Wrongful Foreclosure California Style

Nearly all foreclosure professionals and loan servicers are familiar with the process
for a non-judicial foreclosure action in California. A notice of intent to foreclose is
followed by a notice of default which is followed by a notice of trustee’s sale.

The last step, the actual non-judicial foreclosure sale, usually occurs
within approximately 120 days from the filing of the notice of default. For the vast
majority of loans, the California non-judicial foreclosure process is an effective and relatively inexpensive
method for a servicer to obtain its security. In most non-judicial foreclosures, the only
court time and court costs involved are those for the usually uncontested municipal court
unlawful detainer which is initiated by the servicer in order to obtain possession from
former borrowers who refuse to vacate their former homes.

For a small but seemingly growing number of loans, the non-judicial foreclosure process
has become rather judicial. To borrowers who choose to allocate their resources away from
debt payment towards fighting a loan servicers right to its payments and its security, the nonjudicial foreclosure process is a war of attrition which ranges from the bankruptcy court, to superior court to municipal court. While serial bankruptcy filings are often a frustrating delay to a servicer obtaining possession of its security, the wrongful foreclosure action filed in superior court is potentially the most time consuming
weapon in the arsenal of the litigious borrower.

What is a Wrongful Foreclosure Action?

A wrongful foreclosure action is an action filed in superior court by the borrower against the servicer, the holder of the note, and usually the foreclosing trustee. The complaint usually alleges that there was an “illegal, fraudulent or willfully oppressive sale of property under a power of sale contained in a mortgage or deed of trust.” Munger v. Moore (1970) 11 Cal.App.3d.

1. The wrongful foreclosure
action is often brought prior to the non-judicial foreclosure sale in order to delay the sale, but the action may also be brought after the non-judicial foreclosure sale. In most cases, a wrongful foreclosure action alleges that the amount stated as due and owing in the notice of default is incorrect for one or more of the following reasons: an incorrect interest rate adjustment, incorrect tax impound accounts, misapplied payments, a 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. Wrongful foreclosure actions are also brought when the servicers accept partial payments after initiation of the wrongful foreclosure process, then continue with the foreclosure. Companion allegations for emotional distress and punitive damages usually accompany any wrongful foreclosure action.

The causes of action alleged in a wrongful foreclosure action filed in California may include the following: breach of contract, intentional infliction of emotional distress, negligent infliction of emotional distress, violation of Business and Professions CodeSection 17200 (Unfair Business Practices), quiet title, wrongful foreclosure (violation of Civil Code Section 2924and violation of 2923.5), accounting and/or promissory estoppel.

The reciprocal nature of attorney fees provisions in all real property notes and deeds of trust dictate that any wrongful foreclosure action be taken seriously. Damages available to a borrower in a wrongful foreclosure action are an amount sufficient to compensate for all detriment proximately caused by the servicer or trustees wrongful conduct. Civil Code Section 3333. Damages are usually measured by value of the property at the time of the sale in excess of the mortgage and lien against the property. Munger v. Moore (1970) 11 Cal.App.3d. 1. Additionally, the borrower may also obtain damages for emotional distress in a wrongful foreclosure action. Young v. Bank of America (1983) 141 Cal.App.3d 108; Anderson v. Heart Federal Savings & Loan Assn.(1989) 208 Cal.App.3d. 202. Further, if the borrower can prove by clear and convincing
evidence that the servicer or trustee was guilty of fraud, oppression or malice in its wrongful conduct, punitive damages may be awarded.

How Can a Wrongful Foreclosure Action Delay Recovery of the Security?

A wrongful foreclosure suit filed in superior court will not necessarily delay a servicers recovery of its security. The companion filings to such a suit (notice of pending action, injunction and/or motion to consolidate) however can delay a servicers ultimate recovery. Delay caused by a wrongful foreclosure action can be anywhere from forty-five days to two years.

