Archive | July, 2009

Are You Ready to Fly with SB 1137? You Better Be, Because It Becomes Fully Effective on September 6, 2008?

29 Jul

SBS Form 105 – Beneficiary Opening Instruction for AB1137

SBS Form 106 – Beneficiary Section 2923.5 Declaration Instructions

SBS Form 107 – Beneficiary Section 2923.5 Declaration Phase-in Instructions

The Problem: Simply put, the problems the legislature attempted to address in SB 1137 are the consequences of the subprime mortgage crisis leading to declining real property values and historic levels of foreclosures. The legislature wanted to make sure lenders, loan servicers and their agents were communicating with borrowers in default about the borrower’s financial situation and foreclosure alternatives before a foreclosure is started by recording a notice of default (“NOD”).

The political environment this past year was such that every politician wanted to take credit for solving the mortgage/foreclosure crisis. Many tried; most failed. SB 1137, signed by the Governor on July 8, 2008, is urgency legislation which became effective immediately. However, sections 2 and 4 (the notice provisions) were delayed and become effective on Saturday, September 6, 2008. The good news is that the provisions of SB 1137 sunset on January 1, 2013 unless extended by the legislature prior to that time.

1 The author wishes to acknowledge Patric J. Kelly, Esq., Adleson, Hess & Kelly A.P.C. for his work as a contributing editor for this article.

While SB 1137 is full of ambiguities, lacks definitions and may be unconstitutionally uncertain, most beneficiaries, loan servicers and trustees should be able to substantially comply with the spirit of the law if not the letter of the law. As bad as SB 1137 is, it would have been totally unmanageable had it passed without industry input.

What did SB 1137 do? SB 1137 added a number of new code sections including Civil Code §§ 2923.5 and 2924.8 (which are the “notice provisions” of SB 1137 and designated as sections 2 and 4, respectively). Section 2923.5 requires contact with, or due diligence to attempt to contact, the borrower before a notice of default (“NOD”) may be recorded after 9-6-08 or continued where the notice of default was recorded prior to 9-6-08 but the notice of sale (“NOS”) will not be recorded until after 9-6-08. Section 2924.8 requires a new Notice of Sale to Resident to be posted on the residential property and mailed to the resident of residential properties (in English and in 5 other languages) as part of the nonjudicial foreclosure process.

What Loans are Covered under new Civil Code § 2923.5?

Civil Code § 2923.5 only applies to: (1) Loans made from January 1, 2003, to December 31, 2007, inclusive (“Covered Period”); and, (2) loans secured by residential real property that are for owner-occupied residences. For purposes of § 2923.5, “owner-occupied” means that the residence is the principal residence of the borrower. The words “made” and “principal residence” are not defined in the statute, leaving uncertainty as to what these terms mean. Further the statutory definition of “residential property” is not limited to 1-4 residential properties. Therefore, if one unit in any residential property (e.g., an apartment building, a residential unit in a mixed use commercial/residential property, etc) is owner-occupied as the borrower’s principal residence, the borrower may be considered to be covered under Section 2923.5. Lastly, while it appears that the legislature intended to cover loans that were originally intended to be “owner occupied”, the timing of the owner occupancy is also uncertain. Loans meeting the above requirements will be called “covered loans” in this article.

Any loan that was not made between January 1, 2003, through December 31, 2007, is not a “covered loan” and is not subject to the provisions of § 2923.5 (although it still requires a “Notice of Sale to Resident” under certain circumstances discussed below).

Beneficiaries and loan servicers should consult with their compliance attorney to determine how to structure compliance with the provisions of section 2923.5. While legislation is often metaphorically viewed as making “sausage”, SB 1137 is an insult to sausage. Nonetheless, full compliance will be necessary by 9-6-08.

Preconditions to Recording Notice of Default (“NOD”). A trustee, beneficiary, or authorized agent may not file a notice of default (“NOD”) until: (1) 30 days after contact is made with the borrower as required by section 2923.5(a);

or, (2) 30-days after satisfying the due diligence requirements of section 2923.5(g); or (3) after qualifying for one of the exclusions under section 2923.5(h).

Contact with the Borrower (Before Foreclosure). The beneficiary or authorized agent must contact the borrower in person or by telephone in order to: (1) Assess the borrower’s financial situation; and, (2) Explore options for the borrower to avoid foreclosure. Since many lenders already have policies which may fulfill these requirements, those policies should be reviewed as they are likely to fall short of some of the new requirements.

Assessment of the Borrowers Financial Situation; Discussion of Options and Notice of Borrower’s Right to Have a Meeting with Beneficiary or Agent. 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. Civil Code § 2923.5 gives no guidance as to what the lender or servicer must do in “assessing the borrower’s financial situation. Similarly, there is no guidance as to what, if any, “options for the borrower to avoid foreclosure” should be discussed.

During the initial contact, the beneficiary or authorized agent must advise the borrower that he or she has the right to request a subsequent meeting and, if requested, the beneficiary or authorized agent shall schedule the meeting to occur within 14 days. (Civ. Code § 2923.5(a).) A beneficiary’s or authorized agent’s loss mitigation personnel may participate by telephone during any contact required by this section. (Civ. Code § 2923.5(d)(2).)

Whether the assessment of the borrower’s financial situation and discussion of options occurs at the initial meeting or at a subsequent meeting within 14 days, 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 and does not have to be in person.

A borrower may designate a HUD-certified housing counseling agency, attorney, or other advisor to discuss with the 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 will satisfy the contact requirements of Civil Code § 2923(a)(2). However, any loan modification or workout plan offered at the meeting by the beneficiary or authorized agent is subject to approval by the borrower. (Civ. Code § 2923.5(a)(2)& (f).)

