Tag Archives: Mortgage modification

wrongful forecosure Other Jurisdictions

16 Mar

Other Jurisdictions

Contrary to California’s ruling in Gomes, a MERS has come under fire in Utah. In Harvey v. Garbett Mortgage, Utah 3rd Dist. Case No. 100907587 (2010) (unpublished) (Herinafter Harvey),  quiet title action resulted in a deed clear of any liens because the trustee, the legal title holder, did not have any idea who the beneficiary was, did not have physical possession of the mortgage note, and did not know whether a split of the note and trust deed occurred. The plaintiff quickly sold the property after the ruling, and thus has no interest in the land. The loan is now unsecured, and the plaintiff is still liable to the lender to pay the debt. An interesting procedural note about the Harvey case is that the plaintiff did not name MERS as a defendant in this case, even though MERS was the nominal beneficiary, because MERS did not have any actual interest in the property. However, this strategy would not be successful in California, because MERS has standing to foreclose, has a statutory created interest in the land, and a quiet title proceeding is final and binding only upon named defendants.

CONCLUSION:

In California, a quiet title action brought by a mortgage borrower in default against a lender will not result in free property. Courts quickly dismiss quiet title actions without any allegation of wrongful practice by the lender. However, a quiet title action in conjunction with a claim of wrongful foreclosure can allow a homeowner stay in their house for an extended period. A debtor in receipt of a notice of default must act quickly if they want to stay in their home. The first steps of filing a complaint and applying for an injunction require technical legal knowledge and sharpened persuasive ability; two characteristics that cannot be learned by the homeowner fast enough to prevent eviction. The homeowner should seek counsel from an experienced attorney regarding the possible benefits and costs of offensive legal action

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).)

Qusetions I am being asked about the Mass Joinder and Kaslow and Kramer and Mitchell Stien

25 Aug

Attorney’s Frequently Asked Questions

1 Who is Mitchell J. Stein

2 Who is Philip A. Kramer

3 Lead Attorney Phillip A Kramer Introduces The Lawsuit(s)

4 Can I get a local lawyer to sue my lender or do a lawsuit myself?

5 What are Attorney Phillip A Kramer’s qualifications?

6 How do I know if my loan is the type that can join the suit?

7 What are my possible outcomes if I become a Named Plaintiff

8 What is MERS and why is it illegal and fraudulent?

9 What is the difference between Loan Modification and this Litigation?

10 What documents do I need to provide?

11 What is the flow of communication between my attorney and myself?

12 Should I continue to make my mortgage payments if I am accepted as a plaintiff on this suit?

13 What if I’m dealing with a pending foreclosure?

14 What about those annoying calls from my lender(s)?

15 How long until I can expect resolution?

16 What is the motivation behind this law suit?

17 In a nutshell, what did the banks do wrong?

18 How did this whole mess happen?

19 What is Securitization?

20 Litigation Verses Modification In Table Format

Who Is Mitchell J Stein?
http://members.calbar.ca.gov/fal/Member/Detail/121750

Who Is Philip A Kramer?

http://members.calbar.ca.gov/search/member_detail.aspx?x=113969

Lead Attorney Phillip A Kramer Introduces The Lawsuit(s)

Can I get a local lawyer to sue my lender or do a lawsuit myself?

What are Attorney Phillip A Kramer’s qualifications?

How do I know if my loan is the type that can join the suit?

What are my possible outcomes if I become a Named Plaintiff

What is MERS and why is it illegal and fraudulent?

What is the difference between Loan Modification and this Litigation?

What documents do I need to provide?
What is the flow of communication between my attorney and myself?

Should I continue to make my mortgage payments
if I am accepted as a plaintiff on this suit?

What if I’m dealing with a pending foreclosure?

What about those annoying calls from my lender(s)?

How long until I can expect resolution?

What is the motivation behind this law suit?

In a nutshell, what did the banks do wrong?

How Did This Whole Mess Happen?

The Breakdown

To put this in perspective…the banks got greedy, really greedy. They were not satisfied with just making the 6% interest on your mortgage, they wanted more. So they chopped up their home loan portfolios and packaged them into “mortgage backed securities” (MBS) that could then be sold to Wall Street investors for even bigger profits. The only problem was, Wall Street had a huge appetite for these MBS’s and could not get enough of them. They kept demanding more of them from the banks so they did everything in their power to churn more out but unfortunately they took time to package and properly securitize. What happened next is where they went wrong. The banks decided to cut corners and avoid two critical steps in the securitization process so they could speed up the funding of these loans from the standard 45 – 60 days to as quick as 4 to 5 days. We all know time is money on Wall Street right? They committed this fraud knowingly and just kept doing it, over and over again 62 million times as shown on all of the documents being currently presented to the courts. The banks left their fingerprints on the gun, providing homeowners with the legal leverage needed to expose this fraud and use it to save their homes from imminent foreclosure.

The question is….will you choose to take action like so many have already done or will you sit back and wait to see what happens? The banks are counting on you doing nothing and going quietly? Become the “squeaky wheel” – show them you are serious about defending your home!

Securitization Explained

The Alphabet Problem – The Pooling and Servicing Agreement

The Pooling and Servicing Agreement (PSA) is the document that actually creates a residential mortgage backed securitized trust and establishes the obligations and authority of the Master Servicer and the Primary Servicer. The PSA also establishes that mandatory rules and procedures for the sales and transfers of the mortgages and mortgage notes from the originator’s to the Trust. It is this unbroken chain of assignments and negotiations that creates what we have called “The Alphabet Problem.”

In order to understand the “Alphabet Problem,” you must keep in mind that the primary purpose of securitization is to make sure the assets (e.g., mortgage notes) are both FDIC and Bankruptcy “remote” from the originator. As a result, the common structures seek to create at least two “true sales” between the originator and the Trust. You therefore have in the most basic securitized structure the originator, the sponsor, the depositor and the Trust. We refer to these parties as the A (originator), B (sponsor), C (depositor) and D (Trust) alphabet players. The other primary but non-designated player in my alphabet game is the Master Document Custodian for the Trust. The MDC is entrusted with the physical custody of all of the “original” notes and mortgages and the assignment, sales and purchase agreements. The MDC must also execute representations and attestations that all of the transfers really and truly occurred “on-time” and in the required “order” and that “true sales” occurred at each link in the chain. Section 2.01 of most PSAs includes the mandatory conveyancing rules for the Trust and the representations and warranties. The basic terms of this Section of the standard PSA is set-forth below:

The complete inability of the mortgage servicers and the Trusts to produce such unbroken chains of proof along with the original documents is the genesis for all of the recent court rulings. One would think that a simple request to the Master Document Custodian would solve these problems. However, a review of the cases reveals a massive volume of transfers and assignments executed long after the “closing date” for the Trust from the “originator” directly to the “trust.” We refer to these documents as “A to D” transfers and assignments. There are some serious problems with the A to D documents. First, at the time these documents are executed the A party has nothing to sell or transfer since the PSA provides such a sale and transfer occurred years ago. Second, the documents completely circumvent the primary objective of securitization by ignoring the “true sales” to the Sponsor (the B party) and the Depositor (the C party). In a true securitization, you would never have any direct transfers (A to D) from the originator to the trust. Third, these A to D transfers are totally inconsistent with the representations and warranties made in the PSA to the Securities and Exchange Commission and to the holders of the bonds (the “Certificate holders”) issued by the Trust. Fourth, in many cases the A to D documents are executed by parties who are not employed by the originator but who claim to have “signing authority” or some type of “agency authority” from the originator. Finally, in many of these A to D document cases the originator is legally defunct at the time the document is in fact signed or the document is signed with a current date but then states that it has an “effective date” that was one or two years earlier. Hence, this is what we call the Alphabet Problem. In the eyes of the courts and millions of homeowners nationwide, all of this spells out the word FRAUD, and there is no legal defense for the lender on this.

editors comment

THEY COULD HAVE A LEGITIMATE CAUSE OF ACTION.
THE BIG FIVE LENDERS SAT AROUND A TABLE SOMEWHERE AND PLANNED FOR THE INFUSION OF CAPITAL AND THE PUMPING OF THE REAL ESTATE MARKET IN AN UNPRECEDENTED AMOUNT. SEE THE DOCUMENTARY “INSIDE JOB” ACADEMY AWARD WINNER FOR A DOCUMENTARY. AT SOME TIME THEY KNEW THAT THEY WHERE GOING TO STOP THE MUSIC AND THERE WOULD BE NO CHAIRS TO SIT IN ONCE THE MUSIC STOPPED.
THE KRAMER LAWSUIT IS ABOUT THIS FRAUD PERPETRATED ON THE AMERICAN TAXPAYER. THE PROBLEM IS IT WAS SOLD AS A FORECLOSURE DEFENSE METHOD WHICH IT IS NOT. THE OTHER PROBLEM IS THAT AN ATTORNEY NEEDS TO HAVE A RELATIONSHIP WITH HIS CLIENT TO DIRECTLY REPRESENT THE CLIENTS INTEREST. WITH OVER 10,000 CLIENTS AND 55 MILLION IN FEES THIS WOULD BE IMPOSSIBLE TASK. I BELIEVE THIS IS WHERE THE FALSE ADVERTISING ISSUE PRESENTS ITSELF.

TERRY MABRY et al., opinion 2923.5 Cilvil code

7 Jun

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

TERRY MABRY et al.,

Petitioners,

v.

THE SUPERIOR COURT OF ORANGE COUNTY,

Respondent;

AURORA LOAN SERVICES, et al.,

Real Parties in Interest.

G042911

(Super. Ct. No. 30-2009-003090696)

O P I N I O N

Original proceedings; petition for a writ of mandate to challenge an order of the Superior Court of Orange County, David C. Velazquez, Judge. Writ granted in part and denied in part.
Law Offices of Moses S. Hall and Moses S. Hall for Petitioners.
No appearance for Respondent.
Akerman Senterfitt, Justin D. Balser and Donald M. Scotten for Real Party in Interest Aurora Loan Services.
McCarthy & Holthus, Matthew Podmenik, Charles E. Bell and Melissa Robbins Contts for Real Party in Interest Quality Loan Service Corporation.
Bryan Cave, Douglas E. Winter, Christopher L. Dueringer, Sean D. Muntz and Kamae C. Shaw for Amici Curiae Bank of America and BAC Home Loans Servicing on behalf of Real Parties in Interest.
Wright, Finlay & Zak, Thomas Robert Finlay and Jennifer A. Johnson for Amici Curiae United Trustee’s Association and California Mortgage Association.
Leland Chan for Amicus Curiae California Bankers Association.

