Foreclosure Resources

2011

ARLENE FONTENOT v. WELSS FARGO BANK, et. al.

In Fontenot v. Wells Fargo Bank, N.A., the Court provided secured lenders with a broader array of methods with which to challenge wrongful foreclosure claims at the pleading stage. First, the Court explained why publicly recorded documents can be judicially noticed. Second, the Court held that MERS has the authority to act as agent on behalf of a lender under the terms of the agreement between it and the lender. Third, plaintiffs claiming irregularities in the foreclosure process must plead actual prejudice to set aside a foreclosure sale. The court found that even if MERS lacked authority to instruct the trustee to foreclose, such action would only prejudice the lender and not the borrower.

Fontenot alleged that MERS was the nominee of the lender in the deed of trust securing a $1 million loan. After Fontenot defaulted, Wells Fargo, as servicer of the loan, foreclosed on the property and subsequently sold it. The Court of Appeals upheld the trial court's decision to grant defendants' demurrers without leave to amend.

In doing so, the Court explained how publicly recorded documents may be judicially noticed. A court "may take judicial notice of the fact of a document's recordation, the date the document was recorded and executed, the parties to the transaction reflected in the recorded document, and the document's legally operative language." Therefore, the Court found that the publicly recorded documents demonstrated that MERS was the beneficiary of the Deed of Trust and the authorized assignee of the lender.

The Court proceeded to reject Fontenot's argument that MERS lacked the authority to assign the note because it had no interest in the note. It is not necessary for MERS to have a possessory interest in the note to be able to assign the note. Instead, MERS's authority to assign the note is to be drawn from the terms of the agency agreement between it and the lender.

Even if MERS lacked the authority to transfer the note, the plaintiff would have to plead some prejudice to proceed with her cause of action for wrongful foreclosure. "If MERS ... lacked the authority to make the assignment, the true victim was not plaintiff but the original lender, which would have suffered the unauthorized loss of a $1 million promissory note."

EUGENIA CALVO v. HSBC BANK USA, N.A.

In Calvo v. HSBC Bank USA, N.A., the Court held that Section 2932.5 of the California Civil Code applies only to mortgages and not to deeds of trust. Calvo obtained a loan secured by a deed of trust that identified CBSK Financial Group, Inc. as the lender, MERS as the nominal beneficiary and lender's agent and Lwayers Title Company as the trustee. Calvo defaulted on her loan and her property was sold at a trustee's sale.

The Substitution of Trustee provided notice that the deed of trust had been assigned from CBSK Financial Group, Inc. to HSBC Bank. It appears that a separate assignment was not recorded. The complaint alleged that "HSBC Bank had initiated foreclosure proceedings under the deed of trust without any recordation of the assignment of the deed of trust to HSBC Bank in violation of 2932.5". Section 2932.5 states in full: "Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security and vests in any person who by assignment becomes entitled to payment of the money secured by the instrument. The power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded."

The Court held that section 2932.5 applies on to mortgages and not to deeds of trust. In arriving at its decision, the Court relied upon Stockwell v. Barnum, a 1908 case, which distinguished mortgages from deeds of trust in that deeds of trust contain a power of sale entitling the trustee to transfer marketable title to a purchaser. Since the trustee, and not the lender, held the power of sale, it was "immaterial who held the note". Consequently, the Court echoed the Stockwell court which found that, "the transferee... is not an encumbrancer to whom power of sale is given with the meaning of [2923.5]." As agent of the lender, MERS had the right to initiate foreclosure, despite the lack of a recorded assignment, pursuant to the language within the deed of trust and the foreclosure sale was upheld.

$20,000 FEE PROPOSED FOR FILING OF A NOTICE OF SALE

Assemblyman Bob Blumenfield introduced AB 935 which would require institutional lenders pay a $20,000 fee for each Notice of Sale filed in California. The funds would be used to bolster financing for education, public safety, redevelopment, foreclosure prevention and small-business loans, with each area receiving twenty percent of the generated funds. An additional purpose of the bill is to chill the foreclosure process.

"Bankers need an incentive to keep families in their homes," Blumenfield told the San Diego Union-Tribune on March 30, 2011. "They helped create the foreclosure crisis by making bad loans and must bear some burden in solving this problem. Fair is fair. My bill will help California finally turn the tide and help rebuild our communities through creating a new wave of investment in our prosperity."

Loans held by lenders with assets below ten billion dollars ($10,000,000,000) or owned by a local or state governmental agency would be exempt. The California Mortgage Bankers Association and other groups representing the mortgage industry are largely opposed to the bill. The bill was re-referred to the Committee on Banking and Finance on May 2, 2011. The text, history and status of the bill can be found here.

REPEAL OF EXTENSION OF THREE-MONTH REINSTATEMENT PERIOD BY 90 DAYS ON CERTAIN CALIFORNIA LOANS

Section 2923.52 of the California Civil Code was repealed on January 1, 2011. The section, which extended the three-month reinstatement period by 90 days on certain California owner-occupied residential property, contained a built-in sunset date of January 1, 2011, unless extended by the state legislature. As the legislature failed to extend the date further, this law is repealed.

2010

FIRST MORTGAGES EXEMPTED FROM A DEFICIENCY AFTER A SHORT SALE

On September 30, 2010, Governor Schwarzenegger signed into law SB931, which, effective January 1, 2011, will add Section 580e to the California Code of Civil Procedure and provides that if a borrower, with the written consent of the first lienholder (lender), sells a property for less than the remaining amount due at the time of sale, then the first lienholder (lender) must accept the sale proceeds as full payment, and the remainder of the debt will be fully discharged (and no deficiency judgment may be rendered thereon).

2009

EXTENSION OF THREE-MONTH REINSTATEMENT PERIOD BY 90 DAYS ON CERTAIN CALIFORNIA OWNER-OCCUPIED RESIDENTIAL PROPERTY

Senate Bill 7 was approved by Governor Schwarzenegger on February 2, 2009 and was codified on May 21, 2009 as California Civil Code Section 2923.52.

This bill affects loans:

secured by a first deed of trust/mortgage;
that were recorded between January 1, 2003 to January 1, 2008; and
the underlying property was the borrower’s principal residence at the time of default.

The effect of this bill is to extend by 90 days the three-month reinstatement period following the filing of a Notice of Default. This would lengthen the foreclosure time period from approximately four to seven months.

Lenders may avoid this lengthened period by receiving an exemption from either the Commissioner of Corporations, Commissioner of Financial Institutions; or Real Estate Commissioner.

This amendment is set to expire on January 1, 2011 (unless extended).

For more information on Senate Bill 7 read our Summary or please contact our offices at (619) 325-4336 or toll-free at (866) 218-2320.

2008

COMMUNICATIONS THAT A LENDER MUST MAKE BEFORE A NOTICE OF DEFAULT MAY BE FILED ON CERTAIN CALIFORNIA OWNER-OCCUPIED RESIDENTIAL PROPERTY

Senate Bill 1137 went into complete effect in September 2008 as California Civil Code §2923.5 and, among other things, requires a lender take certain actions before starting foreclosure proceedings on owner-occupied residential property containing no more than four dwelling units. Owner-occupied means that the residence is the principal residence of the borrower as indicated to the lender on the loan documents. This law only applies to loans that originated in the years 2003 through 2007. Additionally, exceptions may be allowed if, among other things, the borrower has surrendered the property to the lender by either a letter confirming the surrender or delivery of the keys to the property to the lender.

For more information on Senate Bill 1137 read our Summary or please contact our offices at (619) 325-4336 or toll-free at (866) 218-2320.

2005

HOA “SMALL DEBT” FORECLOSURES RESTRICTED

Effective January 1, 2006, SB 137 restricts foreclosures as a tool to collect small debts in private communities. The bill prohibits homeowner associations from foreclosing on homeowners for delinquencies under $1,800 or the debt must be more than twelve months delinquent.

When the thresholds are met to allow foreclosure, the HOA can proceed, but only subject to further provisions of the new law.

The HOA board of directors must make a formal decision to foreclose upon a lien

at an executive meeting of the board;
by a majority vote; and
at least 30 days prior to any foreclosure auction to sell the
property.

The results of the vote must be recorded in the association's minutes.

The HOA must notify the home owner of the foreclosure by sending all debt collection correspondence and legal notification to
both a primary and, if available, a secondary address.

The HOA must record with any notice of delinquent assessments an itemized list of charges owed by the home owner.

The home owner may, in writing, request a meeting with the HOA's board of directors to resolve the dispute over assessment
debt. The board must respond to the home owner's request within 15 days of the postmark on the request.

If the dispute resolution finds that an HOA has filed a lien in error, the HOA must reverse the lien and assume all costs.

This page was last updated on September 20, 2011

The information contained herein is provided for general information purposes only and is not intended to convey a legal opinion nor legal advice for any particular case or situation. Neither Foreclosure Rescources, Inc. nor Exchange Rescources, Inc. make any representations, warranties or guarantees, express or implied, regarding the accuracy or completeness of the information displayed on this website.