Where the loan servicer undertakes SB 1137, except where a loan servicing agreement is broad enough to specifically authorize the loan servicer to fulfill the requirement of Civil Code § 2923.5 for his principal (beneficiary), the loan servicer (e.g., broker) should consider modifying its loan servicing agreement to specifically authorize the broker/loan servicer to undertake the requirements of

2 While written authority is not required by SB 1137, it may be a preferable practice so that the servicer’s authority is clear.

Civil Code § 2923.5 for the principal.2 While a trustee might be an “agent”, most trustees do not have the information or authority to engage in workout agreements or modifications of the beneficiary’s loan. Because of this, the legislature removed “trustee” from many of the provisions of SB 1137.

It is unclear what type of proof is necessary to satisfy the lender that a person allegedly “designated” by the borrower can speak for the borrower. While not addressed in SB 1137, if an authorized agent (including an attorney) wants to discuss the borrower’s personal financial information (not just options to avoid foreclosure) possessed by the lender or servicer, the lender or servicer should consider obtaining a written authorization to release (discuss) such information with the agent. Otherwise, the lender or loan servicer risks disclosing the borrower’s confidential financial information to a third party who may not prove to be the borrower’s authorized agent. Consideration should be given to providing an authorization form (prepared and approved by counsel). The lender’s counsel approved form of authorization may be provided on the lenders or on the loan servicer’s website or may be delivered in any other fashion (e.g., mailed, faxed, e-mailed or personally delivered) to the borrower or to the borrower’s designated authorized agent. Keep in mind simply to discuss options to avoid foreclosure with the borrower’s “designated agent” probably does not require much proof because these options are usually going to be generic. It is only if these discussions with the borrower’s agent go into the borrower’s personal financial information that a more detailed written authorization might be necessary. The lender’s or loan servicer’s authorization form should not be the sole form accepted as long as the form provides appropriate authorization for the lender or servicer to discuss and disclose the borrower’s personal financial information with the designated agent (i.e., where such conversations are going to take place).

Procedures Where, Despite “Due Diligence”, the Borrower Cannot Be Contacted. A NOD may be filed when a beneficiary or authorized agent has not contacted a borrower provided that the failure to contact the borrower occurred despite the due diligence of the beneficiary or authorized agent. (Civ. Code § 2923.5(g).) “Due diligence” under § 2923.5 means “all of the following:”

(1) A 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. (“First Contact Letter”). Although SB 1137 does not specify what HUD number should be used, the HUD website states the following: “To find out more about HUD-approved housing counseling agencies and their services, please call (800) 569-4287 on weekdays between 9:00 a.m. and 5:00 p.m. ET (6:00 a.m. to 2:00 p.m. PT). You can also get an automated referral to the three housing

counseling agencies located closest to you by calling (800) 569-4287, or see our list of these HUD-approved agencies by state.” Nothing in section 2923.5 requires that the First Contact Letter be delayed until the lender or servicer has tried to contact the borrower. Therefore, the First Contact Letter should be sent out shortly after default so that any attempted contacts with the borrower count toward the lender’s “due diligence” requirements.

(2) After the First Contact Letter has been sent, the 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. A 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 beneficiary, or authorized agent.

(3) A beneficiary or authorized agent satisfies the telephone contact requirements of § 2923.5(g) if it determines, after attempting contact pursuant to § 2923.5(g), that the borrower’s primary telephone number and secondary telephone number or numbers on file, if any, have been disconnected.

(4) If the borrower does not respond within two weeks after the above telephone call requirements have been satisfied (e.g., calls or determination that the borrower telephone numbers have been disconnected), the beneficiary or authorized agent shall then send a certified letter, with return receipt requested. (“Due Diligence Letter”).

(5) The 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.

(6) The 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 beneficiary or authorized agent when discussing options for avoiding foreclosure. (This is where the beneficiary or loan servicer may want to put the agent authorization form and list it as a document to bring to the meeting); (c) A toll-free telephone number for borrowers who wish to discuss options for avoiding foreclosure with their mortgagee, beneficiary, or authorized agent; and, (d) The toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency. Civil Code § 2924.5 does not specify in any further detail how or what should be included in the lender or servicer’s website.

While not addressed in SB 1137, where the loan servicer or trustee is subject to the Federal Fair Debt Collection Practices Act (“FDCPA”), it should be careful to

comply with all of the requirements of the FDCPA (e.g., the mini-Miranda warning in 15 U.S.C. § 1692e(11); validation notice under 15 U.S.C. §1692g, etc.) The FDCPA prohibits communication with the consumer in connection with the collection of a debt at any unusual time or place or in a manner or place known (or which should be known) to be inconvenient to the consumer. (“Safe Harbor” hours are between 8:00 a.m. and 9:00 p.m. if not known to be inconvenient to the borrower). Whether you are subject to the FDCPA and how to comply should be discussed with your compliance attorney.

Exclusions from Some of the Requirements of § 2923.5(h). Civil Code § 2923.5(a) [30-day waiting period and borrower contact], (c) [declaration in NOS where NOD occurred prior to enactment of SB 1137], and (g) [due diligence alternative] do not apply if any of the following occur: (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 trustee, beneficiary, or authorized agent; (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 beneficiaries; or, (3) The borrower has filed for bankruptcy, and the proceedings have not been finalized. (Civil Code § 2923.5(h).) Whether these exceptions apply and whether a declaration in the NOD or NOS is needed should be discussed with compliance counsel.

Surrender of Keys or Surrender Letter. To avoid disputes, It may be a good practice for lender’s and servicer’s to have a counsel approved form of surrender letter (even where the borrower turns over the keys) to clearly evidence the borrower’s intention. However, no particular form is required and no letter is required where the borrower turns over the keys to the property.

