Tag Archives: 2924

Foreclosure in California

16 Mar

925-957-9797

ISSUE:

Many Californians in default on their mortgage and facing foreclosure have filed quiet title and wrongful foreclosure actions. What is a quiet title action against a lender, and are plaintiffs successful in California?

BRIEF ANSWER:                                                                                                         

            A quiet title action in California to determine the owner of property does not generally allow a mortgage borrower in default on their payments to claim title to the land free of liens. However, the action when combined with a wrongful foreclosure claim is often successful in extending the amount of time a defaulted borrower can remain in the house. While in essence, this is simply prolonging the inevitable, it can give a borrower a temporary feeling of control over their own destiny.

DISCUSSION:

Quiet Title Actions as a Defense to Foreclosure

A cause of action to quiet title seeks to determine adverse claims to real or personal property. (Cal. Code Civ. § 760.020.) The action is commonly commenced by homeowners when a lender wrongfully forecloses on their property. My research has not found a favorable California decision quieting title in a mortgage borrower challenging foreclosure. The filing of quiet title actions only prolongs the amount of time a borrower can remain in a house after defaulting.

Theory behind the current suits

The UCC governs negotiable instruments such as mortgages, and it defines a loan as a transferable, signed document that promises to pay the bearer a sum of money at a future date or on demand. Most mortgages are made by investment banks, who then package many similar loans into a mortgage backed security and sell the securities. To convert the mortgages into stocks, each mortgage note must be destroyed. A mortgage and a stock certificate cannot exist at the same time. This creates a gap in the chain of title, and theoretically making the loan invalid. As a result, homeowners can fight foreclosure through a quiet title action and receive clear title. The current trend to argue a break in chain of title is weak, because a “plaintiff may recover only upon the strength of his or her own title, however, and not upon the weakness of the defendant’s title.” (Ernie v. Trinity Lutheran Church (1959) 51 Cal.2d 702, 706.)

A promissory note is usually secured by a deed of trust in the real property. The trust names the security owner as the beneficiary and a loan servicer as the trustee. A trust is a form of ownership in which the legal title of a property is vested in a trustee, who has equitable duties to hold and manage it for the benefit of the beneficiaries. (Restatement of Trusts, Second, §2 (1959).) The trustee under a valid trust deed has exclusive control over the trust property. Usually, the lender records a deed of trust with the county to secure the loan to the debtor. The deeds identify the trustee, and most often identify Mortgage Electronic Registration Systems (MERS) as the nominal beneficiary.

Challenges to MERS

MERS is a company created by the banking industry to bypass recording statutes and filing fees. MERS records who currently owns the notes on a mortgage. A foreclosure may be brought in the name of MERS, and the trustee may act on behalf of MERS to effectuate a non-judicial foreclosure. MERS may also directly initiate a foreclosure proceeding, and California’s “statutory scheme (§§ 2924–2924k) does not provide for a preemptive suit challenging standing.” (Robinson v. Countrywide Home Loans, Inc., (2011) 199 Cal. App. 4th 42, 46.)

The MERS system of foreclosure has been upheld in California based upon two rationales. First, courts have held that MERS, acting as the agent of the beneficial owner, does not need to prove authorization by the beneficiary to foreclose. (Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 55-56.) Second, contract law legitimizes the system, because recent deeds of trust require that the borrower agree that MERS can proceed with foreclosure in the event of default. (Id. at 1157.)

Procedural Requirements for Plaintiffs

California mortgagors must file in the Superior Court, which has the authority to grant the equitable relief of quieting title in an individual. (Cal. Code Civ. §760.040.) Once a party has filed the action, they must file a notice of pendency with the office of the county recorder. (Id. §762.010(b).) This notice puts all other parties who are claiming the party on notice that the plaintiff is claiming the land as his, and stops any transfers of the property during the lawsuit.

To survive a demurer, A plaintiff must file a verified complaint that includes: (1) A legal description and street address of the subject real property; (2) The title of plaintiff as to which determination is sought and the basis of the title; (3) The adverse claims to the title of the plaintiff against which a determination is sought; (4) The date as of which the determination is sought; and (5) A prayer for the determination of the title of the plaintiff against the adverse claims. It is highly likely that a claim merely alleging that the plaintiff has an interest in the land will not make it past a demurer. (See Mangindin v. Washington Mut. Bank, 637 F. Supp. 2d 700, 712 (N.D. Cal. 2009) (Dismissing claim merely alleging plaintiff had an interest in land foreclosed upon by bank).)

Tender Rule

A plaintiff seeking to quiet title in the face of a foreclosure must allege tender, which is “an unconditional offeror an offer of performance of their obligations under the Note, made in good faith, with the ability and willingness to perform.” The “Tender Rule” is derived from several cases involving disputes between junior and senior lienholders. (See Arnolds Mgmt. Corp. v. Eishen (1984) 158 Cal. App. 3d 575, 580; FPCI RE-HAB 01 v. E & G Investments, Ltd. (1989) 207 Cal.App.3d 1018, 1022.)

The policy behind the rule is that it would be a useless act to set aside a foreclosure sale based upon a procedural defect when a mortgage borrower cannot redeem the property in absence of that defect. (Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 118.) Some courts interpret the Tender Rule to only require that the mortgage borrower tender delinquent pre-foreclosure payments prior to any claim of quiet title. (Id. at 117; Ghervescu v. Wells Fargo Home Mortg., Inc., 2005 WL 6559918.)

Recently, defendants have successfully demurred to plaintiff’s complaints for quiet title for failure to allege valid tender. (Vasquez v. OneWest Bank, FSB (Cal. Ct. App., Nov. 4, 2011, B225624) 2011 WL 5248294; Dupree v. Merrill Lynch Mortg. Lending, Inc. (Cal. Ct. App., Oct. 24, 2011, B225150) 2011 WL 5142051 (Affirming demurrer and denial of leave to amend complaint).)

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

4 Jul

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

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

Fannie Mae Policy Now Admits Loan Not Secured

2 Jun

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

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

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

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

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

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

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

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

Ortiz v. Accredited Home Lenders

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

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

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

ORDER GRANTING MOTION TO DISMISS Doc. No. 7

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

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

I. BACKGROUND

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

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

II. DISCUSSION

A. Legal Standards

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

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

B. Analysis

A. Truth in Lending Act

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Cal. Civ. Code § 1632(b).

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

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

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

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

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

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

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

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

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

E. Quiet Title

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

III. CONCLUSION

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

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

IT IS SO ORDERED.


Opinion Footnotes


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

90% Forclosures Wrongful

1 Jan

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

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

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

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

Causes of Action

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

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

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

Damages Available to Borrower

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

Why Do Wrongful Foreclosures Occur?

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

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

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

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

No lawyer, no law

8 Dec

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

By Howard B. Miller
President, State Bar of California

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

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

No lawyer, no law

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

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

How to Stop Foreclosure

5 Dec

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

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

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

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

Then you have stages:

STAGE 1: No notice of default has been sent.

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

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

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

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

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

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

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

STAGE 2: Notice of Default Received

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

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

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

Stage 4: Judicial State: Served with Process:

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

Stage 5: Sale already occurred

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

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

Same as Stage 5.

Foreclosure Victory For Nor Cal Area Homeowner!

7 Sep

A Sacramento area court ruling against the plaintiff came in an unlawful detainer hearing last Friday. Lenders and servicers are taking notice of the “sale” by trustee that was set aside in favor of a loan modification. Submitted by Steve Shafer

February 5, 2009 / Sacramento California – The Bay Area Superior Court decision and judgment against the plaintiff allows the “sale” by the trustee to be set aside in favor of a loan modification.
Lenders nationwide who originate and service loans know California offers them a “safe haven” from homeowner’s who dispute a recent foreclosure. That means overwhelming odds for anyone in foreclosure who loses their home to a lender in a foreclosure. The borrower becomes a holdover and must respond to an unlawful detainer after their home is lost.

That was not the case for an El Dorado area resident at a recent hearing for an unlawful detainer matter heard in a Placerville County superior court room. The recent victory in court was in an unlawful detainer matter for the defendant Ms. Stella Onyeu and mortgage lender and securities sponsor – AURORA LOAN SERVICES v. STELLA D. ONYEU (case number PCU2008032).

AURORA LOAN SERVICES like so many other lender servicing agents has come under greater scrutiny as of late for questionable business practices. According to its web site Aurora Loan Services is operating as usual. The company is a subsidiary of Lehman Brothers Bank, and not part of the Lehman Brothers Holding Inc. bankruptcy filing.

The case was originally filed in October of last year and shortly thereafter was dismissed when the Plaintiff failed to show at a scheduled hearing. Subsequent motions were filed to vacate the dismissal in favor of a motion to dismiss by the plaintiffs. The matter was heard recently heard again by the same court and earlier mentioned presiding judge. Mark Terbeek is the attorney for the Defendant and Maher Soliman a Juris Pro witness provided case development and court expert testimony.

This judgment for the defendant is monumental given the courts limited jurisdiction related to the lenders sole focus to have the borrower removed from the home. The issues at hand are the legal procedural limitations and high attrition rate for defendants and their attorney’s. The problem is the defendant’s lack of standing for pleading a wrongful foreclosure due to jurisdiction of the court.

So what does this all mean? Many homeowners can find some hope, for the moment, in knowing the otherwise unfriendly California UD courts will now hold some promise for hearing arguments as to the foreclosure and the plaintiffs standing. According to foreclosure and REO sales analyst Brenda Michelson of Nationwide Loan Services “It’s hit or miss at this level of the law and the courts willingness to step outside of its jurisdiction.” The smaller outlying courts seem to me to be more willing to entertain defense arguments that the plaintiff may not be the holder in due course and lacks capacity throughout the foreclosure” Terbeek’s response is that if the plaintiff cannot demonstrate a logical and properly conveyed transfer of the beneficial interest – it is not entitled to possession.

After the foreclosure and conveyance back to the trustee, the homeowner is considered unlawfully occupying the dwelling as a holdover. However, the court ruled that AURORA had in fact violated its duty to show good faith and comply accordingly under the recent California statutes and amendments Power of Sale provision. The presiding judge who heard the matter ordered a judgment against the company allowed for Terbeek to enter a request for all legal fees due.

According to legal expert Soliman, “there are more attorneys willing to now jump into the wrongful foreclosure business and fight the court on the jurisdiction issue. However, it is nearly impossible to rely on the judge and courts at this level”. Soliman is an examiner with Nationwide Loan Services and has engagements in multiple cases throughout California through attorneys such as Terbeek who represented the defendant.

Jurisdiction: An Overview

The term jurisdiction is really synonymous with the word “power” and the sovereignty on behalf of which it functions. Any court possesses jurisdiction over matters only to the extent granted to it by the Constitution, or legislation of a paramount fundamental question for lawyers is whether a given court has jurisdiction to preside over a given case. A jurisdictional question may be broken down into various components including whether there is jurisdiction over the person (in personam), the subject matter, or res (in rem), and to render the particular judgment sought.

An unlawful detainer lawsuit is a “summary” court procedure. This means that the court action moves forward very quickly, and that the time given the tenant to respond during the lawsuit is very short. For example, in most cases, the tenant has only five days to file a written response to the lawsuit after being served with a copy of the landlord’s complaint. Normally, a judge will hear and decide the case within 20 days after the borrower now tenant files an answer.

The question of whether a given court has the power to determine a jurisdictional question is itself a jurisdictional question. Such a legal question is referred to as “jurisdiction to determine jurisdiction.” In order to evict the tenant, the landlord must file an unlawful detainer lawsuit in superior court. In an eviction lawsuit, the lender is the “plaintiff” and the prior borrower and homeowners become an occupant holdover and the “defendant.” Immediately after the trustee sale of the home the conveyance by the trustee is entered in favor of the lender. Until recently in most cases the lender is with in its right foreclose if a borrower has missed a number of payments, failed to make the insurance premiums or not paid the property taxes. “But sometimes a lender is wrong and you can fight foreclosure by challenging the foreclosure process and related documents” said Soliman.

As the new owner of record AURORA HOME LOAN SERVICES must follow procedures no different than that of a landlord in a tenant occupancy dispute. The next step is to remove the homeowner from the subject dwelling. If the tenant doesn’t voluntarily move out after the landlord has properly given the required notice to the tenant, the landlord can evict the tenant. If the lender makes a mistake in its filing of the foreclosure documents a court my throw out the whole foreclosure case. In the case of a wrongful foreclosure the borrower’s claims are limited to affirmative defenses.

Affirmative Defenses

Unlike a judicial proceeding, California lenders need to merely wait out the mandatory term for issuing default notices and ensure it has properly served those notices to the borrower. In other words the hearing and trial taken place in the above referenced matter is not subject to arguments brought by the homeowner for wrongful foreclosure versus the question as to lawful possession of the property by the lender.

California lenders are typically limited to only the defenses a landlord will face when opposed and made subject to claims of wrongfully trying to evict a tenant. Claims such as the Plaintiff has breached the warranty to provide habitable premises, plaintiff did not give proper credit before the notice to pay or quit expired or plaintiff waived, changed, or canceled the notice to quit, or filed the complaint to retaliate against defendant are often completely unrelated to the matter at hand. The courts decision to enforce the provisions of an earlier modification in lieu of a foreclosure sends a major wake up call to the lenders who are under siege to avoid foreclose and be done with mortgage mess affecting United States homeowners. Soliman says the decision is unfortunately not likely to be read into as case precedent for future lawyers and wrongful defendants seeking to introduce our case as an example of a lenders wrongful action.

Soliman goes on to say “it’s both interesting and entertaining to see experienced attorneys who jump in and immediately question the issue of the courts authority. Its reality time when they get to their first hearing and see first hand the problematic issues with jurisdiction.”

Servicing agents are never the less on notice they must be ready to defend themselves when the opportunity to argue the plaintiffs standing are allowed in an unlawful detainer motivate by a foreclosure. Therefore, the debate about what the courts hear will remain open and subject to further scrutiny by the lawyers for both sides and judges who preside over the courts at this level.

Nationwide Loan Servicing is an approved Expert Witness who provides court testimoney in matters concerning wrongful foreclosures, Federal Savings Banks regultory violations and SEC filings for private registrations.

SB 94 and its interferance with the practice

5 Sep

CA SB 94 on Lawyers & Loan Modifications Passes Assembly… 62-10

The California Assembly has passed Senate Bill 94, a bill that seeks to protect homeowners from loan modification scammers, but could end up having the unintended consequence of eliminating a homeowner’s ability to retain an attorney to help them save their home from foreclosure.

The bill, which has an “urgency clause” attached to it, now must pass the State Senate, and if passed, could be signed by the Governor on October 11th, and go into effect immediately thereafter.

SB 94’s author is California State Senator Ron Calderon, the Chair of the Senate Banking Committee, which shouldn’t come as much of a surprise to anyone familiar with the bigger picture. Sen. Calderon, while acknowledging that fee-for-service providers can provide valuable services to homeowners at risk of foreclosure, authored SB 94 to ensure that providers of these services are not compensated until the contracted services have been performed.

SB 94 prevents companies, individuals… and even attorneys… from receiving fees or any other form of compensation until after the contracted services have been rendered. The bill will now go to the Democratic controlled Senate where it is expected to pass.

Supporters of the bill say that the state is literally teeming with con artists who take advantage of homeowners desperate to save their homes from foreclosure by charging hefty fees up front and then failing to deliver anything of value in return. They say that by making it illegal to charge up front fees, they will be protecting consumers from being scammed.

While there’s no question that there have been some unscrupulous people that have taken advantage of homeowners in distress, the number of these scammers is unclear. Now that we’ve learned that lenders and servicers have only modified an average of 9% of qualified mortgages under the Obama plan, it’s hard to tell which companies were scamming and which were made to look like scams by the servicers and lenders who failed to live up to their agreement with the federal government.

In fact, ever since it’s come to light that mortgage servicers have been sued hundreds of times, that they continue to violate the HAMP provisions, that they foreclose when they’re not supposed to, charge up front fees for modifications, require homeowners to sign waivers, and so much more, who can be sure who the scammers really are. Bank of America, for example, got the worst grade of any bank on the President’s report card listing, modifying only 4% of the eligible mortgages since the plan began. We’ve given B of A something like $200 billion and they still claim that they’re having a hard time answering the phones over there, so who’s scamming who?

To make matters worse, and in the spirit of Y2K, the media has fanned the flames of irrationality with stories of people losing their homes as a result of someone failing to get their loan modified. The stories go something like this:

We gave them 1,000. They told us to stop making our mortgage payment. They promised us a principal reduction. We didn’t hear from them for months. And then we lost our house.

I am so sure. Can that even happen? I own a house or two. Walk me through how that happened again, because I absolutely guarantee you… no way could those things happen to me and I end up losing my house over it. Not a chance in the world. I’m not saying I couldn’t lose a house, but it sure as heck would take a damn sight more than that to make it happen.

Depending on how you read the language in the bill, it may prevent licensed California attorneys from requiring a retainer in advance of services being rendered, and this could essentially eliminate a homeowner’s ability to hire a lawyer to help save their home.

Supporters, on the other hand, respond that homeowners will still be able to hire attorneys, but that the attorneys will now have to wait until after services have been rendered before being paid for their services. They say that attorneys, just like real estate agents and mortgage brokers, will now only be able to receive compensation after services have been rendered.

But, assuming they’re talking about at the end of the transaction, there are key differences. Real estate agents and mortgage brokers are paid OUT OF ESCROW at the end of a transaction. They don’t send clients a bill for their services after the property is sold.

Homeowners at risk of foreclosure are having trouble paying their bills and for the most part, their credit ratings have suffered as a result. If an attorney were to represent a homeowner seeking a loan modification, and then bill for his or her services after the loan was modified, the attorney would be nothing more than an unsecured creditor of a homeowner who’s only marginally credit worthy at best. If the homeowner didn’t pay the bill, the attorney would have no recourse other than to sue the homeowner in Small Claims Court where they would likely receive small payments over time if lucky.

Extending unsecured credit to homeowners that are already struggling to pay their bills, and then having to sue them in order to collect simply isn’t a business model that attorneys, or anyone else for that matter, are likely to embrace. In fact, the more than 50 California attorneys involved in loan modifications that I contacted to ask about this issue all confirmed that they would not represent homeowners on that basis.

One attorney, who asked not to be identified, said: “Getting a lender or servicer to agree to a loan modification takes months, sometimes six or nine months. If I worked on behalf of homeowners for six or nine months and then didn’t get paid by a number of them, it wouldn’t be very long before I’d have to close my doors. No lawyer is going to do that kind of work without any security and anyone who thinks they will, simply isn’t familiar with what’s involved.”

“I don’t think there’s any question that SB 94 will make it almost impossible for a homeowner to obtain legal representation related to loan modifications,” explained another attorney who also asked not to be identified. ”The banks have fought lawyers helping clients through the loan modification process every step of the way, so I’m not surprised they’ve pushed for this legislation to pass.”

Proponents of the legislation recite the all too familiar mantra about there being so many scammers out there that the state has no choice but to move to shut down any one offering to help homeowners secure loan modifications that charges a fee for the services. They point out that consumers can just call their banks directly, or that there are nonprofit organizations throughout the state that can help homeowners with loan modifications.

While the latter is certainly true, it’s only further evidence that there exists a group of people in positions of influence that are unfamiliar , or at the very least not adequately familiar with obtaining a loan modification through a nonprofit organization, and they’ve certainly never tried calling a bank directly.

The fact that there are nonprofit housing counselors available, and the degree to which they may or may not be able to assist a given homeowner, is irrelevant. Homeowners are well aware of the nonprofit options available. They are also aware that they can call their banks directly. From the President of the United States and and U.S. Attorney General to the community newspapers found in every small town in America, homeowners have heard the fairy tales about about these options, and they’ve tried them… over and over again, often times for many months. When they didn’t get the desired results, they hired a firm to help them.

Yet, even the State Bar of California is supporting SB 94, and even AB 764, a California Assembly variation on the theme, and one even more draconian because of its requirement that attorneys only be allowed to bill a client after a successful loan modification has been obtained. That means that an attorney would have to guarantee a homeowner that he or she would obtain a modification agreement from a lender or servicer or not get paid for trying. Absurd on so many levels. Frankly, if AB 764 passes, would the last one out of California please turn off the lights and bring the flag.

As of late July, the California State Bar said it was investigating 391 complaints against 141 attorneys, as opposed to nine investigations related to loan modifications in 2008. The Bar hasn’t read anywhere all of the complaints its received, but you don’t have to be a statistician to figure out that there’s more to the complaints that meets the eye. So far the State Bar has taken action against three attorneys and the Attorney General another four… so, let’s see… carry the 3… that’s 7 lawyers. Two or three more and they could have a softball team.

At the federal level they’re still reporting the same numbers they were last spring. Closed 11… sent 71 letters… blah, blah, blah… we’ve got a country of 300 million and at least 5 million are in trouble on their mortgage. The simple fact is, they’re going to have to come up with some serious numbers before I’m going to be scared of bumping into a scammer on every corner.

Looking Ahead…

California’s ALT-A and Option ARM mortgages are just beginning to re-set, causing payments to rise, and with almost half of the mortgages in California already underwater, these homeowners will be unable to refinance and foreclosures will increase as a result. Prime jumbo foreclosure rates are already up a mind blowing 634% as compared with January 2008 levels, according to LPS Applied Analytics.

Clearly, if SB 94 ends up reducing the number of legitimate firms available for homeowners to turn to, everyone involved in its passage is going to be retiring. While many sub-prime borrowers have suffered silently through this horror show of a housing crisis, the ALT-A and Option ARM borrowers are highly unlikely to slip quietly into the night.

There are a couple of things about the latest version of SB 94 that I found interesting:

1. It says that a lawyer can’t collect a fee or any other compensation before serivces have been delivered, but it doesn’t make clear whether attorneys can ask the client to deposit funds in the law firm’s trust account and then bill against thsoe funds as amounts are earned. Funds deposited in a law firm trust account remain the client’s funds, so they’re not a lawyer’s “fees or other compensation”. Those funds are there so that when the fees have been earned, the lawyer doesn’t have to hope his or her bill gets paid. Of course, it also says that an attorney can’t hold any security interest, but money in a trust account a client’s money, the attorney has no lien against it. All of this is a matter of interpretation, of course, so who knows.

2. While there used to be language in both the real estate and lawyer sections that prohibited breaking up services related to a loan modification, in the latest version all of the language related to breaking up services as applied to attorneys has been eliminated. It still applies to real estate licensed firms, but not to attorneys. This may be a good thing, as at least a lawyer could complete sections of the work involved as opposed to having to wait until the very end, which the way the banks have been handling things, could be nine months away.

3. The bill says nothing about the amounts that may be charged for services in connection with a loan modification. So, in the case of an attorney, that would seem to mean that… well, you can put one, two and three together from there.

4. Lawyers are not included in definition of foreclosure consultant. And there is a requirement that new language be inserted in contracts, along the lines of “You don’t have to pay anyone to get a loan modification… blah, blah, blah.” Like that will be news to any homeowner in America. I’ve spoken with hundreds and never ran across one who didn’t try it themselves before calling a lawyer. I realize the Attorney General doesn’t seem to know that, but look… he’s been busy.

Conclusion…

Will SB 94 actually stop con artists from taking advantage of homeowners in distress? Or will it end up only stopping reputable lawyers from helping homeowners, while foreclosures increase and our economy continues its deflationary free fall? Will the California State Bar ever finishing reading the complaints being received, and if they ever do, will they understand what they’ve read. Or is our destiny that the masses won’t understand what’s happening around them until it sucks them under as well.

I surely hope not. But for now, I’m just hoping people can still a hire an attorney next week to help save their homes, because if they can’t… the Bar is going to get a lot more letters from unhappy homeowners.

Countrywide San Diego district attorney v. Countrywide

26 Jul

san deigovscountrywide