Exponential Usury On Wall Street

By Edward W. Miller, MD

Thou hast taken usury and increase, and thou hast greedily gained of thy neighbors by extortion, and thou hast forgotten me saith the Lord.” – Ezekiel 22:12 (King James Version)

And Jesus entered the temple of God and drove out all who sold and bought in the temple and turned the tables of the money changers and the seats of those who sold pigeons. He said to them, ‘It is written, ‘My house show be called a house of prayer’; but you make it a den of robbers.'” -Matthew 21: 12

AS for our economy, the ongoing failure of millions of “sub-prime” mortgages with 9 million threatened foreclosures across the country, the increasing reported lack of “affordable housing”, along with a consumer debt of $2.52 trillion, and a major economic recession stretching across the industrial world comes as no surprise to those who have watched Congress, again and again surrender to Wall Street lobbying over the past half century. The first major slide downhill took place on June 23rd, 1947, when a newly elected Republican Congress passed the Taft-Hartley Act over president Truman’s veto. The results of this assault on American labor appeared gradually over the years. Beginning in 1972, statistics show that wages were already falling below the costs of living for the American middle class.

The present huge pyramid of debt, both public and private was made possible by the weakening of labor’s political input plus thirty years of Congress’ relentless deregulation of our financial markets, culminating, during the Clinton Administration, in the 1999 repeal of the Glass-Steagall Act, which Act had prohibited banks from dealing in high-risk securities. In effect, Washington supposed regulators had become passive enablers to Wall Street’s financial binge drinkers.

As columnist Robert Scheer pointed out (March 12th SF Chronicle): “The Clinton-backed Gramm-Leach-Baily Act of 1999 called the “Financial Services Modernization Act,” permitted banks, stock brokers, and insurance companies to merge and was exacerbated by Bush’s appointment of rapacious corporate foxes to watch the corporate hen house.” They will take care of their own…Their action was made possible only by the federal government’s using our tax dollars to pick up the bad debt of the banks.”

usury and the table funded loan

The California Usury Law and the Non-Exempt Lender
With the proliferation of exemptions from the California Usury Law, it is surprising to find lenders who are not exempt. However, they still exist. And they still take the risk of unintentionally making an interest-free loan, with limited possibility of acceleration, and with all free or under-priced warrants, equity kickers or other consideration for the loan being voided. A recent case underscores the risk of not having an exemption.
In WRI Opportunity Loans II LLC v. Cooper, 2007 DJDAR 12930 (Aug. 23, 2007), the lender made a loan to the borrower who planned to build residential townhouses and condominiums in West Hollywood. The loan was guaranteed by the two principals of the borrower. In addition to the regular interest on the loan (a spread over Bank of America’s reference rate), the loan documents entitled the lender to receive additional interest according to a fixed schedule if other “contingencies” were to occur. For instance, the lender was to receive a percentage of the sales price of any units sold and was also to receive a specified sum in case the project was not completed. The borrower filed for bankruptcy, and the lender sued the guarantors. The guarantors responded with the defense of usury.
Because the guarantors were individuals, the usury exemption under California Corporations Code Section 25118 was not available. Also, the lender was not a licensed lender in California and did not have available one of the many exemptions from the California Usury Law applicable to various categories of licensed lenders. Hence, the lender first tried to shoehorn itself into the “interest contingency rule” under California common law. Under that rule, interest that exceeds the legal maximum is not usurious when its payment is “subject to a contingency so that the lender’s profit is wholly or partially put in hazard,” provided “the parties are contracting in good faith and without intent to avoid the statute against usury.” Under this common law rule, the non-contingent part of the interest must be materially less than the amount of interest that could have been charged at the highest permissible rate.
Unfortunately for the lender, the “contingencies” in the Cooper case were not true contingencies. No matter what happened to the project, except in some unlikely scenarios, the lender was entitled to an amount of additional interest that would have put the lender over the usury limit.
The lender then tried to shoehorn itself into the statutory exemption for shared appreciation loans under California Civil Code Sections 1917 through 1917.006. That statute permits additional interest to be collected, regardless of the usury law, from “a share of (1) the appreciation in the value of the security property, (2) rents and profits attributable to the subject property, or (3) both.” However, that is not how this lender’s additional interest was calculated, and the court found that the statutory exemption for shared appreciation loans was not applicable.
Finally, the lender argued that guarantors had waived the usury defense through the broad suretyship waivers in the guaranty. The court held that, because the usury law voided the interest provision, the suretyship waivers did not apply to the usury defense.
Investment or private equity funds that lend money frequently overlook or downplay the need for appropriate licenses and usury exemptions. The Cooper case underscores the continuing need to observe the restrictions imposed upon lenders by the usury law. While many lenders rely upon the transactional exemption in California Corporations Code Section 25118, that exemption is not applicable if any of the borrowers or guarantors is an individual, a revocable trust having one or more individuals as trustors, or a partnership in which, at the time of issuance of the debt, one or more individuals are general partners.