I. SUMMARY
Civil Code section 2923.5 requires, before a notice of default may be filed, that a lender contact the borrower in person or by phone to “assess” the borrower’s financial situation and “explore” options to prevent foreclosure. Here is the exact, operative language from the statute: “(2) A mortgagee, beneficiary, or authorized agent shall 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.” There is nothing in section 2923.5 that requires the lender to rewrite or modify the loan.
In this writ proceeding, we answer these questions about section 2923.5, also known as the Perata Mortgage Relief Act :
(A) May section 2923.5 be enforced by a private right of action? Yes. Otherwise the statute would be a dead letter.
(B) Must a borrower tender the full amount of the mortgage indebtedness due as a prerequisite to bringing an action under section 2923.5? No. To hold otherwise would defeat the purpose of the statute.
(C) Is section 2923.5 preempted by federal law? No — but, we must emphasize, it is not preempted because the remedy for noncompliance is a simple postponement of the foreclosure sale, nothing more.
(D) What is the extent of a private right of action under section 2923.5? To repeat: The right of action is limited to obtaining a postponement of an impending foreclosure to permit the lender to comply with section 2923.5.
(E) Must the declaration required of the lender by section 2923.5, subdivision (b) be under penalty of perjury? No. Such a requirement is not only not in the statute, but would be at odds with the way the statute is written.
(F) Does a declaration in a notice of default that tracks the language of section 2923.5, subdivision (b) comply with the statute, even though such language does not on its face delineate precisely which one of the three categories set forth in the declaration applies to the particular case at hand? Yes. There is no indication that the Legislature wanted to saddle lenders with the need to “custom draft” the statement required by the statute in notices of default.
(G) If a lender did not comply with section 2923.5 and a foreclosure sale has already been held, does that noncompliance affect the title to the foreclosed property obtained by the families or investors who may have bought the property at the foreclosure sale? No. The Legislature did nothing to affect the rule regarding foreclosure sales as final.
(H) In the present case, did the lender comply with section 2923.5? We cannot say on this record, and therefore must return the case to the trial court to determine which of the two sides is telling the truth. According to the lender, the borrowers themselves initiated a telephone conversation in which foreclosure-avoidance options were discussed, and there were many, many phone calls to the borrowers to attempt to discuss foreclosure-avoidance options. According to the borrowers, no one ever contacted them about nonforeclosure options. The trial judge, however, never reached this conflict in the facts, because he ruled strictly on legal grounds: namely (1) that section 2923.5 does not provide for a private right of action and (2) section 2923.5 is preempted by federal law. As indicated, we have concluded otherwise as to those two issues.
(I) Can section 2923.5 be enforced in a class action in this case? Not under these facts. The operation of section 2923.5 is highly fact-specific, and the details as to what might, or might not, constitute compliance can readily vary from lender to lender and borrower to borrower.
II. BACKGROUND
In December 2006, Terry and Michael Mabry refinanced the loan on their home in Corona from Paul Financial, borrowing about $700,000. In April 2008, Paul Financial assigned to Aurora Loan Services the right to service the loan. In this opinion, we will treat Aurora as synonymous with the lender and use the terms interchangeably.
According to the lender, in mid-July 2008 — before the Mabrys missed their August 2008 loan payment — the couple called Aurora on the telephone to discuss the loan with an Aurora employee. The discussion included mention of a number of options to avoid foreclosure, including loan modification, short sale, deed-in-lieu of foreclosure, and even a special forbearance. The Aurora employee sent a letter following up on the conversation. The letter explained the various options to avoid foreclosure, and asked the Mabrys to forward current financial information to Aurora so it could consider the Mabrys for these options.
According to the lender, the Mabrys missed their September 2008 payment as well, and mid-month Aurora sent them another letter describing ways to avoid foreclosure. Aurora employees called the Mabrys “many times” to discuss the situation. The Mabrys never picked up.
It is undisputed that later in September, the Mabrys filed Chapter 11 bankruptcy and Aurora did not contact the Mabrys while the bankruptcy was pending. (See 11 U.S.C. § 362 [automatic stay].) The Mabrys had their Chapter 11 case dismissed, however, in late March 2009.
According to the lender, Aurora once again began trying to call the Mabrys, calling them “numerous times,” including “three times on different days.” Meanwhile, in mid-April the Mabrys sent an authorization to discuss the loan with their lawyers.
According to the lender, finally, in June, the Mabrys sent two faxes to Aurora, the aggregate effect of which was to propose a short sale to the Mabrys’ attorney, Moses S. Hall, for $350,000. If accepted, the short sale would have meant a loss of over $400,000 on the loan. Aurora rejected that offer, and an attorney in Hall’s law office proposed a sale price of $425,000, which would have meant a loss to the lender of about $340,000.
It is undisputed that on June 18, 2009, Aurora recorded a notice of default. The notice of default used this (obviously form) language: “The Beneficiary or its designated agent declares that it has contacted the borrower, tried with due diligence to contact the borrower as required by California Civil Code section 2923.5, or the borrower has surrendered the property to the beneficiary or authorized agent, or is otherwise exempt from the requirements of section 2923.5.” Aurora sent six copies of the recorded notice of default to the Mabrys’ home by certified mail, and the certifications showed they were delivered.
It is also undisputed that on October 7, the Mabrys filed a complaint in Orange County Superior Court based on Aurora’s alleged failure to comply with section 2923.5.
According to the borrowers, no one had ever contacted them about their foreclosure options. Michael Mabry stated the following in his declaration: “We have never been contacted by Aurora nor [sic] any of its agents in person, by telephone or by first class mail to explore options for us to avoid foreclosure as required in CC § 2923.5.”
The complaint sought a temporary restraining order to prevent the foreclosure sale then scheduled just a week away, on October 14, 2009. Based on the allegation of no contact, the trial court issued a temporary restraining order, and scheduled a hearing for October 20.
But exactly one week before the October 20 hearing, the Mabrys filed an amended complaint, this one specifically adding class action allegations and seeking injunctive relief for an entire class. This new filing came with another request for a temporary restraining order, which was also granted, with a hearing on that temporary restraining order scheduled for October 27 (albeit the order was directed at Aurora only).
The first restraining order was vacated on October 20, the second on October 27. The trial judge did not, however, resolve the conflict in the facts presented by the pleadings. Rather he concluded: (1) the action is preempted by federal law; (2) there is no private right of action under section 2923.5 — the statute can only be enforced by members of pooling and servicing agreements; and (3) the Mabrys were required to at least tender all arrearages to enjoin any foreclosure proceedings.
The Mabrys filed a motion for reconsideration and a third request for a restraining order based on supposedly new law. The new law was a now review-granted Court of Appeal opinion which, let us merely note here, appears to have been quite off-point in regards to any issue which the trial judge had just decided. So it is not surprising that the requested restraining order was denied. The foreclosure sale was now scheduled for November 30, 2009. Six days before that, though, the Mabrys filed this writ proceeding, and two days later this court stayed all proceedings. We invited amicus curiae to give their views on the issues raised by the petition, and subsequently scheduled an order to show cause to consider those issues.
III. DISCUSSION
A. Private Right of Action? Yes
1. Preliminary Considerations
A private right of action may inhere within a statute, otherwise silent on the point, when such a private right of action is necessary to achieve the statute’s policy objectives. (E.g., Cannon v. University of Chicago (1979) 441 U.S. 677, 683 [implying private right of action into Title IX of the Civil Rights Act because such a right was necessary to achieve the statute’s policy objectives]; Basic Inc. v. Levinson (1988) 485 U.S. 224, 230-231 [implying private right of action to enforce securities statute].)