Contract with Foreclosure Avoidance Organizations. Proving that 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 beneficiaries” may be problematic. Relying on this exception should be limited to situations where counsel or an experienced supervisor has determined that the exclusion applies.

Bankruptcy Exclusion. For the bankruptcy exclusion what does: “the proceedings have not been finalized’ mean? “Finalized” is not defined by § 2923.5(h)(3). However, it likely means that either: (1) an order entered on the court’s docket closing the file by the court; or, (2) an order entered on the court’s docket dismissing the bankruptcy case.

What happens if a lender, trustee or servicer relies on the bankruptcy exclusion and the bankruptcy is dismissed before the sale occurs? Probably nothing if the bankruptcy was filed and not finalized at the time the NOD (or NOS in the transition period) was filed. The trustee, lender or authorized agent should not

engage in the contact requirements of SB 1137 while the borrower is in bankruptcy, as this may violate the automatic stay in bankruptcy.

NOD Recorded on or after 9-6-08, must contain a Declaration of Compliance with Civil Code § 2923.5.

A NOD filed on or after September 6, 2008, 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.” (Civ. Code § 2923.5(b).)

The form of the declaration is not specified in Civil Code § 2923.5(b) The form of the declaration should be provided by compliance counsel and is likely to vary depending on whether compliance is achieved by contact or due diligence or by application of one of the exclusions. Some counsel may even argue that a declaration is not needed for exclusions because no such exclusion is mentioned in Civil Code § 2923.5(b). The more conservative approach, however, would be to draft and use declarations when any exclusion in Civil Code § 2923.5(h) is relied upon.

While not expressly addressed in SB 1137, it is unlikely that the “declaration” must be “sworn” or “under penalty of perjury”. A good argument can be made that when the legislature intends for a “declaration” to be under penalty of perjury, it states so in the statute. For example, Civil Code § 2941.7 (i.e., where a beneficiary cannot be found or where the beneficiary refuses to reconvey after payoff), specifically states that: “The declaration provided for in this section [2924.7] shall be signed by the mortgagor or trustor under penalty of perjury.”

Transition Period Rules. Where the NOD has been recorded “prior to the enactment” of § 2923.5 and a notice of rescission of NOD has not been recorded, the trustee, beneficiary, or authorized agent shall, as part of the NOS 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; or, (2) Lists the efforts made, if any, to contact the borrower in the event no contact was made.

The use of the words “prior to enactment of this section [§2923.5] is problematic as the statute was technically enacted on July 8, 2008 when the chaptered bill was enrolled with the Secretary of State after being signed by the Governor. However, Section 10(b) of SB 1137 provides that the provisions of sections 2 and 4 of the Act (i.e., Civil Code §§ 2923.5 and 2924.8) shall become operative “60 days after the “effective date” of SB 1137. The “effective date” was July 8, 2008 and 60 days thereafter should be Saturday, September 6, 2008. The problem that may occur is that Section 10 of SB 1137 is found in what are called the “uncodified sections”, meaning that that section will not appear in the printed code sections relied upon by attorneys. To respond to challenges by consumers,

their representatives and counsel prior to September 6, 2008, beneficiaries, loan servicers, trustees and their respective counsel should keep on hand a chaptered copy of SB 1137 with section 10(b) highlighted for the purpose of promptly responding to claims. However, the most likely statutory interpretation of SB 1137 is that the transition period for loans covered by Civil Code § 2923.5 commences on 9-6-08 where a NOD was recorded prior to 9-6-08 and a NOS will be recorded on or after 9-6-08. It would make no sense for the transition period to predate the time when Civil Code §§ 2923.5 and 2924.8 become effective. Furthermore this interpretation appears more consistent with the legislative intent and is most protective of the consumer.

Clearly, as to loans covered by Civil Code § 2923.5, beneficiaries/servicers who have not implemented SB 1137 compliance by the time this article is read, will be delayed for whatever time it takes to achieve compliance as they cannot record a NOD (or a transitional period NOS) until they have complied with section 2923.5.

Application to Judicial Foreclosure. SB 1137 appears to be inapplicable to judicial foreclosures as it is specifically limited to NODs and NOSs “pursuant to Civil code § 2924.” (Civil Code §§ 2923.5(a)(1), (b) & (c).) Oddly, the legislature may have created incentive for some lenders to use the more costly and time consumer judicial foreclosure process at least where other facts exist for the selection of judicial foreclosure.

Addition of Civil Code § 2923.6 (Servicer’s Duty under Pooling Agreements). SB 1137 added Civil Code §2923.6(a) dealing with pooling and servicing agreements. This section should be reviewed by managers of pools or loan servicers. It appears to be designed to provide some level of protection for servicers and pool managers in offering loan modifications or workout plans to borrowers.

Notices of Sale to Resident of Foreclosure of Residential Rental Properties: (Foreign Language Copies). SB 1137 added Civil Code § 2924.8 which only apply: (1) To loans secured by residential real property; and, (2) If the billing address for the mortgage note is different than the property address.

Section 2924.8 is not limited to “owner-occupied” residential properties nor is it limited to loans made between 1-1-03 and 12-31-07. Section 2924.8 does not define what “address for the mortgage note” means. However, it can be assumed that where the servicer originally, or after the loan is made, has an address for the borrower that is different than the address of the property for the purpose of sending notices under the note, § 2924.8 should be applied.

What Is the New Notice and How Is It given? Section 2924.8 provides that when the trustee or authorized agent posts the NOS: (1) The trustee or authorized agent shall also post the following notice, in the manner required for posting the notice of sale on the property to be sold, and; (2) The trustee, beneficiary, or authorized agent shall mail, “at the same time” [as the posting] in

an envelope addressed to the “Resident of property subject to foreclosure sale” the following notice in English and the languages described in Civil Code § 1632 (i.e., Spanish, Chinese, Tagalog, Vietnamese, and Korean).