A notice of pending action (“lis pendens”) is the most common companion to a wrongful foreclosure action. A lis pendens is recorded in the county in which the real property security is located at the time the wrongful foreclosure action is filed. The only requirement for a lis pendens to be recorded is an attorneys signature that the action which is being noticed actually involves a real property claim. The purpose of the
lis pendens is to put all third parties on notice that the borrower and the servicer are litigating over the real property security. Once a lis pendens is recorded, no title insurance company will issue a title insurance policy unless and until the lis pendens is removed. Although the servicer may “bond around” the lis pendens without titleinsurance, the real property security is virtually inalienable.

A summary procedure for removing a lis pendens is provided in the California Code of Civil Procedure Section 405.3 et seq. This section allows a “mini trial” on the merits of the borrowers claim. At the “mini trial”, the borrower must establish the probable validity of his/her claim by a preponderance of the evidence. California Code of Civil Procedure Section 405.32. If the borrower cannot establish his or her claim by a preponderance of evidence, the lis pendens is expunged.

The penalty for the borrower who wrongfully records a notice of pending action is that, in most cases, the court directs such a borrower to pay the servicers attorneys fees. California Code of Civil Procedure Section 405.38.

While a lis pendens can be filed at any time in the foreclosure process, a borrower applies for an injunction prior to the foreclosure sale with the intent of keeping the foreclosure sale at bay until issues in the lawsuit are resolved. The lawsuit can take anywhere from ten to twenty-four months. Generally, an injunction will only be issued if it appears to the court 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. Like an action to expunge a lis pendens, a borrowers application for an injunction is essentially a “mini-trial” on the merits. California Civil Code of Civil Procedure Section 526 et seq. The issue at stake in nearly all injunctive relief action applications is the amount due and owing on the note and deed of trust. For the injunction hearing, it is imperative that the servicer provide a detailed analysis of the amount it contends is due and owing on the note and deed of trust at issue. If for some reason the servicer is unable to provide a breakdown of the amounts due and owing on the note and deed of trust at issue,or at least provide sufficient information to refute the borrower’s allegations, it is likely the injunction will be issued.

In most cases, the injunction will be conditioned upon the borrowers filing a significant bond and making timely debt payments. Upon occasion, judges who are not particularly enamored with servicers and who are provided a heart wrenching tale in the borrowers injunction application will issue minimal bonds and little or no debt service requirements. This worst case scenario translates into a servicer being unable to sell the security and receiving no payments on the underlying debt during the life of the lawsuit. Technically, modifications of injunctions are allowed for a change in law, a change in circumstances, or to prevent injustice. California Civil Code § 533. In reality, judges are loath to modify an injunction after it is issued and
prior to a decision on the merits.

Once an injunction with little or no debt service or bond is in place, the wrongful foreclosure suit will be a long and expensive process because the borrower has lost all incentive for a quick resolution of the action.

Another way borrowers delay a servicer’s recovery of its security through a wrongful foreclosure action is by consolidating their wrongful foreclosure action with their unlawful detainer action. Asuncion v. Superior Court (1980) 108 Cal. App. 3d 141.The Asuncion case which is usually relied upon by borrowers for consolidation
contains an egregious fact scenario including clear fraud in the inducement of the loan.Judges however, do not limit the application of Asuncion to cases where fraud is alleged by the borrower. In applying Asuncion, a court can allow the unlawful detainer suit to be consolidated with the wrongful foreclosure action if there is a mere similarity of issues in the cases. Additionally in the new federal law that servicers and lenders are subject to an existing lease if the property is leased the servicer cannot get the tenant out till the end of lets say a 5 year lease.

If the superior court allows consolidation, a servicer’s right to possession of the real property security will be stayed until a verdict for the servicer is obtained in the wrongful foreclosure action. Courts generally will condition such consolidation on borrower debt service payments. Again, though, the real property security will not berecovered until a final decision on the merits in the wrongful foreclosure action is reached. As discussed above, this can be anywhere from ten months to two years.

17 Responses to “Wrongful Foreclosure California Style”

  1. RM November 16, 2009 at 8:27 pm #

    Hi Mr. McCandless,

    Here’s a technical question for you. From what I understand in CA laws and in your explanation above, the foreclosure process is as follows when a borrower falls behind on payment.

    1. Notice of Intent to foreclose is sent
    2. Notice of Default filed
    3. Notice of Sale filed
    4. Sale/ Auction
    5. Eviction

    Please correct me if I’m wrong.

    Here’s my situation. I have fallen behind on my mortgage payment. Currently my loan is 90 days delinquent. I received the notice of intent to foreclose a couple of weeks ago. Today I received a Notice of Trustee’s sale for next month. By the time of the sale date I would only have been delinquent 4 months. I do plan on making a payment to get my loan current by this week.

    My understanding is that after a loan has been 90 days delinquent then a lender/servicer may send a notice of default, then 90days after a notice of trustee’s sale after there has been no cure to the default.

    Did the servicer miss a step here? can they do that? does this constitute a wrongful foreclosure? what are my options?

    Thank you so much for your time and expertise

    PS. the Servicer is Quality Loan Servicing/ Litton Loan Servicing

    • timothymccandless November 17, 2009 at 7:19 am #

      the lender must comply with 2923.5 an its mandates about contacting you, then they must follow the procedures laid out in civil code 2924 for the notice of default 90 days and then notice of trustee sale 21 day sale if they did not it is a void sale but you may need cout intervention to prove it

  2. RM November 17, 2009 at 8:06 am #

    That’s what I thought… so do i have a case here?

  3. Roobina January 15, 2010 at 3:08 am #

    Dear Timothy

    I am a victom of wrongful foreclosure. Our house was foreclosed in 2008, since then I have been fighting with lender and I have a case in 9th circuit appellate court. I have a lis pendance on our property also. we were forcefully evicted by 6 sheriffs. I have been studying all this and have attended neil garfield lawyers workshop and was able to locare the securitization pull on our mortgage through SEC. at this point I am in need of legal help to file a fraud and quiet title case but I like to do it with help of attorney. I am a paralegal student at UCLA and would be able to do all the work with an attorney’s help. unfortunately not to many attorneys are familiar with this. I hope you take it in your heart to contact me I have left you several phone messegs but have not heard from you yet. b. I have all the facts and wrongful recorded documents to prove my case but I need help.

    please let me know if you are willing to help us.

    kindest regards

    • Tony and Lilly June 5, 2011 at 11:01 pm #

      Hi there, I’m in a very similar situation. Im a Paralegal student aswell. I would like to keep in touch with you if you don’t mind to see perhaps we can help each other thanks.

  4. Robert Kincheloe March 6, 2010 at 7:26 am #

    Hello Tim,
    I was wondering what the status of my comments aer after I sent you my account info. Let me know when you can. action my be required. My home has not been sold yet. Thank you,


  5. Jade May 30, 2010 at 11:15 am #

    Dear Timothy:

    I am the victim of a Ponzi Scheme perpetrated by a real estate agent and possibly the agency he works for. I have a civil suit in which the agent admitted guilt and I don’t have a court date until next year. The case is still awaiting the local D.A.’s response and I am in pre-foreclosure. My attorney sent a letter to my mortgage co. informing them I am in litigation to get my money back (a considerable amount!) and they wrote a letter back to me stating they would no longer be contacting me. I am due to leave my house in a month. Is there any way I can file an injuction? I no longer earn enough money to pay the mortgage so I couldn’t qualify for any kind of loan modification.

    Thank you for any advice you can give me.

  6. Rodolfo de Hoyos July 13, 2010 at 5:23 pm #

    Hello Tim, what if anything can be done about the exemption rule that lenders are filing against 2923.5?

  7. Eric August 31, 2010 at 3:02 pm #

    Hi Timothy,

    I’m in the Southern California, a couple of months ago I was handed an Unlawful Detainer and I filed my answer within the 5 days.

    Last August, I was let go from my job and started to fall behind on my monthly payments. I had contact the loan company in September to see if I might qualify for a loan modification. Since they were being difficult to deal with, I hired an outside company to help with the process in October. After 3 months of going back and forth I received news that I qualified for a loan modification. I was given the details over the phone by the company I hired.

    After four months of making my new payment the loan company notified me by mail that I did not qualify for the loan modification. After research I found that same day the letter was written they started the foreclosure process. Within a month my house was sold (Notice of Default was filed back in Nov of last year). The house ended up as an REO going back to the loan company.

    When I received the letter that I did not qualify, I called the loan company to find out why. I was told I made too much money. After explaining to the person on the phone I collect unemployment I was told I would have to start the loan modification process all over and resend all needed info, I sent it all off promptly but was told they either needed more info or they didn’t receive a document. I received two letters giving me a time frame to get them the needed documents/info, the dates to get them the requested material were after the date my house was to be sold.

    Before I was handed the Unlawful Detainer I had gathered all the documents I had showing I was in a loan modification (letters from loan company letting me know that my “workout plan payment” was due soon, receipts of payments etc…) and took everything to my Congressman’s office for review. They have since forwarded my package onto the Security Exchange Office for further review. One thing I had never received was a package from the loan company stating the terms of the loan modification. I’m still waiting to hear back from the SEO.

    When I filed my answer to the Unlawful Detainer, I had included most of the same information I had gave my Congressman (and noted that I had given him all the information for an investigation for fraud) . In my answer I had also noted that the Trustee’s Dead Upon Sale, was neither signed, notarized or if filed electronically it had no mark stating the document to be true.

    Since I filed my answer more then two months ago and within the 5 day window, I have not received anything from the courts. Nor have I heard from their attorney. I have searched all over the web and can not find this happening to anyone else.

    However, last week I did receive a new statement from the loan company after not hearing or receiving anything from them since they foreclosed on my house. This new statement seems to not include any of my workout plan payments, has reverted back to my original monthly payment and states I owe them a total of more then a year of monthly payments.

    Thanks for any input and/or help.


  8. marlon romero September 9, 2010 at 8:54 pm #

    Here’s my situation. I have fallen behind on my mortgage payment because of unemployment since Feb 2010. Currently my loan is 7 months delinquent. I received the notice of intent to foreclose a week ago . Can some one send me a template so that I can save my home please. My lender is first franklin loan services. How can I save my home can some one send me a template how to go about filing on my lender to save my home.
    My email marlonromeroinc@yahoo.com.

    Thank you .

  9. Michael Scott September 28, 2010 at 4:38 pm #

    Thank you for having this website,

    My question pertains to errors on the NOD..
    1. My first Mortgage had filed a NOD but when the processor entered the dollar amount i was in default they entered the amount that i was late on my Equity line of credit which was a entirely different company…
    Is that error enough to call the sale to be invalid??

    2. I fell behind on my property tax and the lender paid my back 2 years of taxes. They immediately raised my payments from $1,300.00 to $3,450.00 a month for 13 months. totaling $27,950.00 when the back taxes only added up to be $14,000.00.
    I immediately fell behind they told me that they were going to make me replenish the Escrow department double what they paid out to avoid this problem again.
    Never reaching agreeement i went 23 months with no payment made and if all is added up the now 4 years in taxes and 23 months pymts is roughly $53,000.00 generously calling it a even $60,000.00 my reinstatement amount has been for $90,000.00 dollars again there only explanation is that they are making me pay a full years mortgage and taxes to avoid a shortage again.
    Is that even allowed?
    The home went back to the first Mortgage holder Sept, 8th.

    Any input on this matter would be helpful Thank You

  10. Deborah Mills December 2, 2010 at 9:27 am #

    I just recently had my claim in the US Bankruptcy court against my lender and even though the judge readily admitted the release of stay in my bankruptcy case was invalid and the title is “cloudly” he refused to rule in his court room “no harm no foul”. Aside from this technicality we had evidence of fraud at orgination etc. etc. I’m in search of a non-profit or organization that assist with funding my appeal. I have all my legal pleadings, evidence if anyone cares to view them and my counsel is still on board with me. All that I am left with is the truth does not pervail. What is even more distrubing is that Deutsche bank the master servicer who held one of my loans in a trust, is using my testimony from my trial and just filed a $142million claim against them. I’m left feeling I paved the way for the big boys and no resolution to what happened to me.
    Any guidance would be greatly appreciated.

  11. Wendy January 22, 2011 at 12:39 pm #

    Thanks for this blog.
    My California house just sold at auction. I am working abroad – no jobs in Taft. I have been on a forbearance plan.I was put on one in June, 2010 and then extended it in Sept, 2010. I filed paperwork for a loan modification and was told to move back into my home, which I did. I heard nothing from anyone about the loan modification and there was no work in Taft so I went back to work overseas so I could continue my payments. On January 8th I received a notice of foreclosure in the mail. I called Carrington and was told the sale was to be held January 12th. I was not told where or when.It turned out they had stopped taking the automatic payments from my account and claimed that I had agreed to a balloon payment of $12,000 by November 1st. That was true but I had an extension pending their modification. As near as I can tell the bank bout the property for $19,000, sold it immediately for $38,000 as a bank owned property and there is now a for sale sign on the property and it is listed for $50,000 and people have gone in and moved out my belongings.Is this really legal. I bought the property for $150,000 and have been paying 10% on a $100,000 loan for the last 5 years. Seems a shame when I could have bought it back at auction for so little money if only I had known in time!

  12. bERNIE Kimmerle March 2, 2011 at 4:19 pm #

    I’m thinking of writing an article regarding our California Judges. A recent article just came out – it was a judge in New York who pretty much spanked Bank of America in open court in front of the media.
    WHY OH WHY can’t our judges here in California have compassion like the judges in judicial foreclosure states? I think next time, we should invite the media in one of our ex partes.

    • Tom Thumb March 21, 2011 at 10:06 am #

      I am going to the Santa Monica Courthouse on April 11, with an expert witness to show fraud against Wells Fargo, and would like to invite the media.

      Any ideas?

  13. Dennis May 17, 2011 at 4:13 pm #

    I am in dire need of help. I had a Freddie Mac loan that was serviced by BofA. BofA foreclosed and it went back to Freddie Mac. BofA foreclosed while I was still in HAMP MHA review for a modification. BofA did not follow HAMP Guidelines by proceeding with the foreclosure process by filing a Notice of Sale after submission of application and by not giving us a written Notice of Denial informing us of our 30 day right of appeal. HAMP Guidelines also states that all other solutions available to save the property from foreclosure must be exhasted prior to prceeding to foreclosesure. None of this happened. We were blindsided and foreclosed on without any knowledge or indication there was a problem with the modification. The way we found out was being served a 3 Day Notice to Surrender on 5/2/11 – the foreclosure was on 4/29/11. Today I received a notice that a UD has been filed but not yet served.The 3 day notice was served prior to them filing a new deed on 5/9/11. Does this invalidate the eviction prcess? If not can I question their title and their right to foreclose by not following HAMP Guidelines in answering the UD? Is that a cause to fight eviction? What options do I have in fighting for our title to our home and to fight eviction. It appears my time is quickly running out. Hopefully there are trhings I can do – I do not have funds avaiable to retain an attorney and pay filing fees. Any information and guidance you can provide is greatly appreciated.


  14. Pete July 22, 2011 at 3:28 pm #

    I am about to be Foreclosed on with a Sale date in one week. It is World/Wachovia/Wells. They are claiming they did not securitize the loan but I am finding that that is not true. I am trying understand how the SEC site works so I can search for my home and what remic it is part of. Any advice you could give me would be appreciated. My attorney is filing a wrongful foreclosure suit next week but I trying to assist him to prove that they do not own the note and have in fact sold it back in 2008.

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