say, in foreign debt, we could all be back on our feet in no time:

Under my plan, each American household could borrow $10 million from the Fed at zero interest. The more conservative among us can take that money and buy 10-year Treasury bonds. At the current 2 percent annual interest rate, we can pocket a nice $200,000 a year to live on. The more adventuresome can buy 10-year Greek debt at 21 percent, for an annual income of $2.1 million. Or if Greece is a little too risky for you, go with Portugal, at about 12 percent, or $1.2 million dollars a year. (No sense in getting greedy.)

Every time I watch a Republican debate, and hear these supposedly anti-welfare crowds booing the idea of stiffer regulation of Wall Street, I wonder how many audience members know that Bair’s plan is more or less exactly the revenue model for all of America’s biggest banks. You go to the Fed, get a buttload of free money, lend it out at interest (perversely enough, including loans right back to the U.S. government), then pocket the profit.http://www.democracynow.org/embed/story/2011/7/22/pushing_crisis_gop_cries_wolf_on

Logo of the United States Federal Deposit Insu...

Logo of the United States Federal Deposit Insurance Corporation, which incorporates the seal. (Photo credit: Wikipedia)

Considering that we now know that the Fed gave out something like $16 trillion in secret emergency loans to big banks on top of the bailouts we actually knew about, you might ask yourself: How are these guys in financial trouble? How can they not be making mountains of money, risk-free? But they are in financial trouble:

• We’re about to see yet another big blow to all of the usual suspects – Goldman, Citi, Bank of America, and especially Morgan Stanley, all of whom face potential downgrades by Moody’s in the near future.

We’ve known this was coming for some time, but the news this week is that the giant money-managing firm BlackRock is talking about moving its business elsewhere. Laurence Fink, BlackRock’s CEO, told the New York Times: “If Moody’s does indeed downgrade these institutions, we may have a need to move some business around to higher-rated institutions.”

It’s one thing when Zero Hedge, William Black, myself, or some rogue Fed officers in Dallas decide to point fingers at the big banks. But when big money players stop trading with those firms, that’s when the death spirals begin.

Morgan Stanley in particular should be sweating. They’re apparently going to be downgraded three notches, where they’ll be joining Citi and Bank of America at a level just above junk. But no worries: Bank CFO Ruth Porat announced that a three-level downgrade was “manageable” and that only losers rely totally on agencies like Moody’s to judge creditworthiness. “A lot of clients are doing their own credit work,” she said.

• Meanwhile, Bank of America reported its first-quarter results yesterday. Despite that massive ongoing support from the Fed, it earned just $653 million in the first quarter, but astonishingly the results were hailed by most of the financial media as good news. Its home-turf paper, the San Francisco Chronicle, crowed that BOA “Posts Higher Profits As Trading Results Rebound.” Bloomberg, meanwhile, summed up results this way: “Bank of America Beats Analyst Estimates As Trading Jumps.”

But the New York Times noted that BOA’s first-quarter profit of $653 million was down from $2 billion a year ago, and paled compared to results of more successful banks like Chase and Wells Fargo.

Zero Hedge, meanwhile, posted an amusing commentary on BOA’s results, pointing out that the bank quietly reclassified nearly two billion dollars’ worth of real estate loans. This is from BOA’s report:

During 1Q12, the bank regulatory agencies jointly issued interagency supervisory guidance on nonaccrual policies for junior-lien consumer real estate loans. In accordance with this new guidance, beginning in 1Q12, we classify junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. As a result of this change, we reclassified $1.85B of performing home equity loans to nonperforming.

In other words, Bank of America described nearly two billion dollars of crap on their books as performing loans, until the government this year forced them to admit it was crap.

ZH and others also noted that BOA wildly underestimated its exposure to litigation, but that’s nothing new. Anyway, despite the inconsistencies in its report, and despite the fact that it’s about to be downgraded – again – Bank of America’s shares are up again, pushing $9 today.

Post Foreclosure and Reversing your CA Foreclosure Sale under new Case Law

7 Apr

Reversing a foreclosure sale:  Avoiding the “Tender Rule”

Firm commentary:

Foreclosure auction signs

Foreclosure auction signs (Photo credit: niallkennedy)

If you are considering suing to reverse a foreclosure sale, consider the LONA case for a better understanding on CA non-judicial sales and exceptions to the requirement that you must offer to pay off the loan to title to your home back in your name.

After a nonjudicial foreclosure sale has been completed, the traditional method by which the sale is challenged is a suit in equity to set aside the trustee’s sale. (Anderson v. Heart Federal Sav. & Loan Assn. (1989) 208 Cal.App.3d 202, 209-210.) Generally, a challenge to the validity of a trustee’s sale is an attempt to have the sale set aside and to have the title restored. (Onofrio v. Rice (1997) 55 Cal.App.4th 413, 424 (Onofrio), citing 4 Miller & Starr, Cal. Real Estate (2d ed. 1989) Deeds of Trusts & Mortgages, § 9.154, pp. 507-508.)

 

The burden of proof is on the former owner:

A nonjudicial foreclosure sale is accompanied by a common law presumption that it ‗was conducted regularly and fairly.  This presumption may only be rebutted by substantial evidence of prejudicial procedural irregularity. The mere inadequacy of price, absent some procedural irregularity that contributed to the inadequacy of price or otherwise injured the trustor, is insufficient to set aside a nonjudicial foreclosure sale.

It is the burden of the party challenging the trustee’s sale to prove such irregularity and thereby overcome the presumption of the sale’s regularity.‖ (Melendrez v. D & I Investment, Inc. (2005) 127 Cal. App.4th 1238, 1258 (Melendrez) In addition, under section 2924,6 there is a conclusive statutory presumption created in favor of a bona fide purchaser who receives a trustee’s deed that contains a recital that the trustee has fulfilled its statutory notice requirements. (Melendrez, supra, 127 Cal App.4th at p. 1250.)

Case law instructs that the elements of an equitable cause of action to set aside a foreclosure sale are: (1) the trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust;

(2) the party attacking the sale (usually but not always the trustor or mortgagor) was prejudiced or harmed; and

(3) in cases where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the amount of the secured indebtedness or was excused from tendering. (Bank of America etc. Assn. v. Reidy, supra, 15 Cal.2d at p. 248; Saterstrom v. Glick Bros. Sash, Door & Mill Co. (1931) 118 Cal.App. 379, 383 (Saterstrom) [trustee's sale set aside where deed of trust was void because it failed to adequately describe property]; Stockton v. Newman (1957) 148 Cal.App.2d 558, 564 (Stockton) [trustor sought rescission of the contract to purchase the property and the promissory note on grounds of fraud]; Sierra-Bay Fed. Land Bank Ass’n v. Superior Court (1991) 227 Cal.App.3d (1991) 227 Cal.App.3d 318, 337 (Sierra-Bay) [to set aside sale, ―debtor must allege such unfairness or irregularity that, when coupled with the inadequacy of price obtained at the sale, it is appropriate to invalidate the sale‖; ―debtor must offer to do equity by making a tender or otherwise offering to pay his debt‖]; Abadallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1109 (Abadallah) [tender element]; Munger v. Moore (1970) 11 Cal.App.3d 1, 7 [damages action for wrongful foreclosure]; see also 1 Bernhardt, Mortgages, Deeds of Trust and Foreclosure Litigation (Cont.Ed.Bar 4th ed. 2011 supp.) § 7.67, pp. 580-581 and cases cited therein summarizing grounds for setting aside trustee sale.)

 

The Tender requirement

Because the action is in equity, a defaulted borrower who seeks to set aside a trustee’s sale is required to do equity before the court will exercise its equitable powers. (MCA, Inc. v. Universal Diversified Enterprises Corp. (1972) 27 Cal.App.3d 170, 177 (MCA).)

Consequently, as a condition precedent to an action by the borrower to set aside the trustee’s sale on the ground that the sale is voidable because of irregularities in the sale notice or procedure, the borrower must offer to pay the full amount of the debt for which the property was security. (Abadallah, supra, 43 Cal.App.4th at p. 1109; Onofrio, supra, at p. 424 [the borrower must pay, or offer to pay, the secured debt, or at least all of the delinquencies and costs due for redemption, before commencing the action].)

The rationale behind the rule is that if [the borrower] could not have redeemed the property had the sale procedures been proper, any irregularities in the sale did not result in damages to the [borrower]. (FPCI RE-HAB 01 v. E & G Investments, Ltd. (1989) 207 Cal.App.3d 1018, 1022.)

 

A series of cases have come down in the last few weeks that have some very serious ramifications for lenders.

The most dramatic case is that of Lona v. Citibank, based on a property right here in my back yard. The fact pattern in Lona is that the bank foreclosed and Lona sued the bank to void the sale on the absurd theory that the lender made him an unconscionable loan he couldn’t possibly afford therefore the loan was void. (Apparently, he’s a mushroom farmer in Hollister making $40k/yr)*.

Lona alleged that he agreed to refinance the home, on which he owed $1.24 million at the time, in response to an ad. The monthly payments were more than four times his income, so unsurprisingly, he defaulted within five months and the home was sold at a trustee’s sale in August 2008.

Lona obtained two re-financed loans: the first being $1.125 million, a 30-year term and an interest rate that was fixed at 8.25% for five years and adjustable annually after that, with a cap of 13.255 and the second loan being $375,000, with a term of 15 years, a fixed rate of 12.25%, monthly payments of nearly $4,000, and a balloon payment of $327,000 at the end of the 15 year term.

Lona testified that English was not his first language, he was 50 years old at the time of the loan and he that he did not understand the loan documents. Of course, he also did not read the loan documents.

After Citibank foreclosed, it filed an unlawful detainer action (“UD”) to evict Lona, but the UD was consolidated with Lona’s lawsuit to void and set aside the foreclosure sale. According to Citibank, Lona had been “living for free” in the house and had not posted bond or paid any “impound funds.” (since 2007!!!)

San Benito County Superior Court Judge Harry Tobias said Lona’s “bare allegations” were not enough to persuade him that the bank or the broker had engaged in misconduct and that it was “hard to believe” that the Lonas weren’t “responsible for their own conduct,” especially since they owned other property that had been foreclosed upon.

Despite the craziness of Plaintiff’s theory, the appellate court rendered a 32 page opinion that discussed in major detail that:
1) The borrower did not have to tender offer (which goes against almost a century of a legal precedent); and
2) The borrower’s allegations of the loan being unconscionable were not wholly disproven by the lenders.

The Court decision stated “Lona had received $1.5 million from the lenders and had not made any payments since June 2007. Meanwhile, he and his wife continued to live in the house for free, without paying rent or any impound funds…” and so it was quite aware of the inequities or injustice of the situation. However, the Court still concluded that the Lenders did not meet their burden of proof on summary judgment and so the case may continue at its snail pace until trial. [Lona v. Citibank No. H036140. Court of Appeals of California, Sixth District. (December 21, 2011.)]

The other case that came down a week before Lona (Dec. 21) was the Bardasian (Dec. 15) case, where the borrower sued because the lender’s trustee did not discuss loan mod options with her as required by Civil Code Section 2923.5. The court granted the borrower’s injunction and like Lona, the borrowers did not tender, nor put up an undertaking or surety for the bond. The lower court had ruled at the injunction hearing that the trustee had not complied with the code and that Bardasian must bond in the amount of $20k. When she failed to do so, the lower court dissolved the injunction.

On appeal, the appellate court concluded that since the injunction had been issued after the court had ruled on the merits stating:

“Plaintiff seeks postponement of the foreclosure sale until the defendants comply with Civil Code [section] 2923.5. Plaintiff has established that BAC Home Loan Servicing did not comply with Civil Code section 2923.5 prior to the issuance of the notice of default on September 15, 2010.” “Plaintiff states under penalty of perjury that no contact was ever made at least 30 days before the notice of default was issued…”

that the injunction was not actually “preliminary” at all, but that the plaintiffs had essentially won their argument showing that the defendants had not complied with Section 2923.5 and so no Notice of Default could successfully issue and the trustee’s sale could not take place until Section 2923.5 had been complied with. (Bardasian v. Santa Clara Partners Mortgage C068488. Court of Appeals of California, Third District. (December 15, 2011).

So in one month, two appellate cases came down where the borrower could either pursue voiding a trustee’s sale or enjoin one without tendering!

2012 will prove to be an interesting year as more decisions stemming from the subprime meltdown start coming down the pipeline.

* The decision contained a footnote that Lona’s loan application that apparently stated Lona made $20k/month, or $240k/yr. Clearly, as stated income loans go, that was a whopper!

The Exceptions to the Tender requirement under LONA

First, if the borrower’s action attacks the validity of the underlying debt, a tender is not required since it would constitute an affirmation of the debt. (Stockton, supra, (1957) 148 Cal.App.2d at p. 564) [trustor sought rescission of the contract to purchase the property and the promissory note on grounds of fraud]; Onofrio, supra, 55 Cal.App.4th at p. 424.)

Second, a tender will not be required when the person who seeks to set aside the trustee’s sale has a counter-claim or set-off against the beneficiary. In such cases, it is deemed that the tender and the counter claim offset one another, and if the offset is equal to or greater than the amount due, a tender is not required. (Hauger, supra, (1954) 42 Cal.2d at p. 755.)

 

Third, a tender may not be required where it would be inequitable to impose such a condition on the party challenging the sale. (Humboldt Savings Bank v. McCleverty (1911) 161 Cal. 285, 291 (Humboldt). In Humboldt, the defendant’s deceased husband borrowed $55,300 from the plaintiff bank secured by two pieces of property. The defendant had a $5,000 homestead on one of the properties. (Id. at p. 287.) When the defendant’s husband defaulted on the debt, the bank foreclosed on both properties. In response to the bank’s argument that the defendant had to tender the entire debt as a condition precedent to having the sale set aside, the court held that it would be inequitable to require the defendant to•pay, or offer to pay, a debt of $57,000, for which she is in no way liable to attack the sale of her $5,000 homestead.10 (Id. at p. 291.)

Fourth, no tender will be required when the trustor is not required to rely on equity to attack the deed because the trustee’s deed is void on its face. (Dimock, supra, 81 Cal.App.4th at p. 878 [beneficiary substituted trustees; trustee's sale void where original trustee completed trustee's sale after being replaced by new trustee because original trustee no longer had power to convey property].)

 For a better understanding of how this new case affects your individual situation, contact the Firm and set up an appointment.

THE SAN FRANSICO “SMOKING GUN REPORT”

19 Feb

Audit Uncovers Extensive Flaws in Foreclosures

By
Published: February 15, 2012

An audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation, according to a report released Wednesday.

Annie Tritt for The New York Times

Phil Ting, the San Francisco assessor-recorder, found widespread violations or irregularities in files of properties subject to foreclosure sales.

Readers’ Comments

Readers shared their thoughts on this article.

Anecdotal evidence indicating foreclosure abuse has been plentiful since the mortgage boom turned to bust in 2008. But the detailed and comprehensive nature of the San Francisco findings suggest how pervasive foreclosure irregularities may be across the nation.

The improprieties range from the basic — a failure to warn borrowers that they were in default on their loans as required by law — to the arcane. For example, transfers of many loans in the foreclosure files were made by entities that had no right to assign them and institutions took back properties in auctions even though they had not proved ownership.

Commissioned by Phil Ting, the San Francisco assessor-recorder, the report examined files of properties subject to foreclosure sales in the county from January 2009 to November 2011. About 84 percent of the files contained what appear to be clear violations of law, it said, and fully two-thirds had at least four violations or irregularities.

Kathleen Engel, a professor at Suffolk University Law School in Boston said: “If there were any lingering doubts about whether the problems with loan documents in foreclosures were isolated, this study puts the question to rest.”

The report comes just days after the $26 billion settlement over foreclosure improprieties between five major banks and 49 state attorneys general, including California’s. Among other things, that settlement requires participating banks to reduce mortgage amounts outstanding on a wide array of loans and provide $1.5 billion in reparations for borrowers who were improperly removed from their homes.

But the precise terms of the states’ deal have not yet been disclosed. As the San Francisco analysis points out, “the settlement does not resolve most of the issues this report identifies nor immunizes lenders and servicers from a host of potential liabilities.” For example, it is a felony to knowingly file false documents with any public office in California.

In an interview late Tuesday, Mr. Ting said he would forward his findings and foreclosure files to the attorney general’s office and to local law enforcement officials. Kamala D. Harris, the California attorney general, announced a joint investigation into foreclosure abuses last December with the Nevada attorney general, Catherine Cortez Masto. The joint investigation spans both civil and criminal matters.

The depth of the problem raises questions about whether at least some foreclosures should be considered void, Mr. Ting said. “We’re not saying that every consumer should not have been foreclosed on or every lender is a bad actor, but there are significant and troubling issues,” he said.

California has been among the states hurt the most by the mortgage crisis. Because its laws, like those of 29 other states, do not require a judge to oversee foreclosures, the conduct of banks in the process is rarely scrutinized. Mr. Ting said his report was the first rigorous analysis of foreclosure improprieties in California and that it cast doubt on the validity of almost every foreclosure it examined.

“Clearly, we need to set up a process where lenders are following every part of the law,” Mr. Ting said in the interview. “It is very apparent that the system is broken from many different vantage points.”

The report, which was compiled by Aequitas Compliance Solutions, a mortgage regulatory compliance firm, did not identify specific banks involved in the irregularities. But among the legal violations uncovered in the analysis were cases where the loan servicer did not provide borrowers with a notice of default before beginning the eviction process; 8 percent of the audited foreclosures had that basic defect.

In a significant number of cases — 85 percent — documents recording the transfer of a defaulted property to a new trustee were not filed properly or on time, the report found. And in 45 percent of the foreclosures, properties were sold at auction to entities improperly claiming to be the beneficiary of the deeds of trust. In other words, the report said, “a ‘stranger’ to the deed of trust,” gained ownership of the property; as a result, the sale may be invalid, it said.

In 6 percent of cases, the same deed of trust to a property was assigned to two or more different entities, raising questions about which of them actually had the right to foreclose. Many of the foreclosures that were scrutinized showed gaps in the chain of title, the report said, indicating that written transfers from the original owner to the entity currently claiming to own the deed of trust have disappeared.

Banks involved in buying and selling foreclosed properties appear to be aware of potential problems if gaps in the chain of title cloud a subsequent buyer’s ownership of the home. Lou Pizante, a partner at Aequitas who worked on the audit, pointed to documents that banks now require buyers to sign holding the institution harmless if questions arise about the validity of the foreclosure sale.

The audit also raises serious questions about the accuracy of information recorded in the Mortgage Electronic Registry System, or MERS, which was set up in 1995 by Fannie Mae and Freddie Mac and major lenders. The report found that 58 percent of loans listed in the MERS database showed different owners than were reflected in other public documents like those filed with the county recorder’s office.

The report contradicted the contentions of many banks that foreclosure improprieties did little harm because the borrowers were behind on their mortgages and should have been evicted anyway. “We can deduce from the public evidence,” the report noted, “that there are indeed legitimate victims in the mortgage crisis. Whether these homeowners are systematically being deprived of legal safeguards and due process rights is an important question.”

A version of this article appeared in print on February 16, 2012, on page A1 of the New York edition with the headline: Audit Uncovers Extensive Flaws in Foreclosures.

Freddie Mac Bets Against American Homeowners

7 Feb
Freddie Mac

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Freddie Mac, the taxpayer-owned mortgage giant, has placed multibillion-dollar bets that pay off if homeowners stay trapped in expensive mortgages with interest rates well above current rates.

Freddie began increasing these bets dramatically in late 2010, the same time that the company was making it harder for homeowners to get out of such high-interest mortgages.

No evidence has emerged that these decisions were coordinated. The company is a key gatekeeper for home loans but says its traders are “walled off” from the officials who have restricted homeowners from taking advantage of historically low interest rates by imposing higher fees and new rules.

Freddie’s charter calls for the company to make home loans more accessible. Its chief executive, Charles Haldeman Jr., recently told Congress that his company is “helping financially strapped families reduce their mortgage costs through refinancing their mortgages.”

But the trades, uncovered for the first time in an investigation by ProPublica and NPR, give Freddie a powerful incentive to do the opposite, highlighting a conflict of interest at the heart of the company. In addition to being an instrument of government policy dedicated to making home loans more accessible, Freddie also has giant investment portfolios and could lose substantial amounts of money if too many borrowers refinance.

“We were actually shocked they did this,” says Scott Simon, who as the head of the giant bond fund PIMCO’s mortgage-backed securities team is one of the world’s biggest mortgage bond traders. “It seemed so out of line with their mission.”

The trades “put them squarely against the homeowner,” he says.

Those homeowners have a lot at stake, too. Many of them could cut their interest payments by thousands of dollars a year.

Freddie Mac, along with its cousin Fannie Mae, was bailed out in 2008 and is now owned by taxpayers. The companies play a pivotal role in the mortgage business because they insure most home loans in the United States, making banks likelier to lend. The companies’ rules determine whether homeowners can get loans and on what terms.

The Federal Housing Finance Agency effectively serves as Freddie’s board of directors and is ultimately responsible for Freddie’s decisions. It is run by acting director Edward DeMarco, who cannot be fired by the president except in extraordinary circumstances.

Freddie and the FHFA repeatedly declined to comment on the specific transactions.

Freddie’s moves to limit refinancing affect not only individual homeowners but the entire economy. An expansive refinancing program could help millions of homeowners, some economists say. Such an effort would “help the economy and put tens of billions of dollars back in consumers’ pockets, the equivalent of a very long-term tax cut,” says real-estate economist Christopher Mayer of the Columbia Business School. “It also is likely to reduce foreclosures and benefit the U.S. government” because Freddie and Fannie, which guarantee most mortgages in the country, would have lower losses over the long run.

Freddie Mac’s trades, while perfectly legal, came during a period when the company was supposed to be reducing its investment portfolio, according to the terms of its government takeover agreement. But these trades escalate the risk of its portfolio, because the securities Freddie has purchased are volatile and hard to sell, mortgage securities experts say.

The financial crisis in 2008 was made worse when Wall Street traders made bets against their customers and the American public. Now, some see similar behavior, only this time by traders at a government-owned company who are using leverage, which increases the potential profits but also the risk of big losses, and other Wall Street stratagems. “More than three years into the government takeover, we have Freddie Mac pursuing highly levered, complicated transactions seemingly with the purpose of trading against homeowners,” says Mayer. “These are the kinds of things that got us into trouble in the first place.”

Freddie Mac is betting against, among others, Jay and Bonnie Silverstein. The Silversteins live in an unfinished development of cul-de-sacs and yellow stucco houses about 20 miles north of Philadelphia, in a house decorated with Bonnie’s orchids and their Rose Bowl parade pin collection. The developer went bankrupt, leaving orange plastic construction fencing around some empty lots. The community clubhouse isn’t complete.

“We’re in financial Jail”

The Silversteins have a 30-year fixed mortgage with an interest rate of 6.875 percent, much higher than the going rate of less than 4 percent.  They have borrowed from family members and are living paycheck to paycheck. If they could refinance, they would save about $500 a month. He says the extra money would help them pay back some of their family members and visit their grandchildren more often.

But brokers have told the Silversteins that they cannot refinance, thanks to a Freddie Mac rule.

The Silversteins used to live in a larger house 15 minutes from their current place, in a more upscale development. They had always planned to downsize as they approached retirement. In 2005, they made the mistake of buying their new house before selling the larger one. As the housing market plummeted, they couldn’t sell their old house, so they carried two mortgages for 2½ years, wiping out their savings and 401(k). “It just drained us,” Jay Silverstein says.

Finally, they were advised to try a short sale, in which the house is sold for less than the value of the underlying mortgage. They stopped making payments on the big house for it to go through. The sale was finally completed in 2009.

Such debacles hurt a borrower’s credit rating. But Bonnie has a solid job at a doctor’s office, and Jay has a pension from working for more than two decades for Johnson & Johnson. They say they haven’t missed a payment on their current mortgage.

But the Silversteins haven’t been able to get their refi. Freddie Mac won’t insure a new loan for people who had a short sale in the last two to four years, depending on their financial condition. While the company’s previous rules prohibited some short sales, in October 2010 the company changed its criteria to include all short sales. It is unclear whether the Silverstein mortgage would have been barred from a short sale under the previous Freddie rules.

Short-term, Freddie’s trades benefit from the high-interest mortgage in which the Silversteins are trapped. But in the long run, Freddie could benefit if the Silversteins refinanced to a more affordable loan. Freddie guarantees the Silversteins’ mortgage, so if the couple defaults, Freddie — and the taxpayers who own the company — are on the hook. Getting the Silversteins into a more affordable mortgage would make a default less likely.

If millions of homeowners like the Silversteins default, the economy would be harmed. But if they switch to loans with lower interest rates, they would have more money to spend, which could boost the economy.

“We’re in financial jail,” says Jay, “and we’ve never been there before.”

How Freddie’s investments work

Here’s how Freddie Mac’s trades profit from the Silversteins staying in “financial jail.” The couple’s mortgage is sitting in a big pile of other mortgages, most of which are also guaranteed by Freddie and have high interest rates. Those mortgages underpin securities that get divided into two basic categories.

Anatomy of a Deal

How Freddie Mac structured a deal in which it profited if homeowners stayed trapped in high-interest mortgages.

One portion is backed mainly by principal, pays a low return, and was sold to investors who wanted a safe place to park their money. The other part, the inverse floater, is backed mainly by the interest payments on the mortgages, such as the high rate that the Silversteins pay. So this portion of the security can pay a much higher return, and this is what Freddie retained.

In 2010 and ’11, Freddie purchased $3.4 billion worth of inverse floater portions — their value based mostly on interest payments on $19.5 billion in mortgage-backed securities, according to prospectuses for the deals. They covered tens of thousands of homeowners. Most of the mortgages backing these transactions have high rates of about 6.5 percent to 7 percent, according to the deal documents.

Between late 2010 and early 2011, Freddie Mac’s purchases of inverse floater securities rose dramatically. Freddie purchased inverse floater portions of 29 deals in 2010 and 2011, with 26 bought between October 2010 and April 2011. That compares with seven for all of 2009 and five in 2008.

In these transactions, Freddie has sold off most of the principal, but it hasn’t reduced its risk.

First, if borrowers default, Freddie pays the entire value of the mortgages underpinning the securities, because it insures the loans.

It’s also a big problem if people like the Silversteins refinance their mortgages. That’s because a refi is a new loan; the borrower pays off the first loan early, stopping the interest payments. Since the security Freddie owns is backed mainly by those interest payments, Freddie loses.

And these inverse floaters burden Freddie with entirely new risks. With these deals, Freddie has taken mortgage-backed securities that are easy to sell and traded them for ones that are harder and possibly more expensive to offload, according to mortgage market experts.

The inverse floaters carry another risk. Freddie gets paid the difference between the high mortgages rates, such as the Silversteins are paying, and a key global interest rate that right now is very low. If that rate rises, Freddie’s profits will fall.

It is unclear what kinds of hedging, if any, Freddie has done to offset its risks.

At the end of 2011, Freddie’s portfolio of mortgages was just over $663 billion, down more than 6 percent from the previous year. But that $43 billion drop in the portfolio overstates the risk reduction, because the company retained risk through the inverse floaters. The company is well below the cap of $729 billion required by its government takeover agreement.

How Freddie tightened credit

Restricting credit for people who have done short sales isn’t the only way that Freddie Mac and Fannie Mae have tightened their lending criteria in the wake of the financial crisis, making it harder for borrowers to get housing loans.

Some tightening is justified because, in the years leading up to the financial crisis, Freddie and Fannie were too willing to insure mortgages taken out by people who couldn’t afford them.

In a statement, Freddie contends it is “actively supporting efforts for borrowers to realize the benefits of refinancing their mortgages to lower rates.”

The company said in a statement: “During the first three quarters of 2011, we refinanced more than $170 billion in mortgages, helping nearly 835,000 borrowers save an average of $2,500 in interest payments during the next year.” As part of that effort, the company is participating in an Obama administration plan, called the Home Affordable Refinance Program, or HARP. But critics say HARP could be reaching millions more people if Fannie and Freddie implemented the program more effectively.

Indeed, just as it was escalating its inverse floater deals, it was also introducing new fees on borrowers, including those wanting to refinance. During Thanksgiving week in 2010, Freddie quietly announced that it was raising charges, called post-settlement delivery fees.

In a recent white paper on remedies for the stalled housing market, the Federal Reserve criticized Fannie and Freddie for the fees they have charged for refinancing. Such fees are “another possible reason for low rates of refinancing” and are “difficult to justify,” the Fed wrote.

A former Freddie employee, who spoke on condition he not be named, was even blunter: “Generally, it makes no sense whatsoever” for Freddie “to restrict refinancing” from expensive loans to ones borrowers can more easily pay, since the company remains on the hook if homeowners default.

In November, the FHFA announced that Fannie and Freddie were eliminating or reducing some fees. The Fed, however, said that “more might be done.”

The regulator as owner

The trades raise questions about the FHFA’s oversight of Fannie and Freddie. But the FHFA is not just a regulator. With the two companies in government conservatorship, the FHFA now plays the role of their board of directors and shareholders, responsible for the companies’ major decisions.

Under acting director DeMarco, the FHFA has emphasized that its main goal is to limit taxpayer losses by managing the two companies’ giant investment portfolios to make profits. To cover their previous losses and ongoing operations, Fannie and Freddie already had received $169 billion from taxpayers through the third quarter of last year.

The FHFA has frustrated the administration because the agency has made preserving the value of the companies’ investment portfolios a priority over helping homeowners in expensive mortgages. In 2010, President Barack Obama nominated a permanent replacement for acting director DeMarco, but Republicans in Congress blocked him. Obama has not nominated anyone else to replace DeMarco.

Even though Freddie is a ward of the state, top executives are highly compensated. Peter Federico, who’s in charge of the company’s investment portfolio, made $2.5 million in 2010, and he had target compensation of $2.6 million for last year, when most of these leveraged investments were made.

One of Federico’s responsibilities — tied to his bonuses —  is to “support and provide liquidity and stability in the mortgage market,” according to Freddie’s annual filing with the Securities and Exchange Commission. Mortgage experts contend that the inverse floater trades don’t further that goal.

ProPublica and NPR made numerous attempts to reach Federico. A woman who answered his home phone said he declined to comment.

The FHFA knew about the trades before ProPublica and NPR approached the regulatory agency about them, according to an FHFA official. The FHFA has the power to approve and disapprove trades, though it doesn’t involve itself in day-to-day decisions. The official declined to comment on whether the FHFA knew about them as Freddie was conducting them or whether the FHFA had explicitly approved them.

Liz Day of ProPublica contributed to this story.

Publishing Paper not of general Circulation Trustee sale not valid Government code 6000

4 Feb

We have uncovered a number of the Newspapers that “publish” for 21 days the notice of Trustee sale are not legally qualified to do so.
A “newspaper of general circulation” is a newspaper published for the dissemination of local or telegraphic news and intelligence of a general character, which has a bona fide subscription list of paying subscribers, and has been established, printed and published at regular intervals in the State, county, or city where publication, notice by publication, or official advertising is to be given or made for at least one year preceding the date of the publication, notice or advertisement.
The Paso Robles Press in Paso Robles California are not Judicially adjudicated and they are printed outside the county, We are currently litigating cases and having the Trustee Sales set aside. This paper is printed hundreds of miles ouside the San Luis Obispo county in Watsonville, California and they have published hundreds of Legal notices.

Generally speaking, the statutory, nonjudicial foreclosure procedure begins with the recording of a notice of default by the trustee. (§ 2924, subd. (a)(1).) 8  After the expiration of not less than three months, the trustee must publish, post, and mail a notice of sale at least 20 days before the sale, and must also record the notice of sale at least 14 days before the sale (§§ 2924, subds. (a)(1), (a)(2) & (a)(3), 2924f, subd. (b)(1);  see Moeller v. Lien (1994) 25 Cal.App.4th 822, 830, 30 Cal.Rptr.2d 777 (Moeller );  see also 4 Miller & Starr, supra, § 10:199, p. 623.)   The sale and any postponement are governed by section 2924g.  (Moeller, supra, 25 Cal.App.4th at p. 830, 30 Cal.Rptr.2d 777;  Miller & Starr, supra, § 10:201, p. 637.)

MARK J. DEMUCHA AND CHERYL M. DEMUCHA, a Reply Brief that worked

14 Dec

No. F059476

IN THE COURT OF APPEAL FOR THE STATE OF CALIFORNIA

FIFTH APPELLATE DISTRICT

                                                                                                                                                           

Wells Fargo in Laredo, Texas

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Appellants and Plaintiffs

v.

WELLS FARGO HOME MORTGAGE, INC.; WELLS FARGO BANK, NATIONAL ASSOCIATION a.k.a. WELLS FARGO BANK, N.A.; FIRST AMERICAN LOANSTAR TRUSTEE SERVICES; FIRST AMERICAN CORPORATION; AND DOES 1 TO 45

Respondents and Defendants

                                                                                                                                                           

Appeal from the Superior Court of the State of California, County of Kern

Case No.  S-1500-CV-267074

Honorable SIDNEY P. CHAPIN, Judge

Department 4

Tele: 661.868.7205

                                                                                                                                                           

REPLY BRIEF OF APPELLANTS MARK J. DEMUCHA AND CHERYL M. DEMUCHA

                                                                                                                                                           

Michael D. Finley, Esq.

