Tag Archives: 2932.5

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.

MERS and civil code 2932.5 and Bankruptcy code 547 here is how it comes together

26 May

CA Civil Code 2932.5 – Assignment”Where a power to sell real property is
given to a mortgagee, or other encumbrancer, in an instrument intended
to secure the payment of money, the power is part of the security and
vests in any person who by assignment becomes entitled to payment of the
money secured by the instrument. The power of sale may be exercised by
the assignee if the assignment is duly acknowledged and recorded.”

Landmark vs Kesler – While this is a matter of first impression in
Kansas, other jurisdictions have issued opinions on similar and related
issues, and, while we do not consider those opinions binding in the
current litigation, we find them to be useful guideposts in our analysis
of the issues before us.”

“Black’s Law Dictionary defines a nominee as “[a] person designated to
act in place of another, usu. in a very limited way” and as “[a] party
who holds bare legal title for the benefit of others or who receives and
distributes funds for the benefit of others.” Black’s Law Dictionary
1076 (8th ed. 2004). This definition suggests that a nominee possesses
few or no legally enforceable rights beyond those of a principal whom
the nominee serves……..The legal status of a nominee, then, depends
on the context of the relationship of the nominee to its principal.
Various courts have interpreted the relationship of MERS and the lender
as an agency relationship.”

“LaSalle Bank Nat. Ass’n v. Lamy, 2006 WL 2251721, at *2 (N.Y. Sup.
2006) (unpublished opinion) (“A nominee of the owner of a note and
mortgage may not effectively assign the note and mortgage to another for
want of an ownership interest in said note and mortgage by the
nominee.”)”

The law generally understands that a mortgagee is not distinct from a
lender: a mortgagee is “[o]ne to whom property is mortgaged: the
mortgage creditor, or lender.” Black’s Law Dictionary 1034 (8th ed.
2004). By statute, assignment of the mortgage carries with it the
assignment of the debt. K.S.A. 58-2323. Although MERS asserts that,
under some situations, the mortgage document purports to give it the
same rights as the lender, the document consistently refers only to
rights of the lender, including rights to receive notice of litigation,
to collect payments, and to enforce the debt obligation. The document
consistently limits MERS to acting “solely” as the nominee of the
lender.

Indeed, in the event that a mortgage loan somehow separates interests of
the note and the deed of trust, with the deed of trust lying with some
independent entity, the mortgage may become unenforceable.

“The practical effect of splitting the deed of trust from the promissory
note is to make it impossible for the holder of the note to foreclose,
unless the holder of the deed of trust is the agent of the holder of the
note. [Citation omitted.] Without the agency relationship, the person
holding only the note lacks the power to foreclose in the event of
default. The person holding only the deed of trust will never experience
default because only the holder of the note is entitled to payment of
the underlying obligation. [Citation omitted.] The mortgage loan becomes
ineffectual when the note holder did not also hold the deed of trust.”
Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623 (Mo. App.
2009).

“MERS never held the promissory note,thus its assignment of the deed of
trust to Ocwen separate from the note had no force.” 284 S.W.3d at 624;
see also In re Wilhelm, 407 B.R. 392 (Bankr. D. Idaho 2009) (standard
mortgage note language does not expressly or implicitly authorize MERS
to transfer the note); In re Vargas, 396 B.R. 511, 517 (Bankr. C.D. Cal.
2008) (“[I]f FHM has transferred the note, MERS is no longer an
authorized agent of the holder unless it has a separate agency contract
with the new undisclosed principal. MERS presents no evidence as to who
owns the note, or of any authorization to act on behalf of the present
owner.”); Saxon Mortgage Services, Inc. v. Hillery, 2008 WL 5170180
(N.D. Cal. 2008) (unpublished opinion) (“[F]or there to be a valid
assignment, there must be more than just assignment of the deed alone;
the note must also be assigned. . . . MERS purportedly assigned both the
deed of trust and the promissory note. . . . However, there is no
evidence of record that establishes that MERS either held the promissory
note or was given the authority . . . to assign the note.”).

What stake in the outcome of an independent action for foreclosure could
MERS have? It did not lend the money to Kesler or to anyone else
involved in this case. Neither Kesler nor anyone else involved in the
case was required by statute or contract to pay money to MERS on the
mortgage. See Sheridan, ___ B.R. at ___ (“MERS is not an economic
‘beneficiary’ under the Deed of Trust. It is owed and will collect no
money from Debtors under the Note, nor will it realize the value of the
Property through foreclosure of the Deed of Trust in the event the Note
is not paid.”). If MERS is only the mortgagee, without ownership of the
mortgage instrument, it does not have an enforceable right. See Vargas,
396 B.R. 517 (“[w]hile the note is ‘essential,’ the mortgage is only ‘an
incident’ to the note” [quoting Carpenter v. Longan, 16 Wall. 271, 83
U.S. 271, 275, 21 L. Ed 313 (1872)]).