The Notice of Sale to Resident shall read:

“Foreclosure process has begun on this property, which may affect your right to continue to live in this property. Twenty days or more after the date of this notice, this property may be sold at foreclosure. If you are renting this property, the new property owner may either give you a new lease or rental agreement or provide you with a 60-day eviction notice. However, other laws may prohibit an eviction in this circumstance or provide you with a longer notice before eviction. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any rights you may have.”

(Civ. Code § 2924.8(a).) The form including foreign language translations were done by the State of California and are posted on the California Department of Corporations website at http://www.corp.ca.gov/FSD/pdf/Notice_of_Sale.pdf.

It is an infraction to tear down the new notice within 72 hours of posting. Violators shall be subject to a fine of one hundred dollars ($100). (Civil Code § 2924.8(b).)

Should the § 2924.8 notice to resident be posted and mailed to the property address on all types of property (i.e., residential, commercial, industrial or vacant land) just to be cautious? No. But the notice probably should be posted and mailed on all residential properties (e.g., single family, multi-unit or mixed use where part of the property is residential) where the billing address for the mortgage note is different than the property address. Since Civil Code § 2924.8 does not specifically refer to “rental property”, the new notice may create some confusion if posted on purely non-residential property. The problem is that the new State approved Notice of Sale to Resident references “rental property” and does not limit that statement to residential rental property. The required language goes on to refer to the “60-day eviction notice” which, in a different code section, expressly only applies to “residential properties. (See, new Code of Civil Procedure § 1161b). Because of these ambiguities between Section 2924.8, the new notice contained in that section and the provisions of new Code of Civil Procedure § 1161b, if the new Notice of Sale to Resident is given to tenants of non-residential properties, it has the risk of confusing nonresidential tenants. Since Civil Code § 2924.8 is designed to protect residential rental tenants, it is best to err on the side of giving the notice whenever the trustee, beneficiary or their agents are not sure.

Should the notice to resident be mailed to the trustor (borrower) or other persons (besides the occupant of the residential rental property) who are entitled to

receive NODs or NOSs? No. The new Notice of Sale to Resident should only be mailed to “Resident of property subject to foreclosure sale”. Civil Code § 2924.8(d) states: “This section shall only apply to loans secured by residential real property, and if the billing address for the mortgage note is different than the property address.” Since is unclear what is meant by “billing address for the mortgage note, we recommend mailing and posting the “notice to resident” in any case where the beneficiary originally, or subsequently, had in its file an address for the purpose of notifying the borrower (e.g., for sending statements) other than that of the secured property. For example, whenever the lender’s file reveals that a street address, rural postal route, P.O. Box, private mailing center (e.g., box) etc. has been used by the borrower, other than the address of the secured property”, the best practice would be to post and mail the new Notice to Resident.

Could such an approach create confusion to the trustor if he/she is occupying the property even though he/she is using an address other than the secured property?

Probably not. The statutory wording expressly states: “If you are renting this property, the new property owner may either give you a new lease or rental agreement or provide you with a 60-day eviction notice. New Code of Civil Procedure § 1161b(b) expressly states: “This section shall not apply if any party to the note remains in the property as a tenant, subtenant, or occupant.” KEEP IN MIND THE PROVISIONS OF CODE OF CIVIL PROCEDURE § 1161b BECAME EFFECTIVE ON JULY 8, 2008 AND IS NOT SUBJECT TO THE 60-DAY DELAY THAT APPLIES TO THE CONTACT AND NOTICE TO RESIDENT PROVISIONS OF CIVIL CODE SECTIONS 2923.5 AND 2924.8.

Addition of Civil Code § 2929.3 (Owner’s Duty to Maintain Property). New Civil Code § 2929.3(a)(1) requires that a legal owner shall maintain vacant residential property: (1) Purchased by that owner at a foreclosure sale (e.g., third party bidder); or, (2) Acquired by that owner through foreclosure under a mortgage or deed of trust (e.g., reversion to lender).

Unlike many local ordinances requiring the lender or trustee to inspect the property prior to recording an NOD, SB 1137, only applies where the “legal owner”, whether it is the lender or a third party purchaser, acquired title through a foreclosure sale. Therefore, the provisions of Civil Code § 2929.3 are likely to most important to the lender’s REO departments or agents.

Penalties for Violation. Civil Code § 2929.3, which only applies to residential real property, provides:

• A governmental entity may impose a civil fine of up to one thousand dollars ($1,000) per day for a violation.

• To impose a fine, the government entity must give notice of the alleged violation, including a description of the conditions that gave rise to the allegation, and notice of the entity’s intent to assess a civil fine if action to correct the violation is not commenced within a period of not less than 14 days and completed within a period of not less than 30 days.

• The notice must be mailed to the address provided in the deed or other instrument as specified in Government Code § 27321.5 (a), or, if none, to the return address provided on the deed or other instrument.

• The governmental entity shall provide a period of not less than 30 days for the legal owner to remedy the violation prior to imposing a civil fine and shall allow for a hearing and opportunity to contest any fine imposed.

• In determining the amount of the fine, the governmental entity shall take into consideration any timely and good faith efforts by the legal owner to remedy the violation.

• The maximum civil fine authorized by this section is one thousand dollars ($1,000) for each day that the owner fails to maintain the property, commencing on the day following the expiration of the period to remedy the violation established by the governmental entity.

• Subject to the provisions of § 2929.3, a governmental entity may establish different compliance periods for different conditions on the same property in the notice of alleged violation mailed to the legal owner.