Law Offices of Michael D. Finley

25375 Orchard Village Road, Suite 106

Valencia, CA 91355-3000

661.964.0444

Attorneys for Plaintiffs-Appellants,

MARK J. DEMUCHA and CHERYL M. DEMUCHA

TABLE OF CONTENTS

TABLE OF AUTHORITIES                                                                                                        ii

INTRODUCTION                                                                                                                         1

STATEMENT OF THE FACTS                                                                                                  2

PROCEDURAL HISTORY                                                                                                          4

STANDARD OF REVIEW                                                                                                          4

ARGUMENT                                                                                                                                5

A.   THE DEMURRER WAS NOT PROPERLY SUSTAINED                                    5

B.   THE COMPLAINT VERY PLAINLY CONTAINS A
TENDER, EVEN THOUGH IT IS NOT REQUIRED FOR
A QUIET TITLE ACTION                                                                                        5

C.   SUSTAINING OF THE DEMURRER WAS REVERSIBLE
ERROR BECAUSE CALIFORNIA LAW REQUIRES
WELLS FARGO TO POSSESS THE NOTE IN ORDER TO
ENFORCE THE LOAN                                                                                             7

D.   THE DEFENDANTS’/RESPONDENTS’ ARGUMENTS
REGARDING THE PROPRIETY OF SUSTAINING THE
DEMURRER ON THE CLAIMS TO QUIET TITLE AND
REMOVE CLOUD ARE BASED UPON THE DELIBERATE MISREPRESENTATION OF THE NATURE OF THE
DEMUCHAS’ COMPLAINT                                                                                   8

E.    THE DEFENDANTS’/RESPONDENTS’ ARGUMENTS
REGARDING THE PROPRIETY OF SUSTAINING THE
DEMURRER ON THE CLAIM FOR FRAUD AND MISREPRESENTATION ARE BASED UPON THE
DELIBERATE MISREPRESENTATION OF THE CONTENT
OF THE DEMUCHAS’ COMPLAINT                                                                    9

F.    THE DEFENDANTS’/RESPONDENTS’ ARGUMENTS
REGARDING THE PROPRIETY OF SUSTAINING THE
DEMURRER ON THE CLAIM FOR INFLICTION OF
EMOTIONAL DISTRESS ARE BASED UPON THE
DELIBERATE MISREPRESENTATION OF THE CONTENT
OF THE DEMUCHAS’ COMPLAINT                                                                    9

G.   THE DEFENDANTS’/RESPONDENTS’ ARGUMENTS
REGARDING THE PROPRIETY OF SUSTAINING THE
DEMURRER ON THE CLAIM FOR SLANDER OF
CREDIT ARE BASED UPON THE DELIBERATE MISREPRESENTATION OF THE CONTENT OF THE
DEMUCHAS’ COMPLAINT                                                                                  10

H.   THE DEFENDANTS’/RESPONDENTS’ ARGUMENTS
REGARDING THE PROPRIETY OF SUSTAINING THE
DEMURRER ON THE CLAIM FOR INFLICTION OF
EMOTIONAL DISTRESS ARE BASED UPON THE
DELIBERATE MISREPRESENTATION OF THE
CONTENT OF THE DEMUCHAS’ COMPLAINT                                               10

CONCLUSION                                                                                                                            10

TABLE OF AUTHORITIES

CASES

                                                                                                                                                     Page

Caporale v. Saxon Mortgage, Bankr. North Dist. Cal., San Jose Case No. 07-54109.                  8

In re Foreclosure Cases, 2007 WL 3232430 (Bankr. N.D. Ohio 2007).                                        8

Staff Mortgage v. Wilke (1980) 625 F.2d 281                                                                               8

Starr v. Bruce Farley Corp. (9th Cir. 1980), 612 F.2d 1197.                                                           8

Whitman v. Transtate Title Co. (1985) 165 Cal.App.3d 312, 322-323.                              6

STATUTES

Commercial Code § 3301.                                                                                                     7, 8, 9,

INTRODUCTION

            Defendants/Respondents continue to mischaracterize the Plaintiffs’/Appellants’ complaint very deliberately, apparently because they realize that the Plaintiff’s complaint as actually plead is beyond their ability to oppose it. Calling the Plaintiffs’ Complaint “inartfully drafted” because it does not state that it is a challenge to a non-judicial foreclosure is wishful thinking. The complaint is very artfully drafted as a Quiet Title action. The plaintiffs are not seeking to “stave off foreclosure of a mortgage,” but seeking to remove a false claim against their title to the property. No non-judicial foreclosure has taken place. No foreclosure sale has occurred, so there is no foreclosure sale to challenge or undo, but the Defendants/Respondents insist on arguing the case at the demurrer level and on this appeal as a complaint to challenge or set aside a non-judicial foreclosure and keep trying to apply those inapplicable pleading requirements to the complaint. The plaintiffs did seek a preliminary injunction against the foreclosure and obtained it because the Defendants/Respondents did not comply with the laws regarding non-judicial foreclosure. However, that does not make their complaint a “central defense” to non-judicial foreclosure as Defendants/Respondents argue throughout their brief. The mischaracterization of the case was a key element of the lower court’s error and continues to be a key element of the Defendants’/Respondents’ false arguments.

Further, Plaintiffs/Appellants never argued that producing the note was a preliminary requirement to non-judicial foreclosure, but Plaintiffs/Appellants have plead very specifically throughout the complaint that possessing the note is a requirement for the Defendants/Respondents to have any right to enforce the note whatsoever, which has been established California law (and in every state that has adopted the Uniform Commercial Code) for a very long time. The references to producing the note were merely offered as evidence demonstrating that the Defendants/Respondents do no possess the note because they repeatedly fail and refuse to produce it. In fact, it is important to note that the Defendants/Respondents have never yet argued that the note is in their possession as required by law.

STATEMENT OF THE FACTS

A.        THE SUBJECT TRANSACTION.

The Defendants’/Respondents’ Statement of Facts has a very subtle attempt at subterfuge and misdirection in that it places a statement made about their finances during litigation after Plaintiffs/Appellants incurred legal fees in a different context as though the statement were made prior to litigation during the time that the prior (and possibly current) note holder CTX Mortgage had the loan and prior to the recording of the notice of default. Defendants/Respondents have gone to great lengths to take this statement out of context and have argued extensively that this constitutes proof that the Plaintiffs/Appellants were unable to tender payment. However, this requires the assumption that only one conclusion may be drawn from the statement rather than a range of possibilities, including the fact that the Plaintiffs/Appellants had incurred attorney’s fees by that time.

B.        THE DEMUCHAS’ CONTENTIONS.

As in the underlying Demurrer, the Defendants/Respondents continue to falsely argue that there was no allegation of Tender in the Complaint. However, as demonstrated in the Appellants’ Opening Brief, there is no requirement of tender to plead Quiet Title. Even so, the Defendants/Respondents quote the allegation of tender that is in the Complaint even while arguing that there is no allegation of tender. This demonstrates the Defendants’/Respondents’ motive in deliberately mischaracterizing the complaint: they wish to apply a non-applicable standard to the complaint. Then when the non-applicable standard has been complied with anyway, they attempt to mislead the court by arguing that a plain allegation of tender is not an allegation of tender. However, as will be shown, the Defendants/Respondents have cited a case that states that tender can be offered in the complaint, and need not have been offered prior to filing the complaint.

C.        DEFENDANTS’/RESPONDENTS’ ASSERTION OF NO ALLEGATION OF TENDER OF ALL AMOUNTS DUE IS BLATANTLY FALSE.

As stated above, Plaintiffs/Appellants have already demonstrated that tendering payment is not a required element of a Quiet Title action, but that they have pleaded tender anyway. The Defendants’/Respondents’ arguments that payments must be tendered “when due” misstates the law, even for cases challenging non-judicial foreclosures, which this case is not. As will be shown below, the Defendants/Respondents cited a case that indicates very clearly that even in non-judicial foreclosure cases, a tender may be made in the complaint and need not have been made prior to filing the complaint.

D.        THE FORECLOSURE PROCEEDINGS AND THE DEMUCHAS’ ATTEMPTS TO DELAY OR HALT THEM.

The Defendants/Respondents’ focus on these extra proceedings within the case is a red herring to distract the court’s focus from the demurrer. The appeal is not about the ex-parte application for a preliminary injunction that was granted due to the fact that the Defendants/Respondents did not comply with California law requiring a specific declaration to be signed under penalty of perjury that was not. The Defendants/Respondents are going well outside the Complaint’s four corners to abuse the details of the ex-parte application that was not about the Complaint nor the Demurrer that are the subjects of this appeal. And once again, they are trying to argue the issue of the Plaintiffs’/Appellants’ financial situation as stated during the ex-parte proceedings after they had already incurred attorney’s fees for the false proposition that the Plaintiffs/Appellants were allegedly incapable of tendering payment prior to incurring the additional attorney’s fees of litigation when that is not the only conclusion that can be drawn from the separate ex-parte pleadings. Finally, they continue to shout endlessly about the issue of tender when it is not a required part of pleading the elements of Quiet Title and when pleading tender is required, an offer made in the complaint itself is deemed sufficient, as will be shown below.

E.        THE ARGUMENTS ABOUT FAILURE TO “PRODUCE THE NOTE” ARE A RED HERRING TO DISTRACT THE COURT FROM THE LEGAL REQUIREMENT THAT THE DEFENDANTS “POSSESS THE NOTE.”

The Defendants/Respondents continue to make a big deal about the fact that in a few places, the Complaint mentions that the defendants have failed to produce the original note. However, their own arguments on this point mention that the complaint further alleges their failure to hold or possess the original note, which is the more key portion of the pleadings.

PROCEDURAL HISTORY

            The parties’ explanations of the case’s procedural history are close enough that no further discussion is necessary.

STANDARD OF REVIEW

            Some of the arguments contained in the Defendants’/Respondents’ Standard of Review section of their brief are specious, especially in the final paragraph arguing the subjects of tender and producing the note. The Defendants/Respondents have never demonstrated that California law requires an allegation of tender for a Quiet Title action, but have only cited as authority for this position cases that are focused on undoing a foreclosure sale after it has been completed. However, even those cases state that tender does not have to be made before filing the complaint, but the tender itself can be made within the complaint, and there cannot be any question that an offer of tender is made within the complaint. The Plaintiffs’/Appellants’ current attorney helped prepare pleadings for them in the trial court case and even made special, limited scope appearances for them, even though they were officially in pro per, so they incurred considerable legal fees during the litigation, which certainly had an effect on their financial situation at the time that they filed their ex parte application for a preliminary injunction, so the Defendants’/Respondents’ argument that the ex parte papers demonstrate that the Plaintiffs/Appellants could not tender payment is false. Further, the Defendants’/Respondents’ argument that “the central premise of each cause of action of the DeMuchas’ First Amendent Complaint [is] that a lender must ‘produce the note’ while conducting a non-judicial foreclosure” is a blatant misstatement of the Complaint’s content. The Complaint is not about non-judicial foreclosure, it is about quieting title. And the central premise is that a lender must possess the note in order to have a right to enforce the note, which is the law in California and every other state that has adopted the Uniform Commercial Code. No non-judicial foreclosure has yet taken place regarding the subject property.

ARGUMENT

A.        THE DEMURRER WAS NOT PROPERLY SUSTAINED.

Defendants/Respondents are demonstrating to this court the same misdirection and deliberate mischaracterization of the pleadings that misled the trial court into committing reversible error by improperly sustaining a demurrer to a valid complaint. The Defendants/Respondents have never demonstrated that tender is a requirement for a Quiet Title action. They have mischaracterized the case as a case to undo a non-judicial foreclosure when no non-judicial foreclosure has ever been completed regarding the subject property. The cases that they cited to the trial court and to this court regarding the requirements of a tender allegation were cases in which the subject property had been sold at a non-judicial foreclosure sale, which was being challenged after the fact. They have mischaracterized the Complaint’s allegations as though they state that “producing the note” is a requirement for non-judicial foreclosure, which is a blatant misstatement. The complaint states the true fact that the defendants have failed and refused to produce the note only as evidence of the fact that they do not possess the note and therefore have no right to enforce the note under California law. It is worth noting that the Defendants’/Respondents’ 34-page Appellate Brief never claims that they are the holders of the note as required by law.

B.        THE COMPLAINT VERY PLAINLY CONTAINS A TENDER, EVEN THOUGH IT IS NOT REQUIRED FOR A QUIET TITLE ACTION.

Defendants/Respondents continue their same improper tactic used with the trial court of citing irrelevant cases seeking to undo a foreclosure sale after the fact. Since no foreclosure sale has yet taken place regarding the subject property and this is a Quiet Title action, those cases are all irrelevant and inapplicable to the First Amended Complaint that is the subject of the Demurrer and this appeal. However, even under the Defendants’/Respondents’ inapplicable cases, the Defendants/Respondents have swerved into something that destroys their arguments completely: Citing Whitman v. Transtate Title Co. (1985) 165 Cal.App.3d 312, 322-323, the Defendants/Respondents correctly stated on page 11 of their brief, “therefore as a condition precedent to any action challenging a foreclosure, a plaintiff must pay or offer to pay the secured debt before an action is commenced or in the complaint.” (Emphasis added).  This is not an action challenging a foreclosure, but even if those standards were inappropriately applied to this action, the tender or offer to pay can be made “in the complaint.” The Verified First Amended Complaint (“VFAC”) states, “Plaintiff offers to pay and mortgage payments on the property to the individual or entity that is the valid holder of the original note as required by California Commercial Code § 3301, et seq. and all property taxes to the appropriate government agency.” (VFAC page 3, line 28 through page 4, line 7). This is a very clear tender, made “in the complaint,” even though it is not required in a Quiet Title Action.

Since tender is not a statutory element of a Quiet Title action, the Defendants’/Respondents’ arguments regarding the difficult financial times mentioned in the Plaintiffs’/Appellants’ ex-parte application for a preliminary injunction are moot. However, it should be noted that by the time the Plaintiffs/Appellants filed their ex-parte application, they had the additional financial burden of paying for attorney’s fees to have the same attorney who now represents them on appeal prepare pleadings for them and make special, limited scope appearances for them on the trial court level, so the conclusion that the Defendants/Respondents are asking the court to make are inaccurate.

Even the Defendants’/Respondents’ arguments regarding “implicit integration” of foreclosure issues are irrelevant, because the cases that they cited specifically involved a non-judicial foreclosure in which the sale had been completed, but no non-judicial foreclosure sale has taken place regarding the subject property. The defendants’ argument that Plaintiffs’/Appellants’ have failed to cite any authority for the fact that no allegation of tender is required is another false statement. Plaintiffs have directly quoted Code of Civil Procedure § 761.020, which fully sets forth the elements of a Quiet Title Action, and there is no requirement of tender. However, even if the court somehow found that a tender allegation was required, the tender allegation has been made in the Complaint in accordance with the Defedants’/Appellants’ own citations as set forth above. Further, the Defendants’/Respondents’ arguments that “a court of equity will not order a useless act performed” (FPCI Re-Hab 01, etc. v. E&G Investments, Ltd. (1989) 207 Cal.App.3d 1018, 1022, and “equity will not interpose its remedial power in the accomplishment of what seemingly would be nothing but an idly and expensively futile act” (Leonard v. Bank of America Ass’n (1936) 16 Cal. App. 2d 341, 344) could and should just as easily be applied to the futile and useless acts that Defendants’/Respondents’ are requesting to be required and plead when they do not possess the original note and therefore have no right to expect payments, seek payments, nor threaten foreclosure because they did not receive payments that they had no right to receive in the first place, pursuant to Commercial Code § 3301. It can and should also be used to destroy their argument that plaintiff must be subjected to the requirements of case law regarding actions seeking to undo foreclosure irregularities before the foreclosure has even been completed, as though plaintiff should be able to foresee every foreclosure irregularity with a crystal ball before the process is even completed!

C.        SUSTAINING OF THE DEMURRER WAS REVERSIBLE ERROR BECAUSE CALIFORNIA LAW REQUIRES WELLS FARGO TO POSSESS THE NOTE IN ORDER TO ENFORCE THE LOAN.

Plaintiffs/Appellants have cited a fully binding California Statute, Commercial Code § 3301, which specifically states that in order to be a “person entitled to enforce an instrument,” the Defendants/Respondents must have been the holder of the instrument, with very limited exceptions. In opposition, the Defendants/Respondents continue their same bad habit engaged in during the trial court proceedings of citing and relying upon federal trial court cases, which are not binding authority in any way, without disclosing to the court that they are citing non-binding authority. In addition, many of their citations do not even contain the full reference, so that it is difficult or impossible to locate and read the case. As for the federal trial court cases, all that they have demonstrated is that there is a need for a California appellate court to clear up the confusion that clearly exists regarding California’s law, and especially Commercial Code § 3301. Further, their statement that every court that has considered the issue has ruled that possessing the note is not necessary for a foreclosure is false. For example, in the U.S. Bankruptcy Court for the Northern District of California in San Jose, a federal trial court judge stopped a foreclosure because the bank could not produce the note in the case of Caporale v. Saxon Mortgage, Case No. 07-54109. Like the Defendants’/Respondents’ authorities, this case is only persuasive authority, not binding, but it was reported on by ABC News, and a copy of the news video is available to be viewed online at http://abclocal.go.com/kgo/story?section=news/7_on_your_side&id=6839404. If the court is going to consider the non-binding federal trial court decisions offered by the Defendants/Respondents, the court should also consider the non-binding persuasive authority of In re Foreclosure Cases, 2007 WL 3232430 (Bankr. N.D. Ohio 2007), wherein U.S. Bankruptcy Court Judge Christopher Boyko dismissed without prejudice fourteen judicial foreclosure actions filed by the trustees of securitized trusts against borrowers who had defaulted on their residential mortgages that had been sold into securitized trusts, based upon the application of Uniform Commercial Code § 3-301 to the mortgages in question.

As for their claim that the commercial code does not apply to a mortgage or a note secured by deed of trust, the Defendants/Respondents are willfully ignoring Staff Mortgage v. Wilke (1980) 625 F.2d 281, 6 Bankr.Ct.Dec. 1385, 29 UCC Rep.Serv. 639, cited in Plaintiffs’/Appellants’ Opening Brief, which clearly states that “notes secured by deeds of trust…were ‘instruments’ under the California Commercial Code.” This holding is repeated in Starr v. Bruce Farley Corp. (9th Cir. 1980), 612 F.2d 1197. The Defendants/Respondents have offered nothing other than their own opinion for the proposition that the note secured by deed of trust in question is not a “negotiable instrument” within the meaning of Commercial Code § 3301, even though they claim to have purchased the note, which by definition makes it negotiable.

D.        THE DEFENDANTS’/RESPONDENTS’ ARGUMENTS REGARDING THE PROPRIETY OF SUSTAINING THE DEMURRER ON THE CLAIMS TO QUIET TITLE AND REMOVE CLOUD ARE BASED UPON THE DELIBERATE MISREPRESENTATION OF THE NATURE OF THE DEMUCHAS’ COMPLAINT.

As always, the Defendants/Respondents insist upon misrepresenting the nature of the First Amended Complaint. Every element of each of these causes of action was specifically plead, as has been demonstrated. Pursuant to Commercial Code § 3301, the Defendants/Respondents have no right to enforce the note unless they possess the note. Plaintiffs/Appellants rely upon the appellate court to read the First Amended Complaint and comprehend it independently of the Defendants’/Respondents’ misrepresentations.

E.        THE DEFENDANTS’/RESPONDENTS’ ARGUMENTS REGARDING THE PROPRIETY OF SUSTAINING THE DEMURRER ON THE CLAIM FOR FRAUD AND MISREPRESENTATION ARE BASED UPON THE DELIBERATE MISREPRESENTATION OF THE CONTENT OF THE DEMUCHAS’ COMPLAINT.

The content of the First Amended Complaint speaks for itself. The Defendants/Respondents continue to look right at the paragraphs of the document that contain the elements required by law for each cause of action and to falsely state that the required allegations are not there. Plaintiffs/Appellants rely upon the appellate court to read the First Amended Complaint and comprehend it independently of the Defendants’/Respondents’ misrepresentations.

F.         THE DEFENDANTS’/RESPONDENTS’ ARGUMENTS REGARDING THE PROPRIETY OF SUSTAINING THE DEMURRER ON THE CLAIM FOR INFLICTION OF EMOTIONAL DISTRESS ARE BASED UPON THE DELIBERATE MISREPRESENTATION OF THE CONTENT OF THE DEMUCHAS’ COMPLAINT.

The content of the First Amended Complaint speaks for itself. The Defendants/Respondents continue to look right at the paragraphs of the document that contain the elements required by law for each cause of action and to falsely state that the required allegations are not there. Plaintiffs/Appellants rely upon the appellate court to read the First Amended Complaint and comprehend it independently of the Defendants’/Respondents’ misrepresentations.

G.        THE DEFENDANTS’/RESPONDENTS’ ARGUMENTS REGARDING THE PROPRIETY OF SUSTAINING THE DEMURRER ON THE CLAIM FOR SLANDER OF CREDIT ARE BASED UPON THE DELIBERATE MISREPRESENTATION OF THE CONTENT OF THE DEMUCHAS’ COMPLAINT.

The content of the First Amended Complaint speaks for itself. The Defendants/Respondents continue to look right at the paragraphs of the document that contain the elements required by law for each cause of action and to falsely state that the required allegations are not there. Plaintiffs/Appellants rely upon the appellate court to read the First Amended Complaint and comprehend it independently of the Defendants’/Respondents’ misrepresentations.

H.        THE DEFENDANTS’/RESPONDENTS’ ARGUMENTS REGARDING THE PROPRIETY OF SUSTAINING THE DEMURRER ON THE CLAIM FOR INFLICTION OF EMOTIONAL DISTRESS ARE BASED UPON THE DELIBERATE MISREPRESENTATION OF THE CONTENT OF THE DEMUCHAS’ COMPLAINT.

The content of the First Amended Complaint speaks for itself. The Defendants/Respondents continue to look right at the paragraphs of the document that contain the elements required by law for each cause of action and to falsely state that the required allegations are not there. Plaintiffs/Appellants rely upon the appellate court to read the First Amended Complaint and comprehend it independently of the Defendants’/Respondents’ misrepresentations.

CONCLUSION

            The trial court erred in sustaining the demurrer without leave to amend and entering a judgment of dismissal. The rules of a non-judicial foreclosure proceeding and litigation to set aside a non-judicial foreclosure do not apply to a quiet title action that is filed prior to a foreclosure sale. The Commercial Code’s requirements that the entity enforcing a note must possess the original note (with limited exceptions) applies to a Note Secured by Deed of Trust. Even in the context of a non-judicial foreclosure, there is no “breach” unless the entity that did not receive the mortgage payments had a right to receive the mortgage payments through possession of the original note or compliance with another recognized exception under the Commercial Code. Any other result would cause an unnecessary conflict of laws and allow fraudulent “lenders” to engage in non-judicial foreclosures and sales of property so long as they complied with the technical requirements of a non-judicial foreclosure. All of the causes of action of the Verified First Amended Complaint are properly plead, with the exception that “punitive damages” is not technically a cause of action, but that can be resolved by striking the label “Sixth Cause of Action” and just allowing the heading “Punitive Damages” to stand.

RESPECTFULLY SUBMITTED,

            Dated: 23 December 2010                                                                                                                  

Michael D. Finley, Esq.

Counsel for Plaintiffs/Appellants

Mark J. DeMucha & Cheryl M. DeMucha

CERTIFICATE OF COMPLIANCE

Pursuant to rule 8.204(c) of the California Rules of Court, I hereby certify that this brief contains 3,914 words, including footnotes. In making this certification, I have relied on the word count of the computer program used to prepare the brief.

Dated: 23 December 2010                                                                                                                  

Michael D. Finley, Esq.

Counsel for Plaintiffs/Appellants

Mark J. DeMucha & Cheryl M. DeMucha

 PROOF OF SERVICE

STATE OF CALIFORNIA, COUNTY OF LOS ANGELES

I am employed in the County of Los Angeles, State of California. I am over the age of 18 and not a party to the within action; my business address is: 25375 Orchard Village Road, Suite 106, Valencia, CA 91355-3000.

On 23 December 2010 I served the foregoing document described as: Appellant’s Opening Brief on the interested parties in this action by placing a true copy thereof in sealed envelopes addressed as follows:

(Attorneys for Wells Fargo Home Mortgage, Inc. & Wells Fargo Bank, N.A.): Kutak Rock LLP, 18201 Von Karman, Suite 1100, Irvine, CA 92612

(Attorneys for First American Loanstar Trustee Services & First American Corporation): Wright, Finlay & Zak, LLP, 4665 MacArthur Court, Suite 280, Newport Beach, CA 92660

Judge Sidney P. Chapin, Kern County Superior Court, Metropolitan Division, 1415 Truxtun Ave., Bakersfield, CA 93301

BY MAIL: I deposited such envelopes in the mail at Valencia, California. The envelopes were mailed with first class postage thereon fully prepaid.

ALSO, BY ELECTRONIC FILING WITH THE SUPREME COURT: In addition, I filed an electronic copy of the Appellant’s Opening Brief with the Supreme Court of California on 23 December 2010, through the Supreme Court’s website.

Dated: 23 December 2010                                                                                                                  

Michael D. Finley, Esq.

Counsel for Plaintiffs/Appellants

Mark J. DeMucha & Cheryl M. DeMucha

Challenge Your Lender… Now!

13 Dec

Don’t delay – Opt in to the follow Blog and gain access to over 680 ideas and posts to hold your Lender accountable new post every day!

Do you want to hold your lender responsible for their illegal actions?

Challenge Your Lender… Now!

image003

My name is Timothy McCandless, and I’m here to tell you what most banks and mortgage loan servicers don’t want you to know: More than 65 million homes in the US may not be subject to foreclosure after all, and your home is very likely one of the “safe” homes. The reason these homes are not technically subject to foreclosure is because the lenders, mortgage companies, mortgage servicers, and title companies broke the law throughout the process of managing your loan, both at the inception of your loan and throughout the life of the loan. Because of their fraudulent actions, they are unable to produce a title for, or show ownership of, your property. This causes what we call a “defect of title”, and legally prohibits your lender or servicer from foreclosing, regardless of whether or not your loan is current.

This situation is all over the news, and now, starting today, you can learn how to protect yourself from unlawful foreclosure.

WE CAN TRAIN YOU HOW TO CHALLENGE YOUR LENDER

Most Mortgage Assignments are Illegal

In a major ruling in the Massachusetts Supreme Court today, US Bank National Association and Wells Fargo lost the “Ibanez case”, meaning that they don’t have standing to foreclose due to improper mortgage assignment. The ruling is likely to send shock waves through the entire judicial system, and seriously raise the stakes on foreclosure fraud. Bank stocks plummeted after this ruling. These assignments are what people need to challenge in their own mortgages.

I am prepared to show you the most amazing information on how you can actually Challenge Your Lender. Once you opt in for our free ebook (just enter your email address above and to the right), you’ll get immediate access to our first, very informative webinar, as well as to our free ebook. You’ll learn more about the Challenge Your Lender program, and more importantly, how the US mortgage system is rigged to take advantage of you and how to can fight back. My program will show you exactly how to get a copy of your loan documents that your lender or loan servicer currently has in their possession, and then how to begin examining these documents to learn more about how your lender, as well as other parties involved, has used your name and credit to make millions of dollars. Analyzing your loan documents is a crucial first step in beginning the Challenge Your Lender process.


Save your home from foreclosure

The information that you will be receiving in my free material and webinar will further your knowledge on what most lenders are doing to homeowners, and how you can save yourself from foreclosure. You will have the opportunity to acquire a free copy of my Challenge Your Lender workbook and learn how to begin building the paper trail that you will need to defend yourself and to prove the wrongdoings of your lender and loan servicer. Once you go through the workbook and listen in on the free webinar, you will be on top of your Challenge and ready to begin the program.

The Challenge Your Lender program will help put you in a position of power and control over your loan, and will allow you to decide what you would like to do with your property. This leverage will be advantageous when you begin negotiating your foreclosure. Most importantly, your lender or loan servicer should not be able to foreclose on you once you notify them that you have identified fraudulent activity. My program is your first step in saving your property from foreclosure.

Don’t wait – opt in today. Every day counts in the battle against your lender.

Best regards,
Tim

Tim McCandless Blogs its amazing what you can do if you don’t watch TV

1 Sep

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http://fairdebtcollectionpracticesact.org
http://thestopforeclosureplan.com

KISS: KEEP IT SIMPLE STUPID from Garfield

28 Aug

Finality versus good and evil. In the battlefield it isn’t about good and evil. It is about winner and losers. In military battles around the world many battles have been one by the worst tyrants imaginable.

Just because you are right, just because the banks did bad things, just because they have no right to do what they are doing, doesn’t mean you will win. You might if you do it right, but you are up against a superior army with a dubious judge looking on thinking that this deadbeat borrower wants to get out of paying.

The court system is there to mediate disputes and bring them to a conclusion. Once a matter is decided they don’t want it to be easy to reopen a bankruptcy or issues that have already been litigated. The court presumably wants justice to prevail, but it also wants to end the dispute for better or for worse.

Otherwise NOTHING would end. Everyone who lost would come in with some excuse to have another trial. So you need to show fundamental error, gross injustice or an error that causes more problems that it solves.

These are the same issues BEFORE the matter is decided in court. Foreclosures are viewed as a clerical act or ministerial act. The outcome is generally viewed as inevitable.

And where the homeowner already admits the loan exists (a mistake), that the lien is exists and was properly filed and executed (a mistake) and admits that he didn’t make payments — he is admitting something he doesn’t even know is true — that there were payments due and he didn’t make them, which by definition puts him in default.

It’s not true that the homeowner would even know if the payment is due because the banks refuse to provide any accounting on the third party payments from bailout, insurance CDS, and credit enhancement.

That’s why you need reports on title, securitization, forensic reviews for TILA compliance and loan level accounting. If the Judges stuck to the law, they would require the proof first from the banks, but they don’t. They put the burden on the borrowers —who are the only ones who have the least information and the least access to information — to essentially make the case for the banks and then disprove it. The borrowers are litigating against themselves.

In the battlefield it isn’t about good and evil, it is about winners and losers. Name calling and vague accusations won’t cut it.

Sure you want to use the words surrogate signing, robo-signing, forgery, fabrication and misrepresentation. You also want to show that the court’s action would or did cloud title in a way that cannot be repaired without a decision on the question of whether the lien was perfected and whether the banks should be able to say they transferred bad loans to investors who don’t want them — just so they can foreclose.

But you need some proffers of real evidence — reports, exhibits and opinions from experts that will show that there is a real problem here and that this case has not been heard on the merits because of an unfair presumption: the presumption is that just because a bank’s lawyer says it in court, it must be true.

Check with the notary licensing boards, and see if the notaries on their documents have been disciplined and if not, file a grievance if you have grounds. Once you have that, maybe you have a grievance against the lawyers. After that maybe you have a lawsuit against the banks and their lawyers.

But the primary way to control the narrative or at least trip up the narrative of the banks is to object on the basis that counsel for the bank is referring to things not in the record. That is simple and the judge can understand that.

Don’t rely on name-calling, rely on the simplest legal requirements that you can find that have been violated. Was the lien perfected?

If the record shows that others were involved in the original transaction with the borrowers at the inception of the deal, then you might be able to show that there were only nominees instead of real parties in interest named on the note and mortgage.

Without disclosure of the principal, the lien is not perfected because the world doesn’t know who to go to for a satisfaction of that lien. If you know the other parties involved were part of a securitization scheme, you should say that — these parties can only be claiming an interest by virtue of a pooling and servicing agreement. And then make the point that they are only now trying to transfer what they are calling a bad loan into the pool that the investors bought — which is expressly prohibited for multiple reasons in the PSA.

This is impersonation of the investor because the investors don’t want to come forward and get countersued for the bad and illegal lending practices that were used in getting the borrower’s signature.

Point out that the auction of the property was improperly conducted where you can show that to be the case. Nearly all of the 5 million foreclosures were allowed to be conducted with a single bid from a non-creditor.

If you are not a creditor you must bid cash, put up a portion before you bid, and then pay the balance usually within 24-72 hours.

But instead they pretended to be the creditor when their own documents show they were supposed to be representing the investors who were not part of the lawsuit nor the judgment.

SO they didn’t pay cash and they didn’t tender the note. THEY PAID NOTHING. In Florida the original note must actually be filed with the court to make sure that the matter is actually concluded.

There is a whole ripe area of inquiry of inspecting the so-called original notes and bringing to the attention the fraud upon the court in submitting a false original. It invalidates the sale, by operation of law.

JUDGES: ASSUME THE BORROWER IS WRONG

15 Aug

So you have denied the claims of the pretenders and put that in issue. You have even alleged fraud, forgery and fabrication and the catch-word “robosigning”. But the Judge, alleging that he did not want to “make new law” (which wasn’t true) or allegedly because he didn’t want to start an avalanche of litigation interfering with judicial economy (and therefore allowing fraud and theft on the largest scale ever known to human history) has not only denied your claims and motions, but refused to even put the matter at issue, thus enabling you to at least use discovery to prove your point.

So the pretenders have their way: no evidence has been introduced into the record. You have proffered, they have proffered, but somehow their proffer means something more than your proffer even though no proffer is evidence.

Attorneys recognize this as low hanging fruit on appeal, where the trial judge is going to get the case back on remand with instructions to listen to the evidence and allow each side to produce real evidence, not proffers from counsel, and allow each side to conduct discovery. It’s not guaranteed but it is very likely. And the pretenders know that if it ever gets down to real evidence as opposed to arguments of counsel, they are dead in the water, subject to sanctions and liability for slander of title and other claims.

So they have come up with this strategy of setting supersedeas bond higher and higher so that the order appealed from goes into effect and they are able to kick the can down the road with a foreclosure sale, more transfers etc in the title chain, thus enabling them to argue the deed is done and the “former” homeowner must be relegated to only claiming damages, not the home itself. People can be kicked out by eviction proceedings that typically are conducted in courts of limited jurisdiction where in most states you are not allowed to even allege that the title is not real or that it was illegally obtained.

Initially supersedeas bond was set at levels that could be met by homeowners — sometimes as little as $500 or a monthly amount equal to a small fraction of the former monthly payment. Now, Judges who are heavily influenced by banks and large law firms, especially chief Judges who stick their noses into cases not assigned to them, are making sure that the case does NOT go to jury trial and essentially influencing the presiding Judge ex parte, to set a high supersedeas bond thus preventing the homeowner from obtaining a stay of execution on the eviction or the final judgment regarding title.

Of course it is wrong. But it is happening. You counter this by (1) making the record on appeal as to the merits of the appeal (2) adding to the record actual affidavits and testimony as to value, rental value etc. and (3) of course demanding and evidential hearing on the proper amount of the bond. Here you want to search out and produce the bond set in similar cases in the county in which your case is pending. Make sure you have a court reporter and a transcript on appeal and that the record on appeal is complete. It is not uncommon for certain documents to get “lost” or allegedly not “introduced” so when the appellate court gets it you can be met with the question of “what document?”

The other reason they are increasing supersedeas bond is because of a misconception by many pro se litigants and even some attorneys. They have the impression that the appeal is over if the bond is NOT posted with the clerk. And they have the impression that they can’t challenge the amount of bond set, or even go to the appellate court just on that issue and ask the appellate court to set bond — something they might not do but when they remand it, it is usually with instructions to the trial judge to hear evidence on the relevant issues — again something the pretenders don’t want.

Supersedeas bond ONLY applies to execution of the order or judgment that you are appealing. You can AND should continue with the appeal and if you win, the Judgment might be overturned — which means by operation of law you probably get your house back.