President Signs Mortgage Bills

Carrie Bay | 05.20.09

President Barack Obama signed two housing bills into law on Wednesday afternoon – one that provides additional foreclosure relief and a second that targets mortgage fraud and other criminal activity related to federal assistance programs. The Helping Families Save Their Home Act will make vital changes to the Hope for Homeowners (H4H) program to encourage servicers to employ the plan as a means to help underwater homeowners under the administration’s Making Home Affordable program.

The bill also includes a servicer safe haven to provide lenders with liability protections from investors for the mortgage modifications they make. It provides for an additional $130 million to fund foreclosure prevention efforts, such as counseling and education, and establishes foreclosure protections for renters. In addition, the new law more than triples the FDIC’s line of credit with the Treasury to $100 billion – a measure intended to rebuild the agency’s depleted insurance fund while keeping lenders’ depository insurance fees at a minimum.

The act also permanently raises the insurance cap on individual bank accounts from $100,000 to $250,000.

The Fraud Enforcement and Recovery Act (FERA) grants new resources to help fight financial fraud and address the rapid rise in mortgage and foreclosure rescue scams. The legislation provides nearly $500 million for the investigation and prosecution of such criminal activity – a move that John A. Courson, president and CEO of the Mortgage Bankers Association (MBA) called “imperative in protecting vulnerable consumers as well as protecting the integrity of our housing finance system.” Of the funds provided under FERA, the majority will be allocated to the hiring of fraud prosecutors and investigators at the Justice Department and to increasing the number of Federal Bureau of Investigation (FBI) agents devoted to mortgage fraud.

The money will also be used to expand the staff of the U.S. Attorney’s office and the Justice Department’s criminal, civil, and tax divisions. In addition, the legislation, for the first time, expands federal fraud statutes to also apply to independent mortgage companies and mortgage brokers that are not regulated or insured by the government.

Using the countrywide complaint in your own case

Using the countrywide complaint in your own casecounrtrywidelanderscomplaintand countrywidelanders and word versionsCountrywide attorney general Complaint Form and templetsCountrywide Complaint Form