That is, the absence of an express private right of action is not necessarily preclusive of such a right. There are times when a private right of action may be implied by a statute. (E.g., Siegel v. American Savings & Loan Assn. (1989) 210 Cal.App.3d 953, 966 [“Before we reach the issue of exhaustion of administrative remedies, we must determine, therefore, whether plaintiffs have an implied private right of action under HOLA.”].)
California courts have, of recent date, looked to Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287 (Moradi-Shalal) for guidance as to whether there is an implied private right of action in a given statute. In Moradi-Shalal, for example, the presence of a comprehensive administrative means of enforcement of a statute was one of the reasons the court determined that there was no private right of action to enforce a statute (Ins. Code, § 790.03, subd. (h)) regulating general insurance industry practices. (See Moradi-Shalal, supra, 46 Cal.3d at p. 300.)
There is also a pre-Moradi Shalal approach, embodied in Middlesex Ins. Co. v. Mann (1981) 124 Cal.App.3d 558, 570 (Middlesex). (The Middlesex opinion itself copied the idea from the Restatement Second of Torts, section 874A.) The approach looks to whether a private remedy is “appropriate” to further the “purpose of the legislation” and is “needed to assure the effectiveness of the provision.” (Middlesex, supra, 124 Cal.App.3d at p. 570.)
Obviously, where the two approaches conflict, the one used by our high court in Moradi-Shalal trumps the Middlesex approach. But we may note at this point that as regards section 2923.5, there is no alternative administrative mechanism to enforce the statute. By contrast, in Moradi-Shalal, there was an existing administrative mechanism at hand (by way of the Insurance Commissioner) available to enforce section 790.03, subdivision (h) of the Insurance Code.
There are other corollary principles as well.
First, California courts, quite naturally, do not favor constructions of statutes that render them advisory only, or a dead letter. (E.g., Petropoulos v. Department of Real Estate (2006) 142 Cal.App.4th 554, 567; People v. Stringham (1988) 206 Cal.App.3d 184, 197.) Our colleagues in Division One of this District nicely summarized this point in Goehring v. Chapman University (2004) 121 Cal.App.4th 353, 375: “The question of whether a regulatory statute creates a private right of action depends on legislative intent . . . . In determining legislative intent, ‘[w]e first examine the words themselves because the statutory language is generally the most reliable indicator of legislative intent . . . . The words of the statute should be given their ordinary and usual meaning and should be construed in their statutory context. . . . These canons generally preclude judicial construction that renders part of the statute “meaningless or inoperative.”’” (Italics added.)
Second, statutes on the same subject matter or of the same subject should be construed together so that all the parts of the statutory scheme are given effect. (Lexin v. Superior Court (2010) 47 Cal.4th 1050, 1090-1091.) This canon is particularly important in the case before us, where there is an enforcement mechanism available at hand to enforce section 2923.5, in the form, as we explain below, of section 2924g. Ironically though, the enforcement mechanism at hand, in direct contrast to the one in Moradi-Shalal, is one that strongly implies individual enforcement of the statute.
Third, historical context can also shed light on whether the Legislature intended a private right of action in a statute. As noted by one federal district court that has found a private right of action in section 2923.5, the fact that a statute was enacted as an emergency statute is an important factor in determining legislative intent. (See Ortiz v. Accredited Home Lenders, Inc. (S.D. 2009) 639 F.Supp.2d 1159, 1166 [agreeing with argument that “the California legislature would not have enacted this ‘urgency’ legislation, intended to curb high foreclosure rates in the state, without any accompanying enforcement mechanism”]; cf. County of San Diego v. State of California (2008) 164 Cal.App.4th 580, 609 [admitting that private right of action might exist, even if the Legislature did not imply one, if “‘compelling reasons of public policy’” required “judicial recognition of such a right”].) Section 2923.5 was enacted in 2008 as a manifestation of a felt need for urgent action in the midst of a cascading torrent of foreclosures.
Finally, of course, there is recourse to legislative history. Alas, in this case, there is silence on the matter as regards the existence of a private right of action in the final draft of the statute, and we have been cited to nothing in the history that suggests a clear legislative intent one way or the other. (See generally J.A. Jones Construction Co. v. Superior Court (1994) 27 Cal.App.4th 1568, 1575 (J.A. Jones) [emphasizing importance of clear intent appearing in legislative history].) To be sure, as we were reminded at oral argument, an early version of section 2923.5 had an express provision for a private right of action and that provision did not make its way into the final version of the statute. And we recognize that this factor suggests the Legislature may not have wanted to have section 2923.5 enforced privately.
On the other hand, the bottom line was an outcome of silence, not a clear statement that there should be no individual enforcement. And silence, as this court pointed out in J.A. Jones, has its own implications. There, we cited Professor Eskridge’s work on statutory interpretation (see Eskridge, The New Textualism (1990) 37 U.C.L.A. L.Rev. 621, 670-671 (hereinafter “Eskridge on Textualism”)) to recognize that ambiguity in a statute may itself be the result of both sides in the legislative process agreeing to let the courts decide a point: “[I]f there is ambiguity it is because the legislature either could not agree on clearer language or because it made the deliberate choice to be ambiguous — in effect, the only ‘intent’ is to pass the matter on to the courts.” (J.A. Jones, supra, 27 Cal. App.4th at p. 1577.) As Professor Eskridge put it elsewhere in his article: “The vast majority of the Court’s difficult statutory interpretation cases involve statutes whose ambiguity is either the result of deliberate legislative choice to leave conflictual decisions to agencies or the courts.” (Eskridge on Textualism, supra, 37 UCLA L.Rev. at p. 677.)
We have a concrete example in the case at hand. Amicus curiae, the California Bankers Association, asserts that if section 2923.5 had included an express right to a private right of action, the association would have vociferously opposed the legislation. Let us accept that as true. But let us also accept as a reasonable premise that the sponsors of the bill (2008, Senate Bill No. 1137) would have vociferously opposed the legislation if it had an express prohibition on individual enforcement. The point is, the bankers did not insist on language expressly or even impliedly precluding a private right of action, or, if they did, they didn’t get it. The silence is consonant with the idea that section 2923.5 was the result of a legislative compromise, with each side content to let the courts struggle with the issue.
With these observations, we now turn to the language, structure and function of the statute at issue.
2. Operation of Section 2923.5
Section 2923.5 is one of a series of detailed statutes that govern mortgages that span sections 2920 to 2967. Within that series is yet another long series of statutes governing rules involving foreclosure. This second series goes from section 2924, and then follows with sections 2924a through 2924l. (There is no section 2924m . . . yet.)
Section 2923.5 concerns the crucial first step in the foreclosure process: The recording of a notice of default as required by section 2924. (Just plain section 2924 — this one has no lower case letter behind it.)
The key text of section 2923.5 — “key” because of the substantive obligation it imposes on lenders — basically says that a lender cannot file a notice of default until the lender has contacted the borrower “in person or by telephone.” Thus an initial form letter won’t do. To quote the text directly, lenders must contact the borrower by phone or in person to “assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.” The statute, of course, has alternative provisions in cases where the lender tries to contact a borrower, and the borrower simply won’t pick up the phone, the phone has been disconnected, the borrower hides or otherwise evades contact.
The contrast between section 2923.5 and one of its sister-statutes, section 2923.6, is also significant. By its terms, section 2923.5 operates substantively on lenders. They must do things in order to comply with the law. In Hohfeldian language, it both creates rights and corresponding obligations.