All these things are technical matters. Listening to other pro se litigants or even relying upon this other sites intended to help you is neither wise nor helpful. Before you act or fail to act, you should be in close contact with an attorney licensed in the jurisdiction in which your property is located. Local rules can sometimes spell the difference between the life or death of your case.

2924 unconstitutional ???

11 Jun

2924 unconstitutional  Check out this pro per complaint they raise some interesting issues.

PJATSI+Supplemental+Complaint+March+25+2011

Foreclosure Trustee duties and obligations

26 Apr

Because of the significant increase in defaults and foreclosures, mortgage servicers need to understand the duties and liabilities the law imposes upon foreclosure trustees.

Litigation based upon trustee error can slow, stop or invalidate foreclosures and impair the servicer’s ability to dispose of properties following foreclosure. When borrowers refinance or pay off during foreclosure, trustees are often responsible for the payoffs and reconveyances. After foreclosure, the trustee is responsible for distribution of surplus funds – the funds in excess of the debt due under the foreclosed deed of trust. All these responsibilities are sources of claims against trustees.

Foreclosure litigation plaintiffs often name and seek to hold lenders and servicers responsible for trustee errors on the theory that the trustee is the agent of the lender and servicer. According to Miller & Starr’s “California Real Estate,” this claim is particularly easy to make when the lender or servicer uses an in-house trustee and especially when the trustee acquires the property by credit bid for the lender or servicer at its own foreclosure sale. This article examines a trustee’s liability for damages under California law for conduct of the foreclosure sale, payoffs, reconveyances and distribution of surplus funds. The scope of a trustee’s duties differs for each of these services, and a breach of one of these duties can subject the trustee, lender and servicer to substantial compensatory damages, punitive damages and even criminal sanctions. Foreclosure sales In the I.E. Associates v. Safeco case, the California Supreme Court limited the scope of the trustee’s duties in conducting foreclosure sales. The issue in that case was whether a trustee breached its duty to a trustor by failing to ascertain the current address of the trustor where the current address was different from the address of record. The trustee did not have actual knowledge of the current address, but through reasonable diligence could have discovered it. The Supreme Court held that the trustee did not have a duty to find the current address. The court found that a foreclosure trustee is not a true trustee, such as a trustee of a person or a trustee under a trust agreement. Instead, a foreclosure trustee is merely “a middleman” between the beneficiary and the trustor who only carries out the specific duties that the deed of trust and foreclosure law specifically impose upon it.

The deed of trust and the statute are the exclusive source of the rights, duties and liabilities governing notice of nonjudicial foreclosure sales. Because neither the deed of trust nor the statute required the trustee to search for an address it did not have, the court held that the trustee had no duty to do so. The Stephens v. Hollis case reiterated the rule that a foreclosure trustee is not a true trustee: “Just as a panda is not an ordinary bear, a trustee of a deed of trust is not an ordinary trustee. ‘A trustee under a deed of trust has neither the powers nor the obligations of a strict trustee. He serves as a kind of common agent for the parties.’”

It is critical to recognize, however, that these rules of limited duty only apply to the trustee’s duty to provide proper notice of the sale. The trustee also has a broad common law duty to conduct a sale that is fair in all respects. In Hatch v. Collins, the court noted that “A trustee has a general duty to conduct the sale ‘fairly, openly, reasonably and with due diligence,’ exercising sound discretion to protect the rights of the mortgagor and others…A breach of the trustee’s duty to conduct an open, fair and honest sale may give rise to a cause of action for professional negligence, breach of an obligation created by statute, or fraud.” Examples of such a breach could be conspiring to “chill the bidding” by overstating the debt, thereby dissuading others from appearing and bidding at the sale. California Civil Code Section 2924h(g) states that it is “unlawful for any person, acting alone or in concert with others, (1) to offer to accept or accept from another any consideration of any type not to bid, or (2) to fix or restrain bidding in any manner at a sale of property conducted pursuant to a power of sale in a deed of trust or mortgage.” The code continues: “In addition to any other remedies, any person committing any act declared unlawful by this subdivision or any act which would operate as a fraud or deceit upon any beneficiary, trustor or junior [lien holder] shall, upon conviction, be fined not more than $10,000 or imprisoned in the county jail for not more than one year, or be punished by both that fine and imprisonment.” In addition to imposing criminal penalties, this section also imposes civil liability upon the trustee.

The courts will review foreclosure sale proceedings to make sure they have been fair in all respects. A trustee who violates its contractual duties under the deed of trust or its statutory or common law duties is liable to the trustor or to an affected junior lien holder for such person’s lost equity in the property. This is measured by the difference between the fair market value of the property and the liens senior to the affected person’s interest at the time of the sale. In addition, pursuant to Civil Code Section 3333, the trustee has liability for all other damages proximately caused by its wrongful conduct, whether those damages were foreseeable or not. A willful violation of these duties can subject the trustee to punitive damages under Civil Code Section 3294. Payoffs and reconveyances Civil Code Section 2943(c) requires a beneficiary or its representative, which is frequently the trustee, to provide a payoff statement to an “entitled person” within 21 days after a written request for a payoff demand. An “entitled person” means the trustor, a junior lien holder, their successors or assigns, or an escrow. Failure to provide a timely payoff demand makes the beneficiary or its representative liable to the entitled person for all actual damages such a person may sustain due to a failure to provide a timely payoff demand, plus $300 in statutory damages. Failure to provide an accurate payoff demand can have dire consequences. If the entitled person closes a sale or refinance in reliance upon a payoff demand that understates the payoff, the beneficiary must reconvey its lien. The beneficiary is then left with only an unsecured claim against the entitled person. A trustee who is responsible for such an error could have substantial liability to its beneficiary. After the note and deed of trust are paid off, Civil Code Section 2941 requires the beneficiary to deliver the original note, the deed of trust and a request for reconveyance to the trustee. Within 21 days thereafter, the trustee must record the reconveyance and deliver the original note to the trustor. If the reconveyance has not been recorded within 60 days after the payoff, upon the trustee’s written request, the beneficiary must substitute himself as trustee and record the reconveyance. If the reconveyance is not recorded within 75 days after payoff, any title company may prepare and record a release of the obligation. A person who violates any of these provisions is liable for $500 in statutory damages and all actual damages caused by the violation. These can include damages for emotional distress. A willful violation of these requirements is a misdemeanor which can subject the violator to a $400 fine, plus six months’ imprisonment in the county jail. Surplus funds Civil Code Sections 2924j and 2924k impose upon the trustee a duty to distribute surplus funds that the trustee receives at a sale to lien holders and trustors whose interests are junior to the foreclosed deed of trust. Surplus funds are defined as funds in excess of the debt due to the holder of the foreclosed lien and the costs of the foreclosure sale. As previously referenced in the I. E. Associates and Stephens cases, those courts held that with respect to the conduct of the foreclosure sale, a foreclosure trustee is not a true trustee – only a middleman. Further, in Hatch v. Collins, the court held that a breach of the trustee’s duties in the conduct of the sale does not constitute a breach of a fiduciary duty. While no case holds that a trustee is a fiduciary with respect to surplus funds, a trustee’s surplus funds duties closely resemble those of a fiduciary – a fiduciary is one who holds and manages property for the benefit of another. Fiduciaries are held to a higher standard of care than others in discharging their duties. If a trustee has a fiduciary duty in handling surplus funds, a trustee may have a duty to do more than simply follow the statute with respect to giving notice of and distributing the surplus funds. For instance, a trustee may have a duty to take reasonable steps to find an interested party whose address is unknown to the trustee if the trustee has reason to believe such an address can be found. This is particularly so because the trustee can pay for the expense of the investigation from the surplus funds. Also, a trustee as a fiduciary may face greater exposure to punitive damages, which can be awarded for breach of fiduciary duty when coupled with fraud, malice or oppression. Servicers Using In-House Foreclosure Trustees Must Beware in Mortgage Servicing > Foreclosure by John Clark Brown Jr. on Tuesday 19 June 2007 email the content item print the content item comments: 0 Servicing Management, June 2007. Because of the significant increase in defaults and foreclosures, mortgage servicers need to understand the duties and liabilities the law imposes upon foreclosure trustees. Litigation based upon trustee error can slow, stop or invalidate foreclosures and impair the servicer’s ability to dispose of properties following foreclosure. When borrowers refinance or pay off during foreclosure, trustees are often responsible for the payoffs and reconveyances. After foreclosure, the trustee is responsible for distribution of surplus funds – the funds in excess of the debt due under the foreclosed deed of trust. All these responsibilities are sources of claims against trustees. Foreclosure litigation plaintiffs often name and seek to hold lenders and servicers responsible for trustee errors on the theory that the trustee is the agent of the lender and servicer. According to Miller & Starr’s “California Real Estate,” this claim is particularly easy to make when the lender or servicer uses an in-house trustee and especially when the trustee acquires the property by credit bid for the lender or servicer at its own foreclosure sale. This article examines a trustee’s liability for damages under California law for conduct of the foreclosure sale, payoffs, reconveyances and distribution of surplus funds. The scope of a trustee’s duties differs for each of these services, and a breach of one of these duties can subject the trustee, lender and servicer to substantial compensatory damages, punitive damages and even criminal sanctions. Foreclosure sales In the I.E. Associates v. Safeco case, the California Supreme Court limited the scope of the trustee’s duties in conducting foreclosure sales. The issue in that case was whether a trustee breached its duty to a trustor by failing to ascertain the current address of the trustor where the current address was different from the address of record. The trustee did not have actual knowledge of the current address, but through reasonable diligence could have discovered it. The Supreme Court held that the trustee did not have a duty to find the current address. The court found that a foreclosure trustee is not a true trustee, such as a trustee of a person or a trustee under a trust agreement. Instead, a foreclosure trustee is merely “a middleman” between the beneficiary and the trustor who only carries out the specific duties that the deed of trust and foreclosure law specifically impose upon it. The deed of trust and the statute are the exclusive source of the rights, duties and liabilities governing notice of nonjudicial foreclosure sales. Because neither the deed of trust nor the statute required the trustee to search for an address it did not have, the court held that the trustee had no duty to do so. The Stephens v. Hollis case reiterated the rule that a foreclosure trustee is not a true trustee: “Just as a panda is not an ordinary bear, a trustee of a deed of trust is not an ordinary trustee. ‘A trustee under a deed of trust has neither the powers nor the obligations of a strict trustee. He serves as a kind of common agent for the parties.’” It is critical to recognize, however, that these rules of limited duty only apply to the trustee’s duty to provide proper notice of the sale. The trustee also has a broad common law duty to conduct a sale that is fair in all respects. In Hatch v. Collins, the court noted that “A trustee has a general duty to conduct the sale ‘fairly, openly, reasonably and with due diligence,’ exercising sound discretion to protect the rights of the mortgagor and others…A breach of the trustee’s duty to conduct an open, fair and honest sale may give rise to a cause of action for professional negligence, breach of an obligation created by statute, or fraud.” Examples of such a breach could be conspiring to “chill the bidding” by overstating the debt, thereby dissuading others from appearing and bidding at the sale. California Civil Code Section 2924h(g) states that it is “unlawful for any person, acting alone or in concert with others, (1) to offer to accept or accept from another any consideration of any type not to bid, or (2) to fix or restrain bidding in any manner at a sale of property conducted pursuant to a power of sale in a deed of trust or mortgage.” The code continues: “In addition to any other remedies, any person committing any act declared unlawful by this subdivision or any act which would operate as a fraud or deceit upon any beneficiary, trustor or junior [lien holder] shall, upon conviction, be fined not more than $10,000 or imprisoned in the county jail for not more than one year, or be punished by both that fine and imprisonment.” In addition to imposing criminal penalties, this section also imposes civil liability upon the trustee. The courts will review foreclosure sale proceedings to make sure they have been fair in all respects. A trustee who violates its contractual duties under the deed of trust or its statutory or common law duties is liable to the trustor or to an affected junior lien holder for such person’s lost equity in the property. This is measured by the difference between the fair market value of the property and the liens senior to the affected person’s interest at the time of the sale. In addition, pursuant to Civil Code Section 3333, the trustee has liability for all other damages proximately caused by its wrongful conduct, whether those damages were foreseeable or not. A willful violation of these duties can subject the trustee to punitive damages under Civil Code Section 3294. Payoffs and reconveyances Civil Code Section 2943(c) requires a beneficiary or its representative, which is frequently the trustee, to provide a payoff statement to an “entitled person” within 21 days after a written request for a payoff demand. An “entitled person” means the trustor, a junior lien holder, their successors or assigns, or an escrow. Failure to provide a timely payoff demand makes the beneficiary or its representative liable to the entitled person for all actual damages such a person may sustain due to a failure to provide a timely payoff demand, plus $300 in statutory damages. Failure to provide an accurate payoff demand can have dire consequences. If the entitled person closes a sale or refinance in reliance upon a payoff demand that understates the payoff, the beneficiary must reconvey its lien. The beneficiary is then left with only an unsecured claim against the entitled person. A trustee who is responsible for such an error could have substantial liability to its beneficiary. After the note and deed of trust are paid off, Civil Code Section 2941 requires the beneficiary to deliver the original note, the deed of trust and a request for reconveyance to the trustee. Within 21 days thereafter, the trustee must record the reconveyance and deliver the original note to the trustor. If the reconveyance has not been recorded within 60 days after the payoff, upon the trustee’s written request, the beneficiary must substitute himself as trustee and record the reconveyance. If the reconveyance is not recorded within 75 days after payoff, any title company may prepare and record a release of the obligation. A person who violates any of these provisions is liable for $500 in statutory damages and all actual damages caused by the violation. These can include damages for emotional distress. A willful violation of these requirements is a misdemeanor which can subject the violator to a $400 fine, plus six months’ imprisonment in the county jail. Surplus funds Civil Code Sections 2924j and 2924k impose upon the trustee a duty to distribute surplus funds that the trustee receives at a sale to lien holders and trustors whose interests are junior to the foreclosed deed of trust. Surplus funds are defined as funds in excess of the debt due to the holder of the foreclosed lien and the costs of the foreclosure sale. As previously referenced in the I. E. Associates and Stephens cases, those courts held that with respect to the conduct of the foreclosure sale, a foreclosure trustee is not a true trustee – only a middleman. Further, in Hatch v. Collins, the court held that a breach of the trustee’s duties in the conduct of the sale does not constitute a breach of a fiduciary duty. While no case holds that a trustee is a fiduciary with respect to surplus funds, a trustee’s surplus funds duties closely resemble those of a fiduciary – a fiduciary is one who holds and manages property for the benefit of another. Fiduciaries are held to a higher standard of care than others in discharging their duties. If a trustee has a fiduciary duty in handling surplus funds, a trustee may have a duty to do more than simply follow the statute with respect to giving notice of and distributing the surplus funds. For instance, a trustee may have a duty to take reasonable steps to find an interested party whose address is unknown to the trustee if the trustee has reason to believe such an address can be found. This is particularly so because the trustee can pay for the expense of the investigation from the surplus funds. Also, a trustee as a fiduciary may face greater exposure to punitive damages, which can be awarded for breach of fiduciary duty when coupled with fraud, malice or oppression.

Recording false documents ? and getting the house, the insurence, the tarp, the fdic guarentee, and whatever else the American taxpayer will give the pretender lender

23 Apr

Recently, many California Courts have been dismissing lawsuits filed to stop non-judicial foreclosures, ruling that the non-judicial foreclosure statutes occupy the field and are exclusive as long as they are complied with.  Thus, in the case where a notice of default is recorded and a lawsuit then filed in response to stop the foreclosure since the foreclosing party does not possess the underlying note, all too often the Court will simply dismiss the case and claim “2924 has no requirement to produce the note.”

Thus, these Courts view the statutes that regulate non-judicial foreclosures as all inclusive of all the requirements and remedies in foreclosure proceedings.  Indeed, California Civil Code sections 2924 through 2924k provide a comprehensive framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust. This comprehensive statutory scheme has three purposes: ‘“(1) to provide the creditor/beneficiary with a quick, inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser.” [Citations.]’ [Citation.]” (Melendrez v. D & I Investment, Inc. (2005) 127 Cal.App.4th 1238, 1249–1250 [26 Cal. Rptr. 3d 413].)

Notwithstanding, the foreclosure statutes are not exclusive.  If someone commits murder during an auction taking place under Civil Code 2924, that does not automatically mean they are immune from criminal and civil liability.  Perhaps this is where some of these courts are “missing the boat.”

For example, in Alliance Mortgage Co. v. Rothwell (1995) 10 Cal. 4th 1226, 1231 [44 Cal. Rptr. 2d 352, 900 P.2d 601], the California Supreme Court concluded that a lender who obtained the property with a full credit bid at a foreclosure sale was not precluded from suing a third party who had fraudulently induced it to make the loan. The court concluded that “ ‘the antideficiency laws were not intended to immunize wrongdoers from the consequences of their fraudulent acts’ ” and that, if the court applies a proper measure of damages, “ ‘fraud suits do not frustrate the antideficiency policies because there should be no double recovery for the beneficiary.’ ” (Id. at p. 1238.)

Likewise, in South Bay Building Enterprises, Inc. v. Riviera Lend-Lease, Inc. [*1071]  (1999) 72 Cal.App.4th 1111, 1121 [85 Cal. Rptr. 2d 647], the court held that a junior lienor retains the right to recover damages from the trustee and the beneficiary of the foreclosing lien if there have been material irregularities in the conduct of the foreclosure sale. (See also Melendrez v. D & I Investment, Inc., supra, 127 Cal.App.4th at pp. 1257–1258; Lo v. Jensen (2001) 88 Cal.App.4th 1093, 1095 [106 Cal. Rptr. 2d 443] [a trustee's sale tainted by fraud may be set aside].)

In looking past the comprehensive statutory framework, these other Courts also considered the policies advanced by the statutory scheme, and whether those policies would be frustrated by other laws.  Recently, in the case of California Golf, L.L.C. v. Cooper, 163 Cal. App. 4th 1053, 78 Cal. Rptr. 3d 153, 2008 Cal. App. LEXIS 850 (Cal. App. 2d Dist. 2008), the Appellate Court held that the remedies of 2924h were not exclusive.  Of greater importance is that the Appellate Court reversed the lower court and specifically held that provisions in UCC Article 3 were allowed in the foreclosure context:

Considering the policy interests advanced by the statutory scheme governing nonjudicial foreclosure sales, and the policy interests advanced by Commercial Code section 3312, it is clear that allowing a remedy under the latter does not undermine the former. Indeed, the two remedies are complementary and advance the same goals. The first two goals of the nonjudicial foreclosure statutes: (1) to provide the creditor/beneficiary with a quick, inexpensive and efficient remedy against a defaulting debtor/trustor and (2) to protect the debtor/trustor from a wrongful loss of the property, are not impacted by the decision that we reach. This case most certainly, however, involves the third policy interest: to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser.

This is very significant since it provides further support to lawsuits brought against foreclosing parties lacking the ability toenforce the underlying note, since those laws also arise under Article 3.  Under California Commercial Code 3301, a note may only be enforced if one has actual possession of the note as a holder, or has possession of the note not as a non-holder but with holder rights.

Just like in California Golf, enforcing 3301 operates to protect the debtor/trustor from a wrongful loss of the property.  To the extent that a foreclosing party might argue that such lawsuits disrupt a quick, inexpensive, and efficient remedy against a defaulting debtor/trustor, the response is that “since there is no enforceable obligation,  the foreclosing entity is not a party/creditor/beneficiary entitled to a quick, inexpensive, and efficient remedy,” but simply a declarant that recorded false documents.

This is primarily because being entitled to foreclose non-judicially under 2924 can only take place “after a breach of the obligation for which that mortgage or transfer is a security.”   Thus, 2924 by its own terms, looks outside of the statute to the actual obligation to see if there was a breach, and if the note is unenforceable under Article 3, there can simply be no breach.  End of story.

Accordingly, if there is no possession of the note or possession was not obtained until after the notice of sale was recorded, it is impossible to trigger 2924, and simple compliance with the notice requirements in 2924 does not suddenly bless the felony of grand theft of the unknown foreclosing entity.  To hold otherwise would create absurd results since it would allow any person or company the right to take another persons’ home by simply recording a false notice of default and notice of sale.

Indeed, such absurdity would allow you to foreclose on your own home again to get it back should you simply record the same false documents.  Thus it is obvious that these courts improperly assume the allegations contained in the notice of default and notice of sale are truthful.   Perhaps these courts simply cannot or choose not to believe such frauds are taking place due to the magnitude and volume of foreclosures in this Country at this time.  One can only image the chaos that would ensue in America if the truth is known that millions of foreclosures took place unlawfully and millions more are now on hold as a result of not having the ability to enforce the underlying obligation pursuant to Article 3.

So if you are in litigation to stop a foreclosure, you can probably expect the Court will want to immediately dismiss your case.  These Courts just cannot understand how the law would allow someone to stay in a home without paying.  Notwithstanding, laws cannot be broken, and Courts are not allowed to join with the foreclosing parties in breaking laws simply because “not paying doesn’t seem right.”

Accordingly, at least for appeal purposes, be sure to argue that 2924 was never triggered since there was never any “breach of the obligation” and that Appellate Courts throughout California have routinely held that other laws do in fact apply in the non-judicial foreclosure process since the policies advanced by the statutory non-judicial foreclosure scheme are not frustrated by these other laws. The recent exposure and discovery of Robosigners and notary fraud has added another dimension to the “exclusive 2924 argument as seen in the 22/20 special aired April 3, 2011.

Scott Pelley reports how problems with mortgage documents are prompting lawsuits and could slow down the weak housing market

  • Play CBS Video Video The next housing shockAs more and more Americans face mortgage foreclosure, banks’ crucial ownership documents for the properties are often unclear and are sometimes even bogus, a condition that’s causing lawsuits and hampering an already weak housing market. Scott Pelley reports.
  • Video Extra: Eviction reprieveFlorida residents AJ and Brenda Boyd spent more than a year trying to renegotiate their mortgage and save their home. At the last moment, questions about who owns their mortgage saved them from eviction.
  • Video Extra: “Save the Dream” eventsBruce Marks, founder and CEO of the nonprofit Neighborhood Assistance Corporation of America talks to Scott Pelley about his “Save the Dream” events and how foreclosures are causing a crisis in America.
(CBS News)If there was a question about whether we’re headed for a second housing shock, that was settled last week with news that home prices have fallen a sixth consecutive month. Values are nearly back to levels of the Great Recession. One thing weighing on the economy is the huge number of foreclosed houses.Many are stuck on the market for a reason you wouldn’t expect: banks can’t find the ownership documents.Who really owns your mortgage?
Scott Pelley explains a bizarre aftershock of the U.S. financial collapse: An epidemic of forged and missing mortgage documents.It’s bizarre but, it turns out, Wall Street cut corners when it created those mortgage-backed investments that triggered the financial collapse. Now that banks want to evict people, they’re unwinding these exotic investments to find, that often, the legal documents behind the mortgages aren’t there. Caught in a jam of their own making, some companies appear to be resorting to forgery and phony paperwork to throw people – down on their luck – out of their homes.In the 1930s we had breadlines; venture out before dawn in America today and you’ll find mortgage lines. This past January in Los Angeles, 37,000 homeowners facing foreclosure showed up to an event to beg their bank for lower payments on their mortgage. Some people even slept on the sidewalk to get in line.So many in the country are desperate now that they have to meet in convention centers coast to coast.In February in Miami, 12,000 people showed up to a similar event. The line went down the block and doubled back twice.

Video: The next housing shock
Extra: Eviction reprieve
Extra: “Save the Dream” events

Dale DeFreitas lost her job and now fears her home is next. “It’s very emotional because I just think about it. I don’t wanna lose my home. I really don’t,” she told “60 Minutes” correspondent Scott Pelley.

“It’s your American dream,” he remarked.

“It was. And still is,” she replied.

These convention center events are put on by the non-profit Neighborhood Assistance Corporation of America, which helps people figure what they can afford, and then walks them across the hall to bank representatives to ask for lower payments. More than half will get their mortgages adjusted, but the rest discover that they just can’t keep their home.

For many that’s when the real surprise comes in: these same banks have fouled up all of their own paperwork to a historic degree.

“In my mind this is an absolute, intentional fraud,” Lynn Szymoniak, who is fighting foreclosure, told Pelley.

While trying to save her house, she discovered something we did not know: back when Wall Street was using algorithms and computers to engineer those disastrous mortgage-backed securities, it appears they didn’t want old fashioned paperwork slowing down the profits.

“This was back when it was a white hot fevered pitch to move as many of these as possible,” Pelley remarked.

“Exactly. When you could make a whole lotta money through securitization. And every other aspect of it could be done electronically, you know, key strokes. This was the only piece where somebody was supposed to actually go get documents, transfer the documents from one entity to the other. And it looks very much like they just eliminated that stuff all together,” Szymoniak said.

Szymoniak’s mortgage had been bundled with thousands of others into one of those Wall Street securities traded from investor to investor. When the bank took her to court, it first said it had lost her documents, including the critical assignment of mortgage which transfers ownership. But then, there was a courthouse surprise.

“They found all of your paperwork more than a year after they initially said that they had lost it?” Pelley asked.

“Yes,” she replied.

Asked if that seemed suspicious to her, Szymoniak said, “Yes, absolutely. What do you imagine? It fell behind the file cabinet? Where was all of this? ‘We had it, we own it, we lost it.’ And then more recently, everyone is coming in saying, ‘Hey we found it. Isn’t that wonderful?’”

But what the bank may not have known is that Szymoniak is a lawyer and fraud investigator with a specialty in forged documents. She has trained FBI agents.

She told Pelley she asked for copies of those documents.

Asked what she found, Szymoniak told Pelley, “When I looked at the assignment of my mortgage, and this is the assignment: it looked that even the date they put in, which was 10/17/08, was several months after they sued me for foreclosure. So, what they were saying to the court was, ‘We sued her in July of 2008 and we acquired this mortgage in October of 2008.’ It made absolutely no sense.”

Produced by Robert Anderson and Daniel Ruetenik

Now for the pleading

Timothy L. McCandless, Esq. SBN 147715

LAW OFFICES OF TIMOTHY L. MCCANDLESS

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Tel:  909/890-9192

Fax: 909/382-9956

Attorney for Plaintiffs

 

SUPERIOR COURT OF THE STATE OF CALIFORNIA

 

COUNTY OF ____________

___________________________________,

And ROES 1 through 5,000,

Plaintiff,

v.

SAND CANYON CORPORATION f/k/a OPTION ONE MORTGAGE CORPORATION; AMERICAN HOME MORTGAGE SERVICES, INC.; WELLS FARGO BANK, N.A., as Trustee for SOUNDVIEW HOME LOAN TRUST 2007-OPT2; DOCX, LLC; and PREMIER TRUST DEED SERVICES and 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 on Plaintiff’s  title thereto, Does 1 through 10, Inclusive,

Defendants.CASE NO:

FIRST AMENDED COMPLAINT

FOR QUIET TITLE, DECLARATORY RELIEF, TEMPORARY RESTRAINING ORDER, PRELIMINARY INJUNTION AND PERMANENT INJUNCTION, CANCELATION OF INSTRUMENT AND FOR DAMAGES ARISING FROM:

SLANDER OF TITLE; TORTUOUS

VIOLATION OF STATUTE [Penal

Code § 470(b) – (d); NOTARY FRAUD;

///

///

///

///

Plaintiffs ___________________________ allege herein as follows:

GENERAL ALLEGATIONS

            1.         Plaintiffs ___________ (hereinafter individually and collectively referred to as “___________”), were and at all times herein mentioned are,  residents of the County of _________, State of California and the lawful owner of a parcel of real property commonly known as: _________________, California _______ and the legal description is:

Parcel No. 1:

A.P.N. No. _________ (hereinafter “Subject Property”).

2.         At all times herein mentioned, SAND CANYON CORPORATION f/k/a OPTION ONE MORTGAGE CORPORATION (hereinafter SAND CANYON”), is and was, a corporation existing by virtue of the laws of the State of California and claims an interest adverse to the right, title and interests of Plaintiff in the Subject Property.

3.         At all times herein mentioned, Defendant AMERICAN HOME MORTGAGE SERVICES, INC. (hereinafter “AMERICAN”), is and was, a corporation existing by virtue of the laws of the State of Delaware, and at all times herein mentioned was conducting ongoing business in the State of California.

4.         At all times herein mentioned, Defendant WELLS FARGO BANK, N.A., as Trustee for SOUNDVIEW HOME LOAN TRUST 2007-OPT2 (hereinafter referred to as “WELLS FARGO”), is and was, a member of the National Banking Association and makes an adverse claim to the Plaintiff MADRIDS’ right, title and interest in the Subject Property.

5.         At all times herein mentioned, Defendant DOCX, L.L.C. (hereinafter “DOCX”), is and was, a limited liability company existing by virtue of the laws of the State of Georgia, and a subsidiary of Lender Processing Services, Inc., a Delaware corporation.

6.         At all times herein mentioned, __________________, was a company existing by virtue of its relationship as a subsidiary of __________________.

7.         Plaintiffs are ignorant of the true names and capacities of Defendants sued herein as DOES I through 10, inclusive, and therefore sues these Defendants by such fictitious names and all persons unknown claiming any legal or equitable right, title, estate, lien, or interest in the property described in the complaint adverse to Plaintiffs’ title, or any cloud on Plaintiffs’ title thereto. Plaintiffs will amend this complaint as required to allege said Doe Defendants’ true names and capacities when such have been fully ascertained. Plaintiffs further allege that Plaintiffs designated as ROES 1 through 5,000, are Plaintiffs who share a commonality with the same Defendants, and as the Plaintiffs listed herein.

8.         Plaintiffs are informed and believe and thereon allege that at all times herein mentioned, Defendants, and each of them, were the agent and employee of each of the remaining Defendants.

9.         Plaintiffs allege that each and every defendants, and each of them, allege herein ratified the conduct of each and every other Defendant.

10.       Plaintiffs allege that at all times said Defendants, and each of them, were acting within the purpose and scope of such agency and employment.

11.       Plaintiffs are informed and believe and thereupon allege that circa July 2004, DOCX was formed with the specific intent of manufacturing fraudulent documents in order create the false impression that various entities obtained valid, recordable interests in real

properties, when in fact they actually maintained no lawful interest in said properties.

12.       Plaintiffs are informed and believe and thereupon allege that as a regular and ongoing part of the business of Defendant DOCX was to have persons sitting around a table signing names as quickly as possible, so that each person executing documents would sign approximately 2,500 documents per day. Although the persons signing the documents claimed to be a vice president of a particular bank of that document, in fact, the party signing the name was not the person named on the document, as such the signature was a forgery, that the name of the person claiming to be a vice president of a particular financial institution was not a “vice president”, did not have any prior training in finance, never worked for the company they allegedly purported to be a vice president of, and were alleged to be a vice president simultaneously with as many as twenty different banks and/or lending institutions.

13.       Plaintiffs are informed and believe and thereupon allege that the actual signatories of the instruments set forth in Paragraph 12 herein, were intended to and were fraudulently notarized by a variety of notaries in the offices of DOCX in Alpharetta, GA.

14.       Plaintiffs are informed and believe and thereupon allege that for all purposes the intent of Defendant DOCX was to intentionally create fraudulent documents, with forged signatures, so that said documents could be recorded in the Offices of County Recorders through the United States of America, knowing that such documents would forgeries, contained false information, and that the recordation of such documents would affect an interest in real property in violation of law.

15.       Plaintiffs allege that on or about, ____________, that they conveyed a first deed of  trust (hereinafter “DEED”) in favor of Option One Mortgage, Inc. with an interest of

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Some judges chastise banks over foreclosure paperwork

11 Nov

Gallery
During the housing boom, millions of homeowners got easy access to mortgages. Now, some mortgage lenders and government officials are taking action after discovering that many mortgage documents were mishandled.

ST PATCHOGUE, N.Y. – A year ago, Long Island Judge Jeffrey Spinner concluded that a mortgage company’s paperwork in a foreclosure case was so flawed and its behavior in negotiations with the borrower so “repugnant” that he erased the family’s $292,500 debt and gave the house back for free.

The judgment in favor of the homeowner, Diane Yano-Horoski, which is being appealed, has alarmed the nation’s biggest lenders, who say it could establish a dramatic new legal precedent and roil the nation’s foreclosure system.

It is not the only case that has big banks worried. Spinner and some of colleagues in the New York City area estimate they are dismissing 20 to 50 percent of foreclosure cases on the basis of sloppy or fraudulent paperwork filed by lenders.

Their decisions illustrate the central role lower court judges will have in resolving the country’s foreclosure debacle. The mess came to light after lawsuits and media reports showed lenders were routinely filing shoddy or fraudulent papers to seize the homes of borrowers who had missed payments.

In millions of cases across the United States, local judges have wide latitude to impose sanctions on banks, free homeowners from their mortgage debts or allow the companies to proceed with flawed foreclosures. Ultimately, the industry is likely to face a messy scenario – different resolutions by courts in all 50 states.

The foreclosure dismissals in this area of New York have not delivered free homes for borrowers. With so much at stake, lenders in this part of New York are aggressively appealing foreclosure dismissals, which is likely to keep the legal system bogged down, foreclosed homes off the market, and homeowners like the Yano-Horoski family in legal limbo for years.

“We believe the Yano-Horoski ruling, if allowed to stand, has sweeping and dangerous implications for the entire mortgage lending industry,” said OneWest Bank, the family’s mortgage servicer.

The situation in Suffolk and Nassau counties on Long Island and Kings County in Brooklyn- which have among the highest rates of foreclosure in the state and where the 81 judges handling foreclosures have become infamous over the past few years for scrutinizing paperwork for errors – provides a window into how the crisis could unfold across in the country.

While the level of tolerance for document mistakes varies from judge to judge, the group as a whole has a reputation for ruling against mortgage companies when paperwork issues or other problems arise. At least one bank, J.P. Morgan Chase, requires document processors to separate foreclosures cases from these three counties from those in the rest of the country. A high-ranking executive of the company is specially assigned to sign off on the area’s foreclosure filings.

Judge Dana Winslow of Nassau County says he’s thought a lot about why judges in his area are more apt to question filings. He said it comes down to one thing: Lack of trust for Wall Street. In this region, judges have seen a lot of inaccurate filings from the financial sector.

Trust “of the lending institutions and Wall Street has eroded in some areas of the country more than others,” Winslow said.

Craig D. Robins, a foreclosure defense attorney who authors the Long Island Bankruptcy blog, said of the Yano-Horoski case: “I think we’re going to see more decisions like this across the country. Many judges are finding their court calendars clogged with cases that have all these flaws in them that never should have been brought in the first place or should never have been brought without more due diligence.”