Coalition sues lenders

Coalition Sues lenders

They are to give options to foreclosure 2923.5

(a) (1) A mortgagee, trustee, beneficiary, or authorized
agent may not file a notice of default pursuant to Section 2924 until
30 days after contact is made as required by paragraph (2) or 30
days after satisfying the due diligence requirements as described in
subdivision (g).
   (2) A mortgagee, beneficiary, or authorized agent shall contact
the borrower in person (and this does not mean agent for the foreclosure company) or by telephone in order to assess the
borrower's financial situation and explore options for the borrower
to avoid foreclosure. During the initial contact, the mortgagee,
beneficiary, or authorized agent shall advise the borrower that he or
she has the right to request a subsequent meeting and, if requested,
the mortgagee, beneficiary, or authorized agent shall schedule the
meeting to occur within 14 days. The assessment of the borrower's
financial situation and discussion of options may occur during the
first contact, or at the subsequent meeting scheduled for that
purpose. In either case, the borrower shall be provided the toll-free
telephone number made available by the United States Department of
Housing and Urban Development (HUD) to find a HUD-certified housing
counseling agency. Any meeting may occur telephonically.
   (b) A notice of default filed pursuant to Section 2924 shall
include a declaration from the mortgagee, beneficiary, or authorized
agent that it has contacted the borrower, tried with due diligence to
contact the borrower as required by this section, or the borrower
has surrendered the property to the mortgagee, trustee, beneficiary,
or authorized agent.
   (c) If a mortgagee, trustee, beneficiary, or authorized agent had
already filed the notice of default prior to the enactment of this
section and did not subsequently file a notice of rescission, then
the mortgagee, trustee, beneficiary, or authorized agent shall, as
part of the notice of sale filed pursuant to Section 2924f, include a
declaration that either:
   (1) States that the borrower was contacted to assess the borrower'
s financial situation and to explore options for the borrower to
avoid foreclosure.
   (2) Lists the efforts made, if any, to contact the borrower in the
event no contact was made.
   (d) A mortgagee's, beneficiary's, or authorized agent's loss
mitigation personnel may participate by telephone during any contact
required by this section.
   (e) For purposes of this section, a "borrower" shall include a
mortgagor or trustor.
   (f) A borrower may designate a HUD-certified housing counseling
agency, attorney, or other advisor to discuss with the mortgagee,
beneficiary, or authorized agent, on the borrower's behalf, options
for the borrower to avoid foreclosure. That contact made at the
direction of the borrower shall satisfy the contact requirements of
paragraph (2) of subdivision (a). Any loan modification or workout
plan offered at the meeting by the mortgagee, beneficiary, or
authorized agent is subject to approval by the borrower.
   (g) A notice of default may be filed pursuant to Section 2924 when
a mortgagee, beneficiary, or authorized agent has not contacted a
borrower as required by paragraph (2) of subdivision (a) provided
that the failure to contact the borrower occurred despite the due
diligence of the mortgagee, beneficiary, or authorized agent. For
purposes of this section, "due diligence" shall require and mean all
of the following:
   (1) A mortgagee, beneficiary, or authorized agent shall first
attempt to contact a borrower by sending a first-class letter that
includes the toll-free telephone number made available by HUD to find
a HUD-certified housing counseling agency.
   (2) (A) After the letter has been sent, the mortgagee,
beneficiary, or authorized agent shall attempt to contact the
borrower by telephone at least three times at different hours and on
different days.  Telephone calls shall be made to the primary
telephone number on file.
   (B) A mortgagee, beneficiary, or authorized agent may attempt to
contact a borrower using an automated system to dial borrowers,
provided that, if the telephone call is answered, the call is
connected to a live representative of the mortgagee, beneficiary, or
authorized agent.
   (C) A mortgagee, beneficiary, or authorized agent satisfies the
telephone contact requirements of this paragraph if it determines,
after attempting contact pursuant to this paragraph, that the
borrower's primary telephone number and secondary telephone number or
numbers on file, if any, have been disconnected.
   (3) If the borrower does not respond within two weeks after the
telephone call requirements of paragraph (2) have been satisfied, the
mortgagee, beneficiary, or authorized agent shall then send a
certified letter, with return receipt requested.
   (4) The mortgagee, beneficiary, or authorized agent shall provide
a means for the borrower to contact it in a timely manner, including
a toll-free telephone number that will provide access to a live
representative during business hours.
   (5) The mortgagee, beneficiary, or authorized agent has posted a
prominent link on the homepage of its Internet Web site, if any, to
the following information:
   (A) Options that may be available to borrowers who are unable to
afford their mortgage payments and who wish to avoid foreclosure, and
instructions to borrowers advising them on steps to take to explore
those options.
   (B) A list of financial documents borrowers should collect and be
prepared to present to the mortgagee, beneficiary, or authorized
agent when discussing options for avoiding foreclosure.
   (C) A toll-free telephone number for borrowers who wish to discuss
options for avoiding foreclosure with their mortgagee, beneficiary,
or authorized agent.
   (D) The toll-free telephone number made available by HUD to find a
HUD-certified housing counseling agency.
   (h) Subdivisions (a), (c), and (g) shall not apply if any of the
following occurs:
   (1) The borrower has surrendered the property as evidenced by
either a letter confirming the surrender or delivery of the keys to
the property to the mortgagee, trustee, beneficiary, or authorized
   (2) The borrower has contracted with an organization, person, or
entity whose primary business is advising people who have decided to
leave their homes on how to extend the foreclosure process and avoid
their contractual obligations to mortgagees or beneficiaries.
   (3) The borrower has filed for bankruptcy, and the proceedings
have not been finalized.
   (i) This section shall apply only to loans made from January 1,
2003, to December 31, 2007, inclusive, that are secured by
residential real property and are for owner-occupied residences. For
purposes of this subdivision, "owner-occupied" means that the
residence is the principal residence of the borrower.
  (j) This section shall remain in effect only until January 1, 2013,
and as of that date is repealed, unless a later enacted statute,
that is enacted before January 1, 2013, deletes or extends that da

Toxic Corpus no note no corpus

In a trust (all trusts) there is a grantor/trustor, Trustee and a Beneficiary/investor. Right? Well, there is one more vital element you need for every trust that most people do not look at. You always need a “corpus” or a body of the trust. Right?