But consider section 2923.6, which does not operate substantively. Section 2923.6 merely expresses the hope that lenders will offer loan modifications on certain terms. By contrast, section 2923.5 requires a specified course of action. (There is a reason for the difference, as we show in part III.C., dealing with federal preemption. In a word, to have required loan modifications would have run afoul of federal law.)
As noted above, other steps in the foreclosure process are set forth in sections 2924a through 2924l. The topic of the postponement of foreclosure sales is addressed in section 2924g.
Subdivision (c)(1)(A) of section 2924g sets forth the grounds for postponements of foreclosure sales. One of those grounds is the open-ended possibility that any court of competent jurisdiction may issue an order postponing the sale. Section 2923.5 and section 2924g, subdivision (c)(1)(A), when read together, establish a natural, logical whole, and one wholly consonant with the Legislature’s intent in enacting 2923.5 to have individual borrowers and lenders “assess” and “explore” alternatives to foreclosure: If section 2923.5 is not complied with, then there is no valid notice of default, and without a valid notice of default, a foreclosure sale cannot proceed. The available, existing remedy is found in the ability of a court in section 2924g, subdivision (c)(1)(A), to postpone the sale until there has been compliance with section 2923.5. Reading section 2923.5 together with section 2924g, subdivision (c)(1)(A) gives section 2923.5 real effect. The alternative would mean that the Legislature conferred a right on individual borrowers in section 2923.5 without any means of enforcing that right.
By the same token, compliance with section 2923.5 is necessarily an individualized process. After all, the details of a borrower’s financial situation and the options open to a particular borrower to avoid foreclosure are going to vary, sometimes widely, from borrower to borrower. Section 2923.5 is not a statute, like subdivision (h) of section 790.03 of the Insurance Code construed in Moradi-Shalal, which contemplates a frequent or general business practice, and thus its very text is necessarily directed at those who regulate the insurance industry. (Insurance Code section 790.03, subdivision (h) begins with the words, “Knowingly committing or performing with such frequency as to indicate a general business practice any of the following unfair claims settlement practices: . . . .”; see generally Moradi-Shalal, supra, 46 Cal.3d 287.)
Rather, in order to have its obvious goal of forcing parties to communicate (the statutory words are “assess” and “explore”) about a borrower’s situation and the options to avoid foreclosure, section 2923.5 necessarily confers an individual right. The alternative proffered by the trial court — enforcement by the servicer of pooling agreements — involves the facially unworkable problem of fitting individual situations into collective pools.
The suggestion of one amicus that the Legislature intended enforcement of section 2923.5 to reside within the Attorney General’s office is one of which we express no opinion. Our decision today should thus not be read as precluding such enforcement by the Attorney General’s office. But we do note that the same individual-collective problem would dog Attorney General enforcement of the statute. To be sure (which is why the possibility should be left open), there might, ala Insurance Code section 790.03, subdivision (h), be lenders who systematically ignore section 2923.5, and their “general business practice” would be susceptible to some sort of collective enforcement. Even so, the Attorney General’s office can hardly be expected to take up the cause of every individual borrower whose diverse circumstances show noncompliance with section 2923.5.
3. Application
We now put the preceding ideas and factors together.
While the dropping of an express provision for private enforcement in the legislative process leading to section 2923.5 does indeed give us pause, it is outweighed by two major opposing factors. First, the very structure of section 2923.5 is inherently individual. That fact strongly suggests a legislative intention to allow individual enforcement of the statute. The statute would become a meaningless dead letter if no individual enforcement were allowed: It would mean that the Legislature created an inherently individual right and decided there was no remedy at all.
Second, when section 2923.5 was enacted as an urgency measure, there already was an existing enforcement mechanism at hand — section 2924g. There was no need to write a provision into section 2923.5 allowing a borrower to obtain a postponement of a foreclosure sale, since such a remedy was already present in section 2924g. Reading the two statutes together as allowing a remedy of postponement of foreclosure produces a logical and natural whole.
B. Tender Full Amount of Indebtedness? No
The right conferred by section 2923.5 is a right to be contacted to “assess” and “explore” alternatives to foreclosure prior to a notice of default. It is enforced by the postponement of a foreclosure sale. Therefore it would defeat the purpose of the statute to require the borrower to tender the full amount of the indebtedness prior to any enforcement of the right to — and that’s the point — the right to be contacted prior to the notice of default. Case law requiring payment or tender of the full amount of payment before any foreclosure sale can be postponed (e.g., Arnolds Management Corp. v. Eischen (1984) 158 Cal.App.3d 575, 578 [“It is settled that an action to set aside a trustee’s sale for irregularities in sale notice or procedure should be accompanied by an offer to pay the full amount of the debt for which the property was security.”]) arises out of a paradigm where, by definition, there is no way that a foreclosure sale can be avoided absent payment of all the indebtedness. Any irregularities in the sale would necessarily be harmless to the borrower if there was no full tender. (See 4 Miller & Starr, Cal. Real Estate (2d ed. 1989) § 9:154, pp. 507-508.) By contrast, the whole point of section 2923.5 is to create a new, even if limited right, to be contacted about the possibility of alternatives to full payment of arrearages. It would be contradictory to thwart the very operation of the statute if enforcement were predicated on full tender. It is well settled that statutes can modify common law rules. (E.g., Evangelatos v. Superior Court
44 Cal.3d 1188, 1192 [noting that Civil Code sections 1431 to 1431.5 had modified traditional common law doctrine of joint and several liability].)
C. Preempted by Federal Law? No — As Long
As Relief Under Section 2923.5 is Limited to Just Postponement
1. Historical Context
A remarkable aspect of section 2923.5 is that it appears to have been carefully drafted to avoid bumping into federal law, precisely because it is limited to affording borrowers only more time when lenders do not comply with the statute. To explain that, though, we need to make a digression into state debtors’ relief acts as they have manifested themselves in four previous periods of economic distress.
The first period of economic distress was the depression of the mid-1780’s that played a large part in engendering the United States Constitution in the first place. As Chief Justice Charles Evans Hughes would later note for a majority of the United States Supreme Court, there was “widespread distress following the revolutionary period and the plight of debtors, had called forth in the States an ignoble array of legislative schemes for the defeat of creditors and the invasion of contractual obligations.” (Home Building and Loan Ass’n. v. Blaisdell (1934) 290 U.S. 398, 427 (Blaisdell).) Consequently, the federal Constitution of 1789 contains the contracts clause, which forbids states from impairing contracts. (See Siegel, Understanding the Nineteenth Century Contract Clause: The Role of the Property-Privilege Distinction and ‘Takings’ Clause Jurisprudence (1986) 60 So.Cal. L.Rev. 1, 21, fn. 86 [“Although debtor relief legislation was frequently enacted in the Confederation era, it was intensely opposed. It was among the chief motivations for the convening of the Philadelphia convention, and the Constitution drafted there was designed to eliminate such legislation through a variety of means.”].)
The second period of distress arose out of the panic of 1837, which prompted, in 1841, the Illinois state legislature to enact legislation severely restricting foreclosures. The legislation (1) gave debtors 12 months after any foreclosure sale to redeem the property; and (2) prevented any foreclosure sale in the first place unless the sale fetched at least two-thirds of the appraised value of the property. (See Bronson v. Kinzie (1843) 42 U.S. 311 (Bronson); Blaisdell, supra, 290 U.S. at p. 431.) In an opinion, the main theme of which is the interrelationship between contract rights and legal remedies to enforce those rights (see generally Bronson, supra, 42 U.S. at pp. 315-321), the Bronson court reasoned that the Illinois legislation had effectively destroyed the contract rights of the lender as regards a mortgage made in 1838. (See id. at p. 317 [“the obligation of the contract, and the rights of a party under it, may, in effect, be destroyed by denying a remedy altogether”].)