Going forward, mortgage companies trying to foreclosure in the state of New York will face stiffer requirements. On Oct. 20, the state’s chief judge said attorneys for lenders will have to vouch personally for the accuracy of documents.

“We can’t have the process being a fraud,” New York State Chief Judge Jonathan Lippman said in announcing the new procedure. “It has to be real and based on credible information.”

Even before Lippman’s order, however, lower court judges were already raising questions about faulty paperwork in foreclosures.

On June 17, for example, Judge Karen Murphy of Nassau County ruled that Wachovia Bank lacked standing to foreclose on a home because the document used to prove ownership of the mortgage was incomplete.

On Sept. 21, Judge Peter Mayer of Suffolk County delayed a foreclosure by Ally Financial’s GMAC mortgage unit after noticing that the paperwork transferring the mortgage to the bank was dated two days after the foreclosure was initiated.

And on Oct. 21, Judge Arthur Schack of Kings County dismissed a OneWest foreclosure motion because the bank had not adequately documented how the mortgage had been sold and resold to investors. He also questioned why the employee who signed many of the documents claimed to be a vice president of several different mortgage companies at the same time.

In a different case in May, Schack ruled that HSBC Bank could not foreclose on a home because the paperwork that assigned the mortgage to HSBC from the original lender, Cambridge, was “defective.”

That didn’t mean the borrower, Lovely Yeasmin, a 28-year-old cashier who immigrated from Bangladesh, got her three-story townhouse in Brooklyn’s Bushwick neighborhood for free. Wells Fargo, the mortgage servicer for HSBC, has not appealed the case. Instead, it has offered to temporarily lower her monthly payment from $4,700 to $3,000.

Yeasmin’s eldest brother, Mohammed Parpez, 35, said that before the judge’s order, Wells Fargo was resistent to a loan modification. “The banks are crooks. They tell everyone they are trying to help people like us, but they are really doing the opposite,” Parpez said.

Tom Goyda, a Wells Fargo spokesman, said that although the company “disagrees with the court’s findings,” it is continuing to try to work out a longer-term solution with the family.Members of the Yano-Horoski family said they struggled similarly to get their lender to modify their loan after Greg Horoski fell ill in 2005 and his online business selling specialty dolls suffered. After he underwent a triple bypass surgery, two stents and two hip replacements, he and his wife, Diane – who teaches an online English composition course – found themselves unable to pay the bills.

Despite his pleas, Horoski said, he failed to get OneWest to come to an agreement, even though he became able to pay the debt after his company’s sales picked up.

In his November 2009 ruling, Judge Spinner of Suffolk County blasted OneWest for negotiating with an “opprobrious demeanor and condescending attitude.” He also cited the bank’s “duplicity” in offering a forbearance agreement with a deadline that had already passed and for presenting contradictory paperwork claiming different amounts for what the family owed.

With their case under appeal, the Yano-Horoskis now find themselves in a tricky position, wary of putting more money into a house that an appeals court could take away from them. While the other houses on their quiet suburban street are meticulously maintained, their front-porch light remains shattered and the paint on their house is peeling.

They’ve shelled out $3,000 for a new hot-water system. They paid $2,000 for tree trimming after a neighbor complained. But they’ve let the $10,000 property tax bill become delinquent, and they worry an appeals court could not only reverse the earlier ruling but demand that the family pay back the mortgage for every month that has passed since.

Nonetheless, Horoski remains optimistic.

“People thought people who didn’t pay their mortgages were automatically deadbeats,” he said. “People are educated now. They are realizing all of a sudden how many hundreds of thousands of these homes that were foreclosed may have been done so with fraudulent documents.”

Staff researchers Julie Tate, Alice Crites and Magda Jean-Louis contributed to this report. Faye Crosley forwarded this article to me and I have posted it for my readers. It would appear that some judges are beginning to thaw to the idea that this “bailout” is for the banks and the victims are being pushed aside by the foreclosure machine

ASSAILING THE FORECLOSURE

30 Sep

ASSAILING THE FORECLOSURE

Introduction

Neither the beneficiary nor the trustee needs to invoke any judicial procedure or obtain any judicial process to cause the sale of property pursuant to a power of sale. The only court procedure needed to complete the full foreclosure process is an action for unlawful detainer, after the consummation of the sale, to oust the former owner from possession.

The onus of challenging the merit of the foreclosure and the fairness and regularity of the process is placed on the trustor or junior lienholder. Thus, judicial supervision, examination, and intervention would come almost exclusively through an action instituted by the trustor or, to a lesser extent, a junior encumbrancer. The notion is that the minimum period of three months coupled with the succeeding 20-day period is sufficient time for the trustor to take appropriate action to stop the foreclosure sale. [See generally Smith v. Allen (1968) 68 Cal.2d 93, 96; 65 Cal.Rptr. 153.] In Py v. Pleitner (1945) 70 Cal.App.2d 576, 582; 161 P.2d 393, for example, the court denied the trustor any relief but commented that “[w]e appreciate the unfortunate position in which appellant finds herself because she did not seek legal advice to protect her legal rights.”

The foreclosure proceeding can be attacked before and after the sale; however, as discussed below, the trustor may be unable to successfully assert claims, regarding the invalidity of the proceeding, against a bona fide purchaser for value and without notice. If an action is initiated prior to the sale, the basic remedy sought is an injunction to restrain the foreclosure sale in addition to other remedies such as quiet title or cancellation of the trust deed. If an action is initiated after the foreclosure sale, the trustor will seek various remedies and will attempt to vacate the sale and to enjoin the purchaser from attempting to oust the trustor from possession. After the sale, the battleground may be in unlawful detainer proceedings where raising defenses based on the obligation or the trust deed may not be allowed or, if allowed, would be perilous.

Grounds for Attacking the Foreclosure

One of the fundamental grounds for attacking a foreclosure is that the lien is invalid. The lien may be invalid and unenforceable because of defects related to its negotiation and execution. Moreover, since the lien is a mere incident to the obligation which it secures, the lien cannot be enforced if the obligation is invalid or if the obligation has not been breached. The lien also may not be enforced if the breach is less than the amount stated in the notice of default and the trustor cures the

default by paying the lesser amount.

In addition, the foreclosure can be stopped if the procedural requirements and safeguards established by statute are not followed. Thus, defects in the notice of default, notice of sale, the reinstatement procedure, or the proposed or actual conduct of the sale afford grounds for preventing or voiding the sale.

The Obligation is Unenforceable

Various common law theories (e.g., fraud in factum, fraud in inducement, duress, failure of consideration, unconscionability, forgery, etc.) may be raised to render the obligation unenforceable.

The Lien is Unenforceable

Common Law Theories

Various common law theories (e.g., fraud, mistake, no delivery, forgery, community property but both spouses did not encumber, etc.) may be raised to render the lien unenforceable.  105 Cal.App.3d 65, 75-80; 164 Cal.Rptr. 279; Thomas v. Wright (1971) 21 Cal.App.3d 921; 98 Cal.Rptr. 874; Brewer v. Home Owners Auto Finance Co. (1970) 10 Cal.App.3d 337; 89 Cal.Rptr. 231.]

One form of transaction involving seller participation in the financing is the seller assisted loan. In this type of loan, the seller assists the buyer in obtaining a loan for all or part of the purchase price of the vehicle from a third party lender. If the seller is significantly involved in the procurement of the loan, the Rees-Levering Act applies. [See Hernandez v. Atlantic Finance Co. of Los Angeles, supra, 105 Cal.App.3d 65, 70, 73-80.] Rees-Levering exempts loans made by supervised financial organizations, such as banks and consumer finance lenders, and security interests taken in connection with such loans from the Act’s coverage [Civ. Code § 2982.5(a)]; however, this exemption applies only to loans independently obtained by purchasers without seller assistance. [See Hernandez v. Atlantic Finance Co. of Los Angeles, supra, 105 Cal.App.3d 65, 70.] If Rees-Levering applies to a seller assisted loan, any trust deed or other real property lien securing the loan will be void. [See Civ. Code § 2984.2(c); Brewer v. Home Owners Auto Finance Co.. supra, 10 Cal.App.3d 337.]

After Hernandez was decided, the Legislature amended the Rees-Levering Act to include special provisions for seller assisted loans.  [Civ. Code § 2982.5(d).]  The seller may assist the buyer

in obtaining a loan for all or part of the purchase price; however, any real property lien securing the loan is void and unenforceable unless the loan is for $7,500 or more and is used for certain recreational vehicles. [Civ. Code § 2982.5(d)(1) and (2).] This section does not apply to seller assisted loans made by banks and savings and loan associations which continue to be governed by Hernandez principles.

Neither Hernandez nor Civil Code section 2982.5(d) defines seller assisted loan. In Hernandez, the seller completed the buyer’s credit application, repeatedly called the buyer to inform her that credit had been approved, picked her up and drove her to the seller’s place of business to sign documents, and drove her to the lender’s place of business to sign more documents. (105 Cal.App.3d at 73.) Hernandez, presents an extreme example of seller involvement in obtaining financing. A seller assisted loan may occur without the degree of seller involvement present in Hernandez. For example, a seller assisted loan embraces a loan in which the seller prepares or helps the buyer prepare a loan application and forwards it to the lender. [See Eldorado Bank v. Lytle (1983) 147 Cal.App.3d Supp. 17, 21; 195 Cal.Rptr. 499.] Although a precise definition of seller assisted loan does not appear in the cases or the statute, the term appears to be broad and at least includes loans arranged or facilitated by the direct involvement of the seller in preparing and/or submitting loan information to the creditor.

The Rees-Levering Act does not specifically address the situation of a seller assisted loan which is used partly for a vehicle purchase and partly for some other purpose such as a home improvement or bill consolidation. A creditor could argue that the lien covering the non-vehicle portion of the loan is not in violation of the statute and, therefore, is not void to the extent the lien secures repayment of the nonvehicle loan. However, the lien is taken as part of an entire loan transaction. The purpose of the transaction was to obtain a vehicle loan. Other portions of the loan may have been required by the creditor as a condition to giving the vehicle loan, such as a pay off of other creditors. The creditor may use the setting of the vehicle loan negotiation as a method of persuading buyers to obtain loans which they neither sought nor needed. Since the Legislature apparently did not want a buyer to enter the door of a vehicle dealer and come out with a trust deed on the buyer’s home, the broad language invalidating

real property security interests should extend to the entire vehicle inspired loan. [See Civ. Code §§ 2982.5(d)(1) and 2984.2(c).]

The creditor could argue that it may be entitled to an equitable lien for the non-vehicle portion of the loan. An equitable lien may be created when justice requires if a party intends to give a mortgage as security for a debt. [See generally Estate of Pitts (1933) 218 Cal. 184, 189; 22 P.2d 694; McColaan v. Bank of California Nat. Assn. (1929) 208 Cal. 329, 338; 281 P. 381; Lentz v. Lentz (1968) 267 Cal.App.2d 891, 894; 73 Cal.Rptr. 686; see also Forte v. Nolfi (1972) 25 Cal.App.3d 656, 692; 102 Cal.Rptr. 455 in which the court gave an unwitting assignee of a forged trust deed an equitable lien to the extent of the consideration received by the debtor who had originally intended to execute a trust deed.] However, the buyer cannot waive rights against the seller. [See Civ. Code 2983.7(c) and (e).] Thus, the buyer’s intent is essentially irrelevant since the buyer cannot waive the prohibition against trust deeds in transactions covered under Rees-Levering even if the buyer intends to do so. Moreover, the creditor’s right to an equitable lien, in any case, will depend on the circumstances of the case and whether justice would be served by the imposition of an equitable lien. If, for example, the creditor required an unsophisticated buyer to pay other obligations,  particularly unsecured or low interest rate secured

obligations, as a condition to obtaining an automobile loan unlawfully secured by a trust deed, the creditor may have worsened the buyer’s financial condition. As a result, an equitable lien for the nonvehicle portion of the loan which the buyer did not seek or require would inequitably reward the creditor’s conduct; thus, the creditor should be left unsecured. Even if the creditor could receive an equitable lien for the non-vehicle portion of the loan, the creditor cannot nonjudically foreclose it. Since there is no power of sale, the equitable lien can be enforced only by judicial foreclosure.  [See Code of Civ. Proc. § 726.]

An exception to the general rule that Rees-Levering prohibits real property liens may be found in Civil Code section 2982.5(b). That section permits the seller to assist the buyer in obtaining a loan “upon any security” for all or part of the down payment “or any other payment” on a conditional sale contract or purchase order. Rees-Levering does not prohibit a real property lien for such a loan. [See Civ. Code §§ 2982.5(b), 2984.2(b).]

The validity of a real property lien taken in connection with seller assisted financing may turn on whether the loan falls within Civil Code section 2982.5(b) or section 2982.5(d). These sections do not specify the size of the loans to which they respectively apply; therefore, there may be a dispute over whether a loan is for a downpayment or “any other payment” [Civ. Code § 2982.5(b)] or a

loan for “the full purchase price, or any part thereof.” [Civ. Code § 2982.5(d).] The legislative scheme apparently contemplates that the loans covered under Civil Code section 2982.5(b) are small in amount and are used for modest downpayments or pickup payments (the difference between the downpayment demanded by the seller and the amount given by the buyer toward the downpayment.) [ See Hernandez v. Atlantic Finance Co. of Los Angeles, supra, 105 Cal.App.3d 65, 76-77.] Lenders such as banks normally do not take real property liens for such relatively small amounts, and personal property brokers and consumer finance lenders which regularly make small loans for car purchases are precluded from taking any real property lien for loans under $5,000. [See Fin. Code §§ 22466 and 24466.] Thus, a specific prohibition on real property liens for small loans covered under Civil Code section 2982.5(b) was probably thought unnecessary. Since real property liens cannot be taken to secure loans for all or part of the purchase price or for financing under conditional sales contracts, it would be absurd to sanction a real property lien for a small loan. Given the protective purpose and policy of the Rees-Levering Act and its hostility to real property security, a seller assisted loan involving real property security should be deemed to be covered by Civ. Code §§ 2982.5(d) and 2984.2(a) and (c). Otherwise, Civ. Code § 2982.5(b) would become an exception which would destroy the rule.

Retail Installment Sales

The Unruh Act [Civ. Code § 1801 et seq.] governs the sale of goods and services for a deferred payment price, including finance charges, payable in installments. [See Civ. Code §§ 1802.3 -1802.6.] Any real property lien taken to secure payment on a contract for goods which are not to be attached to real property is void. [Civ. Code §§ 1804.3(b), 1804.4.) Thus, for example, liens securing contracts for carpeting installed by the tackless strip method are void because carpeting so installed is not attached to real property. [See People v. Custom Craft Carpets, Inc. (1984) 159 Cal.App.3d 676, 685; 206 Cal.Rptr. 12.]

In Custom Craft, the Court observed that whether goods are attached to real property is a question of fact. However, neither the Unruh Act nor Custom Craft equate an article’s being “attached to real property” with being a fixture. Therefore, the facts to be analyzed relate to the goods’ method and degree of attachment to the real property and not to the parties’ intent which is a fundamental element in establishing fixture status.

Other provisions of the Unruh Act affect the validity of a security interest in real property. For example, a retail installment contract for goods or services which contains a lien must contain a statutorily designated warning notice printed in a prescribed manner in the same language used in the contract; otherwise the lien is void and unenforceable. [Civ. Code § 1803.2(b)(3).] The Unruh Act also includes the following requirements:

1. A contract providing for a real property security interest must have the phrase “Security Agreement” printed in at least 12-point type at the top of the contract.  [Civ. Code § 1803.2(b)(1)];

2. The entire agreement of the parties regarding cost and terms of payment including any promissory note or any other evidence of indebtedness must be contained in a single document. [Civ. Code § 1803.2(a); see Morgan v. Reasor Corp. (1968) 69 Cal.2d 881; 73 Cal.Rptr. 398];

3. The contract must contain all of the disclosures required by Regulation Z. [Civ. Code § 1803.3(b).] Regulation Z requires, in part, the disclosure of the existence of a security interest in property [12 C.F.R. § 226.18(m)] and the disclosure of the right of rescission. [12 C.F.R. § 226.23(b)];

4. The seller must not obtain the buyer’s signature on a contract containing blank spaces to be filled in

after it has been signed.  [Civ. Code § 1803.4.]

Any prohibited contract provision is void. [Civ. Code § 1804.4.] Thus, for example, if the lien provision were blank when the customer signed the contract and were subsequently completed or if the lien were not part of a single document containing all of the costs or terms of payment, the lien provision should be declared void. Even if the lien were not declared void, the penalty against the seller for the violation of the Unruh Act is the loss of all finance charges, including those already collected [Civ. Code § 1812.7], which might sufficiently offset the amount in default to stop the foreclosure.

The Unruh Act applies to credit sales. The statutory scheme specifically deals with retail installment sales in which the seller extends credit by permitting the buyer to obtain the goods and services on a deferred payment basis. [See, e.g., Civ. Code §§ 1802.5, 1802.6.] The essence of the transaction is the sale, and the credit terms merely facilitate the sale. In practice, the seller frequently assigns the installment contract to a third party creditor such as a bank or finance company in the business of supplying consumer credit. Indeed, a seller under a retail installment contract often has no intention of extending credit to a buyer through the maturity date of the contract but nevertheless

enters into the contract with a view to assigning the contract soon after the sale to a creditor with which the seller had made previous arrangements for financing. See Morgan v. Reasor Corp., supra, 69 Cal.2d 881, 895.] Such prearranged assignment of the credit sale contract does not alter the characterization of the transaction as a credit sale. [See Boerner v. Colwell Co. (1978) 21 Cal.3d 37, 50; 145 Cal.Rptr. 380.]

The Unruh Act also applies to transactions, involving sales financed from the proceeds of seller assisted loans, that are credit sales in substance. [Civ. Code § 1801.6(a).] A seller assisted loan transaction has the same attributes as a credit sale. The buyer is willing to buy only on credit. The seller arranges for credit; however, instead of using a retail installment contract which is assigned to a third party creditor, the seller arranges for the creditor to loan the money directly to the buyer, and the seller receives the proceeds of the loan.

The conventional retail installment sale and the seller assisted loan transaction embody similar relationships and objectives. The buyer obtains goods on a deferred payment basis, but instead of making monthly payments to the creditor as the assignee of the installment contract, the buyer makes monthly payments to the creditor as the lender. The seller has arranged for credit for the buyer either through a direct loan by the

creditor or an “indirect loan” consisting of the creditor’s advancing money for the buyer’s purchase in exchange for receiving an assignment of the buyer’s installment obligation. The seller receives payment either in the form of the proceeds from the loan or the proceeds from the assignment. A transaction in the form of a sale financed by a seller assisted loan is strikingly similar to the transaction held to be a credit sale in Boerner v. Colwell Co., supra, 21 Cal.3d 37, 41-42, 50-51. The Legislature has declared that Boerner should be considered in determining whether a transaction is in substance a credit sale. [Civ. Code §1801.6(a).] Since a seller assisted loan transaction is in substance a credit sale, it should be governed by the Unruh Act restrictions regarding credit sales. [See 64 Ops.Cal.Atty.Gen. 722; see also Hernandez v. Atlantic Finance Co. of Los Angeles, supra, 105 Cal.App.3d 65 holding that seller assisted loans for automobile purchases were governed by the Rees-Levering Act.]

The Unruh Act also provides coverage for transactions which are loans both in substance and in form. This coverage applies when the lender and the seller share in the profits and losses of the sale and/or the loan or when the lender and the seller are related by common ownership and control and that relationship is a material factor in the loan transaction.  [See Civ. Code § 1801.6(b).]

Creditors  may attempt  to  shield  seller assisted  loan

transactions from the requirements of the Unruh Act by claiming that transactions in the form of loans are exempt from the Unruh Act unless the lender and seller share profits and losses or have common ownership and control as described in Civil Code section 1801.6(b). However, Civil Code section 1801.6(a) declares that the substance, not the form, of the transaction is paramount. The legislative intent expressed in Civil Code section 1801.6(a) dictates the construction of section 1801.6(b); thus, section 1801.6(b) cannot be read to exempt all transactions in the form of a loan regardless of the transactions true substance. Accordingly, section 1801.6(b) must be viewed as exempting certain actual loan transactions from the Unruh Act but not exempting credit sales cast in the form of loans.

3.   Dispute as to What, if any. Amount Owed

a.   Disputed Amount Owed

The notice of default should appropriately describe the nature of the breach. As the Court of Appeal observed, “The provisions of section 2924 of the Civil Code with reference to inclusion, in the notice of default, of a statement setting forth the nature of the breach ‘must be strictly followed.’”  System Inv. Corp. v. Union Bank (1971) 21 Cal.App.3d 137, 152-53; 98 Cal.Rptr. 735.] A foreclosure sale should not be permitted if the amount of the

debt is disputed or uncertain. [See More v. Calkins (1892) 85 Cal. 177, 188; 24 P. 729; cf. Sweatt v. Foreclosure Co, (1985) 166 Cal.App.3d 273, 276; 212 Cal.Rptr. 350; but see Ravano v. Sayre (1933) 135 Cal.App. 60; 26 P.2d 515.] Accordingly, the sale may be enjoined until the court determines the correct amount owed. [See Producers Holding Co. v. Hills (1927) 201 Cal. 204, 209; 256 P. 207; More v. Calkins, supra, 85 Cal. 177, 188, 190; see also Hunt v. Smyth (1972) 25 Cal.App.3d 807, 837; 101 Cal.Rptr. 4; Lockwood v. Sheedy (1958) 157 Cal.App.2d 741, 742; 321 P.2d 862.] If some liability is admitted, then that amount may have to be tendered to do equity [see Meetz v. Mohr (1904) 141 Cal. 667, 673; 75 P. 298]; however, the court could enjoin the entire sale, under a defective notice of default which improperly states the nature of the default, notwithstanding the existence of a clear breach, and could permit the beneficiary to file a proper notice of default upon which the foreclosure may proceed. (See Lockwood v. Sheedy, supra, 157 Cal.App.2d 741, 742.) Of course, if there is no default (e.g. the full amount due has been tendered), a foreclosure is void. [See e.g., Lichty v. Whitney (1947) 80 Cal.App.2d 696, 702; 182 P.2d 582 (tender of amount due); Huene v. Cribb (1908) 9 Cal.App. 141, 144; 98 P. 78; see also Winnett v. Roberts (1979) 179 Cal.App.3d 909, 921-22, 225.]

b. Payment Excused

The trustor may also dispute whether any amount is owed if the beneficiary breaches its obligation to the trustor and the breach excuses the trustor’s performance. [See System Inv. Corp, v. Union Bank, supra, 21 Cal.App.3d 137, 154.]

c. Waiver or Estoppel to Claim Payment or Default

The trustor may deny that any amount is owed at that particular time, or may deny that the prescribed amount demanded is owed, if the beneficiary has waived the time requirements contained in the obligation by accepting late payments or if the beneficiary has accepted payments smaller than that permitted in the contract.

A waiver is unlikely to be construed as permanent in the absence of a writing or new consideration. A permanent waiver is, in effect, a change in the agreement equivalent to a novation requiring new consideration. [E.g., Hunt v. Smyth, supra, 25 Cal.App.3d 807, 819; Bledsoe v. Pacific Ready Cut Homes, Inc. (1928) 92 Cal.App. 641, 644-45; 268 P. 697.] The beneficiary and trustor may modify their payment schedule in writing without new consideration. [See Civ. Code §§1698(a), 2924c (b)(1).] The beneficiary’s conduct, however, may constitute a temporary waiver.

The beneficiary cannot declare the trustor in default of the terms of the obligation where the beneficiary has temporarily waived such terms — until the beneficiary has given definite notice demanding payment in accord with the obligation and has provided the trustor a reasonable length of time to comply. In addition, the beneficiary must give the trustor definite notice that future payments must comply with the terms of the obligation. [E.g., Hunt v. Smyth. supra, 25 Cal.App.3d 807, 822-23; Lopez v. Bell (1962) 207 Cal.App.2d 394, 398-99; 24 Cal.Rptr. 626; Bledsoe v. Pacific Ready Cut Homes, Inc., supra, 92 Cal.App. 641, 645.] Even if the beneficiary’s conduct does not constitute a knowing relinquishment of rights, it may create an equitable estoppel. [See e.g., Altman v. McCollum (1951) 107 Cal.App.2d Supp. 847; 236 P.2d 914.]

d.   Offsetting Obligation

The trustor also may offset against the amount claimed by the beneficiary any amount due the trustor from the beneficiary. [See Hauger v. Gates (1954) 42 Cal.2d 752, 755; 249 P.2d 609; Richmond v. Lattin (1883) 64 Cal. 273; 30 P. 818; Goodwin v. Alston (1955) 130 Cal.App.2d 664, 669; 280 P.2d 34; Cohen v. Bonnell (1936) 14 Cal.App.2d 38; 57 P.2d 1326; Zarillo v. Le Mesnacer (1921) 51 Cal.App. 442; 1196 P.902 (damages for conversion offset against debt secured by chattel mortgage); Williams v. Pratt (1909) 10 Cal.App. 625, 632; 103 P. 151.]  In Goodwin, supra, the mortgagor

established that the mortgagee charged usurious interest, and the penalty of the trebled interest payments along with other amounts were setoff against the mortgage debt. As a result, the debt was effectively satisfied, the mortgage was thereby extinguished and no foreclosure was permitted, and the mortgagee was held liable to the mortgagor for damages.  (See 130 Cal.App.2d at 668-69.)

The Supreme Court made clear in Hauaer, supra, that the trustor, in the context of the nonjudicial foreclosure of a deed of trust, could use the right of setoff. [See 42 Cal.2d at 755.] Normally, setoff is employed defensively through an affirmative defense or cross-complaint (or formerly counterclaim) in response to an action for money. The court in Hauaer, however, saw no distinction between the right of setoff held by a trustor defending a foreclosure action or by a trustor affirmatively attacking a nonjudicial foreclosure proceeding. (Id. at 755-56.) Accordingly, the Supreme Court held that the trustor, as plaintiff, could establish the impropriety of a foreclosure by showing that the trustor was not in default on his obligation since the obligation was offset by an obligation which the beneficiary owed to him. (Id. at 753, 755.) The court further held that the trustor did not have to bring an independent action to establish the setoff. (Id. at 755.) Moreover, the court declared that unliquidated as well as liquidated amounts could be setoff; thus, the court allowed the trustor to setoff an unliquidated claim for damages for breach of

contract.  (Id.)

Hauaer and the other cases cited above are based on former Code of Civ. Proc. § 440 which has been superseded by Code of Civ. Proc. § 431.70. The rule of these cases should not be altered because the new section appears broader than the old. Furthermore, the Legislative Committee Comment to section 431.70 not only states that the new section continues the substantive effect of section 440 but also approvingly cites Hauaer.

The right of setoff has substantial significance in contesting the validity of any foreclosure since the trustor may establish that no default occurred or, indeed, no indebtedness exists because of an offsetting amount owed by the beneficiary to the trustor. As discussed above, this offset may be a liquidated or an unliquidated claim. In addition, the claim which the trustor may wish to offset may be barred by the statute of limitations at the time of the foreclosure, but as long as the trustor’s claim and the beneficiary’s claim coexisted at any time when neither claim was barred, the claims are deemed to have been offset. [See Code of Civ. Proc. § 431.70.] The theory is that the competing claims which coexisted when both were enforceable were offset to the extent they equaled each other without the need to bring an action on the claims. Therefore, since the offsetting claim is deemed satisfied to the extent it equaled the other claim, there was no

existing claim against which the statute of limitation operates. See Jones v. Mortimer (1946) 28 Cal.2d 627, 632-33; 170 P.2d 893; Singer Co. v. County of Kings (1975) 46 Cal.App.3d 852, 869; 121 Cal.Rptr. 398; see also Hauger v. Gates, supra, 42 Cal.2d 752, 755.]

The right of setoff not only gives the trustor the ability to setoff liquidated and unliquidated claims for money paid or for damages, but also permits setoffs for statutory penalties to which the trustor may be entitled because of the beneficiary’s violation of the law. In Goodwin v. Alston, supra, 130 Cal.App.2d 664 the debtor in a foreclosure action offset his obligation against the treble damages awarded to him for the creditor’s usury violations. Similarly, the penalty for violating the federal Truth in Lending Act — twice the amount of the finance charge but not less than $100 or more than $1,000 [15 U.S.C. § 1640(a)(2)(A)(i)] — may be offset against the obligation owed the creditor.-’ [See 15 U.S.C. § 1640(h); Reliable Credit Service, Inc. v. Bernard (La.App. 1976) 339 So.2d 952, 954, cert, den. 341 So.2d 1129, cert, den. 342 So.2d 215; Martin v. Body (Tex.Civ.App. 1976) 533 S.W.2d 461, 467-68].

Although Truth in Lending penalties may be offset against the creditor’s claim, the debtor may not unilaterally deduct the penalty; rather, the offset must be raised in a judicial proceeding, and the offset’s validity must be adjudicated.  [15 U.S.C. § 1640(h); see e.g., Pacific Concrete Fed. Credit Union v. Kauanoe (Haw. 1980) 614 P.2d 936, 942-43; Lincoln First Bank of Rochester v. Rupert (App.Div. 1977) 400 N.Y.S. 618, 621.]

Although no cases have authorized the trustor’s offset of punitive damages against the obligation owed, no reason appears to prevent the offset of punitive damages. Normally, if punitive damages were appropriate, sufficient fraud, oppression, or other misconduct would be established to vitiate the entire transaction. But even if the transaction were rescinded, the injured trustor likely would be required to return any consideration given by the offending beneficiary. The trustor almost always will have spent the money, usually to satisfy another creditor or to purchase goods or services which cannot be returned for near full value. A punitive damage offset may reduce or eliminate the trustor’s obligation to restore consideration paid in a fraudulent, oppressive, or similarly infirm transaction.

4. De Minimis Breach

Foreclosure is a drastic remedy, and courts will not enforce a forfeiture if the default is de minimis in nature such as a minor delay in making an installment payment. [See Bavpoint Mortgage Corp. v. Crest Premium Real Estate etc. Trust (1988) 168 Cal.App.3d 818, 829-32; 214 Cal.Rptr. 531.]

5. Defective Procedure

The trustee’s failure to comply with the statutorily mandated

procedures for a foreclosure sale is an important basis for attacking the foreclosure sale. The trustor bears the onus of establishing the impropriety of the sale, for a foreclosure is presumed to be conducted regularly and fairly in the absence of any contrary evidence Stevens v. Plumas Eureka Annex Min. Co. (1935) 2 Cal.2d 493, 497; 41 P.2d 927; Sain v. Silvestre (1978) 78 Cal.App.3d 461, 471 n. 10; 144 Cal.Rptr. 478; Hohn v. Riverside County Flood Control & Wat. Conserv. Dist. (1964) 228 Cal.App.2d 605, 612; 39 Cal.Rptr. 647; Brown v. Busch (1957) 152 Cal.App.2d 200, 204; 313 P.2d 19.] The presumption can be rebutted by contrary evidence [See, e.g., Wolfe v. Lipsv (1985) 163 Cal.App.3d 633,639; 209 Cal.Rptr. 801] and the courts will carefully scrutinize the proceedings to assure that the trustor’s rights were not violated. [See e.g., System Inv. Corp. v. Union Bank, supra, 21 Cal.App.3d 137, 153; Stirton v. Pastor (1960) 177 Cal.App.2d 232, 234; 2 Cal.Rptr. 135; Brown v. Busch, supra, 152 Cal.App.2d 200, 203-04; Pierson v. Fischer (1955) 131 Cal.App.2d 208, 214; 280 P.2d 491; Pv v. Pleitner, supra, 70 Cal.App.2d 576, 579.]

a.  Defective Notice of Default

A foreclosure may not be predicated on a notice of default which fails to comply strictly with legal requirements: “. . . a trustee’s sale based on a statutorily deficient notice of default is invalid.”   Miller v. Cote (1982) 127 Cal.App.3d 888, 894; see

System Inv. Corp. v. Union Bank, supra, 21 Cal.App.3d 137, 152-53; Lockwood v. Sheedy. supra, 157 Cal.App.2d 741, 742.] Defective service of the notice of default will also invalidate the sale procedure. [See discussion in Chapter II, supra, "Adequacy of Notice to Trustor.]

b.  Defective Notice of Sale

Some cases hold that a sale held without proper notice of sale is void. [See Scott v. Security Title Ins. & Guar. Co. (1937) 9 Cal.2d 606, 613; 72 P.2d 143; United Bank & Trust Co. v. Brown (1928) 203 Cal. 359; 264 P. 482; Standlev v. Knapp (1931) 113 Cal.App. 91, 100-02; 298 P. 109; Seccombe v. Roe (1913) 22 Cal.App. 139, 142-43; 133 P. 507; see also discussion in Chapter II B 4 supra, "Giving the Notice of Sale".] However, if a trustee’s deed has been issued that states a conclusive presumption that all notice requirements have been satisfied, the sale is voidable and may be vacated if the trustor proves that the conclusive presumption does not apply and that notice was defective. The conclusive presumption may not apply if there are equitable grounds for relief such as fraud or if the purchaser is not a bona fide purchaser for value. [See Little v. CFS Service Corp. (1987) 188 Cal.App.3d 1354, 1359; 233 Cal.Rptr. 923;

Moreover, a serious notice defect that was directly prejudicial to the rights of parties who justifiably relied on notice procedures may independently justify setting aside a sale, especially if the trustee's deed has not been issued and the highest bidder's consideration has been returned. [See Little v. CFS Service Corp., supra. 188 Cal.App.3d 1354, 1360-61.]

c.  Improper Conduct of Sale

As discussed above, the trustee must strictly follow the statutes and the terms of the deed of trust in selling the property. [See discussion in Chapter II B, supra, "Nonjudicial Foreclosure".] For example, the Court of Appeal has declared that:

The power of sale under a deed of trust will be strictly construed, and in its execution the trustee must act in good faith and strictly follow the requirements of the deed with respect to the manner of sale. The sale will be scrutinized by courts with great care and will not be sustained unless conducted with all fairness, regularity and scrupulous integrity …. Pierson v. Fischer, supra, 131 Cal.App.2d 208, 214.