Well, sit down! Take a deep breath and keep reading: A transaction that uses a ‘deed of trust’ involves a trust. There is a ‘grantor/trustor’, a ‘trustee’, a ‘beneficiary/investor’ . Please tell me what the ‘corpus’ IS for this type of a trust? Most people think it is the property—but hold on—it isn’t–the property has a deed to it and the deed to the property is ONLY used as security for the real corpus–the Promissory Note! And–that is why they call these notes “Toxic Assets”. Without the Promissory Note (asset and corpus) there CANNOT be a valid trust. Without a valid trust–there is no longer need for any security called the ‘deed of trust’. RIGHT?

This is soooo simple that it is overlooked by EVERYONE—but it IS the law!!! They NEVER talked about trust law in a fight with a deed of trust and foreclosure–but that is because the TRUSTOR/GRANTOR does not bring it up. It is the job of the Trustor/Grantor to bring this up, that the Trust does NOT exist any longer because the corpus of the trust IS NOT THERE!

Let me know your thoughts on this.

On the Isue of “tender”


81 Cal.App.4th 868

97 Cal.Rptr.2d 255

ANTHONY E. DIMOCK, Plaintiff and Appellant,


EMERALD PROPERTIES LLC et al., Defendants and Respondents.


California Court of Appeal, Fourth District, First Division

June 21, 2000

Page 869

[Copyrighted Material Omitted]

Page 870


Philip H. Dyson for Plaintiff and Appellant.

Cameron & Dreyfuss and Lawrence J. Dreyfuss for Defendants and Respondents T.D. Service Company and Commonwealth Trust Deed Services, Inc.

Roup & Loomis, Ronald D. Roup and Joan C. Spaeder-Younkin for Defendants and Respondents Lawrence Baber, Cecilia Baber, Robert Shawcroft and April Shawcroft.

Page 871

Kimball, Tirey & St. John and Mark A. Brody for Defendant and Respondent Emerald Properties LLC.

Suppa, Trucchi & Lee, Jerry Michael Suppa and Marjan Mortazavi for Defendants and Respondents Temple Inland Mortgage Corporation, Calmco Trustee Services, Inc., and Bankers Trust Company.


BENKE, Acting P. J.—

By statute the Legislature has permitted the beneficiary of a deed of trust to substitute, at any time, a new trustee for the existing trustee. Under the governing statute the substitution is made by simply recording a document evidencing the substitution. (Civ. Code,[1] § 2934a, subd. (a).) By its terms the statute provides that after such a substitution has been recorded, “the new trustee shall succeed to all the powers, duties, authority, and title granted and delegated to the trustee named in the deed of trust.” (§ 2934a, subd. (a) (4).)

Other than by recording a further substitution there are no other statutory means by which the effect of a substitution, once recorded, may be avoided. Moreover, notwithstanding the arguments of respondents, we are not disposed to create any nonstatutory means of doing so on the record presented here.

Because the respondent beneficiary in this case recorded a substitution of trustee, thereafter only the substituted trustee had the power to sell the trustor’s property at a foreclosure sale. Thus a later sale by the prior trustee was void. Accordingly we must reverse a judgment entered in favor of the respondents and direct that a judgment be entered quieting title in favor of plaintiff and appellant, the trustor under the deed of trust.

Factual Background

At all pertinent times, plaintiff and appellant Anthony E. Dimock owned a home in San Diego. In 1993 he borrowed $80,000 and gave a deed of trust on the home as security for the loan. Eventually, the note and deed of trust were purchased by defendant and respondent Bankers Trust Company (Bankers).

In June 1995 Dimock failed to make payments on the loan. In January 1996, the trustee under the deed of trust, defendant and respondent Commonwealth Trust Deed Services, Inc. (Commonwealth), recorded a notice of

Page 872

default. The notice of default was prepared and recorded for Commonwealth by its agent, defendant and respondent T.D. Service Company (TD).

In May 1996 Dimock entered into a forebearance agreement with defendant and respondent Temple Inland Mortgage Corporation (Temple), which was acting on behalf of Bankers. Under the forebearance agreement Bankers agreed it would not go forward with the foreclosure in return for a promise from Dimock to make regular payments on the loan which, over a period of time, would bring the loan current. However, after making the initial payment required under the forebearance agreement, Dimock made no further payments on the loan.

