The Court of Appeal of the State of California, Second District, recently affirmed the denial of injunctive relief to a borrower who claimed a violation of Cal. Civ. Code § 2924(a)(6) of the California Homeowner's Bill of Rights (HBOR), holding that injunctive relief is only available under two specific HBOR provisions where the state legislature explicitly authorized such relief – i.e., Cal. Civ. Code §§ 2924.12(a)(1) and 2924.19(a)(1).
Because the borrower's allegations did not fall under either of those sections, the Court held that the borrower was not entitled to injunctive relief.
A copy of the opinion is available at: Link to Opinion
Following the commencement of a nonjudicial foreclosure against a borrower, the borrower filed suit seeking an injunction to prevent the foreclosure.
The borrower alleged that the deed of trust was assigned and transferred in a manner that rendered such assignments void due to what the borrower alleged were "numerous breaks and misrepresentations in the chain of title." For instance, the borrower asserted that his loan was allegedly transferred from a second mortgagee to a third mortgagee on March 23, 2011, yet the original mortgagee's beneficiary recorded an assignment four months later, purporting to transfer the loan to the second mortgagee.
On April 19, 2014, the third mortgagee recorded and filed a Substitution of Trustee, and the newly substituted trustee immediately filed a Notice of Default on the loan.
The borrower asserted, among other things, that the mortgagees lacked standing to foreclose because they were not property assigned an interest in the deed of trust, citing Cal. Civil Code § 2924(a)(6), and for breach of contract due to the mortgagees' alleged failure to enter into a permanent loan modification after the borrower successfully made three trial loan modification payments.
The trial court sustained the mortgagees' demurrers (motions to dismiss), dismissed the borrower's suit, and entered a judgment of dismissal without leave to amend. The instant appeal followed.
As you may recall, Cal. Civil Code § 2924(a)(6) provides that only the holder of the beneficial interest under a mortgage or deed of trust may foreclose. In the HBOR, the California Legislature authorized a private right of action to enjoin a nonjudicial trustee's sale where a lender violates any one of nine statutory provisions.
Under Cal. Civil Code § 2924.12(a)(1), a borrower may bring an action for injunctive relief due to a material violation of Cal. Civil Code §§ 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or 2924.17. Under Section 2924.19(a)(1), a borrower may bring an action for injunctive relief due to a material violation of Sections 2923.5 or 2924.18.
The Appellate Court began its analysis by noting that while the HBOR did not apply retroactively, HBOR's provisions were applicable to the subject action, because the April 9, 2014 Notice of Default was recorded after the January 1, 2013 effective date of the HBOR.
The Court then pointed out that while the HBOR is applicable to this case, Section 2924(a)(6) -- the statutory provision specifically cited by the borrower -- is not one of the nine sections that explicitly provides for injunctive relief.
Because the Legislature chose to provide for injunctive relief for some HBOR violations, but not for others, the Court found that such relief is not impliedly available for an alleged violation of Section 2924(a)(6).
The Appellate Court then reviewed the legislative history of the HBOR, finding that the HBOR's enforcement mechanisms were drafted to avoid "frivolous claims" and attempts to "merely delay legitimate foreclosure proceedings." Significantly, the Conference Committee Reports stated that while damages are available postforeclosure, prior to a foreclosure sale the only remedy that a borrower may seek is an action to enjoin a violation of the specified sections, along with any trustee's sale. The Court thus found a clear indication that the Legislature intended to preclude borrowers from seeking to enjoin a foreclosure sale for reasons other than those expressly authorized.
The Court then addressed the apparent tension with the California Supreme Court's recent holding in Yvanova v. New Century Mortgage Corp., 62 Cal. 4th 919 (Cal. 2016). In Yvanova, the California Supreme Court recognized a cause of action for wrongful foreclosure under a similar set of facts. In Yvanova, the California Supreme Court held that after a foreclosure, a borrower may potentially "base an action for wrongful foreclosure on allegations a purported assignment of the note and deed of trust to the foreclosing party bore defects rendering the assignment void." See Yvanova at 923.
Here, the Court distinguished Yvanova on two grounds. First, the instant appeal was not a wrongful foreclosure but an action brought preemptively to enjoin a foreclosure, which Yvanova did not address. Second, Yvanova involved a foreclosure that preceded the effective date of the HBOR and thus did not address the effect of that legislation. The Court noted that the borrower may have a postforeclosure cause of action for damages under Yvanova; the Legislature appears to have simply made a policy decision as to preforeclosure injunctive relief, where foreclosure delays may occur due to litigation, even where the lenders are ultimately vindicated.
Next, the Court rejected the borrower's argument that he should have been given leave to amend his complaint to allege violations of Cal. Civil Code § 2923.17, as the declarations required by that section were all properly filed below. The Court noted that nothing precludes the borrower from challenging the substance of those declarations in a postforeclosure suit, which the Court held is the borrower's exclusive remedy for the alleged violations under the HBOR's statutory scheme.
Finally, the Court rejected the borrower's breach of contract claim, finding the claim barred under the two year statute of limitations for breach of an oral contract. Cal. Code Civ. Proc., § 339). Accepting the borrower's allegations as true, the latest date the breach of contract suit could have accrued was March 23, 2011; however, the original complaint was not filed below until August 13, 2014, over three years after the alleged breach.
Thus, the Appellate Court held that the plain language and legislative history of the HBOR does not authorize a court to enjoin a violation of Section 2924(a)(6), and therefore no injunctive relief is available for a violation of that section.
Moreover, the Court held that the borrower failed to show a reasonable possibility of amending his complaint to plead any of the authorized grounds for injunctive relief under the HBOR.
Accordingly, the trial court's judgment of dismissal was affirmed on all counts.
Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: rwutscher@MauriceWutscher.com
Admitted to practice law in Illinois
Alabama | California | Florida | Georgia | Illinois | Indiana | Maryland | Massachusetts | New Jersey | New York | Ohio | Pennsylvania | Texas | Washington, DC
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.
Our updates and webinar presentations are available on the internet, in searchable format, at:
Financial Services Law Updates
and
The Consumer Financial Services Blog™
and
and
California Finance Law Developments
and