Postponements

One of the major problems occurring at sales involves postponements: the trustee may fail to postpone a sale when the trustor needs a postponement or the trustee may unnecessarily postpone the sale and thereby discourage the participation of bidders. Current law expressly gives the trustee discretion to postpone the sale upon the written request of the trustor for the purpose of obtaining cash sufficient to satisfy the obligation or bid at the sale. [Civ. Code § 2924g(c) (1). ] There are no limitations on the number of times the trustee may postpone the sale to enable the trustor to obtain cash. The trustor is entitled to one such requested postponement, and any postponement for this reason cannot exceed one business day. (Id.) Failure to grant this postponement will invalidate the sale. [See discussion in Chapter II B 7, supra, "Conduct of the Foreclosure Sale".] However, the trustee is under no general obligation to postpone the sale to enable the trustor to obtain funds, particularly when the trustor receives the notices of default and sale and has months to raise the money. [See Oiler v. Sonoma County Land Title Co. (1955) 137 Cal.App.2d 633, 634-35; 290 P.2d 880.] In addition, the trustee’s duty to exercise its discretion to favor the trustor is tempered by the trustee’s duty to the beneficiary; thus, for example, the trustee may be more obliged to postpone the sale at the trustor’s request if only the beneficiary appears at the sale

to bid than if other bidders appear who are qualified to bid enough to satisfy the unpaid debt.

The foreclosure sale may also have to be postponed if there is an agreement between the beneficiary and the trustor for a postponement. An agreement to postpone a trustee’s sale is deemed an alteration of the terms of the deed of trust and is enforceable only if it assumes the form of a written agreement or an executed oral agreement. [See Civ. Code § 1698; Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 121; 92 Cal.Rptr. 851; Stafford v. Clinard (1948) 87 Cal.App.2d 480, 481; 197 P.2d 84.] Thus, a gratuitous oral promise generally is insufficient to support an agreement to continue the sale; however, if the oral agreement is predicated on a promissory estoppel or if the trustor fully performs the trustor’s consideration for the oral agreement, the trustor may enforce the beneficiary’s oral promise to postpone. Raedeke v. Gilbraltar Sav. & Loan Assn. (1974) 10 Cal.3d 665; 111 Cal.Rptr. 693.] In Raedeke, the trustor could obtain a responsible purchaser for the property, and the beneficiary agreed. The trustor obtained the purchaser, but the beneficiary foreclosed. The Supreme Court held that the trustor fully performed its promise — to procure a buyer — which was good consideration for the agreement to postpone and that the beneficiary’s breach entitled the trustor to damages for the wrongful foreclosure.

Although the failure to postpone may be a problem, the trustee’s improper granting of postponements is generally a far greater problem. Notice of a postponement must be given “by public declaration” at the time and place “last appointed for sale,” and no other notice need be supplied. [Civ. Code § 2924g(d).] Therefore, any prospective bidder will have to attend each appointed time for sale to discover whether the sale will occur or be postponed. As a result, prospective bidders will be discouraged from participating in a sale involving numerous postponements, and there will be less chance that an active auction will occur which will generate surplus funds to which the trustor may be entitled. [Cf. Block v. Tobin (1975) 45 Cal.App.3d 214; 119 Cal.Rptr. 288.]

The abuse of the postponement procedure prompted the Legislature to curb the trustee’s ability to make discretionary postponements. The trustee may make only three postponements at its discretion or at the beneficiary’s direction without re­commencing the entire notice procedure prescribed in Civ. Code § 2924f. [Civ. Code § 2924g(c)(1).] In addition, the trustee must publicly announce the reason for every postponement and must maintain records of each postponement and the reason for it. [Civ. Code § 2924g(d).]

A lawyer representing a client whose home has been sold at a foreclosure sale involving discretionary or beneficiary directed

postponements should, at the first opportunity for discovery, obtain production of the foreclosure file and any documents relating to it, and any documents relating to the postponement and reasons for it, including the statutorily mandated record concerning the postponement, as well as any notes, telephone messages, logs, or calendar entries relating to the postponement. In addition, the lawyer should quickly discover who attended the sale to determine whether the reason for the postponement was given “by public declaration” and, if so, whether the same reason is indicated for the postponement in the record maintained by the trustee.

The failure to postpone properly should invalidate the sale. Certainly, a sale held without any public announcement of the date, time, and place to which the sale has been postponed is invalid. [See Holland v. Pendelton Mortgage Co. (1943) 61 Cal.App.2d 570, 573-74; 143 P.2d 493.] The cases upholding sales made on postponed dates are based on the trustee’s compliance with the notice of postponement requirements prescribed by statute or contained in the trust deed. [See e.g., Cobb v. California Bank (1946) 6 Cal.2d 389, 390; 57 P.2d 924; Craig v. Buckley (1933) 218 Cal. 78, 80-81; 21 P.2d 430; Alameda County Home Inv. Co. v. Whitaker (1933) 217 Cal. 231, 234-35; 18 P.2d 662.] Since the trustee sale must be conducted in strict compliance with the notice requirements, a notice of postponement which does not contain a statement of the

reason for the postponement is defective.  Any sale held pursuant to the defective notice may be held to be improper.

Moreover, the records relating to the postponement may reveal that the postponement was unnecessary or may lead to evidence establishing that the postponement was made in bad faith. As discussed above, fraud, unfairness, and irregularity in the conduct of the sale should render the sale invalid.

e.  Bidder Collusion

One of the more pernicious aspects of foreclosure sales — and one of the most difficult to prove — is the existence of agreements among bidders to suppress bidding. The arrangement may consist of one bidder paying the others not to bid. The bidders may also agree that one of the group will buy the property without competition and that then the group will hold a secret auction among themselves to determine who will be the ultimate purchaser. The difference between the purchase price at the public auction and the ultimate purchase price determined at the secret auction will be divided among the colluding parties; thus, junior lienholders and the trustor are deprived of surplus funds which would have resulted from open and competitive bidding.

Such bid rigging is clearly illegal.  Offering or accepting

consideration not to bid, or fixing or restraining bidding at a foreclosure sale, is specifically declared unlawful and constitutes a crime. [Civ. Code § 2924h(f).] Agreements between bidders to fix or restrain bidding, to make sham bids, or to become a party to a fake sale have been routinely denounced as illegal, void, unenforceable and a fraud on the public. [See Russell v. Soldinaer (1976) 59 Cal.App.3d 633, 641-45; 131 Cal.Rptr. 145; Roberts v. Salot (1958) 166 Cal.App.2d 294, 298-99; 333 P.2d 232; see also Haley v. Bloomouist (1928) 204 Cal. 253, 256-67; 268 P. 365; Packard v. Bird (1870) 40 Cal. 378, 383; Jenkins v. Frink (1866) 30 Cal. 586, 591-92; 89 Am.Dec. 134.] The problem of determining market price by secret arrangement rather than by open bidding was most clearly addressed in Crawford v. Maddux (1893) 100 Cal. 222; 34 P. 651. In Crawford, a bidder at an execution sale was willing to purchase the property at several times the amount of the judgment. The bidder agreed with another that the other person should refrain from bidding, that the bidder would buy the property for the minimum amount, and that the bidder would pay the other person the difference between the purchase price and the maximum price the bidder would have been willing to pay if the sale were open and competitive. The Supreme Court had no difficulty in concluding that the arrangement “was against public policy, and wholly void.”  (Id. at 225.)

The chilling of bidding at a trustee’s sale is a fraud on the

trustor, and the trustor may have the sale vacated. [Bank__of America Nat1!. Trust & Sav. Ass'n. v. Reidv (1940) 15 Cal.2d 243, 248; 101 P.2d 77; Roberts v. Salot, supra, 166 Cal.App.2d 294, 299; see Bertschman v. Covell (1928) 205 Cal. 707, 710; 272 P. 571 (dictum).] The fraudulent bidder not only will have to return the property but also will be liable for any encumbrances placed on the property. See Roberts v. Salot, supra, 166 Cal.App.3d 294, 301.] The trustor’s damage is not measured by the difference between the artificially low public sale price and the secret price paid by one of the bidders to his co-conspirators. The appropriate measure of damages should be the fair market value of the property at the time of the sale less the value of the liens against the property. [See Munaer v. Moore (1970) 11 Cal.App.3d 1, 11; 89 Cal.Rptr. 323.] The bidding restraint is illegal regardless of whether small or large amounts are involved; the bidders cannot determine the trustor’s damage by their own private manipulations. [See Crawford v. Maddux, supra, 100 Cal. 222, 225.]

The bidding conspiracy may also be actionable under the Cartwright Act which denounces combinations of two or more people to restrain trade or commerce. [See Bus. & Prof. Code §§ 16720(a), 16726.] Violations of the Cartwright Act contain substantial sanctions: “Any person who is injured in his business or property by reason of . . .” an unlawful restraint of trade may recover treble damages and reasonable attorney’s fees and costs.  [Bus. &

Prof. Code § 16750(a).] The Cartwright Act is patterned after the Sherman Act, and federal cases interpreting federal law apply to the construction of state law. [E.g., Partee v. San Diego Chargers Football Co. (1983) 34 Cal.3d 378, 392; 466 U.S. 904, cert, den.; 194 Cal.Rptr. 367; Mailand v. Burckle (1978) 20 Cal.3d 367, 376; 143 Cal.Rptr. 1; Marin County Bd. of Realtors v. Palsson (1976) 16 Cal.3d 920, 925; 130 Cal.Rptr. 1.]

Proving a Cartwright violation may be a difficult task. The threshold question is whether there was an agreement to restrain bidding. The answer to this question, of course, is crucial not only to the antitrust claim but also to attacking the sale on common law grounds. In the absence of direct evidence, circumstantial evidence may point to a conspiracy. For example, A, B, and C are professional and experienced bidders at foreclosure sales. Each has had substantial dealings with the others. A, B, and C attend the foreclosure sale and each qualifies to bid more than $10,000 over the minimum opening bid placed by the beneficiary. A buys the property for $1 over the minimum bid. Eight days later, A deeds the property to B for $6,000 more than A’s purchase price. Similar transactions have occurred involving the three bidders, and each has become the ultimate purchaser at different times. Such pattern of conduct evinces a bidding agreement. In order to gather other evidence needed to establish an agreement, a lawyer representing a homeowner should obtain,

through discovery from the trustee, all records revealing who attended the sale, who qualified to bid and for how much, and to whom the trustee’s deed was issued.

If a conspiracy can be shown, the Cartwright plaintiff will have to address the legal issue of whether the bidding is trade or commerce. This should not be difficult. The Cartwright Act has been expansively interpreted: “. . .it forbids combinations of the kind described with respect to every type of business.” Soeeale v. Board of Fire Underwriters (1946) 29 Cal.2d 34, 43; 172 P.2d 867; see Marin County Bd. of Realtors, Inc. v. Palsson, supra, 16 Cal.3d 920, 925-28.] The Speeale court also recognized that the Cartwright Act reflects this state’s common law proscriptions against competitive restraints and price fixing. [See 29 Cal.2d at 44.] Virtually any business carried on for gain is embraced in the antitrust laws [see United States v. National Assn. of Real Estate Bds. (1950) 339 U.S. 485, 490-92; 70 S.Ct. 711], and the antitrust laws, in reaching all commerce, touch transactions which may be noncommercial in character and may involve illegal or sporadic activity. [See United States v. South-Eastern Underwriters Assn. (1944) 322 U.S. 533, 549-50; 64 S.Ct. 1162.]

Agreements restraining bidding are clearly the type of combinations prohibited under the antitrust laws. Price fixing agreements are per se unlawful under the Cartwright Act.  [E.g.,

Mailand v. Burckle (1978) 20 Cal.3d 367, 376-77; 143 Cal.Rptr. 1; Kollincr v. Dow Jones & Co. (1982) 137 Cal.App.3d 709, 721; 189 Cal.Rptr. 797; Rosack v. Volvo of America Corp. (1982) 131 Cal.App.3d 741, 751; 182 Cal.Rptr. 800, cert, den. (1983) 460 U.S. 1012.] An agreement to submit collusive, rigged bids is likewise a per se violation. [See e.g., United States v. Brighton Bldq. & Maintenance Co. (7th Cir. 1979) 598 F.2d 1101, 1106, cert. den. 444 U.S. 840; United States v. Champion International Corp. (9th Cir. 1977) 557 F.2d 1270, cert, den. 434 U.S. 938; United States v. Flom (5th Cir. 1977) 558 F.2d 1179, 1183.]

After establishing bidder conspiracy and a violation of the Cartwright Act, the complainant property owner then will have to show injury emanating from the violation to establish entitlement to the treble damage and the attorney’s fee and cost remedies. [Bus. & Prof. Code § 16750(a); see A. B.C. Distrib.' Co. v. Distillers Distrib. Corp. (1957) 154 Cal.App.2d 175, 191; 316 P.2d 71.] The property owner need not show a competitive injury, for the protections of the Cartwright Act extend to consumers and all others who are victimized by the violation of law. [See Saxer v. Philip Morris, Inc. (1975) 54 Cal.App.3d 7, 26; 126 Cal.Rptr. 327.] The nature and extent of the injury, however, may be difficult to prove because of the difficulty in determining the price at which the property would have sold in the absence of a conspiracy to fix the price.

For example, suppose property worth $100,000 is sold to satisfy the $19,990 unpaid balance of a note secured by a first trust deed. Only two bidders attend the sale, and they conspire. One of the bidders purchases the property for $20,000 and pays the other $10,000. Has the trustor been injured by $10,000, $80,000, or some other amount? Crawford v. Maddux, supra, 100 Cal. 222, 225; 34 P. 651 indicates that the consideration paid for the suppression of bidding is not the common law measure of damage for the illegal bidding restraint; however, that amount should logically be the minimum amount of the injury under the Cartwright Act. The purchaser would have paid at least that additional amount to acquire the property at the public sale in the absence of collusion since the purchaser in fact paid that amount as part of the collusive sale.

Normally, the damages in a price fixing case consist of the full amount of the overcharge — i.e., the difference between the artificially high price and the price that would have otherwise prevailed. [See e.g., National Constructors Assn. v. National Electrical Contractors (D. Md. 1980) 498 F.Supp. 510, 538, mod. on other grounds (4th Cir. 1982) 678 F.2d 492.] Similarly, if prices are set artificially low, the damages will be the difference between the artificially low price and the price which would have been charged to fully maximize profits. [See Knutson v. Daily Review, Inc. (9th Cir. 1976) 548 F.2d 795, 812, cert. den. (1977)

433 U.S. 910.] Although no cases are specifically on point, an argument should be made that the antitrust injury suffered by a property owner whose home was sold through collusive bidding should be the difference between the artificially low price and the reasonable or fair value of the property at foreclosure. This view is buttressed by the holding in Munaer v. Moore, supra, 11 Cal.App.3d 1, 11 that the trustee’s or beneficiary’s liability for an improper sale should be the fair market value of the property in excess of encumbrances.

However, it could be argued that even in the absence of collusive bidding, “. . . it is common knowledge that at forced sales such as a trustee’s sale the full potential value of the property being sold is rarely realized . . . .” strutt v. Ontario Sav. & Loan Assn. (1972) 28 Cal.App.3d 866, 876; 105 Cal.Rptr. 395.] Complete fair market value cannot be realistically expected in the context of a foreclosure sale. Consequently, it would be unlikely that the property’s full value would be realized at a foreclosure sale even without the bidding conspiracy. On the other hand, some courts consider foreclosure sales prices at less than 70 percent of fair market value to be unfair, at least for bankruptcy purposes. [See e.g., Durrett v. Washington Nat. Ins. Co. (5th Cir. 1980) 621 F.2d 201; the rejection of the Durrett fair value rationale in In re Madrid (Bank.App.Pan. 9th Cir. 1982) 21 B.R. 424, aff'd on other grounds (9th Cir. 1984) 725 F.2d 1197 was

predicated on a noncollusive, regularly conducted sale.] Accordingly, as an alternative to the fair market value measure of damage, the measure of damages could be deemed the difference between the collusive bid price and 70 percent of the fair market value of the property less encumbrances.

The collusive bidder should not be permitted to complain that a more precise measure of damage based on the ultimate sale price in an open and competitive public auction was not used, because the bidding conspiracy itself prevented a more precise evaluation of the measure of damages. As the United States Supreme Court observed,

Where the tort itself is of such a nature as to preclude the ascertainment of the amount of damages with certainty, it would be a perversion of fundamental principles of justice to deny all relief to the injured person, and thereby relieve the wrongdoer from making any amend for his acts. In such case, while the damages may not be determined by mere speculation or guess, it will be enough if the evidence shows the extent of the damages as a matter of just and reasonable inference, although the result be only approximate. The wrongdoer is not entitled to complain that they cannot be measured with the exactness and precision that would be possible if the

case, which he alone is responsible for making, were otherwise.

There is no sound reason in such a case, as there may be, to some extent, in actions upon contract, for throwing any part of the loss upon the injured party, which the jury believe from the evidence he has sustained; though the precise amount cannot be ascertained by a fixed rule, but must be matter of opinion and probable estimate. And the adoption of any arbitrary rule in such a case, which will relieve the wrong-doer from any part of the damages, and throw the loss upon the injured party, would be little less than legalized robbery.

Whatever of uncertainty there may be in this mode of estimating damages, is an uncertainty caused by the defendant’s own wrongful act; and justice and sound public policy alike require that he should bear the risk of the uncertainty thus produced. . . . [citation omitted]. Story Parchment Co. v. Patterson Paper Co. (1931) 282 U.S. 555, 563-65; 51 S.Ct. 248.

See Biaelow v. RKO Radio Pictures, Inc. (1946) 327 U.S. 251, 264-66; 66 S.Ct. 574.]

Trustee’s Unfair Conduct

As previously mentioned, the trustee must conduct the sale “fairly, openly, reasonably, and with due diligence and sound discretion to protect the rights of the mortgagor and others, using all reasonable efforts to secure the best possible or reasonable price.” Baron v. Colonial Mortgage Service Co. (1980) 111 Cal.App.3d 316, 323; 168 Cal.Rptr. 450.] The trustee’s obligations in conducting a sale and its duty to the trustor are discussed in detail in Chapter II B 7, supra, “Conduct of the Foreclosure Sale”.] Obviously, a sale tainted with the trustee’s fraud or improper conduct is subject to attack, and the trustee may be liable to the trustor as well as to innocent bidders. (See Block v. Tobin, supra, 45 Cal.App.3d 214.]

Inadequacy of Price

The cases are legion that inadequacy of price, even gross inadequacy of price, will not justify a repudiation of a trustee’s sale in the absence of fraud, unfairness, or irregularity of some type. [See e.g., Scott v. Security Title Inc. & Guar. Co., supra, 9 Cal.2d 606, 611; Prudential Ins. Co. of America v. Sly (1937) 7 Cal.2d 728, 731; 62 P.2d 740, cert. den. 301 U.S. 690; Encelbertson v. Loan & Building Assn. (1936) 6 Cal.2d 477, 479; 58 P.2d 647; Central Nat. Bank of Oakland v. Bell (1927) 5 Cal.2d 324, 328; 54

P.2d 1107; Stevens v. Plumas Eureka Annex Min. Co., supra. 2 Cal.2d 493, 496; 41 P.2d 927; Baldwin v. Brown (1924) 193 Cal. 345; 352-53; 224 P. 462; Sargent v. Shumaker. supra, 193 Cal. 122, 129; 223 P. 464; Winbialer v. Sherman (1917) 175 Cal. 270, 275; 165 P. 943; Crummer v. Whitehead (1964) 230 Cal.App.2d 264, 266; 40 Cal.Rptr. 826; Lancaster Security Inv. Corp. v. Kessler (1958) 159 Cal.App.2d 649, 655; 324 P.2d 634.]

The fraud, unfairness, or irregularity which must accompany inadequate price in order for the sale to be set aside, must be such “as accounts for and brings about the inadequacy of price.” Stevens v. Plumas Eureka Annex Min. Co., supra, 2 Cal.2d 493, 496.] Thus, the inadequacy of price must be caused by or related to the irregularity or to some misconduct by the trustee. [See e.g., Sargent v. Shumaker. supra, 193 Cal. 122, 131-33; Crofoot v. Tarman (1957) 147 Cal.App.2d 443, 446-47; 305 P.2d 56; Bank of America Nat'l. Trust & Sav. Ass'n. v. Century Land & Wat. Co. (1937) 19 Cal.App.2d 194, 196; 65 P.2d 109.] In Crofoot, for example, the trustee had done no wrong, and the court rejected the trustor’s argument that misinformation supplied by someone other than the trustee when coupled with inadequate price afforded grounds for relief.

The quantum of fraud, unfairness, or irregularity needed to avoid a foreclosure sale may be slight,  especially if the

inadequacy of price is great. [See e.g., Sargent v. Shumaker, supra, 193 Cal. 122, 129; Winbialer v. Sherman, supra, 175 Cal. 270, 275; Bank of Seoul & Trust Co. v. Marcione (1988) 198 Cal.App.3d 113, 119; Whitman v. Transtate Title Co. (1988) 165 Cal.App.3d 312, 323.] Inadequacy of price is indicative of fraud and will support a trial court’s finding of fraud if one is made. [See Scott v. Security Title Inc. & Guar. Co., supra, 9 Cal.2d 606, 612.]

If the trustor’s property is sold for an inadequate price, the trustor’s loss for breaching the obligation and trust deed far exceeds the beneficiary’s damage from the breach. Indeed, the beneficiary reaps a windfall if the beneficiary purchases the property at the foreclosure sale for an inadequate price. Arguably, the clause in the trust deed which permits the sale at such a dramatically low price could be construed to be a provision authorizing an impermissible forfeiture or penalty or providing for what is in effect punitive damages for the breach. The Supreme Court has apparently rejected this viewpoint and has stated that the trustor has ample opportunity after the recordation of the notice of default to avoid the potentially harsh consequences of foreclosure. See Smith v. Allen, supra, 68 Cal.2d 93.] In Smith, the Supreme Court observed that if:

. the borrower has a substantial equity in the

property, the above mentioned statutory provisions (Civ. Code §§ 2924 et sea.) afford him an opportunity to refinance his monetary obligations or to sell his equity to a third party.  (Id. at 96.)

The court concluded that the Legislature intended that a proper “foreclosure sale should constitute a final adjudication of the rights of the borrower and the lender.”  (Id.)

The recent legislative denunciation of unconscionability may point to a different result in cases involving significantly inadequate prices. Indeed, the new statutes regarding unconscionability may lead California to recognize the well established equity rule that extreme inadequacy of price in itself justifies the overturning of a foreclosure sale. [See Washburn, "The Judicial and Legislative Response to Price Inadequacy in Mortgage Foreclosure Sales," 53 So.Cal.L.Rev. 843, 862-69.] The new statutes and accompanying legislative findings may also undermine the rationale of cases like Smith holding that the nonjudicial foreclosure process does not produce forfeitures or other impermissible, inequitable results.

The insertion of an unconscionable provision into a contract is deemed unfair or deceptive. [Civ. Code § 1770(s).] If a court finds  that  a  contract or any clause of  the  contract  is

unconscionable, the court may refuse to enforce the contract or the unconscionable provision or may limit the unconscionable provision to avert any unconscionable result. [Civ. Code § 1670.5(a).] It is unlawful, and perhaps criminal, for any person to participate in a transaction involving a residence already in foreclosure whereby that person takes unconscionable advantage of the homeowner. [Civ. Code § 1695.13.] Any such transaction resulting in unconscionable advantage is subject to rescission. [Civ. Code § 1695.14.]

Moreover, the express policy of this state is “to preserve and guard the precious asset of home equity, and the social as well as economic value of homeownership.” [Civ. Code § 1695(b).] This state has adopted the national housing goal — “the provision of a decent and a suitable living environment for every American family. …” [Health & Safety Code § 50002.] The Legislature has recognized the “vital statewide importance” of housing, in part, “as an essential motivating force in helping people achieve self-fulfillment in a free and democratic society.” [Health & Safety Code § 50001(a).] Accordingly, “It is the policy of the State of California to preserve home ownership.” [Stats. 1979, c. 655, § 1(g), p. 2016.] The Legislature was mindful, however, that the foreclosure process does not provide complete protection to homeowners whose homes are in jeopardy:

Many homeowners in this state are unaware of the legal rights and options available to them once foreclosure proceedings have been initiated against their homes. The present foreclosure process fails to provide sufficient meaningful information to homeowners to enable them to avoid foreclosure or save the equity in their homes. (Stats. 1979, c. 655, § 1(c), p. 2016.)

In light of the legislative concern about continued home ownership, the preservation of home equity, and the operation of unconscionable contracts, the courts should not tolerate the use of the power of sale to deprive a homeowner of substantial equity. The loss of equity may not only be financially disastrous but may prevent the homeowner from acquiring another home immediately after the foreclosure or likely ever thereafter. Sales made at unconscionably low prices should be voided under the enhanced power of the court to avoid unconscionable results in the enforcement of contracts.

Traditionally, courts in the United States adopted Lord Eldon’s rule that “a sale will not be set aside for inadequacy of price, unless the inadequacy be so great as to shock the conscience, or unless there be additional circumstances against its unfairness . . . .* Graffam v. Burgess (1886) 117 U.S. 180, 191-92.] This rule was adopted in California with respect to execution

sales, and, in Odell v. Cox (1907) 151 Cal. 70, 74; 90 P. 194, the California Supreme Court recognized that:

. . . according to very respectable authority, inadequacy of price may be so gross as in itself to furnish satisfactory evidence of fraud or misconduct on the part of the officer or purchaser, and justify vacating the sale.

See Young v. Barker (1948) 83 Cal.App.2d 654, 659; 189 P.2d 521.]

The California cases dealing with inadequacy of price in trustee’s sales are based on execution sale cases such as Odell, supra♦ [See e.g., Winbialer v. Sherman, supra, 175 Cal. 270, 275.] California courts have not expressly adopted the first element of Lord Eldon’s rule—that inadequacy of price so great as to shock the conscience will invalidate a sale—in examining trustee’s sales; the courts have expressly accepted only the second element--that inadequate price, when coupled with unfairness which produces the inadequacy, will render a sale voidable. The cases have neither expressly rejected the first element of Lord Eldon’s rule nor explained the element’s omission from the general formulation of the rule on inadequacy of sale’s price. Federal common law, however, recognizes that a trustee’s sale may be invalidated if the sale price is so low that it shocks the conscience.  [See United

States v. Wells (5th Cir. 1968) 403 F.2d 596, 598; United States v. MacKenzie (D. Nev. 1971) 322 F.Supp. 1058, 1059, aff'd. (9th Cir. 1973) 474 F.2d 1008.] Since California now statutorily acknowledges the equitable power of the court to safeguard parties from the oppression of unconscionable contractual terms, California courts should embrace the rule prohibiting sales based on shockingly insignificant sales prices.

Enjoining the Sale

1.  Propriety of Injunctive Relief

An action to enjoin a foreclosure sale is a well recognized remedy to prevent an unwarranted foreclosure. [See 2 Ogden's, Rev. Cal. Real Prop. Law 959.] An injunction may issue to prevent acts which: (a) cause great or irreparable injury; (b) violate the party’s rights and tend to render the judgment ineffectual; (c) create harm for which money damages are inadequate; (d) may lead to a multiplicity of actions; and (e) violate a trust. [Code of Civ. Proc. § 526; see Civ. Code §§ 3368, 3422.]

In determining whether to issue any preliminary injunction, the trial court must examine two interrelated factors:

The first is the likelihood that the plaintiff will

prevail on the merits at trial. The second is the interim harm that the plaintiff is likely to sustain if the injunction were denied as compared to the harm that the defendant is likely to suffer if the preliminary injunction were issued. IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 69-70; 196 Cal.Rptr. 715.

[See e.g., Robbins v. Superior Court (1985) 38 Cal.3d 199, 206; 211 Cal.Rptr. 398; Continental Baking Co. v. Katz (1968) 68 Cal.2d 512, 527-28; 67 Cal.Rptr. 761; Baypoint Mortgage Corp. v. Crest Premium Real Estate etc. Trust, supra, 168 Cal.App.3d 818, 824.] Whether or not the trustor is likely to prevail on the merits is obviously a question of fact in each case. If the trustor is not likely to prevail, the injunction may be denied notwithstanding any irreparable harm which may attend the foreclosure:

In a practical sense it is appropriate to deny an injunction where there is no showing of reasonable probability of success, even though the foreclosure will create irreparable harm, because there is no justification in delaying that harm where, although irreparable, it is also inevitable. Jessen v. Keystone Sav. & Loan Assn. (1983) 142 Cal.App.3d 454, 459; 191 Cal.Rptr. 104.

Foreclosure is a “drastic sanction.” Bavpoint Mortgage Corp.

v. Crest Premium Real Estate etc. Trust, supra, 168 Cal.App.3d 818, 837.] Irreparable injury will almost always be involved in a home foreclosure, especially if the grounds for invalidating the foreclosure rest on the voidability rather than the voidness of the transaction. Since a bona fide purchaser may buy the property at a foreclosure sale free of many, if not all, of a particular trustor’s defenses to the sale, the court’s failure to enjoin an improper foreclosure may doom the trustor to the loss of the property. “The Status of Bona Fide Purchaser or Encumbrancer”.] Furthermore, courts presume in a foreclosure context that the property is unique, that its loss is irreparable, and that money damages are inadequate unless the property is being openly marketed and has no special value to the owner other than its market price. [See Jessen v. Keystone Sav. & Loan Assn.. 142 Cal.App.3d 454, 457-58; 191 Cal.Rptr. 104; Stockton v. Newman (1957) 148 Cal.App.2d 558, 564; 307 P.2d 56.] In addition, the trustor will suffer irreparable injury because the trustor generally has no right of redemption after a foreclosure sale.  [See discussion in Chapter II B 10a, supra, "Redemption".]

A foreclosure will often render ineffectual any ultimate relief that may be awarded. If the trustor, for example, is entitled to damages but not rescission in a particular transaction, the trustor would be allowed to retain the property and would be compensated in damages.  But, such a judgment would be rendered

ineffectual through the loss of the property at foreclosure. [See Stockton v. Newman, supra, 148 Cal.App.2d 558, 563-64.] Similarly, a foreclosure would render moot the trustor’s attempt to cancel a trust deed if the property were to be sold to a bona fide purchaser. Thus, an injunction is necessary to preserve the status quo. [See Weinqand v. Atlantic Sav. & Loan Assn. (1970) 1 Cal.3d 806, 819; 83 Cal.Rptr. 650.]

Courts have held that injunctions are appropriate to restrain foreclosure sales in various contexts. The following is an illustrative but not exclusive list: (a) no default [see Freeze v. Salot (1954) 122 Cal.App.2d 561, 564; 266 P.2d 140; cf. Salot v. Wershow (1958) 157 Cal.App.2d 352, 355; 320 P.2d 926]; (b) disputes about the amount owed [see e.g., Paramount Motors Corp. v. Title Guar. & Trust Co. (9th Cir. 1926) 15 F.2d 298, 299; More v. Calkins, supra, 85 Cal. 177, 188]; (c) disputes about the amount owed because of the trustor’s offsetting claims [see Hauger v. Gates (1954) 42 Cal.2d 752, 756]; (d) fraud [see e.g., Stockton v. Newman, supra, 148 Cal.App.2d 558, 563-64; Daniels v. Williams (1954) 125 Cal.App.2d 310, 312-13; 270 P.2d 556; see also U.S. Hertz, Inc. v. Niobrara Farms (1974) 41 Cal.App.3d 68, 79; 116 Cal.Rptr. 44]; (e) no consideration [see Ybarra v. Solarz (1942) 56 Cal.App.2d 342; 132 P.2d 880 (no consideration for novation creating balloon payment)]; (f) improper notice of default [see Lockwood v. Sheedv, supra, 157 Cal.App.2d 741, 742; see also Strike

v. Trans-West Discount Corp. (1979) 92 Cal.App.3d 735; 155 Cal.Rptr. 132 (court vacates notice of default and permits new notice, but disallows usurious interest), app. dis. 444 U.S. 948; System Inv. Corp. v. Union Bank, supra, 21 Cal.App.3d 137, 152-53; (g) trustee's breach of duty in conducting the sale [see Baron v. Colonial Mortgage Service Co., supra, 111 Cal.App.3d 316, 324]; (h) trustor’s minor delays in making installment payments [see Bavpoint Mortgage Corp. v. Crest Premium Real Estate etc. Trust, supra, 168 Cal.App.3d 818, 827.]

Unless the obligation or trust deed is fundamentally infirm so that no foreclosure would be proper, most preliminary injunctive relief will only temporarily halt the foreclosure until corrective measures are taken. For example, if the amount is disputed, the foreclosure may be enjoined until the court determines the amount properly owed. [See Producers Holding Co. v. Hill, supra, 201 Cal. 204, 209; More v. Calkins, supra, 85 Cal. 177, 188.] If the notice of default is defective, the court may enjoin the sale on that particular notice of default without prejudice to the beneficiary’s recording a proper notice of default. [See Lockwood v. Sheedv, supra, 157 Cal.App.2d 741, 742.] Alternatively, the court could vacate a notice of default containing an improper demand (e.g., usurious interest) without issuing a preliminary injunction and permit the beneficiary to file a proper notice. [See Strike v. Trans-West Discount Corp., supra, 92 Cal.App.3d 735; 155 Cal.Rptr.

132.]

2.  Scope of Injunctive Relief

The injunctive relief requested should be for an order restraining the trustee and the beneficiary. If only the trustee is enjoined, the beneficiary might be able to circumvent the order by substituting a new trustee. [See Civ. Code § 2934a.] A trustee can employ an agent or subagent to perform the trustee’s tasks under a trust deed. [See Civ. Code § 2924d(d); Orloff v. Pece (1933) 134 Cal.App. 434, 436; 25 P.2d 484.] Therefore, the injunction should cover all agents, subagents, employees, representatives and all other persons, corporations, or other entities which act by, on behalf of, or in concert with the trustee and beneficiary.

The injunction should apply not only to selling, attempting to sell, or causing the sale of the property, but also should enjoin any act authorized or permitted by Civil Code §§ 2924, 2924b, 2924f, 2924g, and 2934a in connection with or incident to the sale. Some of the acts authorized or permitted by these sections may not be construed to be covered by a general anti-sale injunction.

For example, in American Trust Co. v. De Albergria (1932) 123 Cal.App. 76, 78; 10 P.2d 1016, the trustee postponed a sale after

a temporary restraining order issued and held the sale on the postponed date after the order was dissolved. The court held that the order restraining the continuing of the sale did not preclude postponements. Frequently, if a temporary restraining order prevents a sale, the trustee will postpone the sale so that it will be held on the same day as and immediately after the hearing on the preliminary injunction. If the preliminary injunction is denied, the sale will take place post haste. If, however, the trustee is prevented from postponing the sale, a new notice of sale will have to be given, and the trustor will have the opportunity to use the new notice of sale period to raise money or consider other appropriate remedies, including bankruptcy. If the sale is postponed in violation of a restraining order, the sale will be voidable. See Powell v. Bank of Lemoore (1899) 125 Cal. 468, 472; 58 P. 83; Baalev v. Ward (1869) 37 Cal. 121 139; 10 P.2d 1016; American Trust Co. v. De Alberqria, supra, 123 Cal.App. 76, 78.]