• For purposes of § 2929.3, “failure to maintain” means failure to care for the exterior of the property, including, but not limited to, permitting excessive foliage growth that diminishes the value of surrounding properties, failing to take action to prevent trespassers or squatters from remaining on the property, or failing to take action to prevent mosquito larvae from growing in standing water or other conditions that create a public nuisance.”

• Notwithstanding the above, a governmental entity may provide less than 30 days’ notice to remedy a condition before imposing a civil fine if the entity determines that a specific condition of the property threatens public health or safety and provided that notice of that determination and time for compliance is given. Fines and penalties collected pursuant to this section shall be directed to local nuisance abatement programs.

• A governmental entity may not impose fines on a legal owner under both Civil Code § 2929.3 and a local ordinance. However, the rights and remedies provided in § 2929.3 are cumulative and in addition to any other rights and remedies provided by law. Unfortunately, section 2929.3 does not preempt any local ordinance many of which are vague at best and probably unconstitutionally uncertain.

New 60-Day Notice to Quit for Tenants in Foreclosed Residential Rental Properties. SB 1137 adds Code of Civil Procedure §1161b provides that a tenant or subtenant in possession of a rental housing unit at the time the property is sold in foreclosure shall be given 60-days’ written notice to quit pursuant to Code of Civil Procedure § 1162 before the tenant or subtenant may be evicted from the property. THIS SECTION WAS EFFECTIVE ON JULY 8, 2008 AND WAS NOT DELAYED. This new section does not apply if any party to the note (e.g., original trustor) remains in the property as a tenant, subtenant, or occupant.

Conclusion

While complex, devoid of necessary definitions and subject to extensive ambiguities, beneficiaries, trustees and their authorized agents must comply and should adopt policies and procedures to attempt compliance no later than September 6, 2008. Hopefully, next year, the legislature will clean up many of the obvious problems in SB 1137. It is unlikely that any legislative relief will become effective until January 1, 2010. Policies and procedures will have to be refined over time to get all of the bugs out. Most beneficiaries and trustees would be well advised to consult counsel regarding implementing SB 1137 into their day-to-day policies and procedures. Compliance packages have been prepared by a number of compliance attorneys that should be able to help guide beneficiaries, servicers and trustees through the SB 1137 compliance maze.

Adleson, Hess & Kelly, a PC (2008)©

Countrywide San Diego district attorney v. Countrywide

26 Jul

san deigovscountrywide

Brown Sues 21 Individuals and 14 Companies Who Ripped Off Homeowners Desperate for Mortgage Relief

17 Jul

News Release
July 15, 2009
For Immediate Release
Contact: (916) 324-5500
Print Version
Attachments

Los Angeles – As part of a massive federal-state crackdown on loan modification scams, Attorney General Edmund G. Brown Jr. at a press conference today announced the filing of legal action against 21 individuals and 14 companies who ripped off thousands of homeowners desperately seeking mortgage relief.

Brown is demanding millions in civil penalties, restitution for victims and permanent injunctions to keep the companies and defendants from offering mortgage-relief services.

“The loan modification industry is teeming with confidence men and charlatans, who rip off desperate homeowners facing foreclosure,” Brown said. “Despite firm promises and money-back guarantees, these scam artists pocketed thousands of dollars from each victim and didn’t provide an ounce of relief.”

Brown filed five lawsuits as part of “Operation Loan Lies,” a nationwide sweep of sham loan modification consultants, which he conducted with the Federal Trade Commission, the U.S. Attorney’s office and 22 other federal and state agencies. In total, 189 suits and orders to stop doing business were filed across the country.

Following the housing collapse, hundreds of loan modification and foreclosure-prevention companies have cropped up, charging thousands of dollars in upfront fees and claiming that they can reduce mortgage payments. Yet, loan modifications are rarely, if ever, obtained. Less than 1 percent of homeowners nationwide have received principal reductions of any kind.

Brown has been leading the fight against fraudulent loan modification companies. He has sought court orders to shut down several companies including First Gov and Foreclosure Freedom and has brought criminal charges and obtained lengthy prison sentences for deceptive loan modification consultants.

Brown’s office filed the following lawsuits in Orange County and U.S. District Court for the Central District (Los Angeles):

– U.S. Homeowners Assistance, based in Irvine;
– U.S. Foreclosure Relief Corp and its legal affiliate Adrian Pomery, based in the City of Orange;
– Home Relief Services, LLC, with offices in Irvine, Newport Beach and Anaheim, and its legal affiliate, the Diener Law Firm;
– RMR Group Loss Mitigation, LLC and its legal affiliates Shippey & Associates and Arthur Aldridge. RMR Group has offices in Newport Beach, City of Orange, Huntington Beach, Corona, and Fresno;
– and
– United First, Inc, and its lawyer affiliate Mitchell Roth, based in Los Angeles.

U.S. Homeowners Assistance
Brown on Monday sued U.S. Homeowners Assistance, and its executives — Hakimullah “Sean” Sarpas and Zulmai Nazarzai — for bilking dozens of homeowners out of thousands of dollars each.

U.S. Homeowners Assistance claimed to be a government agency with a 98 percent success rate in aiding homeowners. In reality, the company was not a government agency and was never certified as an approved housing counselor by the U.S. Department of Housing and Urban Development. None of U.S. Homeowners Assistance’s known victims received loan modifications despite paying upfront fees ranging from $1,200 to $3,500.

For example, in January 2008, one victim received a letter from her lender indicating that her monthly mortgage payment would increase from $2,300 to $3,500. Days later, she received an unsolicited phone call from U.S. Homeowners Assistance promising a 40 percent reduction in principal and a $2,000 reduction in her monthly payment. She paid $3500 upfront for U.S. Homeowners Assistance’s services.