On August 15, 1996, Bankers recorded a substitution of trustee which substituted defendant and respondent Calmco Trustee Services, Inc. (Calmco), as the trustee of record in the place and stead of Commonwealth. The substitution was prepared by TD acting on Bankers’s behalf.

Also on August 15, 1996, TD, acting on behalf of Calmco, recorded a notice of default and election to sell. Consistent with statutory requirements, the notice of default stated: “No sale date may be set until three months from the date this notice of default may be recorded.”

According to an employee of TD, the recording of the Calmco substitution and the recording of the Calmco notice of default were mistakes. According to the TD employee, at the time these documents were recorded TD did not know that it had previously recorded a notice of default on Commonwealth’s behalf and that a foreclosure file already existed with respect to Dimock’s home. When a title company advised TD about the earlier Commonwealth notice of default, TD “abandoned” the Calmco file it had created to process the Dimock foreclosure and instead proceeded with the foreclosure using its earlier Commonwealth file.

Because it discovered the error shortly after recording the documents, TD did not send Dimock copies of either the Calmco substitution or the Calmco notice of default. However, other than abandoning its own file on the matter, TD did not record any document which expressly abandoned or otherwise vacated the Calmco substitution or Calmco notice of default.

Dimock did not discover the substitution of Calmco as trustee or the Calmco notice of default until after he initiated these proceedings.

On August 27, 1996, TD, acting on behalf of Commonwealth, recorded a notice of trustee’s sale which set September 18, 1996, as the date for a

Page 873

trustee’s sale. By its terms the notice of sale was given by Commmonwealth and stated that Commonwealth would be the seller at the trustee’s sale. The notice of sale was both mailed to Dimock and posted on the front door of his home.

On September 18, 1996, TD, again acting on behalf of Commonwealth, conducted the trustee’s sale and sold the property to defendant and respondent Emerald Properties LLC (Emerald) for the sum of $98,000. The sale price yielded $9,829.02 in funds in excess of what was needed to discharge Bankers’ note and the costs of foreclosure.

On September 23, 1996, Commonwealth gave Emerald a trustee’s deed and on October 1, 1996, the deed was recorded.

On September 24, 1996, Emerald initiated an unlawful detainer action against Dimock and obtained a judgment giving it possession of his home.

In response to the unlawful detainer proceedings, Dimock filed the instant action against Bankers, Commonwealth, Calmco and TD, among others. He alleged causes of action for declaratory and injunctive relief, quiet title and damages. He initially argued that he had not been given proper notice of the trustee’s sale. During the course of discovery he became aware of the Calmco substitution and argued that in light of it the sale by Commonwealth to Emerald was void.

TD filed an interpleader cross-complaint with respect to the excess funds it was holding by virtue of the trustee sale. TD argued that it did not know what to do with the funds because if Dimock was successful in having the sale to Emerald vacated, the excess funds would belong to Emerald.

The parties filed cross-motions for summary judgment. The trial court granted the defendants’ motions and denied Dimock’s. Thereafter it entered judgment in favor of the defendants and ordered that TD turn over the excess funds it was holding to Dimock. Dimock filed a timely notice of appeal.


A summary judgment motion “shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” (Code Civ. Proc., § 437c, subd. (c).) “The defendant ‘must show that under no possible hypothesis within the reasonable purview of the allegations of the complaint is there a material question of fact which requires examination by trial.’ ”

Page 874

(Sanchez v. Swinerton & Walberg Co. (1996) 47 Cal.App.4th 1461, 1465 [55 Cal.Rptr.2d 415].) If the defendant makes such showing, the court must look at the plaintiff’s papers to determine whether they “[demonstrate] the existence of a triable, material factual issue.” (AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal.App.3d 1061, 1065 [225 Cal.Rptr. 203].) We review the record de novo. (Allan v. Snow Summit, Inc. (1996) 51 Cal.App.4th 1358, 1365 [59 Cal.Rptr.2d 813].)


