Borrower’s “show me the note” argument fails to halt foreclosure

26 May

From: Charles Cox []
Sent: Friday, May 25, 2012 6:38 AM
To: Charles Cox
Subject: Borrower’s "show me the note" argument fails to halt foreclosure

Borrower’s "show me the note" argument fails to halt foreclosure

· Sheppard Mullin Richter & Hampton LLP

· Alejandro E. Moreno and Shannon Petersen


· May 18 2012


In Debrunner v. Deutsche Bank Nat. Trust Co. (Cal.App. 6 Dist., 2012) — Cal.Rptr.3d —-, 2012 WL 883128, the California Court of Appeal affirmed the dismissal of a complaint for wrongful foreclosure with prejudice, holding that a beneficiary under a deed of trust need not possess the original promissory note to commence foreclosure and that a borrower cannot avoid foreclosure based on a technical deficiency without showing actual prejudice.

Plaintiff Debrunner was a private investor who extended credit to two borrowers secured by a second deed of trust on real property. The borrowers had previously obtained a loan from Quick Loans Funding, Inc. Quick Loans assigned the deed of trust and promissory note to Option One Mortgage Corporation, which later assigned them to FV-1, Inc., which later assigned them to Deutsche Bank, which appointed Saxon Mortgage Services, Inc. to service the loan.

The borrowers defaulted. Deutsche Bank recorded a notice of default naming itself as the creditor but providing the contact information for Saxon Mortgage. The plaintiff filed suit to halt the foreclosure, claiming Deutsche Bank had no right to foreclose because it did not physically possess the original promissory note and had not provided the correct contact information.

The Court rejected both arguments. It held that "nothing in the applicable statutes . . . precludes foreclosure when the foreclosing party does not possess the original promissory note." The plaintiff’s attempted reliance on provisions of the California Commercial Code regarding negotiable instruments was misplaced because those provisions did not "displace the detailed, specific, and comprehensive set of legislative procedures … established for nonjudicial foreclosures." The Court also held that, even if the notice of default was defective because it did not provide contact information for Deutsche Bank, the plaintiff did not and could not show prejudice as required to halt the foreclosure.

Cal.App.6th-DeBrunner v. Deutsche Bank.docx

One Response to “Borrower’s “show me the note” argument fails to halt foreclosure”

  1. Phred at 7:49 am #

    Interesting take of California courts citing Fed court decisions to justify an improper decision. When you look at the plain language of the target statute, 2924, you see the words “may conduct a non-judicial foreclosure”. In the Appellate decision, they used the word “initiate”, which implies a power of the beneficiary that the trustee (or beneficiary’s agent) does not possess – the power to declare a default (or forgive the loan, or modify the loan). Even if a default is declared, the election to foreclose is held solely by the beneficiary. Until that election is executed, 2924 is of no legal effect. That is why the word ‘conduct’ is used in 2924 instead of ‘initiate’, as ‘adopted’ by the Appellate Courts.

    The decision references that 2943, which allows request for copy of note and beneficiary statement, was made by homeowner, but the details were glossed over by the Appellate judges on purpose. If the request was properly done and the 21 days to respond elapsed before the notice of default, then the contract provisions of the deed of trust to sue for lack of beneficial interest should have been argued, and the tort under 2943 should displace the questioned non-judicial foreclosure under 2924, because the election to foreclose was not executed by the beneficiary.

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