At the end of April 2008, her lender informed her that her loan modification request had been denied and sent her the documents that U.S. Homeowners Assistance had filed on her behalf. After reviewing those documents, she discovered that U.S. Homeowners Assistance had forged her signature and falsified her financial information – including fabricating a lease agreement with a fictitious tenant.

When she confronted U.S. Homeowners Assistance, she was immediately disconnected and has not been able to reach the company.

Brown’s suit contends that U.S. Homeowners Assistance violated:
– California Business and Professions Code section 17500 by falsely stating they were a government agency and misleading homeowners by claiming a 98 percent success rate in obtaining loan modifications;

– California Business and Professions Code section 17200 by failing to perform services made in exchange for upfront fees;

– California Civil Code section 2945.4 for unlawfully collecting upfront fees for loan modification services;

– California Civil Code section 2945.45 for failing to register with the California Attorney General’s Office as foreclosure consultants; and

– California Penal Code section 487 for grand theft.

Brown is seeking $7.5 million in civil penalties, full restitution for victims, and a permanent injunction to keep the company and the defendants from offering foreclosure consultant services.

US Homeowners Assistance also did business as Statewide Financial Group, Inc., We Beat All Rates, and US Homeowners Preservation Center.

US Foreclosure Relief Corporation
Brown last week sued US Foreclosure Relief Corporation, H.E. Service Company, their executives — George Escalante and Cesar Lopez — as well as their legal affiliate Adrian Pomery for running a scam promising homeowners reductions in their principal and interest rates as low as 4 percent. Brown was joined in this suit by the Federal Trade Commission and the State of Missouri.

Using aggressive telemarketing tactics, the defendants solicited desperate homeowners and charged an upfront fee ranging from $1,800 to $2,800 for loan modification services. During one nine-month period alone, consumers paid defendants in excess of $4.4 million. Yet, in most instances, defendants failed to provide the mortgage-relief services. Once consumers paid the fee, the defendants avoided responding to consumers’ inquiries.

In response to a large number of consumer complaints, several government agencies directed the defendants to stop their illegal practices. Instead, they changed their business name and continued their operations – using six different business aliases in the past eight months alone.

Brown’s lawsuit alleges the companies and individuals violated:
– The National Do Not Call Registry, 16 C.F.R. section 310.4 and California Business and Professions Code section 17200 by telemarketing their services to persons on the registry;

– The National Do Not Call Registry, 16 C.F.R. section 310.8 and California Business and Professions Code section 17200 by telemarketing their services without paying the mandatory annual fee for access to telephone numbers within the area codes included in the registry;

– California Civil Code section 2945 et seq. and California Business and Professions Code section 17200 by demanding and collecting up-front fees prior to performing any services, failing to include statutory notices in their contracts, and failing to comply with other requirements imposed on mortgage foreclosure consultants;

– California Business and Professions Code sections 17200 and 17500 by representing that they would obtain home loan modifications for consumers but failing to do so in most instances; by representing that consumers must make further payments even though they had not performed any of the promised services; by representing that they have a high success rate and that they can obtain loan modification within no more than 60 days when in fact these representations were false; and by directing consumers to avoid contact with their lenders and to stop making loan payments causing some lenders to initiate foreclosure proceedings and causing damage to consumers’ credit records.

Victims of this scam include a father of four battling cancer, a small business owner, an elderly disabled couple, a sheriff whose income dropped due to city budget cuts and an Iraq-war veteran. None of these victims received the loan modification promised.

Brown is seeking unspecified civil penalties, full restitution for victims, and a permanent injunction to keep the company and the defendants from offering foreclosure consultant services.

The defendants also did business under other names including Lighthouse Services and California Foreclosure Specialists.

Home Relief Services, LLC
Brown Monday sued Home Relief Services, LLC., its executives Terence Green Sr. and Stefano Marrero, the Diener Law Firm and its principal attorney Christopher L. Diener for bilking thousands of homeowners out of thousands of dollars each.

Home Relief Services charged homeowners over $4,000 in upfront fees, promised to lower interest rates to 4 percent, convert adjustable-rate mortgages to low fixed-rate loans and reduce principal up to 50 percent within 30 to 60 days. None of the known victims received a modification with the assistance of the defendants.

In some cases, these companies also sought to be the lenders’ agent in the short-sale of their clients’ homes. In doing so, the defendants attempted to use their customers’ personal financial information for their own benefit.

Home Relief Services and the Diener Law Firm directed homeowners to stop contacting their lender because the defendants would act as their sole agent and negotiator.

Brown’s lawsuit contends that the defendants violated:
– California Business and Professions Code section 17500 by claiming a 95 percent success rate and promising consumers significant reductions in the principal balance of their mortgages;

– California Business and Professions Code section 17200 by failing to perform on promises made in exchange for upfront fees;

– California Civil Code section 2945.4 for unlawfully collecting upfront fees for loan modification services;

– California Business and Professions Code section 2945.3 by failing to include cancellation notices in their contracts;

– California Civil Code section 2945.45 by not registering with the Attorney General’s office as foreclosure consultants; and

– California Penal Code section 487 for grand theft.

Brown is seeking $10 million in civil penalties, full restitution for victims, and a permanent injunction to keep the company and the defendants from offering foreclosure consultant services.

Two other companies with the same management were also involved in the effort to deceive homeowners: Payment Relief Services, Inc. and Golden State Funding, Inc.

RMR Group Loss Mitigation Group
Brown Monday sued RMR Group Loss Mitigation and its executives Michael Scott Armendariz of Huntington Beach, Ruben Curiel of Lancaster, and Ricardo Haag of Corona; Living Water Lending, Inc.; and attorney Arthur Steven Aldridge of Westlake Village as well as the law firm of Shippey & Associates and its principal attorney Karla C. Shippey of Yorba Linda – for bilking over 500 victims out of nearly $1 million.