* MERS had no Beneficial Interest in the Note,
* MERS and the limited agency authority it has under the dot does
not continue with the assignment of the mortgage or dot absent a
ratification or a separate agency agreement between mers and the
assignee.
* The Note and the Deed of Trust were separated at or shortly
after origination upon endorsement and negotiation of the note rendering
the dot a nullity
* MERS never has any power or legal authority to transfer the note
to any entity;
* mers never has a beneficial interest in the note and pays
nothing of value for the note.

Bankr. Code 547 provides, among other things, that an unsecured
creditor who had won a race to an interest in the debtor’s property
using the state remedies system within 90 days of the filing of the
bankruptcy petition may have to forfeit its winnings (without
compensation for any expenses it may have incurred in winning the race)
for the benefit of all unsecured creditors. The section therefore
prevents certain creditors from being preferred over others (hence,
section 547 of the Bankruptcy Code is titled “Preferences).” An
additional effect of the section (and one of its stated purposes) may be
to discourage some unsecured creditors from aggressively pursuing the
debtor under the state remedies system, thus affording the debtor more
breathing space outside bankruptcy, for fear that money spent using the
state remedies system will be wasted if the debtor files a bankruptcy
petition.

. Bankr. Code 547(c) provides several important exceptions to the
preference avoidance power.

Bankr. Code 547 permits avoidance of liens obtained within the 90 day
(or one year) period: the creation of a lien on property of the debtor,
whether voluntary, such as through a consensual lien, or involuntary,
such as through a judicial lien, would, absent avoidance, have the same
preferential impact as a transfer of money from a debtor to a creditor
in payment of a debt. If the security interest was created in the
creditor within the 90 day window, and if other requirements of section
547(b) are satisfied, the security interest can be avoided and the real
property sold by the trustee free of the security interest (subject to
homestead exemption). All unsecured creditors of the debtor, including
the creditor whose lien has been avoided, will share, pro rata, in the
distribution of assets of the debtor, including the proceeds of the sale
of the real estate

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.

Fabrication of Documents: MERS GAP Illuminated

23 Dec

Posted on July 30, 2009 by livinglies

Another example of why a TILA audit is grossly inadequate. A forensic audit is required covering all bases. Although dated, this article picks up on a continuing theme that demonstrates the title defect, the questionable conduct of pretender lenders and the defects in the foreclosure process when you let companies with big brand names bluff the system. The MERS GAP arises whether MERS is actually the nominee on the deed of trust (or mortgage deed) or not. It is an announcement that there will be off record transactions between parties who have no interest in the loan but who will assert such an interest once they have successfullly fabricated documents, had someone without authority sign them, on behalf of an entity with no real beneficial interest or other economic interest in the loan, and then frequently notarized by someone in another state. we have even seen documents notarized in blank and forged signatures of borrowers on loan closing papers.

NYTimes.com
Lender Tells Judge It ‘Recreated’ Letters
Tuesday January 8, 2008 11:38 pm ET
By GRETCHEN MORGENSON
The Countrywide Financial Corporation fabricated documents related to the bankruptcy case of a Pennsylvania homeowner, court records show, raising new questions about the business practices of the giant mortgage lender at the center of the subprime mess.The documents — three letters from Countrywide addressed to the homeowner — claimed that the borrower owed the company $4,700 because of discrepancies in escrow deductions. Countrywide’s local counsel described the letters to the court as “recreated,” raising concern from the federal bankruptcy judge overseeing the case, Thomas P. Agresti.

“These letters are a smoking gun that something is not right in Denmark,” Judge Agresti said in a Dec. 20 hearing in Pittsburgh.

The emergence of the fabricated documents comes as Countrywide confronts a rising tide of complaints from borrowers who claim that the company pushed them into risky loans. The matter in Pittsburgh is one of 300 bankruptcy cases in which Countrywide’s practices have come under scrutiny in western Pennsylvania.

Judge Agresti said that discovery should proceed so that those involved in the case, including the Chapter 13 trustee for the western district of Pennsylvania and the United States trustee, could determine how Countrywide’s systems might generate such documents.

A spokesman for the lender, Rick Simon, said: “It is not Countrywide’s policy to create or ‘fabricate’ any documents as evidence that they were sent if they had not been. We believe it will be shown in further discovery that the Countrywide bankruptcy technician who generated the documents at issue did so as an efficient way to convey the dates the escrow analyses were done and the calculations of the payments as a result of the analyses.”