The injunction should also restrain the beneficiary from transferring the note and trust deed without informing the transferee of the trustor’s claims and defenses. Otherwise, the transferee may be a holder in due course and take the obligation and security free of the trustor’s rights. [See e.g., Szczotka v. Idelson (1964) 228 Cal.App.2d 399; 39 Cal.Rptr. 466;

National Banks

The statute precluding preliminary injunctions against national banks [12 U.S.C. § 91] does not prevent a state court from issuing a preliminary injunction against a national bank to restrain a nonjudicial foreclosure pending the adjudication of the trustor’s rights. [See Third National Bank In Nashville v. Impac Ltd., Inc. (1977) 432 U.S. 312; 97 S.Ct. 2307.] Kemple v. Security-First Nat. Bank (1967) 249 Cal.App.2d 719; 57 Cal.Rptr. 838 and First Nat. Bank of Oakland v. Superior Court (1966) 240 Cal.App.2d 109; 49 Cal.Rptr. 358 are contra but no longer good authority.]

Tender

The general rule is that the trustor cannot obtain an injunction against a foreclosure without tendering the amount owed. see Sipe v. McKenna (1948) 88 Cal.App.2d 1001, 1006; 200 P.2d 61.] Similarly, the court may dissolve an injunction it issued if the trustor does not tender what is owed. [See Meetz v. Mohr, supra, 141 Cal. 667, 672-73.] If the injunction action is commenced during the reinstatement period, the tender would have to be the amount needed to cure the default. [See Civ. Code § 2924c; Bisno v. Sax (1959) 175 Cal.App.2d 714, 724; 346 P.2d 814.]

A tender is an offer of full performance. An offer of partial performance has no effect. [Civ. Code § 1486; see e.g., Gaffrev v. Downey Savings & Loan Assn. (1988) 200 Cal.App.3d 1154, 1165; 246 Cal.Rptr. 421.] The tender cannot be conditioned on any act of the beneficiary which the beneficiary is not required to perform. [Civ. Code § 1494; see e.g., Karlsen v. American Sav. & Loan Assn.. supra, 15 Cal.App.3d 112, 118.]

A tender is effective only if the trustor has the present ability to fulfill the tender. [See Civ. Code § 1495; see e.g., Napue v. Gor-Mev West, Inc. (1985) 175 Cal.App.3d 608, 621; Karlsen v. American Sav. & Loan Assn., supra, 15 Cal.App.3d 112, 118.] If the trustor’s continued ability to perform is at issue during or at the conclusion of an action, the court may consider the trustor’s ability at that time. [See Napue v. Gor-Mev West, Inc., supra, 175 Cal.App.3d 608, 621-22.] The trustor’s offer to sell the property to pay the debt is a sufficient tender of full payment if the property is worth considerably more than the debt. [See In re Worcester (9th Cir. 1987) 811 F.2d 1224, 1231.] On the other hand, the trustor’s mere hope that a lender would release property from the lien, that the property would be sold, and that any additional amount owed would be refinanced is an insufficient tender. [See Karlsen v. American Sav. & Loan Assn., supra, 15 Cal.App.3d 112, 118.)

A proper tender "stops the running of interest on the obligation, and has the same effect upon all its incidents as performance thereof." [Civ. Code § 1504.] A valid tender of a payment, even if refused, precludes a foreclosure based on the failure to make that payment unless the entire balance of the obligation has been accelerated. [See Bisno v. Sax, supra, 175 Cal.App.2d 714, 724.]

If the entire amount of the obligation is tendered, the lien created by the deed of trust is discharged even if the tender is refused: the creditor maintains the right to collect the amount owed but loses its security interest. [See Civ. Code §§ 1504, 2905; Sondel v. Arnold (1934) 2 Cal.2d 87, 89; 39 P.2d 793; Lichtv v. Whitney, supra, 80 Cal.App.2d 696, 701-02; Wagner v. Shoemaker (1938) 29 Cal.App.2d 654, 657; 85 P.2d 229; Wiemever v. Southern T. & C. Bank (1930) 107 Cal.App. 165, 173-74; 290 P. 70.] As a result of the discharge of the trust deed, the trustee has no power to proceed with a foreclosure. [See Winnett v. Roberts, supra, 179 Cal.App.3d 909, 922; Biusno v. Sax, supra, 175 Cal.App.2d 714, 724; Kleckner v. Bank of America (1950) 97 Cal.App.2d 30, 33; 217 P.2d 28.] Accordingly, any foreclosure sale that has been conducted is void and conveys no title. r Lichtv v. Whitney, supra, 80 Cal.App.2d 696, 702.]

There are, however, several notable exceptions to the rule

requiring tender. Tender is not required if the trustor seeks to rescind the obligation and trust deed on the ground of fraud because payment would be an affirmance of the debt. [See Stockton v. Newman, supra, 148 Cal.App.2d 558, 564.] No tender is required when nothing is owed such as, for example, when the trustor’s obligation is offset by the beneficiary’s obligation to the trustor. [See Hauqer v. Gates, supra, 42 Cal.2d 752, 753; see also In re Worchester. supra, 811 F.2d 1224, 1230 n.6.] Moreover, tender is not required when the amount owed is in dispute and the foreclosure should be stayed to permit an accounting or adjudication of the amount of the debt. [See More v. Calkins, supra, 85 Cal. 177, 188-90; see also Stockton v. Newman, supra, 148 Cal.App.2d 558.] The Supreme Court has also recognized that a tender is not necessary when the trustor is willing to make a tender but is frustrated in doing so by the beneficiary’s bad faith conduct.  [See McCue v. Bradbury (1906) 149 Cal. 108; 84 P. 993.]

5.  Bank Deposit

A tender does not discharge the ultimate obligation to make the payment tendered. Tender is an offer of performance, not performance itself.  [See e.g., Walker v. Houston (1932) 215 Cal.742, 745; 12 P. 2d 952.] However, a tender of full payment accompanied by a deposit of that amount in the name of the creditor with a bank or savings and loan association and notice to the creditor extinguishes the payment obligation. [Id* at 746; Civ. Code § 1500.] The deposit must be unconditional. [See e.g., Gaff rev v. Downey Sav. & Loan Assn., supra, 200 Cal.App.3d 1154, 1167.]

A bank deposit does not have to be made when tender is required to prevent a foreclosure or vacate a sale. For example, the tender of the amount owed to reinstate an obligation is sufficient to cure the default and reinstate the obligation; a bank deposit is not necessary, rMagnus v. Morrison (1949) 93 Cal.App.2d 1, 3; 208 P.2d 407.]

Bond or Undertaking

If an injunction is granted, the law requires that an undertaking be given. [Code of Civ. Proc. § 529(a)(c).] This statutory requirement does not specifically apply to temporary restraining orders. The Supreme Court advises that the “better practice” is for the trial court to require a bond for a temporary restraining order, but such an order is not void if a bond is not required. Biasca v. Superior Court (1924) 194 Cal. 366; 228 P. 861; see River Farms Co. v. Superior Court (1933) 131 Cal.App. 365,

370; 21 P.2d 643.] A bond, however, is required for a preliminary injunction. [Code of Civ. Proc. § 529; Neumann v. Moretti (1905) 146 Cal. 31, 32-33; 79 P. 512.]

Significantly, the court can waive the bond requirement for poor litigants. The party seeking a preliminary injunction without bond need not proceed in forma pauperis; however, the court will use in forma pauperis standards in determining whether to grant the injunction without bond. Conover v. Hall (1974) 11 Cal.3d 842, 850-52; 114 Cal.Rptr. 642.]

If a bond is required, the lawyer representing the homeowner should assure that the bond is not too large, especially because the homeowner likely will be unable to afford any bond, let alone a large one. The purpose of the bond is to protect the defendant against damages in the event the court determines that the injunction should not have been issued. [Code of Civ. Proc. § 529.] The deed of trust, however, covers the trustor’s continuing default and accruing unpaid interest. Therefore, the deed of trust should be ample security for the beneficiary if there is sufficient equity in the property to cover additional interest and other expenses emanating from the delay. As a result, any bond should be nominal unless the equity in the property is insufficient; in that event, the bond should only be large enough to cover anticipated damage not covered by the security.  Moreover, a bond

which is significantly larger than necessary to protect against damages may improperly restrict the trustor’s access to the courts and thus may infringe on the trustor’s due process rights. [See Lindsev v. Normet (1972) 405 U.S. 56, 74-79; 92 S.Ct. 862.]

7.  Appeals

An appeal is allowed from an order of the trial court granting or denying a temporary restraining order, preliminary injunction, or final injunction. [Code of Civ. Proc. §§ 904.1(a), 904.1(f); U.S. Hertz, Inc. v. Niobrara Farms, supra, 41 Cal.App.3d 68, 72.] The trial court may restrain the foreclosure pending appeal even though the court may have denied a final injunction. [See City of Pasadena v. Superior Court (1910) 157 Cal. 781, 787-88; 109 P. 620.]  In City of Pasadena, the Supreme Court observed that:

Common fairness and a sense of justice readily suggests that while plaintiffs were in good faith prosecuting their appeals, they should be in some manner protected in having the subject-matter of the litigation preserved intact until the appellate court could settle the controversy . . . in order that, if it be ultimately decided that the judgment appealed from was erroneous, his property may be saved to him.  (.Id. at 795-96.)

The appellate courts likewise can issue a stay order or writ of supersedeas which is injunctive in nature to preserve the status quo pending appeal. [Code of Civ. Proc. § 923; see generally, Agricultural Labor Relations Board v. Tex-Cal Land Management, Inc. (1987) 43 Cal.3d 696, 708; 238 Cal.Rptr. 780; People ex rel. San Francisco Bay Conserv. & Dev. Comm. v. Emeryville (1968) 69 Cal.2d 533; 72 Cal.Rptr. 790.]

8.  Notice of Rescission and Lis Pendens

If the sale is not enjoined, the trustor is in serious jeopardy of losing the right to regain the property in the event it is sold to a bona fide purchaser or the purchaser uses the property for security for a loan from a bona fide encumbrancer. Although the bona fides doctrine will not vitiate those claims predicated on voidness which the trustor is not barred from asserting after a foreclosure sale, the doctrine will hamper, if not preclude, the ability of the trustor to vacate the sale based on claims that render the obligation, the trust deed, or the sale voidable., “The Status of Bona Fide Purchaser or Encumbrancer”. ] Therefore, a lawyer representing a homeowner in foreclosure should immediately take steps to avert the application of the bona fides doctrine by giving constructive notice of the homeowner’s claims.

Notice of Rescission

Every acknowledged conveyance of real property which is recorded with the County Recorder provides constructive notice to subsequent purchasers and encumbrancers. [Civ. Code § 1213.] A conveyance is defined to include any instrument which affects the title to real property [Civ. Code § 1215], and any instrument affecting title to real property may be recorded. [Gov. Code § 27280.] The effect of the recordation is to make every conveyance, except a lease not exceeding one year, void as to all subsequent purchasers and encumbrancers in good faith and for a valuable consideration who record their conveyance prior to the recordation of the earlier conveyance.  [Civ. Code § 1214.]

In Dreifus v. Marx (1940) 40 Cal.App.2d 461, 466; 104 P.2d 1080, the Court of Appeal held that a recorded notice or rescission of a deed, which had been served on the defendants and which states grounds for rescission based on fraud, undue influence, and lack of consideration, affected title to real property and imparted constructive notice of the rightful owner’s claims and assertions of title. [See Civ. Code § 1215 defining conveyance to include a document affecting title.]  As the court held,

Its effect was to declare to the world that the author of the notice had by delivery of a deed been defrauded by the

party upon whom the notice had been served, or had failed to receive consideration for the deed, which fact was notice of the invalidity of such prior deed. By the presence of said notice upon the official records of the county, appellant [a subsequent encumbrancer] had constructive notice of the contents of the instrument which was her initial step in her rescissory proceedings to nullify the alleged fraudulent transaction. (.Id. at 466.)

Since the notice of rescission becomes effective upon its service on the persons against whom rescission is sought, the notice must be served in addition to being recorded to impart constructive notice. [See Brown v. Johnson (1979) 98 Cal.App.3d 844, 850; 159 Cal.Rptr. 675.] Although not specifically required by the cases, the recordation of a declaration of service along with the notice of rescission appears to be advisable.

The recognition of a recorded and served notice of rescission as a document imparting constructive notice should not be interpreted to mean that any recorded document purporting to affect title will create constructive notice: “It is settled that an instrument which is recorded but which is not authorized to be recorded and given constructive notice effect by statute does not impart constructive notice to subsequent purchasers.” Brown v.

Johnson, supra, 98 Cal.App.3d 844, 849; see e.g., Owens v. Palos Verdes Monaco (1983) 142 Cal.App.3d 855, 868; 191 Cal.Rptr. 381 (partnership statement); Lawyers Title Co. v. Bradbury (1981) 127 Cal.App.3d 41, 45; 179 Cal.Rptr. 363 (court order for child and spousal support); Brown v. Johnson, supra, 98 Cal.App.3d 844; (notice of vendor’s lien); Stearns v. Title Ins. & Trust Co. (1971) 18 Cal.App.3d 162, 169; 95 Cal.Rptr. 682 (surveys); Black v. Solano Co. (1931) 114 Cal.App. 170, 173-74; 299 P. 843 (royalty agreement); Hale v. Penderarast (1919) 42 Cal.App. 104, 107-08; 183 P. 833 (notice of property repurchase agreement); Rowley v. Davis (1917) 34 Cal.App. 184, 190-91; 167 P. 162 (notice that absolute deed intended as mortgage).] Therefore, any document contesting the transaction should be recorded in the form of a notice of rescission.

b.  Lis Pendens

As soon as a complaint is filed, a lis pendens should be recorded. The recordation of this lis pendens gives constructive notice to prospective purchasers and lenders of the claims asserted in the action. [Code of Civ. Proc. § 409(a); see e.g., Putnam Sand & Gravel Co., Inc. v. Albers (1971) 14 Cal.App.3d 722, 725; 92 Cal.Rptr. 636.] Therefore, even if the temporary restraining order or the preliminary injunction is denied, subsequent purchasers and encumbrancers will take their interest subject to the plaintiff’s

claims and will not have a bona fide status.

A lis pendens is simply a notice that there is pending litigation “concerning real property or affecting the title or the right of possession of real property.” [Code of Civ. Proc. § 409(a).] The notice must include the names of the parties, the object of the action, and a description of the property. (Id.) Prior to recording, the notice must be served by registered or certified mail, return receipt requested to all known addresses of the adverse parties and all owners of record as shown in the latest assessment information in the possession of the county assessor’s office. [Code of Civ. Proc. § 409(c).] A copy of the lis pendens must also be filed with the court in which the action is filed. fid.) A proof of service must be recorded with the lis pendens or, in lieu thereof, a declaration under penalty of perjury stating that the address of the adverse party is unknown. [Code of Civ. Proc. § 409(d).] If the service and proof of service requirements are not satisfied, the lis pendens is void.  (Id.)

D.  Attack on the Sale’s Validity

1.  Vacating the Foreclosure Sale and Obtaining Damages

The traditional method of challenging a foreclosure sale is through a suit inequity,  Anderson v. Heart Fed. Sav. & Loan Assn.

(1989) 1989 Cal.App. LEXIS 141.]

The trustor can seek to set aside any improper foreclosure sale:

It is the general rule that courts have power to vacate a foreclosure sale where there has been fraud in the procurement of the foreclosure decree or where the sale has been improperly, unfairly or unlawfully conducted, or is tainted by fraud, or where there has been such a mistake that to allow it to stand would be inequitable to purchaser and parties. Sham bidding and the restriction of competition are condemned, and inadequacy of price when coupled with other circumstances of fraud may also constitute ground for setting aside the sale. Bank of America v. Reidy, supra. 15 Cal.2d 243, 248.

[See e.g., Stirton v. Pastor, supra, 177 Cal.App.2d 232, 234; Brown v. Busch. supra, 152 Cal.App.2d 200, 203-04; Pv v. Pleitner, supra, 70 Cal.App.2d 576, 579.] In a more modern formulation of the rule, the Court of Appeal has stated that —

“The courts scrutinize a sale held under power in a trust deed carefully, and will not sustain it unless it is conducted with fairness, openness, scrupulous integrity, and the trustee exercises sound discretion to protect the rights of all

interested parties and obtain the best possible price.” Bank of Seoul & Trust Co. v. Marcione, supra, 198 Cal.App.3d 113, 119.

The plaintiff bears the burden of proof and, if the action is based on irregularities in the sale process, must show injury from the claimed irregularities. [See e.g., Stevens v. Plumas Eureka Annex Min. Co., supra. 2 Cal.2d 493, 497; Sargent v. Shumaker, supra, 193 Cal. 122; Anderson v. Heart Fed. Sav. & Loan Assn., supra, 1989 Cal.App. LEXIS 141.] The injured trustor does not have to attempt to enjoin the sale before bringing an action to vacate the sale. [See Hauaer v. Gates, supra, 42 Cal.2d 752, 756.] The trustor is not estopped from raising claims concerning the sale’s validity which could have been raised before the sale. (Id. ) However, the trustor’s action may be barred by laches. [See Smith v. Sheffev (1952) 113 Cal.App.2d 741, 744; 248 P.2d 959.]

The trustor may seek damages instead of, or as an alternative to, setting aside the sale. [See Munaer v. Moore, supra, 11 Cal.App.3d 1, 7; Standlev v. Knapp, supra, 113 Cal.App. 91, 100-02; see also Stockton v. Newman, supra, 148 Cal.App.2d 558, 563-64. ] The decision to seek damages and/or the rescission of the trustee’s sale may be influenced by whether a jury trial is desired. An action to vacate a trustee’s sale is equitable in nature and, hence, the trustor would not be entitled to a jury

trial. An action for damages, however, is an action at law in which the right to jury trial ordinarily exists. If the legal and equitable issues are joined, the trial court has the discretion to try the equitable issues first, and if the trial court’s determination of these issues is dispositive, nothing remains to be considered by the jury. [See Raedeke v. Gibraltar Sav. & Loan Assn. (1974) 10 Cal.3d 665, 671; 111 Cal.Rptr. 693.]

2. Grounds for Attacking the Sale

The grounds for attacking the sale are discussed above.

3. Tender

Since the action to set aside the sale is equitable in nature, the trustor seeking equity is compelled to do equity by tendering the amount of the obligation owed. [See e.g., Shimpones v. Sticknev (1934) 219 Cal. 637, 649; 28 P.2d 673; Napue v. Gor-Mev West, Inc. . supra, 175 Cal.App.3d 608, 621; Karlsen v. American Sav. & Loan Assn.. supra, 15 Cal.App.3d 112, 117; Crummer v. Whitehead, supra, 230 Cal.App.2d 264, 268; Foae v. Schmidt (1951) 101 Cal.App.2d 681, 683. Pv v. Pleitner, supra, 70 Cal.App.2d 576, 582.]

For a discussion of tender and the circumstances which excuse tender, A junior lienor seeking to set aside the sale of a senior lienor because of irregularities that impaired the junior lienor’s opportunity to reinstate or redeem must tender the full amount owing on the senior obligation. [See FPCI RE-HAB 01 v. E&G Investments, Ltd. (1989) 207 Cal.App.3d 1018, 1021-22; 255 Cal.Rptr. 157; Arnolds Management Corp. v. Eischen (1984) 158 Cal.App.3d 575; 205 Cal.Rptr. 15 (junior lienor had no notice of sale but its right of reinstatement had elapsed); but see United States Cold Storage v. Great Western Sav. & Loan Assn. (1985) 165 Cal.App.3d 1214, 1223-25; 212 Cal.Rptr. 232.] If the ground for vacating the sale does not involve an irregularity precluding the exercise of the right of reinstatement or redemption, tender is not necessary. [See FPCI RE-HAB 01 v. E&G Investments, Ltd., supra, 207 Cal.App.3d 1018, 1022.]

4.  Conclusiveness of Deed Recitals

Trustee’s deeds routinely contain a series of recitals concerning the propriety of the foreclosure. The recitals usually cover every aspect of the foreclosure and purport to be conclusive evidence that the recited facts occurred. The authority of the trustee to make these recitals which ostensibly bind the trustor

is derived from the trust deed. [See Little v. CFS Service Corp., supra, 188 Cal.App.3d 1354, 1358.] The recitals include such facts as the following: a default occurred and still existed at the time of sale, a properly completed notice of default was properly mailed to all parties, not less than three months elapsed between the recordation of the notice of default and the posting and the first publication of the notice of sale, all posting and mailing requirements specified in the trust deed and by statute for the notice of sale were met, the beneficiary properly demanded that the trustee sell the property, and the trustee properly sold the property in full accordance with the terms of the trust deed and all laws. Obviously, this formidable array of recitals, if conclusively binding on the trustor, would be an insuperable obstacle to setting aside the sale. The courts and the Legislature have traditionally recognized the validity of some of these recitals, but the courts have fashioned important exceptions which must be considered by counsel representing a homeowner trying to vacate a trustee’s sale.

As a general proposition, California courts have historically sustained the validity of trustee’s deed recitals regarding the regularity of sale procedures, such as properly publishing and posting notices, as conclusive evidence of the facts recited. [See e.g., Pacific States Sav. & Loan Co. v. O'Neill, supra, 7 Cal.2d 596, 599; 61 P.2d 1160; Cobb v. California Bank, supra, 6 Cal.2d

389, 390; Central Nat. Bank v. Bell, supra, S Cal.2d 324, 327; Sorensen v. Hall (1934) 219 Cal. 680, 682; 28 P.2d 667; Simson v. Eckstein (1863) 22 Cal. 580, 592; 54 P.2d 1107.] The theory underlying this rule is that the trustee, as the trustor’s agent, has been empowered by the trustor in the terms of the deed of trust to bind the trustor in making conclusive admissions regarding the regularity of the sale process. [See Mersfelder v. Spring (1903) 139 Cal. 593, 595; 73 P. 452; Little v. CFS Service Corp., supra, 188 Cal.App.3d 1354, 1358; Pierson v. Fischer, supra, 131 Cal.App.2d 208, 216-17; 280 P.2d 491.] However, the trustee is not obliged to issue a trustee’s deed containing conclusive presumptions regarding the regularity of sales procedures if the procedures were defective. [See Little v. CFS Service Corp., supra, 188 Cal.App.3d 1354, 1360.]

The Legislature has provided that recitals dealing with compliance with all legal requirements for mailing copies of notices, publishing or personally delivering a copy of the notice of default and posting and publishing the notice of sale are prima facie evidence of compliance and conclusive evidence in favor of a bona fide purchaser. [Civ. Code § 2924; see Garfinkle v. Superior Court, supra, 21 Cal.3d 268, 279 n.16; (Supreme Court withholds opinion on validity and effect of Civ.Code §2924 presumptions); a discussion of what is a "bona fide purchaser" is contained in, "The Status of a Bona Fide Purchaser or Encumbrancer" . ] Thus, recitals regarding the mailing, posting, and publishing of notices are conclusive only as to a bona fide purchaser but are rebuttable as to everyone else. [See Napue v. Gor-Mev West. Inc., supra, 175 Cal.App.3d 608, 620-21; Wolfe v. Lipsev, supra, 163 Cal.App.3d 633, 639-40.] The obvious purpose of the presumption is to protect a bona fide purchaser at a trustee’s sale from certain claims of procedural defects. [See Napue v. Gor-Mev West, Inc.. supra, 175 Cal.App.3d 608, 615.]

The statute does not deal with the effect of purported conclusive recitals regarding matters other than the mailing, posting, and publishing of notices. [See Wolfe v. Lipsev, supra, 163 Cal.App.3d 633, 640 (application of presumptions in Civ.Code §2924 to notices of postponement is "questionable"). The courts, however, recognized that the recitals did not prevent an examination into any fraud or unfairness in the sale process about which the purchaser has notice. Thus, for example, the Supreme Court declared that conclusive recitals "would not, perhaps, preclude the inquiry in an equitable proceeding into the fairness of the sale, or with other matters which on equitable principles might entitle the party injured to relief . . . ." Mersfelder v. Spring, supra, 139 Cal. 593, 595; see e.g., Taliaferro v. Crola (1957) 152 Cal.App'.2d 448, 449-50; 313 P.2d 136; Karrell v. First Thrift of Los Angeles (1951) 104 Cal.App.2d 536, 539; 232 P.2d 1; Seccombe v. Roe (1913) 22 Cal.App. 139, 143; 133 P. 507.]

The courts have also declared that no recitals are conclusive between the beneficiary and the trustor. As the Court of Appeal held,

We are of the opinion that this stipulation as to conclusiveness, reading the whole deed and various requirements together, was only intended and only had the effect to protect an innocent purchaser or a third party to the transaction who acquired at such sale the legal title, but that as between the trustor and the beneficiary, when such beneficiary takes the legal title under a sale made in violation of terms of the trust, the trustor is not estopped to deny the regularity of the sale and to obtain equitable relief through a redemption thereof …. Seccombe v. Roe, supra, 22 Cal.App. 139, 143-44.

[See Beck v. Reinholtz (1956) 138 Cal.App.2d 719, 723; Security-First National Bank v. Crver (1940) 39 Cal.App.2d 757, 762; 104 P.2d 66; see also Tomczak v. Ortega, supra, 240 Cal.App.2d 902, 907; see generally 20th Century Plumbing Co. v. Sfreaola (1981) 126 Cal.App.3d 851, 854; 179 Cal.Rptr. 144 (judgment creditor buying at sale is not a bona fide purchaser).]

Moreover, the trustor may not waive any- rights under Civil Code §§ 2924, 2924b, and 2924c. [Civ. Code § 2953.] Therefore, any provision in the trust deed by which the trustor purportedly authorized the trustee to admit conclusively that the protections afforded by these sections have been extended, when they have not been extended, should be construed as an invalid waiver. [See Tomczak v. Ortega, supra, 240 Cal.App.2d 902, 907; but see Pierson v. Fischer, supra, 131 Cal.App.2d 208, 216-17, which is completely contrary to the public policy expressed in Civ. Code §§ 2924 and 2953; but see also Leonard v. Bank of America, supra, 16 Cal.App.2d 341, 345-46, the analysis of which should be superseded by Civ. Code § 2953 and Tomczak.)

The continued viability of these conclusive presumptions is open to challenge. The California Supreme Court declined to express any opinion on the validity and effect of the conclusive recital provisions of Civil Code § 2924. [See Garfinkle v. Superior Court, supra, 21 Cal.3d 268, 279 n. 16.]

The constitutionality of the conclusiveness of the recitals is also questionable. That issue has heretofore been avoided by California courts. [See Lancaster Security Inv. Corp. v. Kessler, supra, 159 Cal.App.2d 649, 655.] The effect of the conclusive presumption is dramatic: a trustor is irretrievably precluded by the trustee’s recitals from introducing evidence at trial that the

trustee illegally sold the trustor’s property. For example, in attempting to recover possession of the property through unlawful detainer proceedings after sale, a purchaser must prove that the property was “duly sold” and that the purchaser’s title has been “duly perfected.” [See Code of Civ. Proc. § 1161a; see discussion, "Attacking the Sale or Defending Possession in Unlawful Detainer Proceedings."] Nevertheless, a bona fide purchaser can rely solely on the recitals to prove the case, and the trustor is barred from introducing contrary evidence to prevent being ousted from possession. [See e.g., Cruce v. Stein (1956) 146 Cal.App.2d 688, 693; 304 P.2d 118; Abrahamer v. Parks (1956) 141 Cal.App.2d 82, 84; 296 P.2d 343.]

Although a general discussion of the possible due process and equal protection infirmities to this statutory scheme is beyond the scope of this handbook, a lawyer representing a homeowner in foreclosure should consider several decisions of the United States Supreme Court which declared certain conclusive presumptions unconstitutional. rCleveland Bd. of Education v. LaFleur (1974) 414 U.S. 632; United States Dept. of Agriculture v. Murrv (1973) 413 U.S. 508; Vlandis v. Kline (1973) 412 U.S. 441; Stanley v. Illinois (1972) 405 U.S. 645. ] The gravamen of these cases is that due process forbids the use of irrebuttable presumptions to establish the truth of facts which are neither universally nor necessarily true when the state has reasonable alternative means

to determine the existence of the facts. [See e.g., landis v. Kline (1973) 412 U.S. 441, 452.] Although the Legislature is not prevented from establishing objective, rational criteria for determining the existence or nonexistence of facts, the Legislature cannot make the existence of a fact an issue and then make inadmissible patently relevant evidence tending to prove or disprove the fact. [See Weinberger v. Salfi (1975) 422 U.S. 749, 772.] Even as limited by Salfi, Vlandis and the other similar cases appear to prohibit the state’s predicating the validity of a foreclosure sale and unlawful detainer proceeding on the regularity of the foreclosure sale process and then prohibiting the introduction of admissible evidence to disprove the regularity of the process. [See generally, Western & A.R.R. v. Henderson (1929) 279 U.S. 639 (invalidating arbitrary rebuttable presumption).]

Whether or not the conclusiveness of the presumptions is constitutional, a lawyer representing a homeowner in foreclosure should attempt to prevent the operation of the conclusive presumptions by preventing the execution and delivery of the trustee’s deed. The bona fide purchaser obtains the benefit of the conclusive presumptions from the deed recitals; if the purchaser does not receive a deed, the purchaser will have no conclusive presumptions on which to rely. Little v. CFS Service Corp., supra, 188 Cal.App.3d 1354, 1360-61.] Therefore, if property has been sold through foreclosure but the trustee’s deed has not been

executed and delivered, the lawyer representing the trustor should attempt to enjoin the execution and delivery of the deed on the grounds of whatever irregularity may have existed in the sale and on the ground that the trustor will suffer irreparable injury as a result of the creation of the conclusive presumptions. (See generally, 3 Witkin, Summary of California Law, § 108, at 1577.)

E.  Attacking the Sale or Defending Possession in Unlawful Detainer Proceedings

Generally, the purchaser at a trustee’s sale may institute an unlawful detainer action to obtain possession if the “property has been duly sold in accordance with Section 2924 of the Civil Code” and if “title under the sale has been duly perfected.” [Code of Civ. Proc. § 1161a(b) (3). ] A transferee of the purchaser also has standing to use the unlawful detainer process. [See Evans v. Superior Court (1977) 67 Cal.App.3d 162, 169-70; 136 Cal.Rptr. 596.] The action may be brought after the failure to vacate following the service of a three-day notice to quit. [Code of Civ. Proc. § 116la(b).] However, unlawful detainer proceedings may be used against a tenant or subtenant only after the service of notice to quit at least as long as the periodic tenancy but not exceeding 30 days. [Code Civ. Pro. § 1161a(c).] The remedy is cumulative to common law actions such as ejectment which may be brought to obtain possession.  [See Duckett v. Adolph Wexler Bldg. & Fin.

Corp. (1935) 2 Cal.2d 263, 265-66; 40 P.2d 506; Mutual Bldo. & Loan Assn. v. Corum (1934) 3 Cal.App.2d 56, 58; 38 P.2d 793.] With very rare exceptions, the purchaser will invoke summary unlawful detainer proceedings rather than other proceedings to gain possession.

However, the purchaser is precluded from invoking unlawful detainer if a local ordinance, such as a rent control law, does not permit eviction after foreclosure. [See Gross v. Superior Court (1985) 171 Cal.App.3d 265; 217 Cal.Rptr. 284.] The purchaser may also be bound to rent ceilings. [See People v. Little (1983) 141 Cal.App.3d Supp. 14; 192 Cal.Rptr. 619.]

The courts have charted inconsistent paths in determining what defenses may be raised in unlawful detainer proceedings and to what extent the trustor may be able to attack the purchaser’s title. In the early cases, the courts concluded that the purchaser had the burden of proving that the purchaser acquired the property in the manner expressed in the unlawful detainer statute; i.e., the property was duly sold and the purchaser duly perfected title. No other questions of title could be litigated. [See e.g., Nineteenth Realty Co. v. Diacrs (1933) 134 Cal.App. 278, 288-89; 25 P.2d 522; Hewitt v. Justice's Court (1933) 131 Cal.App. 439, 443; 21 P.2d 641.]

This rule was adopted by the Supreme Court in Cheney v. Trauzettel (1937) 9 Cal.2d 158; 69 P.2d 832. The Supreme Court held that:

… in the summary proceeding in unlawful detainer the right to possession alone was involved, and the broad question of title could not be raised and litigated by cross-complaint or affirmative defense. [Citations omitted.] It is true that where the purchaser at a trustee’s sale proceeds under section 1161a of the Code of Civil Procedure he must prove his acquisition of title by purchase at the sale; but it is only to this limited extent, as provided by statute, that the title may be litigated in such a proceeding. [Citations omitted.] . . . the plaintiff need only prove a sale in compliance with the statute and deed of trust, followed by purchase at such sale, and the defendant may raise objections only on that phase of the issue of title. Matters affecting the validity of the trust deed or primary obligation itself, or other basic defects in the plaintiff’s title, are neither properly raised in this summary proceeding for possession, nor are they concluded by the judgment. (Id. at 159-60.)

Accordingly, in numerous cases trustors have been forbidden from defending against the unlawful detainer on grounds other than

showing that the sale was not conducted pursuant to Civil Code § 2924. [See e.g., California Livestock Production Credit Assn. v. Sutfin, supra, 165 Cal.App.3d 136, 140 n.2; Evans v. Superior Court, supra, 67 Cal.App.3d 162, 170-71; MCA. Inc. v. Universal Diversified Enterprises Corp. (1972) 27 Cal.App.3d 170, 176-77; 103 Cal.Rptr. 522; Cruce v. Stein, supra, 146 Cal.App.2d 688, 692; Abrahamer v. Parks, supra, 141 Cal.App.2d 82, 84; Hiaoins v. Covne (1946) 75 Cal.App.2d 69, 72-73, 75; 170 P.2d 25; Delov v. Ono (1937) 22 Cal.App.2d 301, 303; 70 P.2d 960.]