The company solicited homeowners through telephone calls and in-person home visits. Employees claimed a 98 percent success rate and a money-back guarantee. None of the known victims received any refunds or modifications with the assistance of defendants.

For example, in July 2008, a 71-year old victim learned his monthly mortgage payments would increase from $2,470 to $3,295. He paid $2,995, yet received no loan modification and no refund.

Additionally, RMR insisted that homeowners refrain from contacting their lenders because the defendants would act as their agents.

Brown’s suit contends that the defendants violated:

– California Business and Professions Code section 17500 by claiming a 98 percent success rate and promising consumers significant reductions in the principal balance of their mortgages;

– California Business and Professions Code section 17200 by failing to perform on promises made in exchange for upfront fees;

– California Civil Code section 2945.4 for unlawfully collecting upfront fees for loan modification services;

– California Business and Professions Code section 2945.3 by failing to include cancellation notices in their contracts;

– California Civil Code section 2945.45 by not registering with the Attorney General’s office as foreclosure consultants; and

– California Penal Code section 487 for grand theft.

Brown is seeking $7.5 million in civil penalties, full restitution for victims, and a permanent injunction to keep the company and the defendants from offering foreclosure consultant services.

United First, Inc.
On July 6, 2009, Brown sued a foreclosure consultant and an attorney — Paul Noe Jr. and Mitchell Roth – who conned 2,000 desperate homeowners into paying exorbitant fees for “phony lawsuits” to forestall foreclosure proceedings.

These lawsuits were filed and abandoned, even though homeowners were charged $1,800 in upfront fees, at least $1,200 per month and contingency fees of up to 80 percent of their home’s value.

Noe convinced more than 2,000 homeowners to sign “joint venture” agreements with his company, United First, and hire Roth to file suits claiming that the borrower’s loan was invalid because the mortgages had been sold so many times on Wall Street that the lender could not demonstrate who owned it. Similar suits in other states have never resulted in the elimination of the borrower’s mortgage debt.

After filing the lawsuits, Roth did virtually nothing to advance the cases. He often failed to make required court filings, respond to legal motions, comply with court deadlines, or appear at court hearings. Instead, Roth’s firm simply tried to extend the lawsuits as long as possible in order to collect additional monthly fees.

United First charged homeowners approximately $1,800 in upfront fees, plus at least $1,200 per month. If the case was settled, homeowners were required to pay 50 percent of the cash value of the settlement. For example, if United First won a $100,000 reduction of the mortgage debt, the homeowner would have to pay United First a fee of $50,000. If United First completely eliminated the homeowner’s debt, the homeowner would be required to pay the company 80 percent of the value of the home.

Brown’s lawsuit contends that Noe, Roth and United First:

– Violated California’s credit counseling and foreclosure consultant laws, Civil Code sections 1789 and 2945

– Inserted unconscionable terms in contracts;

– Engaged in improper running and capping, meaning that Roth improperly partnered with United First, Inc. and Noe, who were not lawyers, to generate business for his law firm violating California Business and Professions Code 6150; and

– Violated 17500 of the California Business and Professions Code.

Brown’s office is seeking $2 million in civil penalties, full restitution for victims, and a permanent injunction to keep the company and the defendants from offering foreclosure consultant services.

Tips for Homeowners
Brown’s office issued these tips for homeowners to avoid becoming a victim:

DON’T pay money to people who promise to work with your lender to modify your loan. It is unlawful for foreclosure consultants to collect money before (1) they give you a written contract describing the services they promise to provide and (2) they actually perform all the services described in the contract, such as negotiating new monthly payments or a new mortgage loan. However, an advance fee may be charged by an attorney, or by a real estate broker who has submitted the advance fee agreement to the Department of Real Estate, for review.

DO call your lender yourself. Your lender wants to hear from you, and will likely be much more willing to work directly with you than with a foreclosure consultant.

DON’T ignore letters from your lender. Consider contacting your lender yourself, many lenders are willing to work with homeowners who are behind on their payments.

DON’T transfer title or sell your house to a “foreclosure rescuer.” Fraudulent foreclosure consultants often promise that if homeowners transfer title, they may stay in the home as renters and buy their home back later. The foreclosure consultants claim that transfer is necessary so that someone with a better credit rating can obtain a new loan to prevent foreclosure. BEWARE! This is a common scheme so-called “rescuers” use to evict homeowners and steal all or most of the home’s equity.

DON’T pay your mortgage payments to someone other than your lender or loan servicer, even if he or she promises to pass the payment on. Fraudulent foreclosure consultants often keep the money for themselves.

DON’T sign any documents without reading them first. Many homeowners think that they are signing documents for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership to the “rescuer.”

DO contact housing counselors approved by the U.S. Department of Housing and Urban Development (HUD), who may be able to help you for free. For a referral to a housing counselor near you, contact HUD at 1-800-569-4287 (TTY: 1-800-877-8339) or http://www.hud.gov.

If you believe you have been the victim of a mortgage-relief scam in California, please contact the Attorney General’s Public Inquiry Unit at http://ag.ca.gov/consumers/general.php.
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Ex-parte aplication for TRO and injunction

8 Jul

EX PARTE APPLICATION FOR OSC TRO

Pretender Lenders

2 Jul

— read and weep. Game Over. Over the next 6-12 months the entire foreclosure mess is going to be turned on its head as it becomes apparent to even the most skeptical that the mortgage mess is just that — a mess. From the time the deed was recorded to the time the assignments, powers of attorneys, notarization and other documents were fabricated and executed there is an 18 minute Nixonian gap in the record that cannot be cured. Just because you produce documents, however real they appear, does not mean you can shift the burden of proof onto the borrower. In California our legislator have attempted to slow this train wreck but the pretender lenders just go on with the foreclosure by declaring to the foreclosure trustee the borrower is in default and they have all the documents the trustee then records a false document. 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.
Invalid Declaration on Notice of Default and/or Notice of Trustee’s Sale.