There is no dispute Bankers, by its agent TD, recorded a document which substituted Calmco as trustee under the subject deed of trust. There is nothing on the face of the substitution which indicates it is other than a valid and bona fide substitution. There is also no dispute that the substitution of Calmco was never subject to any further recorded substitution by Bankers. Finally, there is no dispute that the deed conveying the property to Emerald was executed by Commonwealth, not Calmco. Given this record we have no choice but to reverse the trial court’s order granting summary judgment in favor of the defendants and direct that the trial court enter a judgment quieting title in favor of Dimock, subject to such encumbrances as existed at the time of the purported sale by Commonwealth.

A. Calmco Had the Sole Power to Convey the Property

Under the unambiguous terms of section 2934a,[2] subdivision (a) (4), the recording of the substitution of trustee transferred to Calmco the exclusive

Page 875

power to conduct a trustee’s sale. This plain reading of the statute is consistent with the law as it existed before the predecessor statute was enacted in 1935 and the power to substitute a trustee depended solely on the express provisions of a deed of trust. (See Witter v. Bank of Milpitas (1928) 204 Cal. 570, 577-578 [269 P. 614]; Pacific S. & L. Co. v. N. American etc. Co. (1940) 37 Cal.App.2d 307, 309-310 [99 P.2d 355].) ” ‘ “Upon the appointment being made under the power, the new trustee becomes vested, ipso facto, with the title to the trust premises and is clothed with the same power as if he had been originally named ….” ‘ ” (Witter v. Bank of Milpitas, supra, 204 Cal. at p. 578.)

Page 876

Our reading of the statute is also consistent with practical necessity: there simply cannot be at any given time more than one person with the power to conduct a sale under a deed of trust. We would create inestimable levels of confusion, chaos and litigation were we to permit a beneficiary to appoint multiple trustees, each one retaining the power to sell a borrower’s property.

The defendants’ suggestion that TD, by simply “abandoning” its internal Calmco foreclosure file, could thereby effectively reinstate Commonwealth as trustee is similarly unsupported by any authority and is almost as impractical as the notion there could be multiple trustees with the power to convey. As Dimock points out, section 2934a only permits a substitution by way of a recorded document. The terms of the deed of trust itself do not provide any alternative means of making a substitution.[3] As a practical matter, were the validity of recorded substitutions subject to the undisclosed, undocumented and subjective decisions of agents of the beneficiary, the ability of successor trustees to provide marketable title would be severely hampered.[4]

In sum then, on this record Commonwealth had no power to convey Dimock’s property.

B. The Commonwealth Conveyance to Emerald Was Void

As Dimock points out, because Commonwealth had no power to convey his property its deed to Emerald was void as opposed to merely voidable. That is, the Commonwealth deed was a complete nullity with no force or effect as opposed to one which may be set aside but only through the intervention of equity. (See Little v. CFS Service Corp. (1987) 188 Cal.App.3d 1354, 1358-1359 [233 Cal.Rptr. 923].)

The void nature of the Commonwealth deed derives in some measure from the fact that our courts have adopted a title theory of deeds of trust.

Page 877

(Bank of Italy etc. Assn. v. Bentley (1933) 217 Cal. 644, 655 [20 P.2d 940].) “[A] deed of trust differs from a mortgage in that title passes to the trustee in case of a deed of trust, while, in the case of a mortgage, the mortgagor retains title; that the statute of limitations never runs against the power of sale in a deed of trust, while it does run against a mortgage; and that a mortgagor has a statutory right of redemption after foreclosure [citation], while no such right exists under a deed of trust.” (Ibid.) Given that title to property is held by the trustee under a deed of trust, it is difficult to accept the notion that one who no longer has title could nonetheless convey effective title. Admittedly, however, the title theory of deeds of trusts does not control their treatment in all circumstances. (Id. at pp. 655-656.) In any number of cases the title theory has been ignored in order to afford borrowers with the protection provided to mortgagors. (Ibid.)

The more fundamental difficulty we have with the defendants’ contention that the Commonwealth deed was only voidable and not void, is that the particular circumstances which have permitted other courts to save defective foreclosure sales as voidable rather than void, do not exist here. In Little v. CFS Service Corp., supra, 188 Cal.App.3d at pages 1358-1359, the court reviewed the California cases which considered whether defects in notice made a foreclosure sale void or voidable. The court found: “Although the extent of the defect is not determinative, what seems to be determinative is the existence and effect of a conclusive presumption of regularity of the sale. A deed of trust, which binds the trustor, may direct the trustee to include in the deed to the property recitals that notice was given as required under the deed of trust and state that such recitals shall be conclusive proof of the truthfulness and regularity thereof.” (Id. at p. 1359.) Where no such recitals as to the regularity of a sale appear in a deed and there was a defect in the notice to the trustor, the deed has been found void. (Ibid.) Where such recitals appear on the face of a deed but the deed also sets forth facts which are inconsistent with the recital of regularity, the deed has been found void on the basis that the deed showed that the recitals were not valid. (Ibid., citing Holland v. Pendleton Mtge. Co. (1943) 61 Cal.App.2d 570, 576-577 [143 P.2d 493].)