Other courts, on the other hand, have considered defenses extrinsic to compliance with statutory foreclosure procedure in determining unlawful detainer matters. In Seidell v. Anglo-California Trust Co. (1942) 55 Cal.App.2d 913, 921; 132 P.2d 12, the Court of Appeal construed Cheney to prohibit only equitable but not legal defenses. Therefore, the Court thought that lack of consideration and other issues going to the validity of the note and the trust deed were proper defenses. (Id. at 922.) Other cases have permitted the unlawful detainer defenses whether or not the grounds were technically legal or equitable. [See e.g., Kartheiser v. Superior Court (1959) 174 Cal.App.2d 617, 621; 345 P.2d 135 (beneficiary's waiver of default); Freeze v. Salot, supra, 122 Cal.App.2d 561; (no default); Kessler v. Bridge (1958) 161 Cal.App.2d Supp. 837; 327 P.2d 241 (rescission, lack of delivery); Altman v. McCollum. supra, 107 Cal.App.2d Supp. 847; (estoppel to

assert default).]

The issue of what defenses can or should be raised also significantly affects the application of the res judicata doctrine to any action by the trustor after the unlawful detainer to challenge the trustee’s sale. Cases, proceeding from Seidell, which hold that potential defenses are far ranging, have also held that issues which were, or might have been, determined in the unlawful detainer proceeding are barred by res judicata in subsequent proceedings. [See Freeze v. Salot. supra, 122 Cal.App.2d 561, 565-66; Bliss v. Security-First Nat. Bank (1947) 81 Cal.App.2d 50, 58; Seidell v. Analo-California Trust Co., supra, 55 Cal.App.2d 913.]

The Court of Appeal, however, ruled differently in Gonzales v. Gem Properties, Inc., supra, 37 Cal.App.3d 1029, 1036. The court recognized the extreme difficulty of conducting complicated defenses in the context of a summary proceeding; investigation and discovery procedures are limited, and the proceeding is too swift to afford sufficient time for preparation. Therefore, the court denied a res judicata effect to issues such as fraud.

The resolution of the problems raised by these cases appears in Vella v. Hudoins (1977) 20 Cal.3d 251; 142 Cal.Rptr. 414 and Asuncion v. Superior Court (1980) 108 Cal.App.3d 141; 166 Cal.Rptr.

306. In Vella, the Supreme Court held generally that only claims “bearing directly upon the right of immediate possession are permitted; consequently, a judgment in unlawful detainer usually has very limited res judicata effect and will not prevent one who is dispossessed from bringing a subsequent action to resolve questions of title [citations omitted], or to adjudicate other legal and equitable claims between the parties [citations omitted].” (20 Cal.3d at 255.) The purchaser, however, must show that the sale was regularly conducted and that the purchaser’s title was duly perfected.  (Id.)

The court reaffirmed the holding in Cheney that claims dealing with the validity of the trust deed or the obligation or with other basic defects in the purchaser’s title should not be litigated in unlawful detainer proceedings, and that determination made regarding such claims should not be given res judicata effect. (Id. at 257.) Defenses which need not be raised may nonetheless be considered if there is no objection. [See Stephens, Partain & Cunningham v. Hollis, supra, 196 Cal.App.3d 948, 953.] Res judicata will apply only to defenses, including those ordinarily not cognizable but raised without objection, if there is a fair opportunity to litigate, vella v. Hudgins, supra, 20 Cal.3d 251, 256-57.] Since complex claims, such as for fraud, can very rarely be fairly litigated in summary unlawful detainer proceedings, the trustor is not required to raise those issues as a defense.  Although not required and ordinarily not allowed to litigate critical issues involving the obligation, the trust deed, and title, the homeowner-trustor is practically impelled to litigate these issues or be dispossessed since an unlawful detainer hearing will certainly precede a trial on a quiet title action. [See Code of Civ. Proc. § 1179a; Kartheiser v. Superior Court, supra, 174 Cal.App.2d 617, 621-23.] The California Supreme Court, citing Justice Douglas, aptly observed:

. . . the home, even though it be in the slums, is where man’s roots are. To put him into the street . . . deprives the tenant of a fundamental right without any real opportunity to defend. Then he loses the essence of the controversy, being given only empty promises that somehow, somewhere, someone may allow him to litigate the basic question in the case. S. P. Growers Assn. v. Rodriguez (1976) 17 Cal.3d 719, 730; 131 Cal.Rptr. 761.

Accordingly, the Court of Appeal held in Asuncion, supra, that “homeowners cannot be evicted, consistent with due process guaranties, without being permitted to raise the affirmative defenses which if proved would maintain their possession and ownership.”  (108 Cal.App.3d at 146.)  Nonetheless, the Court was

mindful that an unlawful detainer action was “not a suitable vehicle to try complicated ownership issues. …” [Id. at 144; see Mehr v. Superior Court (1983) 139 Cal.App.3d 1044, 1049; 189 Cal.Rptr. 138; Gonzales v. Gem Properties, Inc., supra, 37 Cal.App.3d 1029, 1036.] The Court thus prescribed the following procedure when the trustor had on file a superior court action contesting title: (a) the municipal court should transfer the unlawful detainer proceeding to the superior court because that action ultimately involves the issue of title which is beyond the municipal court’s jurisdiction; and (b) the superior court should stay the eviction action, subject to a bond if appropriate, until trial of the action dealing with title, or (c) the superior court should consolidate the actions.  (Id. at 146-47.)

If the challenge to title is based on fraud in the acquisition of title, improper sales methods, or other improprieties that directly impeach the unlawful detainer plaintiff’s title or the procedures followed in the foreclosure sale, Asuncion and Mehr dictate that the unlawful detainer should be stayed. On the other hand, if the challenge to title is based on a claim unrelated to the specific property in question, such as a fraud not directly related to the obtaining of title to the property that is the subject of the unlawful detainer, the rule in Asuncion does not apply. [See Old National Financial Services, Inc. v. Seibert (1987) 194 Cal.App.3d 460, 464-67.]

Asuncion should also be distinguished from Mobil Oil Corp. v. Superior Court (1978) 79 Cal.App.3d 486; 145 Cal.Rptr. 17, which is frequently cited in opposition to the procedure authorized in Asuncion♦ In Mobil, the court ruled that statutory procedure accorded unlawful detainer proceedings precluded staying the unlawful detainer action until the tenant gas station operator could try his action alleging unfair practices in the termination of his franchise. (Id. at 494.) The Asuncion court noted some procedural distinctions: the commercial lessee did not seek a preliminary injunction and obtained a stay on apparently inadequate factual grounds, while the Asuncions had not yet had the opportunity to present facts on which a preliminary injunction might issue.  (See 108 Cal.App.3d at 146 n. 1.)

In addition, the differences between the interests presented in commercial and residential transactions suggest that different considerations may apply to each. The courts have recognized a distinction between commercial and residential cases and have been more willing to allow affirmative defenses in residential cases. [See S. P. Growers Assn., supra, 17 Cal.3d 719, 730; 131 Cal.Rptr. 761; Custom Parking, Inc. v. Superior Court (1982) 138 Cal.App.3d 90, 96-100; 187 Cal.Rptr. 674; Schulman v. Vera (1980) 108 Cal.App.3d 552, 560-63; 166 Cal.Rptr. 620; Asuncion v. Superior Court, supra, 108 Cal.App.3d 141, 145, 146 n. 1;  Mobil Oil Corp.

v, Handlev (1976) 76 Cal.App.3d 956, 966;- 143 Cal.Rptr. 321; see generally, Union Oil Co. v. Chandler (1970) 4 Cal.App.3d 716, 725; 84 Cal.Rptr. 756.]

The commercial lessee may be able to establish its rights in an action apart from the unlawful detainer. The trustor, however, will lose possession of the trustor’s home. While the lessee’s loss is likely compensable in money, the loss of the home and the attendant adverse impact on the psychological well being of the residents and the family structure will not as easily be amenable to compensation. Moreover, the family cast out onto the streets may be unable to maintain an action which may come to trial years later. [See S. P. Growers Assn. v. Rodriguez, supra, 17 Cal.3d 719, 730.] In addition, the affirmative defenses alleged in the recent commercial lease cases have presented substantial and complex issues [see e.g., Mobil Oil Corp. v. Superior Court, supra, 79 Cal.App.3d 486, 495 (unfair business practice charge involving all Mobil service station operators); Onion Oil Co. v. Chandler, supra, 4 Cal.App.3d 716, 725-26 (antitrust violations)] and would likely consume more trial time than most trustee’ s sale cases.

Moreover, the court’s decision on whether to recognize various affirmative defenses in unlawful detainer proceedings results from a balancing of the public policies furthered by protecting the tenant or property owner from eviction against the state’s interest

in the expediency of a summary proceeding. [See e.g., Barela v. Superior Court (1981) 30 Cal.3d 244, 250; 178 Cal.Rptr. 618; S. P. Growers Assn. v. Rodriguez, supra, 17 Cal.3d 719, 729-30; Custom Parking, Inc. v. Superior Court, supra, 138 Cal.App.3d 90.] There is a strong public policy supporting homeownership and the conservation of neighborhoods from destabilizing influences. [See "Propriety of Injunctive Relief".] These interests when coupled with the due process concerns mentioned in Asuncion militate for the hearing of affirmative defenses in accord with the procedure set forth in Asuncion.

As an alternative to an Asuncion motion prior to the hearing of the unlawful detainer action, the homeowner’s counsel could file a superior court action to challenge title and to restrain the purchasers from initiating or prosecuting an unlawful detainer. If the homeowner has lost the unlawful detainer, the injunction could be aimed at restraining the purchasers from enforcing the writ of possession or from taking possession of the premises.

Counsel should not direct the injunction against the municipal court or the sheriff or marshall since the superior court has no jurisdiction to enjoin a judicial proceeding or a public officer’s discharge of regular duties. [See e.g., Code of Civ. Proc. § 526.]

The courts have not ruled on whether traditional landlord-tenant defenses could ever be invoked in unlawful detainer

proceedings between the purchaser at the foreclosure sale and the person in possession. However, these defenses do not apply if the person in possession has no independent right to possession after the foreclosure. [See California Livestock Production Credit Assn. v. Sutfin. supra, 165 Cal.App.3d 136, 143.] In Sutfin, for example, the court held that a trustor could not invoke a retaliatory eviction defense because the trustor had no lease agreement giving the trustor a right to possession and the trustor’s only claim to possession derived from his title to the property which was lost at a valid foreclosure sale.  (Id.)

F.  The Status of Bona Fide Purchaser or Encumbrancer

The trustor may be unable to vacate a sale made to a bona fide purchaser for value without notice of the trustor’s claim. The general rules of bona fide purchase apply to trustee’s sales: a “good faith purchaser for value and without notice of the fraud or imposition is not chargeable with the fraud or imposition of his predecessor and takes title free of any equity of the person thus defrauded or imposed upon.” strutt v. Ontario Sav. & Loan Assn. (1970) 11 Cal.App.3d 547, 554; accord, Karrell v. First Thrift of Los Angeles, supra, 104 Cal.App.2d 536, 539; see Gonzales v. Gem Properties, Inc., supra, 37 Cal.App.3d 1029, 1037; 112 Cal.Rptr. 884.]

Notice

The trustor’s best chance for attacking someone’s alleged status as a bona fide purchaser or encumbrancer will be to show that the purchaser had knowledge of the trustor’s claims and equities. The notice can be actual or constructive. (See Civ. Code § 18.)

a.  Actual Notice

The bona fide purchase doctrine does not benefit a subsequent purchaser or encumbrancer who takes with actual notice of a prior, though unrecorded, claim to property. [See e.g., Civ. Code §§ 1214, 1217; Slaker v. McCormick-Saeltzer Co. (1918) 179 Cal. 387, 388; 177 P. 155.] Actual notice may be acquired in many ways including the following: (a) seeing a document relating to someone’s claim [see e.g., Beverly Hills Nat. Bank & Trust Co. v. Seres (1946) 76 Cal.App.2d 255, 264; 172 P.2d 894 (letter)]; (b) being told of someone’s interest [see e.g., Laucrhton v. McDonald (1923) 61 Cal.App. 678, 683; 215 P. 707]; (c) listening to or participating in a conversation regarding someone’s claim [see e.g., Williams v. Miranda (1958) 159 Cal.App.2d 143, 153; 323 P.2d 794]; (d) actually viewing a public record [see e.g., Warden v. Wyandotte Sav. Bank (1941) 47 Cal.App.2d 352, 355; 117 P.2d 910]; (e) actually viewing a recorded document which is not entitled to recordation and which, therefore, would not impart constructive notice [see Parkside Realty Co. v. MacDonald (1913) 166 Cal. 426, 431; 137 P. 21]; (f) viewing a preliminary title report which refers to someone’s interest [see Sain v. Silvestre, supra, 78 Cal.App.3d 461, 469-70; Rice v. Capitol Trailer Sales of Redding (1966) 244 Cal.App.2d 690, 692-94; 53 Cal.Rptr. 384].

Constructive Notice

Subsequent purchasers or encumbrancers have constructive notice of the contents of all acknowledged and recorded conveyances from the time of their recordation. [See Civ. Code § 1213.] A conveyance that is not property indexed does not impart constructive notice [see Rice v. Taylor (1934) 220 Cal. 629, 633-34; 32 P.2d 381]; however, a properly indexed conveyance imparts constructive notice even if the document were recorded in an incorrect book of record. [Gov. Code § 27327.] Not every recorded document imparts constructive notice; if the document is not deemed a conveyance, as broadly defined [see Civ. Code § 1215], its recordation will not give constructive notice. [See discussion in If the document is properly recordable as an instrument which may affect title to real property, the recorded instrument not only gives constructive notice of its own contents but also of the contents of other documents to which the recorded instrument refers.  [See Caito v.United California Bank, supra, 20 Cal.3d 694, 702; American Medical International, Inc. v. Feller (1976) 59 Cal.App.3d 1008, 1020; 131 Cal.Rptr. 270; see also Pacific Trust Co. TTEE v. Fidelity Fed. Sav. & Loan Assn., supra, 184 Cal.App.3d 817, 825.]

If the document is unacknowledged or defectively acknowledged, the document does not impart constructive notice until one year after its recordation. [See Civ. Code § 1207; see e.g., Frederick v. Louis (1935) 10 Cal.App.2d 649, 651; 52 P. 2d 533.] An acknowledgment cannot be properly taken unless the notary “personally knows, or has satisfactory evidence that the person making the acknowledgement is the individual who is described in and who executed the instrument.” (Civ. Code § 1185.) A broad standard has been adopted to satisfy this requirement. For example, the notary may rely on the statement of a “credible witness,” personally known to the notary, that the person making the acknowledgment is personally known to the witness [Civ. Code § 1185(c)(1)]; the notary may also rely on a driver’s license.

[Civ. Code § 1185(c)(2)(A).]

If a trust deed is forged, it is void even in the hands of a person who would otherwise be a bona fide purchaser.  [See e.g., Trout v. Taylor, supra, 220 Cal. 652, 656; see discussion on forgery, Chapter V A 6, "Forgery and Fraud in The Factum".] infra.1  Therefore, if a notary falsely certifies a forged trust deed, the notary will not be liable to the purported trustor for the amount of the trust deed since the purported trustor has no obligation to pay it.  [See Preder v. Fidelity & Casualty Co. (1931) 116 Cal.App. 17; 2 P.2d 223.]  However, the notary may be liable to the trustor for expenses involved in clearing title (see Preder, supra).  The trustor whose genuine signature is obtained on a document through fraud may be able to recover for the fraud.

Constructive notice is also imputed from known circumstances. Civil Code § 19 provides that:

Every person who has actual notice of circumstances sufficient to put a prudent man upon inquiry as to a particular fact, has constructive notice of the fact itself in all cases in which, by prosecuting such inquiry, he might have learned such fact.

see Olson v. Comwell (1933) 134 Cal.App. 419, 428; 25 P.2d 879.] Thus, the Court of Appeal has held that:

one who purchases at a trustee’ s sale with knowledge, express or implied, that the trustor is contesting the right to sell, is presumed to know the course of the proceedings and state of record from which the title of his grantor proceeded, and he is presumed to know, too, that the right of the defendant is to take an appeal within the statutory period, and also the consequences of the successful prosecution of this right;

notary’s false certification if the trust deed is acquired by a bona fide purchaser.  [See MacBride v. Schoen (1932) 121 Cal.App. 321; 8 P.2d 888.]  Generally, a notary and the notary’s sureties on the notary bond are liable for all the damages sustained by any person injured by the notary’s official misconduct.  (Gov. Code § 8214.)  The notary’s official misconduct must be related to notary duties.  [See e.g., Heidt v. Minor (1891) 89 Cal. 115, 118-19; 26 P. 627.]  The misconduct must also be the proximate cause of the injury.  (See MacBride v. Schoen, supra.)and he must be supposed to purchase with reference to these things. Bisno v. Sax, supra, 175 Cal.App.2d 714, 732; 346 P.2d 814.

Other circumstances will prompt inquiry. For example, if the purchase price of property is grossly disproportionate to its value, the low price is sufficient to put a prudent person on inquiry of a defect in title. [See e.g., Jordan v. Warnke (1962) 205 Cal.App.2d 621, 629; 23 Cal.Rptr. 300; Rabbit v. Atkinson (1944) 44 Cal.App.2d 752, 757; 113 P.2d 14.]

A corollary to this principle of inquiry notice is that “possession of real property is constructive notice to any intending purchaser or encumbrancer of the property of all of the rights and claims of the person in possession which would be disclosed by the inquiry.” Asisten v. Underwood (1960) 183 Cal.App.2d 304, 309; 7 Cal.Rptr. 84.] Although most of the cases involve purchases, the rule applies as well to encumbrances as indicated by the court in Asisten. [See J. R. Garrett Co. v. States (1935) 3 Cal.2d 379; 44 P.2d 538.]

The Supreme Court early noted that “[t]he simple, independent fact of possession is sufficient to raise a presumption of interest in the premises on behalf of the occupant.” Pell v. McElrov (1868) 36 Cal. 268, 273.]   The possession, however, must be

sufficiently open, notorious, and visible to impart the fact of possession. [See e.g., Taber v. Beske (1920) 182 Cal. 214, 217; 187 P. 746; High Fidelity Enterprises. Inc. v. Hull (1962) 210 Cal.App.2d 279, 281; 26 Cal.Rptr. 654.] In addition, the possession must be inconsistent with record title. [See e.g., Evans v. Faught (1965) 231 Cal.App.2d 698, 705; 42 Cal.Rptr. 133.] Thus, for example, a subsequent purchaser from a purchaser at a foreclosure sale could not claim bona fide purchaser status against one in open and notorious possession of the premises. (See Evans v. Superior Court, supra, 67 Cal.App.3d 162, 169.] In addition, possession can be shown by the use of the property by tenants. [See e.g., Manig v. Bachman (1954) 127 Cal.App.2d 216, 221-22; 273 P.2d 596.] Although generally the burden of proof is placed on the person claiming to be a bona fide purchaser [see e.g., Beattie v. Crewdson (1899) 124 Cal. 577, 579; 57 P. 463; Hodges v. Lochhead (1963) 217 Cal.App.2d 199, 203-05; 31 Cal.Rptr. 879], the burden is switched to the party claiming that notice should be implied from possession. [See High Fidelity Enterprises, Inc. v. Hull, supra, 210 Cal.App.2d 279, 281.]

Even though notice may have to be taken, the purchaser is only subject to the facts which would have been uncovered by an inquiry. In Keim v. Roether (1939) 32 Cal.App.2d 70; 89 P.2d 187, the plaintiff was induced to deed property to another knowing that it was going to be used as security for loans to be invested in an

enterprise which the plaintiff did not know to be a sham. The property was subsequently encumbered. After discovering the fraud, plaintiff attempted to invalidate the encumbrance. Plaintiff contended that plaintiff’s possession of the property when the encumbrance was placed on the property by a different owner of record, gave the encumbrancer notice of the plaintiff’s rights. The court rejected plaintiff’s position since any inquiry made by the encumbrancer would not have revealed any fraud because the fraud was then unknown to the plaintiff.

Certain defects in a trust deed will render it void even in the hands of a bona fide purchaser. A forged trust deed is absolutely invalid. However, a bona fide purchaser may still prevail if the grantor or trustor ratified or is estopped to deny the signature. [See Trout v. Tavlor, supra, 220 Cal. 652, 656-57; Blaisdell v. Leach, supra, 101 Cal. 405, 409; Crittenden v. McCloud (1951) 106 Cal.App.2d 42, 50; 234 P.2d 642.] If a trust deed is not delivered, it is invalid. If a trust deed is altered before delivery, it is void; however, if it is altered after delivery, a bona fide purchaser takes the instrument according to its original tenor. (See 2 Miller & Starr, Current Law of California Real Estate 590-91.) If the trust deed was procured through fraud in the factum (as opposed to fraud in the inducement), the trust deed is void. (See discussion in section on fraud in the factum, Chapter V A 6, infra, “Forgery and Fraud in the Factum”.]

A lawyer representing a homeowner in foreclosure should assure that actual or constructive notice of the homeowner’s claims are given to all potential purchasers. If rescission is an appropriate remedy, a notice of rescission should be recorded and served as soon as possible. A lis pendens should also be prepared when the action is commenced. Any temporary restraining order or preliminary injunction enjoining the sale should be recorded. If there is insufficient time to prepare these documents prior to the sale, the lawyer should consider sending the client to the sale with others to inform potential bidders orally and in writing of the trustor’s claims.

Possession of the note “NO” recorded assignment “YES” civil code 2932.5 CARTER v. DEUTSCHE BANK NATIONAL TRUST COMPANY (N.D.Cal. 1-27-2010)

4 Jul

Some courts appear to have reasoned that plaintiff’s position
Page 29
would create an explicit conflict with the statute’s provisions.
The statute authorizes the “trustee, mortgagee, or beneficiary,
or any of their authorized agents” to initiate foreclosure. Cal.
Civ. Code § 2924(a)(1). Under California Civil Code
section 2924(b)(4), a “person authorized to record the notice of default
or the notice of sale” includes “an agent for the mortgagee or
beneficiary, an agent of the named trustee, any person designated
in an executed substitution of trustee, or an agent of that
substituted trustee.” Several courts have held that this language
demonstrates that possession of the note is not required,
apparently concluding that the statute authorizes initiation of
foreclosure by parties who would not be expected to possess the
note. See, e.g., Spencer v. DHI Mortg. Co., No. 090925,
2009 U.S. Dist. LEXIS 55191, *23*
24 (E.D. Cal. June 30, 2009)
(O’Neill, J.). However, the precise reasoning of these cases is
unclear.[fn14]
A second argument adopted by sister district courts is that
even if requiring possession of the promissory note does not
contradict the statute’s provisions, it nonetheless extends them,
and such extensions are impermissible. See, e.g., Bouyer v.
Countrywide Bank, FSB, No. C 085583,
2009 U.S. Dist. LEXIS 53940, *23*
24 (N.D. Cal. June 25, 2009). California courts have
described the statute as establishing a “comprehensive scheme”
for nonjudicial
foreclosures. Homestead Sav. v. Darmiento,
Page 30
230 Cal. App. 3d 424, 433 (1991)). Because this scheme “is intended to be
exhaustive,” California courts have refused to incorporate
additional obligations, such as allowing a debtor to invoke a
separate statutory right to cure a default. Moeller,
25 Cal. App. 4th at 834 (refusing to apply Cal. Civ. Code § 3275). The
California Supreme Court has similarly held that “[t]he rights
and powers of trustees in nonjudicial foreclosure proceedings
have long been regarded as strictly limited and defined by the
contract of the parties and the statutes.” I.E. Associates v.
Safeco Title Ins. Co., 39 Cal. 3d 281, 288 (1985). I.E.
Associates held that while a trustee has a statutory duty to
contact a trustor at the trustor’s last known address prior to
nonjudicial
foreclosure, the Court could not impose a further
duty to search for the trustor’s actual current address. Id.
District courts have applied I.E. Associates and Moeller to hold
that the trustee’s duties are “strictly limited” to those
contained specifically in the nonjudicial
foreclosure statute,
section 2924 et seq. See, e.g., Bouyer v. Countrywide Bank, FSB,
2009 U.S. Dist. LEXIS 53940, *23*
24 (N.D. Cal. June 25, 2009).
These courts have held that because section 2924 does not specify
that any party must possess the note, such possession is not
required. Id. Courts have similarly refused to require a trustee
“to identify the party in physical possession of the original
promissory note prior to commencing a nonjudicial foreclosure.”
Ritchie v. Cmty. Lending Corp.,
Page 31
2009 U.S. Dist. LEXIS 73216, *20 (C.D. Cal. Aug. 12, 2009).[fn15]
contained specifically in the nonjudicial
foreclosure statute,
section 2924 et seq. See, e.g., Bouyer v. Countrywide Bank, FSB,
2009 U.S. Dist. LEXIS 53940, *23*
24 (N.D. Cal. June 25, 2009).
These courts have held that because section 2924 does not specify
that any party must possess the note, such possession is not
required. Id. Courts have similarly refused to require a trustee
“to identify the party in physical possession of the original
promissory note prior to commencing a nonjudicial foreclosure.”
Ritchie v. Cmty. Lending Corp.,
Page 31
2009 U.S. Dist. LEXIS 73216, *20 (C.D. Cal. Aug. 12, 2009).[fn15]
Finally, while the above arguments have focused on and rejected
a requirement of production of the note, a series of opinions by
Judge Ishii have held that under California law, possession of
the note is not required either. Garcia v. HomEq Servicing Corp.,
2009 U.S. Dist. LEXIS 77697 *11 (E.D. Cal. Aug. 18, 2009), Topete
v. ETS Servs., LLC, 2009 U.S. Dist. LEXIS 77761 *10*
11(E.D. Cal. Aug. 18, 2009), Wood v. Aegis Wholesale Corp.,
2009 U.S. Dist. LEXIS 57151, *14 (E.D. Cal. July 2, 2009). These opinions
reason as follows. Under Cal. Civ. Code § 2932.5, when the
beneficial interest under the promissory note is assigned, the
assignee may exercise a security interest in real property
provided that the assignment is “duly acknowledged and recorded.”
See, e.g., Wood, 2009 U.S. Dist. LEXIS 57151 at *14.
The Ninth
Circuit has applied California law to hold that promissory notes
arising out of real estate loans could be sold without transfer
of possession of the documents themselves. Id. (citing In re
Golden Plan of Cal., Inc., 829 F.2d 705, 707, 708 n. 2, 710 (9th
Cir. 1986)). Judge Ishii concluded that because a party may come
to validly own a beneficial interest in a promissory note without
possession of the promissory note itself, and because this
Page 32
interest, if recorded on the deed of trust, carries with it the
right to foreclose, possession of the promissory note is not a
prerequisite to nonjudicial
foreclosure. Id.
Having reviewed the arguments adopted by the district courts,
the court is left with the sense that reasonable minds could
disagree. Notably, I.E. Associates held that trustee’s duties are
“strictly limited” to those arising under the “statutes,” and a
reasonable jurist could conclude that the plural “statutes”
incorporates the Commercial Code. Although the Civil Code
authorizes a number of parties to initiate nonjudicial
foreclosure, it could be that whichever of those parties
possesses the note may foreclose.
At some point, however, the opinion of a large number of
decisions, while not in a sense binding, are by virtue of the
sheer number, determinative. I cannot conclude that the result
reached by the district courts is unreasonable or does not accord
with the law. I further note that this conclusion is not
obviously at odds with the policies underlying the California
statutes. The apparent purpose of requiring possession of a
negotiable instrument is to avoid fraud. In the context of
nonjudicial
foreclosures, however, the danger of fraud is
minimized by the requirement that the deed of trust be recorded,
as must be any assignment or substitution of the parties thereto.
While it may be that requiring production of the note would have
done something to limit the mischief that led to the economic
pain the nation has suffered, the great weight of authority has
reasonably concluded that California law does not
CARTER v. DEUTSCHE BANK NATIONAL TRUST COMPANY (N.D.Cal. 1-27-2010)

Page 33
impose this requirement.
While the court concludes that neither production nor
possession is required, the court need not decide whether this is
because promissory notes are not “negotiable instruments,” or
instead because Cal. Civ. Code § 2924 et seq. render the
Commercial Code inapplicable. The court leaves that question for
the California courts. The court solely concludes that neither
possession of the promissory note nor identification of the party
in possession is a prerequisite to nonjudicial
foreclosure.

Fannie Mae Policy Now Admits Loan Not Secured

2 Jun

Posted 14 hours ago by Neil Garfield on Livinglies’s Weblog

29248253-Mers-May-Not-Foreclosure-for-Fannie-Mae

Editor’s Note: Their intention was to get MERS and servicers out of the foreclosure business. They now say that prior to foreclosure MERS must assign to the real party in interest.

Here’s their problem: As numerous Judges have pointed out, MERS specifically disclaims any interest in the obligation, note or mortgage. Even the language of the mortgage or Deed of Trust says MERS is mentioned in name only and that the Lender is somebody else.

These Judges who have considered the issue have come up with one conclusion, an assignment from a party with no right, title or interest has nothing to assign. The assignment may look good on its face but there still is the problem that nothing was assigned.

Here’s the other problem. If MERS was there in name only to permit transfers and other transactions off-record (contrary to state law) and if the original party named as “Lender” is no longer around, then what you have is a gap in the chain of custody and chain of title with respect to the creditor’s side of the loan. It is all off record which means, ipso facto that it is a question of fact as to whose loan it is. That means, ipso facto, that the presence of MERS makes it a judicial question which means that the non-judicial election is not available. They can’t do it.

So when you put this all together, you end up with the following inescapable conclusions:

* The naming of MERS as mortgagee in a mortgage deed or as beneficiary in a deed of trust is a nullity.
* MERS has no right, title or interest in any loan and even if it did, it disclaims any such interest on its own website.
* The lender might be the REAL beneficiary, but that is a question of fact so the non-judicial foreclosure option is not available.
* If the lender was not the creditor, it isn’t the lender because it had no right title or interest either, legally or equitably.
* Without a creditor named in the security instrument intended to secure the obligation, the security was never perfected.
* Without a creditor named in the security instrument intended to secure the obligation, the obligation is unsecured as to legal title.
* Since the only real creditor is the one who advanced the funds (the investor(s)), they can enforce the obligation by proxy or directly. Whether the note is actually evidence of the obligation and to what extent the terms of the note are enforceable is a question for the court to determine.
* The creditor only has a claim if they would suffer loss as a result of the indirect transaction with the borrower. If they or their agents have received payments from any source, those payments must be allocated to the loan account. The extent and measure of said allocation is a question of fact to be determined by the Court.
* Once established, the allocation will most likely be applied in the manner set forth in the note, to wit: (a) against payments due (b) against fees and (c) against principal, in that order.
* Once applied against payments, due the default vanishes unless the allocation is less than the amount due in payments.
* Once established, the allocation results in a fatal defect in the notice of default, the statements sent to the borrower, and the representations made in court. Thus at the very least they must vacate all foreclosure proceedings and start over again.
* If the allocation is less than the amount of payments due, then the investor(s) collectively have a claim for acceleration and to enforce the note — but they have no claim on the mortgage deed or deed of trust. By intentionally NOT naming parties who were known at the time of the transaction the security was split from the obligation. The obligation became unsecured.
* The investors MIGHT have a claim for equitable lien based upon the circumstances that BOTH the borrower and the investor were the victims of fraud.

Ortiz v. Accredited Home Lenders

27 Feb
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA
Docket Number available at www.versuslaw.com
Citation Number available at www.versuslaw.com
July 13, 2009

ERNESTO ORTIZ; ARACELI ORTIZ, PLAINTIFFS,
v.
ACCREDITED HOME LENDERS, INC.; LINCE HOME LOANS; CHASE HOME FINANCE, LLC; U.S. BANK NATIONAL ASSOCIATION, TRUSTEE FOR JP MORGAN ACQUISITION TRUST-2006 ACC; AND DOES 1 THROUGH 100, INCLUSIVE, DEFENDANTS.

The opinion of the court was delivered by: Hon. Jeffrey T. Miller United States District Judge

ORDER GRANTING MOTION TO DISMISS Doc. No. 7

On February 6, 2009, Plaintiffs Ernesto and Araceli Ortiz (“Plaintiffs”) filed a complaint in the Superior Court of the State of California, County of San Diego, raising claims arising out of a mortgage loan transaction. (Doc. No. 1, Exh. 1.) On March 9, 2009, Defendants Chase Home Finance, LLC (“Chase”) and U.S. Bank National Association (“U.S. Bank”) removed the action to federal court on the basis of federal question jurisdiction, 28 U.S.C. § 1331. (Doc. No. 1.) Plaintiffs filed a First Amended Complaint on April 21, 2009, naming only U.S. Bank as a defendant and dropping Chase, Accredited Home Lenders, Inc., and Lince Home Loans from the pleadings. (Doc. No. 4, “FAC.”) Pending before the court is a motion by Chase and U.S Bank to dismiss the FAC for failure to state a claim pursuant to Federal Rule of Civil Procedure (“Rule”) 12(b)(6). (Doc. No. 7, “Mot.”) Because Chase is no longer a party in this matter, the court construes the motion as having been brought only by U.S. Bank. Plaintiffs oppose the motion. (Doc. No. 12, “Opp’n.”) U.S. Bank submitted a responsive reply. (Doc. No. 14, “Reply.”) Pursuant to Civ.L.R. 7.1(d), the matter was taken under submission by the court on June 22, 2009. (Doc. No. 12.)

For the reasons set forth below, the court GRANTS the motion to dismiss.

I. BACKGROUND

Plaintiffs purchased their home at 4442 Via La Jolla, Oceanside, California (the “Property”) in January 2006. (FAC ¶ 3; Doc. No. 7-2, Exh. 1 (“DOT”) at 1.) The loan was secured by a Deed of Trust on the Property, which was recorded around January 10, 2006. (DOT at 1.) Plaintiffs obtained the loan through a broker “who received kickbacks from the originating lender.” (FAC ¶ 4.) U.S. Bank avers that it is the assignee of the original creditor, Accredited Home Lenders, Inc. (FAC ¶ 5; Mot. at 2, 4.) Chase is the loan servicer. (Mot. at 4.) A Notice of Default was recorded on the Property on June 30, 2008, showing the loan in arrears by $14,293,08. (Doc. No. 7-2, Exh. 2.) On October 3, 2008, a Notice of Trustee’s Sale was recorded on the Property. (Doc. No. 7-2, Exh. 4.) From the parties’ submissions, it appears no foreclosure sale has yet taken place.

Plaintiffs assert causes of action under Truth in Lending Act, 15 U.S.C. § 1601 et seq. (“TILA”), the Perata Mortgage Relief Act, Cal. Civil Code § 2923.5, the Foreign Language Contract Act, Cal. Civ. Code § 1632, the California Unfair Business Practices Act, Cal. Bus. Prof. Code § 17200 et seq., and to quiet title in the Property. Plaintiffs seek rescission, restitution, statutory and actual damages, injunctive relief, attorneys’ fees and costs, and judgments to void the security interest in the Property and to quiet title.