The purpose of permitting a declaration under penalty of perjury, in lieu of a sworn statement, is to help ensure that declarations contain a truthful factual representation and are made in good faith. (In re Marriage of Reese & Guy, 73 Cal. App. 4th 1214, 87 Cal. Rptr. 2d 339 (4th Dist. 1999).
In addition to California Civil Code §2923.5, California Code of Civil Procedure §2015.5 states:
Whenever, under any law of this state or under any rule, regulation, order or requirement made pursuant to the law of this state, any matter is required or permitted to be supported, evidenced, established, or proved by the sworn statement, declaration, verification, certificate, oath, or affidavit, in writing of the person making the same, such matter may with like force and effect be supported, evidenced, established or proved by the unsworn statement, declaration, verification, or certificate, in writing of such person which recites that is certified or declared by him or her to be true under penalty of perjury, is subscribed by him or her, and (1), if executed within this state, states the date and place of execution; (2) if executed at any place, within or without this state, states the date of execution and that is so certified or declared under the laws of the State of California. The certification or declaration must be in substantially the following form:
(a) If executed within this state:
“I certify (or declare) under penalty of perjury that the foregoing is true and correct”:
_____________________ _______________________
(Date and Place) (Signature)

For our purposes we need not look any farther than the Notice of Default to find the declaration is not signed under penalty of perjury; as mandated by new Civil Code §2923.5(c). (Blum v. Superior Court (Copley Press Inc.) (2006) 141 Cal App 4th 418, 45 Cal. Reptr. 3d 902 ). The Declaration is merely a form declaration with a check box.

No Personal Knowledge of Declarant
According to Giles v. Friendly Finance Co. of Biloxi, Inc., 199 So. 2nd 265 (Miss. 1967), “an affidavit on behalf of a corporation must show that it was made by an authorized officer or agent, and the officer him or herself must swear to the facts.” Furthermore, in Giles v. County Dep’t of Public Welfare of Marion County (Ind.App. 1 Dist.1991) 579 N.E.2d 653, 654-655 states in pertinent part, “a person who verified a pleading to have personal knowledge or reasonable cause to believe the existence of the facts stated therein.” Here, the Declaration for the Notice of Default by the agent does not state if the agent has personal knowledge and how he obtained this knowledge.
The proper function of an affidavit is to state facts, not conclusions, ¹ and affidavits that merely state conclusions rather than facts are insufficient. ² An affidavit must set forth facts and show affirmatively how the affiant obtained personal knowledge of those facts. ³
Here, The Notice of Default does not have the required agent’s personal knowledge of facts and if the Plaintiff borrower was affirmatively contacted in person or by telephone
to assess the Plaintiff’s financial situation and explore options for the Plaintiff to avoid foreclosure. A simple check box next to the “facts” does not suffice.
Furthermore, “it has been said that personal knowledge of facts asserted in an affidavit is not presumed from the mere positive averment of facts, but rather, a court should be shown how the affiant knew or could have known such facts, and, if there is no evidence from which the inference of personal knowledge can be drawn, then it is
¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬____________________________________________________________________________
¹ Lindley v. Midwest Pulmonary Consultants, P.C., 55 S.W.3d 906 (Mo. Ct. App. W.D. 2001).
² Jaime v. St. Joseph Hosp. Foundation, 853 S.W.2d 604 (Tex. App. Houston 1st Dist. 1993).
³ M.G.M. Grand Hotel, Inc. v. Castro, 8 S.W.3d 403 (Tex. App. Corpus Chrisit 1999).

presumed that from which the inference of personal knowledge can be drawn, then it is presumed that such does not exist.” ¹ The declaration signed by agent does not state anywhere how he knew or could have known if Plaintiff was contacted in person or by telephone to explore different financial options. It is vague and ambiguous if he himself called plaintiff.
This defendant did not adhere to the mandates laid out by congress before a foreclosure can be considered duly perfected. The Notice of Default states,

“That by reason thereof, the present beneficiary under such deed of trust, has executed and delivered to said agent, a written Declaration of Default and Demand for same, and has deposited with said agent such Deed of Trust and all documents evidencing obligations secured thereby, and has declared and does hereby declare all sums secured thereby immediately due and payable and has elected and does hereby elect to cause the trust property to be sold to satisfy the obligations secured thereby.”

However, Defendants do not have and assignment of the deed of trust nor have they complied with 2923.5 or 2923.6 or 2924 the Deed of Trust, nor do they provide any documents evidencing obligations secured thereby. For the aforementioned reasons, the Notice of Default will be void as a matter of law. The pretender lenders a banking on the “tender defense” to save them ie. yes we did not follow the law so sue us and when you do we will claim “tender” Check Mate but that’s not the law.

Recording a False Document
Furthermore, according to California Penal Code § 115 in pertinent part:
(a) Every person who knowingly procures or offers any false or forged instrument to be filed, registered, or recorded in any public office within this state, which instrument, if genuine, might be filed, registered, or recorded under any law of this state or of the United States, is guilty of a felony.

If you say you have a claim, you must prove it. If you say you are the lender, you must prove it. Legislators take notice: Just because bankers give you money doesn’t mean they can change 1000 years of common law, statutory law and constitutional law. It just won’t fly. And if you are a legislator looking to get elected or re-elected, your failure to act on what is now an obvious need to clear title and restore the wealth of your citizens who were cheated and defrauded, will be punished by the votes of your constituents.

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