Only where recitals of regularity appear in the deed and no contrary recitals are made have notice defects been found to make a deed voidable, rather than void. (Little v. CFS Service Corp., supra, 188 Cal.App.3d at p. 1359.) In such instances a trustor then bears the burden of showing that there are grounds for equitable relief from the deed, such as fraud or that the buyer was not a bona fide purchaser for value, and that there were also defects in notice. (Ibid.)

In addition, in the context of overcoming a voidable sale, the debtor must tender any amounts due under the deed of trust. (See Karlsen v. American

Page 878

Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 117 [92 Cal.Rptr. 851]; Py v. Pleitner (1945) 70 Cal.App.2d 576, 582 [161 P.2d 393].) This requirement is based on the theory that one who is relying upon equity in overcoming a voidable sale must show that he is able to perform his obligations under the contract so that equity will not have been employed for an idle purpose. (Karlsen v. American Sav. & Loan Assn., supra, 15 Cal.app.3d at p. 118.)

Here, although the deed of trust Dimock executed states that a recital in a trustee’s deed “of any matters of fact shall be conclusive proof of the truthfulness thereof,” the deed Commonwealth gave Emerald following the foreclosure sale contains no statement that Commonwealth’s power to act as trustee had survived any recorded substitution. Rather, by its terms the Commonwealth deed merely conveyed to Emerald “such interest as Trustee has in” Dimock’s property.

The only factual recitals in the deed are to Commonwealth’s compliance with the requirements of section 2924 et seq. and the deed of trust. Section 2924 et seq. sets forth the notice which must be provided to the debtor and junior lienholders and the means by which the sale must be conducted; the deed of trust sets forth similar requirements with respect to notice and conduct of the sale. These factual recitals, relating to the notice given Dimock and the conduct of the sale, cannot be interpreted as making any representation as to whether a conflicting substitution of trustee had been recorded.

Because there was no recital in the Commonwealth deed to Emerald which undermined the Calmco substitution, the deed to Emerald did not create any conclusive presumption that Commonwealth continued to act as trustee. Accordingly, in attacking the Commonwealth deed Dimock was not required to rely upon equity in setting aside a merely voidable deed. (Little v. CFS Service Corp., supra, 188 Cal.App.3d at p. 1359.) Rather, he could rely on the face of the record to show that the Commonwealth deed was void. (Ibid.)

Because Dimock was not required to rely upon equity in attacking the deed, he was not required to meet any of the burdens imposed when, as a matter of equity, a party wishes to set aside a voidable deed. (See Little v. CFS Service Corp., supra, 188 Cal.App.3d at p. 1359.) In particular, contrary to the defendants’ argument, he was not required to tender any of the amounts due under the note.


The summary judgments entered in favor of the defendants are reversed and the trial court is instructed to enter judgment quieting title in favor of

Page 879

Dimock subject to such encumbrances as existed at the time of the foreclosure sale. The trial court is further instructed to conduct such additional proceedings as are consistent with the views expressed herein and which, in its discretion, the trial court believes are necessary.

Appellant to recover his costs of appeal.

McDonald, J., and O’Rourke, J., concurred.



[1] All statutory references are to this code unless otherwise stated.

[2] At all pertinent times section 2934a stated: “(a) (1) The trustee under a trust deed upon real property or an estate for years therein given to secure an obligation to pay money and conferring no other duties upon the trustee than those which are incidental to the exercise of the power of sale therein conferred, may be substituted by the recording in the county in which the property is located of a substitution executed and acknowledged by: (A) all of the beneficiaries under the trust deed, or their successors in interest, and the substitution shall be effective notwithstanding any contrary provision in any trust deed executed on or after January 1, 1968; or (B) the holders of more than 50 percent of the record beneficial interest of a series of notes secured by the same real property or of undivided interests in a note secured by real property equivalent to a series transaction, exclusive of any notes or interests of a licensed real estate broker that is the issuer or servicer of the notes or interests or of any affiliate of that licensed real estate broker.