II. DISCUSSION

A. Legal Standards

A motion to dismiss under Rule 12(b)(6) challenges the legal sufficiency of the pleadings. De La Cruz v. Tormey, 582 F.2d 45, 48 (9th Cir. 1978). In evaluating the motion, the court must construe the pleadings in the light most favorable to the plaintiff, accepting as true all material allegations in the complaint and any reasonable inferences drawn therefrom. See, e.g., Broam v. Bogan, 320 F.3d 1023, 1028 (9th Cir. 2003). While Rule 12(b)(6) dismissal is proper only in “extraordinary” cases, the complaint’s “factual allegations must be enough to raise a right to relief above the speculative level….” U.S. v. Redwood City, 640 F.2d 963, 966 (9th Cir. 1981); Bell Atlantic Corp. v. Twombly, 550 US 544, 555 (2007). The court should grant 12(b)(6) relief only if the complaint lacks either a “cognizable legal theory” or facts sufficient to support a cognizable legal theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).

In testing the complaint’s legal adequacy, the court may consider material properly submitted as part of the complaint or subject to judicial notice. Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007). Furthermore, under the “incorporation by reference” doctrine, the court may consider documents “whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the [plaintiff's] pleading.” Janas v. McCracken (In re Silicon Graphics Inc. Sec. Litig.), 183 F.3d 970, 986 (9th Cir. 1999) (internal quotation marks omitted). A court may consider matters of public record on a motion to dismiss, and doing so “does not convert a Rule 12(b)(6) motion to one for summary judgment.” Mack v. South Bay Beer Distributors, 798 F.2d 1279, 1282 (9th Cir. 1986), abrogated on other grounds by Astoria Fed. Sav. and Loan Ass’n v. Solimino, 501 U.S. 104, 111 (1991). To this end, the court may consider the Deed of Trust, Notice of Default, Substitution of Trustee, and Notice of Trustee’s Sale, as sought by U.S. Bank in their Request for Judicial Notice. (Doc. No. 7-2, Exhs. 1-4.)

B. Analysis

A. Truth in Lending Act

Plaintiffs allege U.S. Bank failed to properly disclose material loan terms, including applicable finance charges, interest rate, and total payments as required by 15 U.S.C. § 1632. (FAC ¶¶ 7, 14.) In particular, Plaintiffs offer that the loan documents contained an “inaccurate calculation of the amount financed,” “misleading disclosures regarding the…variable rate nature of the loan” and “the application of a prepayment penalty,” and also failed “to disclose the index rate from which the payment was calculated and selection of historical index values.” (FAC ¶ 13.) In addition, Plaintiffs contend these violations are “obvious on the face of the loans [sic] documents.” (FAC ¶ 13.) Plaintiffs argue that since “Defendant has initiated foreclosure proceedings in an attempt to collect the debt,” they may seek remedies for the TILA violations through “recoupment or setoff.” (FAC ¶ 14.) Notably, Plaintiffs’ FAC does not specify whether they are requesting damages, rescission, or both under TILA, although their general request for statutory damages does cite TILA’s § 1640(a). (FAC at 7.)

U.S. Bank first asks the court to dismiss Plaintiffs’ TILA claim by arguing it is “so summarily pled that it does not ‘raise a right to relief above the speculative level …’” (Mot. at 3.) The court disagrees. Plaintiffs have set out several ways in which the disclosure documents were deficient. In addition, by stating the violations were apparent on the face of the loan documents, they have alleged assignee liability for U.S. Bank. See 15 U.S.C. § 1641(a)(assignee liability lies “only if the violation…is apparent on the face of the disclosure statement….”). The court concludes Plaintiffs have adequately pled the substance of their TILA claim.

However, as U.S. Bank argues, Plaintiffs’ TILA claim is procedurally barred. To the extent Plaintiffs recite a claim for rescission, such is precluded by the applicable three-year statute of limitations. 15 U.S.C. § 1635(f) (“Any claim for rescission must be brought within three years of consummation of the transaction or upon the sale of the property, whichever occurs first…”). According to the loan documents, the loan closed in December 2005 or January 2006. (DOT at 1.) The instant suit was not filed until February 6, 2009, outside the allowable three-year period. (Doc. No. 1, Exh. 1.) In addition, “residential mortgage transactions” are excluded from the right of rescission. 15 U.S.C. § 1635(e). A “residential mortgage transaction” is defined by 15 U.S.C. § 1602(w) to include “a mortgage, deed of trust, … or equivalent consensual security interest…created…against the consumer’s dwelling to finance the acquisition…of such dwelling.” Thus, Plaintiffs fail to state a claim for rescission under TILA.

As for Plaintiffs’ request for damages, they acknowledge such claims are normally subject to a one-year statute of limitations, typically running from the date of loan execution. See 15 U.S.C. §1640(e) (any claim under this provision must be made “within one year from the date of the occurrence of the violation.”). However, as mentioned above, Plaintiffs attempt to circumvent the limitations period by characterizing their claim as one for “recoupment or setoff.” Plaintiffs rely on 15 U.S.C. § 1640(e), which provides:

This subsection does not bar a person from asserting a violation of this subchapter in an action to collect the debt which was brought more than one year from the date of the occurrence of the violation as a matter of defense by recoupment or set-off in such action, except as otherwise provided by State law.

Generally, “a defendant’s right to plead ‘recoupment,’ a ‘defense arising out of some feature of the transaction upon which the plaintiff’s action is grounded,’ … survives the expiration” of the limitations period. Beach v. Ocwen Fed. Bank, 523 U.S. 410, 415 (1998) (quoting Rothensies v. Elec. Storage Battery Co., 329 U.S. 296, 299 (1946) (internal citation omitted)). Plaintiffs also correctly observe the Supreme Court has confirmed recoupment claims survive TILA’s statute of limitations. Id. at 418. To avoid dismissal at this stage, Plaintiffs must show that “(1) the TILA violation and the debt are products of the same transaction, (2) the debtor asserts the claim as a defense, and (3) the main action is timely.” Moor v. Travelers Ins. Co., 784 F.2d 632, 634 (5th Cir. 1986) (citing In re Smith, 737 F.2d 1549, 1553 (11th Cir. 1984)) (emphasis added).

U.S. Bank suggests Plaintiffs’ TILA claim is not sufficiently related to the underlying mortgage debt so as to qualify as a recoupment. (Mot. at 6-7.) The court disagrees with this argument, and other courts have reached the same conclusion. See Moor, 784 F.2d at 634 (plaintiff’s use of recoupment claims under TILA failed on the second and third prongs only); Williams v. Countrywide Home Loans, Inc., 504 F.Supp.2d 176, 188 (S.D. Tex. 2007) (where plaintiff “received a loan secured by a deed of trust on his property and later defaulted on the mortgage payments to the lender,” he “satisfie[d] the first element of the In re Smith test….”). Plaintiffs’ default and U.S. Bank’s attempts to foreclose on the Property representing the security interest for the underlying loan each flow from the same contractual transaction. The authority relied on by U.S. Bank, Aetna Fin. Co. v. Pasquali, 128 Ariz. 471 (Ariz. App. 1981), is unpersuasive. Not only does Aetna Finance recognize the split among courts on this issue, the decision is not binding on this court, and was reached before the Supreme Court’s ruling in Beach, supra. Aetna Fin., 128 Ariz. at 473,

Nevertheless, the deficiencies in Plaintiffs’ claim become apparent upon examination under the second and third prongs of the In re Smith test. Section 1640(e) of TILA makes recoupment available only as a “defense” in an “action to collect a debt.” Plaintiffs essentially argue that U.S. Bank’s initiation of non-judicial foreclosure proceedings paves the path for their recoupment claim. (FAC ¶ 14; Opp’n at 3.) Plaintiffs cite to In re Botelho, 195 B.R. 558, 563 (Bkrtcy. D. Mass. 1996), suggesting the court there allowed TILA recoupment claims to counter a non-judicial foreclosure. In Botelho, lender Citicorp apparently initiated non-judicial foreclosure proceedings, Id. at 561 fn. 1, and thereafter entered the plaintiff’s Chapter 13 proceedings by filing a Proof of Claim. Id. at 561. The plaintiff then filed an adversary complaint before the same bankruptcy court in which she advanced her TILA-recoupment theory. Id. at 561-62. The Botelho court evaluated the validity of the recoupment claim, taking both of Citicorp’s actions into account — the foreclosure as well as the filing of a proof of claim. Id. at 563. The court did not determine whether the non-judicial foreclosure, on its own, would have allowed the plaintiff to satisfy the three prongs of the In re Smith test.

On the other hand, the court finds U.S. Bank’s argument on this point persuasive: non-judicial foreclosures are not “actions” as contemplated by TILA. First, § 1640(e) itself defines an “action” as a court proceeding. 15 U.S.C. § 1640(e) (“Any action…may be brought in any United States district court, or in any other court of competent jurisdiction…”). Turning to California law, Cal. Code Civ. Proc. § 726 indicates an “action for the recovery of any debt or the enforcement of any right secured by mortgage upon real property” results in a judgment from the court directing the sale of the property and distributing the resulting funds. Further, Code § 22 defines an “action” as “an ordinary proceeding in a court of justice by which one party prosecutes another for the declaration, enforcement, or protection of a right, the redress or prevention of a wrong, or the punishment of a public offense.” Neither of these state law provisions addresses the extra-judicial exercise of a right of sale under a deed of trust, which is governed by Cal. Civ. Code § 2924, et seq. Unlike the situation in Botelho, U.S. Bank has done nothing to bring a review its efforts to foreclose before this court. As Plaintiffs concede, “U.S. Bank has not filed a civil lawsuit and nothing has been placed before the court” which would require the court to “examine the nature and extent of the lender’s claims….” (Opp’n at 4.) “When the debtor hales [sic] the creditor into court…, the claim by the debtor is affirmative rather than defensive.” Moor, 784 F.2d at 634; see also, Amaro v. Option One Mortgage Corp., 2009 WL 103302, at *3 (C.D. Cal., Jan. 14, 2009) (rejecting plaintiff’s argument that recoupment is a defense to a non-judicial foreclosure and holding “Plaintiff’s affirmative use of the claim is improper and exceeds the scope of the TILA exception….”).

The court recognizes that U.S. Bank’s choice of remedy under California law effectively denies Plaintiffs the opportunity to assert a recoupment defense. This result does not run afoul of TILA. As other courts have noted, TILA contemplates such restrictions by allowing recoupment only to the extent allowed under state law. 15 U.S.C. § 1640(e); Joseph v. Newport Shores Mortgage, Inc., 2006 WL 418293, at *2 fn. 1 (N.D. Ga., Feb. 21, 2006). The court concludes TILA’s one-year statute of limitations under § 1635(f) bars Plaintiffs’ TILA claim.

In sum, U.S. Bank’s motion to dismiss the TILA claim is granted, and Plaintiffs’ TILA claims are dismissed with prejudice.

B. Perata Mortgage Relief Act, Cal. Civ. Code § 2923.5

Plaintiffs’ second cause of action arises under the Perata Mortgage Relief Act, Cal. Civ. Code § 2923.5. Plaintiffs argue U.S. Bank is liable for monetary damages under this provision because it “failed and refused to explore” “alternatives to the drastic remedy of foreclosure, such as loan modifications” before initiating foreclosure proceedings. (FAC ¶¶ 17-18.) Furthermore, Plaintiffs allege U.S. Bank violated Cal. Civ. Code § 2923.5(c) by failing to include with the notice of sale a declaration that it contacted the borrower to explore such options. (Opp’n at 6.)

Section 2923.5(a)(2) requires a “mortgagee, beneficiary or authorized agent” to “contact the borrower in person or by telephone in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.” For a lender which had recorded a notice of default prior to the effective date of the statute, as is the case here, § 2923.5(c) imposes a duty to attempt to negotiate with a borrower before recording a notice of sale. These provisions cover loans initiated between January 1, 2003 and December 31, 2007. Cal. Civ. Code § 2923.5(h)(3)(i).

U.S. Bank’s primary argument is that Plaintiffs’ claim should be dismissed because neither § 2923.5 nor its legislative history clearly indicate an intent to create a private right of action. (Mot. at 8.) Plaintiffs counter that such a conclusion is unsupported by the legislative history; the California legislature would not have enacted this “urgency” legislation, intended to curb high foreclosure rates in the state, without any accompanying enforcement mechanism. (Opp’n at 5.) The court agrees with Plaintiffs. While the Ninth Circuit has yet to address this issue, the court found no decision from this circuit where a § 2923.5 claim had been dismissed on the basis advanced by U.S. Bank. See, e.g. Gentsch v. Ownit Mortgage Solutions Inc., 2009 WL 1390843, at *6 (E.D. Cal., May 14, 2009)(addressing merits of claim); Lee v. First Franklin Fin. Corp., 2009 WL 1371740, at *1 (E.D. Cal., May 15, 2009) (addressing evidentiary support for claim).

On the other hand, the statute does not require a lender to actually modify a defaulting borrower’s loan but rather requires only contacts or attempted contacts in a good faith effort to prevent foreclosure. Cal. Civ. Code § 2923.5(a)(2). Plaintiffs allege only that U.S. Bank “failed and refused to explore such alternatives” but do not allege whether they were contacted or not. (FAC ¶ 18.) Plaintiffs’ use of the phrase “refused to explore,” combined with the “Declaration of Compliance” accompanying the Notice of Trustee’s Sale, imply Plaintiffs were contacted as required by the statute. (Doc. No. 7-2, Exh. 4 at 3.) Because Plaintiffs have failed to state a claim under Cal. Civ. Code § 2923.5, U.S. Bank’s motion to dismiss is granted. Plaintiffs’ claim is dismissed without prejudice.

C. Foreign Language Contract Act, Cal. Civ. Code § 1632 et seq.

Plaintiffs assert “the contract and loan obligation was [sic] negotiated in Spanish,” and thus, they were entitled, under Cal. Civ. Code § 1632, to receive loan documents in Spanish rather than in English. (FAC ¶ 21-24.) Cal. Civ. Code § 1632 provides, in relevant part:

Any person engaged in a trade or business who negotiates primarily in Spanish, Chines, Tagalog, Vietnamese, or Korean, orally or in writing, in the course of entering into any of the following, shall deliver to the other party to the contract or agreement and prior to the execution thereof, a translation of the contract or agreement in the language in which the contract or agreement was negotiated, which includes a translation of every term and condition in that contract or agreement.

Cal. Civ. Code § 1632(b).

U.S. Bank argues this claim must be dismissed because Cal. Civ. Code § 1632(b)(2) specifically excludes loans secured by real property. (Mot. at 8.) Plaintiffs allege their loan falls within the exception outlined in § 1632(b)(4), which effectively recaptures any “loan or extension of credit for use primarily for personal, family or household purposes where the loan or extension of credit is subject to the provision of Article 7 (commencing with Section 10240) of Chapter 3 of Part I of Division 4 of the Business and Professions Code ….” (FAC ¶ 21; Opp’n at 7.) The Article 7 loans referenced here are those secured by real property which were negotiated by a real estate broker.*fn1 See Cal. Bus. & Prof. Code § 10240. For the purposes of § 1632(b)(4), a “real estate broker” is one who “solicits borrowers, or causes borrowers to be solicited, through express or implied representations that the broker will act as an agent in arranging a loan, but in fact makes the loan to the borrower from funds belonging to the broker.” Cal. Bus. & Prof. Code § 10240(b). To take advantage of this exception with respect to U.S. Bank, Plaintiffs must allege U.S. Bank either acted as the real estate broker or had a principal-agent relationship with the broker who negotiated their loan. See Alvara v. Aurora Loan Serv., Inc., 2009 WL 1689640, at *3 (N.D. Cal. Jun. 16, 2009), and references cited therein (noting “several courts have rejected the proposition that defendants are immune from this statute simply because they are not themselves brokers, so long as the defendant has an agency relationship with a broker or was acting as a broker.”). Although Plaintiffs mention in passing a “broker” was involved in the transaction (FAC ¶ 4), they fail to allege U.S. Bank acted in either capacity described above.

Nevertheless, Plaintiffs argue they are not limited to remedies against the original broker, but may seek rescission of the contract through the assignee of the loan. Cal. Civ. Code § 1632(k). Section 1632(k) allows for rescission for violations of the statute and also provides, “When the contract for a consumer credit sale or consumer lease which has been sold and assigned to a financial institution is rescinded pursuant to this subdivision, the consumer shall make restitution to and have restitution made by the person with whom he or she made the contract, and shall give notice of rescission to the assignee.” Cal. Civ. Code § 1632(k) (emphasis added). There are two problems with Plaintiffs’ theory. First, it is not clear to this court that Plaintiffs’ loan qualifies as a “consumer credit sale or consumer lease.” Second, the court interprets this provision not as a mechanism to impose liability for a violation of § 1632 on U.S. Bank as an assignee, but simply as a mechanism to provide notice to that assignee after recovering restitution from the broker.

The mechanics of contract rescission are governed by Cal. Civ. Code § 1691, which requires a plaintiff to give notice of rescission to the other party and to return, or offer to return, all proceeds he received from the transaction. Plaintiffs’ complaint does satisfy these two requirements. Cal. Civ. Code § 1691 (“When notice of rescission has not otherwise been given or an offer to restore the benefits received under the contract has not otherwise been made, the service of a pleading…that seeks relief based on rescission shall be deemed to be such notice or offer or both.”). However, the court notes that if Plaintiffs were successful in their bid to rescind the contract, they would have to return the proceeds of the loan which they used to purchase their Property.

For these reasons discussed above, Plaintiffs have failed to state a claim under Cal. Civ. Code § 1632. U.S. Bank’s motion to dismiss is granted and Plaintiffs’ claim for violation of Cal. Civ. Code § 1632 is dismissed without prejudice.

D. Unfair Business Practices, Cal. Bus. & Prof. Code § 17200

California’s unfair competition statute “prohibits any unfair competition, which means ‘any unlawful, unfair or fraudulent business act or practice.’” In re Pomona Valley Med. Group, 476 F.3d 665, 674 (9th Cir. 2007) (citing Cal. Bus. & Prof. Code § 17200, et seq.). “This tripartite test is disjunctive and the plaintiff need only allege one of the three theories to properly plead a claim under § 17200.” Med. Instrument Dev. Labs. v. Alcon Labs., 2005 WL 1926673, at *5 (N.D. Cal. Aug. 10, 2005). “Virtually any law–state, federal or local–can serve as a predicate for a § 17200 claim.” State Farm Fire & Casualty Co. v. Superior Court, 45 Cal.App.4th 1093, 1102-3 (1996). Plaintiffs assert their § 17200 “claim is entirely predicated upon their previous causes of action” under TILA and Cal. Civ. Code §§ 2923.5 and § 1632. (FAC ¶¶ 25-29; Opp’n at 9.)

U.S. Bank first contend Plaintiffs lack standing to pursue a § 17200 claim because they “do not allege what money or property they allegedly lost as a result of any purported violation.” (Mot. at 9.) The court finds Plaintiffs have satisfied the pleading standards on this issue by alleging they “relied, to their detriment,” on incomplete and inaccurate disclosures which led them to pay higher interest rates than they would have otherwise. (FAC ¶ 9.) Such “losses” have been found sufficient to confer standing. See Aron v. U-Haul Co. of California, 143 Cal.App.4th 796, 802-3 (2006).

U.S. Bank next offers that Plaintiffs’ mere recitation of the statutory bases for this cause of action, without specific allegations of fact, fails to state a claim. (Mot. at 10.) Plaintiffs point out all the factual allegations in their complaint are incorporated by reference into their § 17200 claim. (FAC ¶ 25; Opp’n at 9.) The court agrees there was no need for Plaintiffs to copy all the preceding paragraphs into this section when their claim expressly incorporates the allegations presented elsewhere in the complaint. Any argument by U.S. Bank that the pleadings failed to put them on notice of the premise behind Plaintiffs’ § 17200 claim would be somewhat disingenuous.

Nevertheless, all three of Plaintiffs’ predicate statutory claims have been dismissed for failure to state a claim. Without any surviving basis for the § 17200 claim, it too must be dismissed. U.S. Bank’s motion is therefore granted and Plaintiffs’ § 17200 claim is dismissed without prejudice.

E. Quiet Title

In their final cause of action, Plaintiffs seek to quiet title in the Property. (FAC ¶¶ 30-36.) In order to adequately allege a cause of action to quiet title, a plaintiff’s pleadings must include a description of “[t]he title of the plaintiff as to which a determination…is sought and the basis of the title…” and “[t]he adverse claims to the title of the plaintiff against which a determination is sought.” Cal. Code Civ. Proc. § 761.020. A plaintiff is required to name the “specific adverse claims” that form the basis of the property dispute. See Cal. Code Civ. Proc. § 761.020, cmt. at ¶ 3. Here, Plaintiffs allege the “Defendant claims an adverse interest in the Property owned by Plaintiffs,” but do not specify what that interest might be. (Mot. at 6-7.) Plaintiffs are still the owners of the Property. The recorded foreclosure Notices do not affect Plaintiffs’ title, ownership, or possession in the Property. U.S. Bank’s motion to dismiss is therefore granted, and Plaintiffs’ cause of action to quiet title is dismissed without prejudice.

III. CONCLUSION

For the reasons set forth above, U.S. Bank’s motion to dismiss (Doc. No. 7) is GRANTED. Accordingly, Plaintiffs’ claim under TILA is DISMISSED with prejudice and Plaintiffs’ claims under Cal. Civ. Code § 2923.5, Cal. Civ. Code § 1632, and Cal. Bus. & Prof. Code § 17200, and their claim to quiet title are DISMISSED without prejudice.

The court grants Plaintiffs 30 days’ leave from the date of entry of this order to file a Second Amended Complaint which cures all the deficiencies noted above. Plaintiffs’ Second Amended Complaint must be complete in itself without reference to the superseded pleading. Civil Local Rule 15.1.

IT IS SO ORDERED.


Opinion Footnotes


*fn1 Although U.S. Bank correctly notes the authorities cited by Plaintiffs are all unreported cases, the court agrees with the conclusions set forth in those cases. See Munoz v. International Home Capital Corp., 2004 WL 3086907, at *9 (N.D. Cal. 2004); Ruiz v. Decision One Mortgage Co., LLC, 2006 WL 2067072, at *5 (N.D. Cal. 2006).

90% Forclosures Wrongful

1 Jan

A wrongful foreclosure action typically occurs when the lender starts a non judicial foreclosure action when it simply has no legal cause. This is even more evident now since California passed the Foreclosure prevention act of 2008 SB 1194 codified in Civil code 2923.5 and 2923.6. In 2009 it is this attorneys opinion that 90% of all foreclosures are wrongful in that the lender does not comply (just look at the declaration page on the notice of default). The lenders most notably Indymac, Countrywide, and Wells Fargo have taken a calculated risk. To comply would cost hundreds of millions in staff, paperwork, and workouts that they don’t deem to be in their best interest. The workout is not in there best interest because our tax dollars are guaranteeing the Banks that are To Big to Fail’s debt. If they don’t foreclose and if they work it out the loss is on them. There is no incentive to modify loan for the benefit of the consumer.

Sooooo they proceed to foreclosure without the mandated contacts with the borrower. Oh and yes contact is made by a computer or some outsourcing contact agent based in India. But compliance with 2923.5 is not done. The Borrower is never told that he or she have the right to a meeting within 14 days of the contact. They do not get offers to avoid foreclosure there are typically two offers short sale or a probationary mod that will be declined upon the 90th day.

Wrongful foreclosure actions are also brought when the service providers accept partial payments after initiation of the wrongful foreclosure process, and then continue on with the foreclosure process. These predatory lending strategies, as well as other forms of misleading homeowners, are illegal.

The borrower is the one that files a wrongful disclosure action with the court against the service provider, the holder of the note and if it is a non-judicial foreclosure, against the trustee complaining that there was an illegal, fraudulent or willfully oppressive sale of property under a power of sale contained in a mortgage or deed or court judicial proceeding. The borrower can also allege emotional distress and ask for punitive damages in a wrongful foreclosure action.

Causes of Action

Wrongful foreclosure actions may allege that the amount stated in the notice of default as due and owing is incorrect because of the following reasons:

* Incorrect interest rate adjustment
* Incorrect tax impound accounts
* Misapplied payments
* Forbearance agreement which was not adhered to by the servicer
* Unnecessary forced place insurance,
* Improper accounting for a confirmed chapter 11 or chapter 13 bankruptcy plan.
* Breach of contract
* Intentional infliction of emotional distress
* Negligent infliction of emotional distress
* Unfair Business Practices
* Quiet title
* Wrongful foreclosure
* Tortuous violation of 2924 2923.5 and 2923.5 and 2932.5
Injunction

Any time prior to the foreclosure sale, a borrower can apply for an injunction with the intent of stopping the foreclosure sale until issues in the lawsuit are resolved. The wrongful foreclosure lawsuit can take anywhere from ten to twenty-four months. Generally, an injunction will only be issued by the court if the court determines that: (1) the borrower is entitled to the injunction; and (2) that if the injunction is not granted, the borrower will be subject to irreparable harm.

Damages Available to Borrower

Damages available to a borrower in a wrongful foreclosure action include: compensation for the detriment caused, which are measured by the value of the property, emotional distress and punitive damages if there is evidence that the servicer or trustee committed fraud, oppression or malice in its wrongful conduct. If the borrower’s allegations are true and correct and the borrower wins the lawsuit, the servicer will have to undue or cancel the foreclosure sale, and pay the borrower’s legal bills.

Why Do Wrongful Foreclosures Occur?

Wrongful foreclosure cases occur usually because of a miscommunication between the lender and the borrower. Most borrower don’t know who the real lender is. Servicing has changed on average three times. And with the advent of MERS Mortgage Electronic Registration Systems the “investor lender” hundreds of times since the origination. And now they then have to contact the borrower. The don’t even know who the lender truly is. The laws that are now in place never contemplated the virtualization of the lending market. The present laws are inadequate to the challenge.

This is even more evident now since California passed the Foreclosure prevention act of 2008 SB 1194 codified in Civil code 2923.5 and 2923.6. In 2009 it is this attorneys opinion that 90% of all foreclosures are wrongful in that the lender does not comply (just look at the declaration page on the notice of default). The lenders most notably Indymac, Countrywide, and Wells Fargo have taken a calculated risk. To comply would cost hundreds of millions in staff, paperwork, and workouts that they don’t deem to be in their best interest. The workout is not in there best interest because our tax dollars are guaranteeing the Banks that are To Big to Fail’s debt. If they don’t foreclose and if they work it out the loss is on them. There is no incentive to modify loan for the benefit of the consumer.This could be as a result of an incorrectly applied payment, an error in interest charges and completely inaccurate information communicated between the lender and borrower. Some borrowers make the situation worse by ignoring their monthly statements and not promptly responding in writing to the lender’s communications. Many borrowers just assume that the lender will correct any inaccuracies or errors. Any one of these actions can quickly turn into a foreclosure action. Once an action is instituted, then the borrower will have to prove that it is wrongful or unwarranted. This is done by the borrower filing a wrongful foreclosure action. Costs are expensive and the action can take time to litigate.
Impact

The wrongful foreclosure will appear on the borrower’s credit report as a foreclosure, thereby ruining the borrower’s credit rating. Inaccurate delinquencies may also accompany the foreclosure on the credit report. After the foreclosure is found to be wrongful, the borrower must then petition to get the delinquencies and foreclosure off the credit report. This can take a long time and is emotionally distressing.

Wrongful foreclosure may also lead to the borrower losing their home and other assets if the borrower does not act quickly. This can have a devastating affect on a family that has been displaced out of their home. However, once the borrower’s wrongful foreclosure action is successful in court, the borrower may be entitled to compensation for their attorney fees, court costs, pain, suffering and emotional distress caused by the action.

No lawyer, no law

8 Dec

Pro bono publico
Redeeming the touch of justice that brought each of us to the Bar

By Howard B. Miller
President, State Bar of California

Miller
Unfortunately the colloquial meaning of pro bono has become legal services for free, at no cost. But the proper meaning and importance of the words is in the full Latin quote: for the public good.

Several almost simultaneous developments have brought us to a tipping point in the commitment of the legal profession to pro bono work, and in our understanding that it is for the public good.

No lawyer, no law

We were all caught unawares in the past year not only by the scope of the loan foreclosure crisis, but by the cracks and failures that it showed in our legal system. We know of too many cases where homeowners would have had legal defenses to foreclosure, but without lawyers in our California system of non-judicial foreclosure the result was a loss of homes. For over a century our legislature and courts have constructed an elaborate series of technicalities and protections for homeowners faced with foreclosure. But the existence of those protections made no difference to those who had no legal representation. It is as though all those laws did not exist, as though because there was no representation all the work and thought that went into those laws and protections had never been done.

And so we learned again, with a vengeance: No lawyer, no law.

How to Stop Foreclosure

5 Dec

This is general information and assumes that you have access to the rest of the material on the blog. Foreclosures come in various flavors.

First of all you have non-judicial and judicial foreclosure states. Non-judicial basically means that instead of signing a conventional mortgage and note, you signed a document that says you give up your right to a judicial proceeding. So the pretender lender or lender simply instructs the Trustee to sell the property, giving you some notice. Of course the question of who is the lender, what is a beneficiary under a deed of trust, what is a creditor and who owns the loan NOW (if anyone) are all issues that come into play in litigation.

In a non-judicial state you generally are required to bring the matter to court by filing a lawsuit. In states like California, the foreclosers usually do an end run around you by filing an unlawful detainer as soon as they can in a court of lower jurisdiction which by law cannot hear your claims regarding the illegality of the mortgage or foreclosure.

In a judicial state the forecloser must be the one who files suit and you have considerably more power to resist the attempt to foreclose.

Then you have stages:

STAGE 1: No notice of default has been sent.

In this case you want to get a forensic analysis that is as complete as humanly possible — TILA, RESPA, securitization, title, chain of custody, predatory loan practices, fraud, fabricated documents, forged documents etc. I call this the FOUR WALL ANALYSIS, meaning they have no way to get out of the mess they created. Then you want a QWR (Qualified Written Request) and DVL (Debt Validation Letter along with complaints to various Federal and State agencies. If they fail to respond or fail to answer your questions you file a suit against the party who received the QWR, the party who originated the loan (even if they are out of business), and John Does 1-1000 being the owners of mortgage backed bonds that are evidence of the investors ownership in the pool of mortgages, of which yours is one. The suit is simple — it seeks to stop the servicer from receiving any payments, install a receiver over the servicer’s accounts, order them to answer the simple question “Who is my creditor and how do I get a full accounting FROM THE CREDITOR? Alternative counts would be quiet title and damages under TILA, RESPA, SEC, etc.

Tactically you want to present the forensic declaration and simply say that you have retained an expert witness who states in his declaration that the creditor does not include any of the parties disclosed to you thus far. This [prevents you from satisfying the Federal mandate to attempt modification or settlement of the loan. You’ve asked (QWR and DVL) and they won’t tell. DON’T GET INTO INTRICATE ARGUMENTS CONCERNING SECURITIZATION UNTIL IT IS NECESSARY TO DO SO WHICH SHOULD BE AFTER A FEW HEARINGS ON MOTIONS TO COMPEL THEM TO ANSWER.

IN OTHER WORDS YOU ARE SIMPLY TELLING THE JUDGE THAT YOUR EXPERT HAS PRESENTED FACTS AND OPINION THAT CONTRADICT AND VARY FROM THE REPRESENTATIONS OF COUNSEL AND THE PARTIES WHO HAVE BEEN DISCLOSED TO YOU THUS FAR.

YOU WANT TO KNOW WHO THE OTHER PARTIES ARE, IF ANY, AND WHAT MONEY EXCHANGED HANDS WITH RESPECT TO YOUR LOAN. YOU WANT EVIDENCE, NOT REPRESENTATIONS OF COUNSEL. YOU WANT DISCOVERY OR AN ORDER TO ANSWER THE QWR OR DVL. YOU WANT AN EVIDENTIARY HEARING IF IT IS NECESSARY.

Avoid legal argument and go straight for discovery saying that you want to be able to approach the creditor, whoever it is, and in order to do that you have a Federal Statutory right (RESPA) to the name of a person, a telephone number and an address of the creditor — i.e., the one who is now minus money as a result of the funding of the loan. You’ve asked, they won’t answer.

Contemporaneously you want to get a temporary restraining order preventing them from taking any further action with respect to transferring, executing documents, transferring money, or collecting money until they have satisfied your demand for information and you have certified compliance with the court. Depending upon your circumstances you can offer to tender the monthly payment into the court registry or simply leave that out.

You can also file a bankruptcy petition especially if you are delinquent in payments or are about to become delinquent.

STAGE 2: Notice of Default Received

Believe it or not this is where the errors begin by the pretender lenders. You want to challenge authority, authenticity, the amount claimed due, the signatory, the notary, the loan number and anything else that is appropriate. Then go back to stage 1 and follow that track. In order to effectively do this you need to have that forensic analysis and I don’t mean the TILA Audit that is offered by so many companies using off the shelf software. You could probably buy the software yourself for less money than you pay those companies. I emphasize again that you need a FOUR WALL ANALYSIS.

Stage 3 Non-Judicial State, Notice of Sale received:

State statutes usually give you a tiny window of opportunity to contest the sale and the statute usually contains exact provisions on how you can do that or else your objection doesn’t count. At this point you need to secure the services of competent, knowledgeable, experienced legal counsel — professionals who have been fighting with these pretender lenders for a while. Anything less and you are likely to be sorely disappointed unless you landed, by luck of the draw, one of the increasing number of judges you are demonstrating their understanding and anger at this fraud.

Stage 4: Judicial State: Served with Process:

You must answer usually within 20 days. Failure to do so, along with your affirmative defenses and counterclaims, could result in a default followed by a default judgment followed by a Final Judgment of Foreclosure. See above steps.

Stage 5: Sale already occurred

You obviously need to reverse that situation. Usually the allegation is that the sale should be vacated because of fraud on the court (judicial) or fraudulent abuse of non-judicial process. This is a motion or Petitioner but it must be accompanied by a lawsuit, properly served and noticed to the other side. You probably need to name the purchaser at sale, and ask for a TRO (Temporary Restraining Order) that stops them from moving the property or the money around any further until your questions are answered (see above). At the risk of sounding like a broken record, you need a good forensic analyst and a good lawyer.

Stage 6: Eviction (Unlawful Detainer Filed or Judgment entered:

Same as Stage 5.