The documents were generated in a case involving Sharon Diane Hill, a homeowner in Monroeville, Pa. Ms. Hill filed for Chapter 13 bankruptcy protection in March 2001 to try to save her home from foreclosure.

After meeting her mortgage obligations under the 60-month bankruptcy plan, Ms. Hill’s case was discharged and officially closed on March 9, 2007. Countrywide, the servicer on her loan, did not object to the discharge; court records from that date show she was current on her mortgage.

But one month later, Ms. Hill received a notice of intention to foreclose from Countrywide, stating that she was in default and owed the company $4,166.

Court records show that the amount claimed by Countrywide was from the period during which Ms. Hill was making regular payments under the auspices of the bankruptcy court. They included “monthly charges” totaling $3,840 from November 2006 to April 2007, late charges of $128 and other charges of almost $200.

A lawyer representing Ms. Hill in her bankruptcy case, Kenneth Steidl, of Steidl and Steinberg in Pittsburgh, wrote Countrywide a few weeks later stating that Ms. Hill had been deemed current on her mortgage during the period in question. But in May, Countrywide sent Ms. Hill another notice stating that her loan was delinquent and demanding that she pay $4,715.58. Neither Mr. Steidl nor Julia Steidl, who has also represented Ms. Hill, returned phone calls seeking comment.

Justifying Ms. Hill’s arrears, Countrywide sent her lawyer copies of three letters on company letterhead addressed to the homeowner, as well as to Mr. Steidl and Ronda J. Winnecour, the Chapter 13 trustee for the western district of Pennsylvania.

The Countrywide letters were dated September 2003, October 2004 and March 2007 and showed changes in escrow requirements on Ms. Hill’s loan. “This letter is to advise you that the escrow requirement has changed per the escrow analysis completed today,” each letter began.

But Mr. Steidl told the court he had never received the letters. Furthermore, he noticed that his address on the first Countrywide letter was not the location of his office at the time, but an address he moved to later. Neither did the Chapter 13 trustee’s office have any record of receiving the letters, court records show.

When Mr. Steidl discussed this with Leslie E. Puida, Countrywide’s outside counsel on the case, he said Ms. Puida told him that the letters had been “recreated” by Countrywide to reflect the escrow discrepancies, the court transcript shows. During these discussions, Ms. Puida reduced the amount that Countrywide claimed Ms. Hill owed to $1,500 from $4,700.

Under questioning by the judge, Ms. Puida said that “a processor” at Countrywide had generated the letters to show how the escrow discrepancies arose. “They were not offered to prove that they had been sent,” Ms. Puida said. But she also said, under questioning from the court, that the letters did not carry a disclaimer indicating that they were not actual correspondence or that they had never been sent.

A Countrywide spokesman said that in bankruptcy cases, Countrywide’s automated systems are sometimes overridden, with technicians making manual adjustments “to comply with bankruptcy laws and the requirements in the jurisdiction in which a bankruptcy is pending.” Asked by Judge Agresti why Countrywide would go to the trouble of “creating a letter that was never sent,” Ms. Puida, its lawyer, said she did not know.

“I just, I can’t get over what I’m being told here about these recreations,” Judge Agresti said, “and what the purpose is or was and what was intended by them.”

Ms. Hill’s matter is one of 300 bankruptcy cases involving Countrywide that have come under scrutiny by Ms. Winnecour, the Chapter 13 trustee in Pittsburgh. On Oct. 9, she asked the court to sanction Countrywide, contending that the company had lost or destroyed more than $500,000 in checks paid by homeowners in bankruptcy from December 2005 to April 2007.

Ms. Winnecour said in court filings that she was concerned that even as Countrywide had misplaced or destroyed the checks, it levied charges on the borrowers, including late fees and legal costs. A spokesman in her office said she would not comment on the Hill case.

O. Max Gardner III, a lawyer in North Carolina who represents troubled borrowers, says that he routinely sees lenders pursue borrowers for additional money after their bankruptcies have been discharged and the courts have determined that the default has been cured and borrowers are current. Regarding the Hill matter, Mr. Gardner said: “The real problem in my mind when reading the transcript is that Countrywide’s lawyer could not explain how this happened.”

Filed under: CDO, CORRUPTION, Eviction, GTC | Honor, Investor, Mortgage, bubble, currency, foreclosure, securities fraud | Tagged: borrower, countrywide, disclosure, foreclosure defense, foreclosure offense, fraud, rescission, RESPA, TILA audit, trustee
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