“(2) A substitution executed pursuant to subparagraph (B) of paragraph (1) is not effective unless all the parties signing the substitution sign, under penalty of perjury, a separate written document stating the following:

“(A) The substitution has been signed pursuant to subparagraph (B) of paragraph (1).

“(B) None of the undersigned is a licensed real estate broker or an affiliate of the broker that is the issuer or servicer of the obligation secured by the deed of trust.

“(C) The undersigned together hold more than 50 percent of the record beneficial interest of a series of notes secured by the same real property or of undivided interests in a note secured by real property equivalent to a series transaction.

“(D) Notice of the substitution was sent by certified mail, postage prepaid, with return receipt requested to each holder of an interest in the obligation secured by the deed of trust who has not joined in the execution of the substitution or the separate document.

“The separate document shall be attached to the substitution and be recorded in the office of the county recorder of each county in which the real property described in the deed of trust is located. Once the document required by this paragraph is recorded, it shall constitute conclusive evidence of compliance with the requirements of this paragraph in favor of substituted trustees acting pursuant to this section, subsequent assignees of the obligation secured by the deed of trust, and subsequent bona fide purchasers or encumbrancers for value of the real property described therein.

“(3) For purposes of this section, ‘affiliate of the licensed real estate broker’ includes any person as defined in Section 25013 of the Corporations Code that is controlled by, or is under common control with, or who controls, a licensed real estate broker. ‘Control’ means the possession, direct or indirect, of the power to direct or cause the direction of management and policies.

“(4) The substitution shall contain the date of recordation of the trust deed, the name of the trustor, the book and page or instrument number where the trust deed is recorded, and the name of the new trustee. From the time the substitution is filed for record, the new trustee shall succeed to all the powers, duties, authority, and title granted and delegated to the trustee named in the deed of trust. A substitution may be accomplished, with respect to multiple deeds of trust which are recorded in the same county in which the substitution is being recorded and which all have the same trustee and beneficiary or beneficiaries, by recording a single document, complying with the requirements of this section, substituting trustees for all those deeds of trust.

“(b) If the substitution is effected after a notice of default has been recorded but prior to the recording of the notice of sale, the beneficiary or beneficiaries shall cause a copy of the substitution to be mailed, prior to the recording thereof, in the manner provided in Section 2924b, to the trustee then of record and to all persons to whom a copy of the notice of default would be required to be mailed by the provisions of Section 2924b. An affidavit shall be attached to the substitution that notice has been given to those persons and in the manner required by this subdivision.

“(c) Notwithstanding any provision of this section or any provision in any deed of trust, unless a new notice of sale containing the name, street address, and telephone number of the substituted trustee is given pursuant to Section 2924f, any sale conducted by the substituted trustee shall be void.

“(d) This section shall remain in effect only until January 1, 1998, and shall have no force or effect after that date, unless a later enacted statute, which is enacted before January 1, 1998, deletes or extends that date.”

[3] The deed of trust states: “Lender may, from time to time, by instrument in writing, substitute a successor or successors to any Trustee named in the Security Instrument or acting thereunder. Such instrument shall be executed and acknowledged by Lender and recorded in the office of the recorder of the county or counties where the Property is situated and shall be conclusive proof of the proper substitution of such successor Trustee or Trustees. Such successor Trustee or Trustees shall, without conveyance from the predecessor Trustee, succeed to all its title, estate, rights, powers and duties. The procedure herein provided for substitution of Trustee shall not be exclusive of other provisions for substitution permitted by law.”

[4] Other than recording a further substitution, the only means by which Commonwealth might arguably have been empowered to convey Dimock’s property would have been with Dimock’s consent. (See Pacific S. & L. Co. v. N. American etc. Co., supra, 37 Cal.App.2d at pp. 310-311.) However, because Dimock was not even aware of the substitution, there is no evidence in the record which would establish his consent to its abandonment.

Doan on “produce the Note”

Are Courts in California Truly Limited by Non-Judicial Foreclosure Statutes?

By Michael Doan on May 2, 2009 in Foreclosure Defense, Foreclosure News

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 to enforce 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 can not 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 can not understand how the law would allow someone to stay in a home without paying. Notwithstanding, laws can not 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.

%d bloggers like this: