FYI: Cal App Clarifies CA Pre-Foreclosure Loss Mit Requirements, Says F/C Process Not Preempted Under HOLA

A California appellate court recently held among other things that: (1) Section 2923.5 can be enforced by a private right of action; (2) Section 2923.5 is not preempted by HOLA; (3) the declaration required of the lender by Section 2923.5(b) does not need to be under penalty of perjury and may track the language of the statute; and (4) a borrower is not required to tender the full amount of the mortgage indebtedness due to bring an action under Section 2923.5.  A copy of the opinion is attached.

As you may recall, California Civil Code section 2923.5 generally requires that a mortgagee, beneficiary, or agent contact the borrower, in person or by telephone, to explore options for the borrower to avoid foreclosure before a notice of default may be filed.  The borrowers here refinanced their home loan, and the rights to service such loan were subsequently assigned to the defendant loan servicer in this action.  Borrowers defaulted on the loan and the servicer defendant made at least one successful and numerous unsuccessful attempts to contact borrowers as required by Section 2923.5.  The borrowers denied that the service made any such attempts.  The defendant servicer then recorded a notice of default, and borrowers filed a complaint for injunctive relief to prevent a foreclosure sale, based on the defendant servicer’s alleged failure to comply with Section 2923.5. 

The trial court did not address the facts in borrowers’ complaint or amended complaint (which added class allegations and sought injunctive relief for an entire class), concluding that: (1)  the action was preempted under HOLA; (2) there is no private right of action under Section 2923.5; and (3) borrowers were required to tender all arrearages to enjoin foreclosure proceedings.  This writ proceeding followed.  The appellate court reversed on all three of the trial court’s holdings, and also went on to make further rulings regarding the mechanics of Section 2923.5. 

More specifically, the Court held that:

(a) there is a private right of action under Section 2923.5, even though the statute is silent on that point.  The Court explained that the absence of an express private right of action is not necessarily preclusive of such a right, and in this case the fact that Section 2923.5 requires a specified course of action and confers an individual right, to hold that it does not confer a private right of action would render the statute advisory or “a dead letter;”

(b) to require the borrower to tender the full amount of indebtedness prior to enforcement of the rights conferred by Section 2923.5 would defeat the purpose of the statute, and accordingly no tender is required to bring an action under the section;

(c) Section 2923.5 is not preempted by HOLA, but only so long as the relief granted under the section is limited to just postponement of a foreclosure sale.  The Court reviewed a history of preemption cases and concluded that the process of foreclosure has traditionally been a matter of state real property law, and if the OTS wanted to include the process of foreclosure within the preempted category of “loan servicing,” “it would have been explicit;”

(d) Section 2923.5 is very limited in scope and should be narrowly construed, as there is no right under the statute to a loan modification and the “assessment” and “exploration” required by a lender must “necessarily be simple,” (i.e. simply telling a borrower what options are available and referring the borrower to HUD, rather than providing loan counseling services);

(e) The declaration required by Section 2923.5 in the notice of default need not be made under oath and may simply track the language of the statute itself, thus avoiding the problem of the imposition of unnecessary costs beyond the scope of the statute;

(f) Noncompliance with the statute does not cause any cloud on title after an otherwise properly conducted foreclosure sale, as the only remedy provided is a postponement of the foreclosure sale;

(g) As to this particular case, the Court found that lender compliance with Section 2923.5 was a factual issue and accordingly it was remanded for an evidentiary hearing, but the court denied the petition to the extent it sought reinstatement for a claim for money damages, as the limited remedy under the section is postponement of the foreclosure sale.  Further, the Court held that it could not certify a class under the facts here, but expressed no opinion as to a scenario where a lender simply “ignored the statute wholesale.”

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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FYI: Countrywide Settles FTC Charges for $108M, Other Relief

The Federal Trade Commission settled charges against two Countrywide mortgage servicing companies for $108 million, which is one of the largest judgments imposed in an FTC case, and the largest mortgage servicing case. The funds will be used to reimburse overcharged homeowners whose loans were serviced by Countrywide before it was acquired by Bank of America in July 2008.  Copies of the complaint and consent judgment and order are attached.

According to the complaint filed by the FTC, Countrywide ordered property inspections, lawn mowing, and other property preservation services. But rather than simply hire third-party vendors to perform the services, Countrywide created subsidiaries to hire the vendors. The subsidiaries marked up the price of the services charged by the vendors – often by 100% or more – and Countrywide then charged the homeowners the marked-up fees.

In addition, in servicing loans for borrowers trying to save their homes in Chapter 13 bankruptcy proceedings, the complaint charges that Countrywide made false or unsupported claims to borrowers about amounts owed or the status of their loans. Countrywide also failed to tell borrowers in bankruptcy when new fees and escrow charges were being added to their loan accounts. The FTC alleges that after the bankruptcy case closed and borrowers no longer had bankruptcy court protection, Countrywide unfairly tried to collect those amounts, including in some cases via foreclosure.

Settlement Terms

The FTC’s complaint and settlement order name two mortgage servicers as defendants: Countrywide Home Loans, Inc. and BAC Home Loans Servicing LP, formerly doing business as Countrywide Home Loans Servicing LP. The settlement requires Countrywide to pay $108 million, which will be refunded to borrowers whom Countrywide allegedly overcharged before July 2008.

The defendants continue to service millions of mortgage loans, including tens of thousands of loans involving borrowers in bankruptcy and foreclosure. In the servicing of loans, the defendants are permanently barred from:

• Making false or unsubstantiated representations about loan accounts, such as amounts owed.
• Charging any fee for a service unless it is authorized by the loan instruments, by law, or by the consumer for a specific service requested by the consumer.
• Charging any fee for a default-related service unless it is a reasonable fee charged by a third party for work actually performed. If the service is provided by an affiliate of a defendant, the fee must be within limits set by state law, investor guidelines, and market rates. Defendants must obtain annual, independent market reviews of their affiliates’ fees to ensure that they are not excessive.

In addition, Countrywide must advise consumers if it intends to use affiliates for default-related services and, if so, provide a fee schedule of the amounts charged by the affiliates.

The settlement also requires Countrywide to make significant changes to its bankruptcy servicing practices. For example, Countrywide must send borrowers in Chapter 13 bankruptcy a monthly notice with information about what amounts the borrower owes – including any fees assessed during the prior month. The defendants also must implement a data integrity program to ensure the accuracy and completeness of the data they use to service loans in Chapter 13 bankruptcy.

This case was brought with the assistance of the United States Trustee Program, the component of the Department of Justice that oversees the administration of bankruptcy cases and private bankruptcy trustees.

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.

 

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