The third period of distress was, of course, the Great Depression of the 1930’s. In 1933, the Minnesota Legislature enacted a mortgage moratorium law that extended the period of redemption under Minnesota law until 1935. (See Blaisdell, supra, 290 U.S. at pp. 415-416.) But — and the high court majority found this significant — the law required debtors, in applying for an extension of the redemption period — to pay the reasonable value of the income of the property, or reasonable rental value if it didn’t produce income. (Id. at. pp. 416-417.) The legislation was famously upheld in Blaisdell. In distinguishing Bronson, the Blaisdell majority made the point that the statute did not substantively impair the debt the way the legislation in Bronson had: “The statute,” said the court, “does not impair the integrity of the mortgage indebtedness.” (Id. at p. 425.) The court went on to emphasize the need to pay the fair rental value of the property, which, it noted, was “the equivalent of possession during the extended period.”
Finally, the fourth period was within the living memory of many readers, namely, the extraordinary inflation and high interest rates of the late 1970’s. That period engendered Fidelity Federal Savings & Loan Association v. de la Cuesta (1982) 458 U.S. 141 (de la Cuesta). Many mortgages had (still have) what is known as a “due-on-sale” clause. As it played out in the 1970’s, the clause effectively required any buyer of a new home to obtain a new loan, but at the then-very high market interest rates. To circumvent the need for a new high rate mortgage, creative wrap-around financing was invented where a buyer would assume the obligation of the old mortgage, but that required the due-on-sale clause not be enforced.
An earlier decision of the California Supreme Court, Wellenkamp v. Bank of America (1978) 21 Cal.3d 943, had encouraged this sort of creative financing by holding that due-on-sale clauses violated California state law as an unreasonable restraint on alienation. Despite that precedent, the trial judge in the de la Cuesta case (Edward J. Wallin, who would later join this court) held that regulations issued by the Federal Home Loan Bank Board, by the authority of the Home Owners’ Loan Act of 1933 preempted state law that invalidated due-on-sale clause. A California appellate court in the Fourth District (in an opinion by Justice Marcus Kaufman, who would later join the California Supreme Court) reversed the trial court. The United States Supreme Court, however, agreed with Judge Wallin’s determination, and reversed the appellate judgment and squarely held the state law to be preempted.
The de la Cuesta court observed that the bank board’s regulations were plain — “even” the California appellate court had been required to recognize that. (de la Cuesta, supra, 458 U.S. at p. 154). On top of the express preemption, Congress had expressed no intent to limit the bank board’s authority to “regulate the lending practices of federal savings and loans.” (Id. at p. 161.) Further, going into the history of the Home Owners’ Loan Act, the de la Cuesta court pointed out that “mortgage lending practices” are a “critical” aspect of a savings and loan’s “‘operation,’” and the Home Loan Bank Board had issued the due-on-sale regulations in order to protect the economic solvency of such lenders. (See id. at pp. 167-168.) In what is perhaps the most significant part of the rationale for our purposes, the bank board had concluded that “the due-on-sale clause is ‘an important part of the mortgage contract,’” consequently its elimination would have an adverse effect on the “financial stability” of federally chartered lenders. (Id. at p. 168.) For example, invalidation of the due-on-sale clause would make it hard for savings and loans “to sell their loans in the secondary markets.” (Ibid.)
With this history behind us, we now turn to the actual regulations at issue in the case before us.
2. The HOLA Regulations
Under the Home Owner’s Loan Act of 1933 (12 U.S.C. § 1461 et seq.) the federal Office of Thrift Supervision has issued section 560.2 of title 12 of the Code of Federal Regulations, a regulation that itself delineates what is a matter for federal regulation, and what is a matter for state law. Interestingly enough, section 560.2 is written in the form of examples, using the “ejusdem generis” approach of requiring a court to figure out what is, and what is not, in the same general class or category as the items given in the example.
On the preempted side, section 560.2 includes:
— “terms of credit, including amortization of loans and the deferral and capitalization of interest and adjustments to the interest rate” (§ 560.2(b)(4));
— “balance, payments due, or term to maturity of the loan” (§ 560.2(b)(4)); and, most importantly for this case,
— the “processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages.” (§ 560.2(b)(10), italics added.)
On the other side, left for the state courts, is “Real property law.” (12 C.F.R. § 560.2(c)(2).)
We agree with the Mabrys that the process of foreclosure has traditionally been a matter of state real property law, a point both noted by the United States Supreme Court in BFP v. Resolution Trust Corp. (1994) 511 U.S. 531, 541-542, and academic commentators (e.g., Alexander, Federal Intervention in Real Estate Finance: Preemption and Federal Common Law (1993) 71 N.C. L. Rev. 293, 293 [“Historically, real property law has been the exclusive domain of the states.”]), including at least one law professor who laments that diverse state foreclosure laws tend to hinder efforts to achieve banking stability at the national level. (See Nelson, Confronting the Mortgage Meltdown: A Brief for the Federalization of State Mortgage Foreclosure Law (2010) 37 Pepperdine L.Rev. 583, 588-590 [noting that mortgage foreclosure law varies from state to state, and advocating federalization of mortgage foreclosure law].) By contrast, we have not been cited to anything in the federal regulations that govern such things as initiation of foreclosure, notice of foreclosure sales, allowable times until foreclosure, or redemption periods. (Though there are commentators, like Professor Nelson, who argue there should be.)
Given the traditional state control over mortgage foreclosure laws, it is logical to conclude that if the Office of Thrift Supervision wanted to include foreclosure as within the preempted category of loan servicing, it would have been explicit. Nothing prevented the office from simply adding the words “foreclosure of” to section 560.2(b)(10).
D. The Extent of Section 2923.5?
More Time and Only More Time
State law should be construed, whenever possible, to be in harmony with federal law, so as to avoid having the state law invalidated by federal preemption. (See Greater Westchester Homeowners Assn. v. City of Los Angeles (1979) 26 Cal.3d 86, 93; California Arco Distributors, Inc. v. Atlantic Richfield Co. (1984) 158 Cal.App.3d 349, 359.)
We emphasize that we are able to come to our conclusion that section 2923.5 is not preempted by federal banking regulations because it is, or can be construed to be, very narrow. As mentioned above, there is no right, for example, under the statute, to a loan modification.
A few more comments on the scope of the statute:
First, to the degree that the words “assess” and “explore” can be narrowly or expansively construed, they must be narrowly construed in order to avoid crossing the line from state foreclosure law into federally preempted loan servicing. Hence, any “assessment” must necessarily be simple — something on the order of, “why can’t you make your payments?” The statute cannot require the lender to consider a whole new loan application or take detailed loan application information over the phone. (Or, as is unlikely, in person.)
Second, the same goes for any “exploration” of options to avoid foreclosure. Exploration must necessarily be limited to merely telling the borrower the traditional ways that foreclosure can be avoided (e.g., deeds “in lieu,” workouts, or short sales), as distinct from requiring the lender to engage in a process that would be functionally indistinguishable from taking a loan application in the first place. In this regard, we note that section 2923.5 directs lenders to refer the borrower to “the toll-free telephone number made available by the United States Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency.” The obvious implication of the statute’s referral clause is that the lender itself does not have any duty to become a loan counselor itself.
Finally, to the degree that the “assessment” or “exploration” requirements impose, in practice, burdens on federal savings banks that might arguably push the statute out of the permissible category of state foreclosure law and into the federally preempted category of loan servicing or loan making, evidence of such a burden is necessary before the argument can be persuasive. For the time being, and certainly on this record, we cannot say that section 2923.5, narrowly construed, strays over the line.
Given such a narrow construction, section 2923.5 does not, as the law in Blaisdell did not, affect the “integrity” of the basic debt. (Cf. Lopez v. World Savings & Loan Assn. (2003) 105 Cal.App.4th 729 [section 560.2 preempted state law that capped payoff demand statement fees].)
E. The Wording of the Declaration:
Okay If Not Under Penalty of Perjury
In addition to the substantive act of contacting the borrower, section 2923.5 requires a statement in the notice of default. The statement is found in subdivision (b), which we quote here: “(b) A notice of default filed pursuant to Section 2924 shall include a declaration that the mortgagee, beneficiary, or authorized agent has contacted the borrower, has tried with due diligence to contact the borrower as required by this section, or that no contact was required pursuant to subdivision (h).” (Italics added.)
The idea that this “declaration” must be made under oath must be rejected. First, ordinary English usage of the word “declaration” imports no requirement that it be under oath. In the Oxford English Dictionary, for example, numerous definitions of the word are found, none of which of require a statement under oath or penalty of perjury. In fact, the second legal definition given actually juxtaposes the idea of a declaration against the idea of a statement under oath: “A simple affirmation to be taken, in certain cases, instead of an oath or solemn affirmation.” (4 Oxford English Dict. (2d. ed. 1991) at p. 336.)
Second, even the venerable Black’s Law Dictionary doesn’t define “declaration” to necessarily be under oath. Its very first definition of the word is: “A formal statement, proclamation or announcement, esp. one embodied in an instrument.” (Black’s Law Dict. (9th ed. 2009) at p. 467.)
Third, if the Legislature wanted to say that the statement required in section 2923.5 must be under penalty of perjury, it knew how to do so. The words “penalty of perjury” are used in other laws governing mortgages. (E.g., § 2941.7, subdivision (b) [“The declaration provided for in this section shall be signed by the mortgagor or trustor under penalty of perjury.”].)
And, finally — back to our point about the inherent individual operation of the statute — the very structure of subdivision (b) belies any insertion of a penalty of perjury requirement. The way section 2923.5 is set up, too many people are necessarily involved in the process for any one person to likely be in the position where he or she could swear that all three requirements of the declaration required by subdivision (b) were met. We note, for example, that subdivision (a)(2) requires any one of three entities (a “mortgagee, beneficiary, or authorized agent”) to contact the borrower, and such entities may employ different people for that purpose. And the option under the statute of no contact being required (per subdivision (h) ) further involves individuals who would, in any commercial operation, probably be different from the people employed to do the contacting. For example, the person who would know that the borrower had surrendered the keys would in all likelihood be a different person than the legal officer who would know that the borrower had filed for bankruptcy.
The argument for requiring the declaration to be under penalty of perjury relies on section 2015.5 of the Code of Civil Procedure, but that reliance is misplaced. We quote all of section 2015.5 in the margin. Essentially the statute says if a statement in writing is required to be supported by sworn oath, making the statement under penalty of perjury will be sufficient. The key language is: “Whenever, under any law of this state . . . made pursuant to the law of this state, any matter is required . . . to be . . . evidenced . . . by the sworn . . . declaration . . . in writing of the person making the same . . . such matter may with like force and effect be . . . evidenced . . . by the unsworn . . . declaration . . . in writing of such person which recites that it is . . . declared by him or her to be true under penalty of perjury . . . .” (Italics added.) The section sheds no light on whether the declaration required in section 2923.5, subdivision (b) must be under penalty of perjury.
F. The Wording of the Declaration:
Okay If It Tracks the Statute
In light of what we have just said about the multiplicity of persons who would necessarily have to sign off on the precise category in subdivision (b) of the statute that would apply in order to proceed with foreclosure (contact by phone, contact in person, unsuccessful attempts at contact by phone or in person, bankruptcy, borrower hiring a foreclosure consultant, surrender of keys), and the possibility that such persons might be employees of not less than three entities (mortgagee, beneficiary, or authorized agent), there is no way we can divine an intention on the part of the Legislature that each notice of foreclosure be custom drafted.
To which we add this important point: By construing the notice requirement of section 2923.5, subdivision (b), to require only that the notice track the language of the statute itself, we avoid the problem of the imposition of costs beyond the minimum costs now required by our reading of the statute.
G. Noncompliance Before Foreclosure
Sale Affect Title After Foreclosure Sale? No
A primary reason for California’s comprehensive regulation of foreclosure in the Civil Code is to ensure stability of title after a trustee’s sale. (Melendrez v. D & I Investment, Inc. (2005) 127 Cal.App.4th 1238, 1249-1250 [“comprehensive statutory scheme” governing foreclosure has three purposes, one of which is “to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser” (internal quotations omitted)].)
There is nothing in section 2923.5 that even hints that noncompliance with the statute would cause any cloud on title after an otherwise properly conducted foreclosure sale. We would merely note that under the plain language of section 2923.5, read in conjunction with section 2924g, the only remedy provided is a postponement of the sale before it happens.
H. Lender Compliance in This Case?
Somebody is Not Telling the Truth
and It’s the Trial Court’s Job to
Determine Who It Is
We have already recounted the conflict in the evidence before the trial court regarding whether there was compliance with section 2923.5. Rarely, in fact, are stories so diametrically opposite: According to the Mabrys, there was no contact at all. According to Aurora, not only were there numerous contacts, but the Mabrys even initiated a proposal by which their attorney would buy the property.
Somebody’s not telling the truth, but appellate courts do not resolve conflicts in evidence. Trial courts do. (Butt v. State of California (1992) 4 Cal.4th 668, 697, fn. 23 [“Moreover, Diaz and Bezemek concede the proffered evidence is disputed; appellate courts will not resolve such factual conflicts.”].) This case will obviously have to be remanded for an evidentiary hearing.
I. Is This Case Suitable for
Class Action Treatment? No
As we have seen, section 2923.5 contemplates highly-individuated facts. One borrower might not pick up the telephone, one lender might only call at the same time each day in violation of the statute, one lender might (incorrectly) try to get away with a form letter, one borrower might, like the old Twilight Zone “pitchman” episode, try to keep the caller on the line but change the subject and talk about anything but alternatives to foreclosure, one borrower might, as Aurora asserts here, try to have his or her attorney do a deal that avoids foreclosure, etcetera.
In short, how in the world would a court certify a class? Consider that in this case, there is even a dispute over the basic facts as to whether the lender attempted to comply at all. We do not have, under these facts at least, a question of a clean, systematic policy on the part of a lender that might be amenable to a class action (or perhaps enforcement by the Attorney General). This case is not one, to be blunt, where the lender admits that it simply ignored the statute and proceeded on the theory that federal law had preempted it. We express no opinion as to any scenario where a lender simply ignored the statute wholesale — that sort of scenario is why we do not preclude, a priori, class actions and have not expressed an opinion as to whether the Attorney General or a private party in such a situation might indeed seek to enforce section 2923.5 in a class action.
Consequently, while we must grant the writ petition so as to allow the Mabrys a hearing on the factual merits of compliance, we deny it insofar as it seeks reinstatement of any claims qua class action. By the same token, in light of the limited right to time conferred under section 2923.5, we also deny the writ petition insofar as it seeks reinstatement of any claim for money damages.
IV. CONCLUSION
Let a writ issue instructing the trial court to decide whether or not Aurora complied with section 2923.5. To the degree that the trial court’s order precludes the assertion of any class action claims, we deny the writ. If the trial court finds that Aurora has complied with section 2923.5, foreclosure may proceed. If not, it shall be postponed until Aurora files a new notice of default in the wake of substantive compliance with section 2923.5.
Given that this writ petition is granted in part and denied in part, each side will bear its own costs in this proceeding.

SILLS, P. J.
WE CONCUR:

ARONSON, J.

IKOLA, J.

non-judicial sale is NOT an available election for a securitized loan

2 Jun

Posted 6 days ago by Neil Garfield on Livinglies’s Weblog
NON-JUDICIAL STATES: THE DIFFERENCE BETWEEN FORECLOSURE AND SALE:

FORECLOSURE is a judicial process herein the “lender” files a lawsuit seeking to (a) enforce the note and get a judgment in the amount owed to them (b) asking the court to order the sale of the property to satisfy the Judgment. If the sale price is lower than the Judgment, then they will ask for a deficiency Judgment and the Judge will enter that Judgment. If the proceeds of sale is over the amount of the judgment, the borrower is entitled to the overage. Of course they usually tack on a number of fees and costs that may or may not be allowable. It is very rare that there is an overage. THE POINT IS that when they sue to foreclose they must make allegations which state a cause of action for enforcement of the note and for an order setting a date for sale. Those allegations include a description of the transaction with copies attached, and a claim of non-payment, together with allegations that the payments are owed to the Plaintiff BECAUSE they would suffer financial damage as a result of the non-payment. IN THE PROOF of the case the Plaintiff would be required to prove each and EVERY element of their claim which means proof that each allegation they made and each exhibit they rely upon is proven with live witnesses who are competent — i.e., they take an oath, they have PERSONAL KNOWLEDGE (not what someone else told them),personal recall and the ability to communicate what they know. This applies to documents they wish to use as well. That is called authentication and foundation.

SALE: Means what it says. In non-judicial sale they just want to sell your property without showing any court that they can credibly make the necessary allegations for a judicial foreclosure and without showing the court proof of the allegations they would be required to make if they filed a judicial foreclosure. In a non-judicial state what they want is to SELL and what they don’t want is to foreclose. Keep in mind that every state that allows non-judicial sale treats the sale as private and NOT a judicial event by definition. In Arizona and many other states there is no election for non-judicial sale of commercial property because of the usual complexity of commercial transactions. THE POINT is that a securitized loan presents as much or more complexity than commercial real property loan transactions. Thus your argument might be that the non-judicial sale is NOT an available election for a securitized loan.

When you bring a lawsuit challenging the non-judicial sale, it would probably be a good idea to allege that the other party has ELECTED NON-JUDICIAL sale when the required elements of such an election do not exist. Your prima facie case is simply to establish that the borrower objects the sale, denies that they pretender lender has any right to sell the property, denies the default and that the securitization documents show a complexity far beyond the complexity of even highly complex commercial real estate transactions which the legislature has mandated be resolved ONLY by judicial foreclosure.

THEREFORE in my opinion I think in your argument you do NOT want to concede that they wish to foreclose. What they want to do is execute on the power of sale in the deed of trust WITHOUT going through the judicial foreclosure process as provided in State statutes. You must understand and argue that the opposition is seeking to go around normal legal process which requires a foreclosure lawsuit.

THAT would require them to make allegations about the obligation, note and mortgage that they cannot make (we are the lender, the defendant owes us money, we are the holder of the note, the note is payable to us, he hasn’t paid, the unpaid balance of the note is xxx etc.) and they would have to prove those allegations before you had to say anything. In addition they would be subject to discovery in which you could test their assertions before an evidentiary hearing. That is how lawsuits work.

The power of sale given to the trustee is a hail Mary pass over the requirements of due process. But it allows for you to object. The question which nobody has asked and nobody has answered, is on the burden of proof, once you object to the sale, why shouldn’t the would-be forecloser be required to plead and prove its case? If the court takes the position that in non-judicial states the private power of sale is to be treated as a judicial event, then that is a denial of due process required by Federal and state constitutions. The only reason it is allowed, is because it is private and “non-judicial.” The quirk comes in because in practice the homeowner must file suit. Usually the party filing suit must allege facts and prove a prima facie case before the burden shifts to the other side. So the Judge is looking at you to do that when you file to prevent the sale.

Legally, though, your case should be limited to proving that they are trying to sell your property, that you object, that you deny what would be the allegations in a judicial foreclosure and that you have meritorious defenses. That SHOULD trigger the requirement of re-orienting the parties and making the would-be forecloser file a complaint (lawsuit) for foreclosure. Then the burden of proof would be properly aligned with the party seeking affirmative relief (i.e., the party who wants to enforce the deed of trust (mortgage), note and obligation) required to file the complaint with all the necessary elements of an action for foreclosure and attach the necessary exhibits. They don’t want to do that because they don’t have the exhibits and the note is not payable to them and they cannot actually prove standing (which is a jurisdictional question). The problem is that a statute passed for judicial economy is now being used to force the burden of proof onto the borrower in the foreclosure of their own home. This is not being addressed yet but it will be addressed soon.

Latest ruling on Civil Code 2923.5

26 Feb

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 PP 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 [*1166] 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 [**15] 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 U.S. Dist. LEXIS 45163, 2009 WL 1390843, at *6 (E.D. Cal., May 14, 2009)(addressing merits of claim); Lee v. First Franklin Fin. Corp., 2009 U.S. Dist. LEXIS 44461, 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 P 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.