FYI: 1st Cir Rejects Borrower's Attempt to Permanently Enjoin Foreclosure Due to Cancellation of Prior Foreclosure Proceedings

The U.S. Court of Appeals for the First Circuit recently held that the cancellation of a foreclosure sale prohibits a borrower from obtaining a permanent injunction to bar a foreclosure, as they would not suffer irreparable harm.

 

A copy of the opinion is available at:  Link to Opinion

 

In 2005, the plaintiff borrowers obtained a refinance mortgage loan on their home. The borrowers defaulted on their mortgage in 2007 and again in 2009. The loan was modified but the borrowers still had not made a mortgage payment since 2009.  Between 2011 and 2013, the borrowers negotiated to again modify the loan. The negotiations were unsuccessful and a foreclosure sale was scheduled for September 2013.

 

The borrowers then filed an action in state court and obtained a preliminary injunction barring the foreclosure sale from moving forward. The foreclosure proceedings were subsequently cancelled, but the borrowers' lawsuit remained pending.

 

The mortgagee removed the action to federal court and the borrowers amended their complaint to seek a permanent injunction barring the mortgagee from foreclosing, as well as damages premised on an alleged breach mortgage provisions obligating the lender to provide the borrower with a detailed notice of default and right to cure prior to foreclosing..

 

The trial court granted summary judgment in favor of the mortgagee. The trial court held that because the foreclosure proceedings were cancelled, the borrowers could not show they would suffer irreparable harm in the absence of injunctive relief, and that the borrowers had not suffered compensable monetary damages.  The borrowers then appealed.

 

The borrowers argued they were entitled to injunctive relief because a foreclosure could occur again at any time, even though the mortgagee supposedly had not complied with the notice requirements. The First Circuit found this argument to be without merit, as it did not account for the fact that the foreclosure proceedings were cancelled.  

 

The First Circuit also held that the borrowers did not face irreparable harm in the absence of any foreclosure proceedings, affirming the trial court's decision.

 

The borrowers argued that the trial court erred by relying "exclusively" on representations made by the mortgagee, outside the summary judgment record. The First Circuit again disagreed, finding that the trial court's exchange at oral argument with the mortgagee was merely an attempt for the trial court to clarify its understanding of the posture of the foreclosure proceedings.

 

Moreover, the First Circuit found that any suggestion that the trial court improperly relied on the mortgagee's representations was disproven as the summary judgment record established the relevant facts beyond dispute.

 

In addition, the borrowers argued that the trial court erred by granting summary judgment in favor of the mortgagee on their breach of mortgage agreement claim. The borrowers maintained that although they did not seek monetary damages, they could have sought nominal damages at a later stage.

 

However, the First Circuit held it need not consider whether nominal damages were possible as the issue was waived. The Court noted that, when directly asked at oral argument, the borrowers' counsel indicated they were not seeking nominal damages. Thus, the Court held, the borrowers could not assert this claim on appeal and waived the right to seek nominal damages.

 

The First Circuit accordingly affirmed the trial court's judgment granting summary judgment in favor of the mortgagee.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
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FYI: Fla App Ct (2nd DCA) Reverses Foreclosure Despite Evidence Prior Servicer Did Not Receive Signed Loan Mod Docs

The District Court of Appeal of Florida, Second District, recently reversed a final judgment of foreclosure, instead directing the trial court to enter judgment in favor of the borrower. 

 

In so ruling, the Appellate Court rejected and disregarded the current servicer's evidence that the loan modification documents had not been received, because the borrowers introduced evidence that they had returned their signed loan modification agreement materials to the prior servicer, the prior servicer received the materials, and the prior servicer accepted the modified payments. 

 

With this evidence, the Appellate Court held that the loan had been modified.

 

A copy of the opinion is available at:  Link to Opinion

 

Husband and wife borrowers signed a promissory note and mortgage in 2002 and defaulted by failing to make the payment due on August 1, 2009 and subsequent installments. The mortgagee sued to foreclose in June of 2010.  In July of 2014, servicing was transferred to a new servicer, who was substituted in as the plaintiff.

 

At the bench trial, the borrowers testified that the prior servicer modified their loan in July of 2009. They also testified that they signed and returned the required documents via courier delivery in the envelope provided, introduced into evidence the receipt proving the prior servicer received the package, sent the prior servicer three cashier's checks for the first three modified monthly payments, and introduced the cancelled cashier's checks into evidence.

 

The prior servicer nevertheless sent a letter to the borrowers in December of 2009 notifying them that the loan would be accelerated because the payment due on August 1, 2009 was not received. The wife borrower testified she called the prior servicer to find out what had happened to the modification, but was told that the modification had been cancelled in November and they would need to apply again. They did so, but the prior servicer asserted the paperwork was not in its file.

 

The trial court entered judgment for the mortgagee and the borrowers appealed.

 

On appeal, the borrowers argued that a) the trial court erred in finding that they defaulted on the mortgage when the loan had been modified; and b) that the trial court erred in finding that the mortgagee had complied with the condition precedent clause in the mortgage.

 

The Appellate Court agreed with the borrowers that the trial court erred by entering a foreclosure judgment when the loan had been modified, but separately addressed "an issue created by the manner in which the final judgment was issued."

 

The Court reasoned that a valid modification existed because the "three elements of contract formation are present; offer acceptance and consideration. No person or entity is bound by a contract absent the essential elements of offer and acceptance."  In addition, "'[w]ith a bilateral contract …, acceptance is the last act necessary to complete the contract… [and] "[w]hen the acceptance of an offer is conditioned upon the mailing of the acceptance, the acceptance 'is effective upon mailing and not upon receipt.'"

 

Because the prior servicer specified what needed to be done to accept its modification offer and the borrowers complied, the Appellate Court found no merit in the new servicer's argument that the modification documents were never received because "it was the mailing of the documents that constituted an acceptance of the offer, not whether [the new servicer's records] showed that the documents were received."

 

The Appellate Court further reasoned that the undisputed evidence reflected that the prior servicer received the first three monthly payments as required. "When a party accepts the benefits under a contract, courts must ratify the contract even if that party contends that it had a contrary intent." In addition, "by accepting the benefits of the loan modification, [the new servicer] cannot now question the validity of the contract. Having entered into a valid modification agreement, [the prior and current servicers] could only foreclose by alleging and proving a breach of the modification agreement and neither of which was done here."

 

The Appellate Court wrote separately to address, and deplore, the fact that the foreclosure judgement was not entered by the trial judge that heard the evidence, but by another judge. "Nothing in or record establishes or even hints at why a judge, other than the trial judge, entered this final judgment. The entry of a final judgment by a judge who did not preside over the trial, without more, is improper."

 

Accordingly, the final judgment of foreclosure was reversed, and the case remanded with directions to enter judgment in the borrowers' favor.

 

 

 

 

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

 

 

 

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FYI: FCC Rules TCPA Does Not Apply to Official Calls Made by Feds or Federal Contractors

The Federal Communications Commission (FCC) recently clarified "that the TCPA does not apply to calls made by or on behalf of the federal government in the conduct of official government business, except when a call made by a contractor does not comply with the government's instructions."

 

A copy of the FCC's Declaratory Ruling 16-72 is available at:  Link to Declaratory Ruling

 

As you may recall from our prior update (below), Congress amended the Telephone Consumer Protection Act (TCPA) in the Bipartisan Budget Act of 2015 to allow autodialed calls "made solely to collect a debt owed to or guaranteed by the United States" without the prior express consent of the called party.  The FCC issued a Notice of Proposed Rulemaking seeking comment on various issues relating to the amendment, and those proceedings are still ongoing.

 

The FCC states that this Declaratory Ruling 16-72 "does not mean that Congress's recent decision to except calls 'made solely to collect a debt owed to or guaranteed by the United States' from the prior express consent requirement was unnecessary."

 

Instead, the FCC in this Declaratory Ruling 16-72 focuses on the meaning of the term "person" in the TCPA.

 

As you may recall, the TCPA among other things makes it unlawful for "any person within the United States, or any person outside the United States if the recipient is within the United States," to place autodialed or prerecorded- or artificial-voice calls to wireless telephone numbers, except with the prior express consent of the called party or in an emergency, or unless the call is solely to collect a debt owed to or guaranteed by the United States.  See 47 U.S.C. § 227(b)(1).

 

Stated differently, the TCPA in relevant part makes it unlawful for any "person" within the United States, or any "person" outside the United States if the recipient is within the United States, to place certain calls to landline and wireless telephone numbers, absent prior express consent, an emergency, or other exceptions.

 

The FCC notes that the TCPA is codified within the federal Communications Act, "which defines 'person' to 'include[] an individual, partnership, association, joint-stock company, trust, or corporation.'"

Interpreting the statutory language and other authority, the FCC ruled in this Declaratory Ruling 16-72 that "the term 'person,' as used in section 227(b)(1) and our rules implementing that provision, does not include the federal government or agents acting within the scope of their agency under common-law principles of agency."

 

The FCC clarified that the TCPA does not apply to "a contractor when acting on behalf of the federal government, as long as the contractor is acting as the government's agent in accord with the federal common law of agency."

 

More specifically, the FCC stated that "a government contractor who places calls on behalf of the federal government will be able to invoke the federal government's exception from the TCPA when the contractor has been validly authorized to act as the government's agent and is acting within the scope of its contractual relationship with the government, and the government has delegated to the contractor its prerogative to make autodialed or prerecorded- or artificial-voice calls to communicate with its citizens."

 

The FCC emphasized that "a call placed by a third-party agent will be immune from TCPA liability only where (i) the call was placed pursuant to authority that was 'validly conferred' by the federal government, and (ii) the third party complied with the government's instructions and otherwise acted within the scope of his or her agency, in accord with federal common-law principles of agency."

 

 

 

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

 

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---

 

On Thu, May 26, 2016 at 5:12 PM, Ralph T. Wutscher <rwutscher@mauricewutscher.com> wrote:

FYI: FCC Issues NPRM as to Calls "Made Solely to Collect a Debt Owed to or Guaranteed by the United States"

 

The Federal Communications Commission (FCC) recently issued a Notice of Proposed Rulemaking (NPRM) regarding recent amendments to the federal Telephone Consumer Protection Act (TCPA), seeking comment on among other things: 

 

(1) which calls are covered by the phrase "solely to collect" under the amendments; 

(2) the meaning of the phrase "a debt owed to or guaranteed by the United States" in the amendments; 

(3) how the FCC should restrict the number and duration of covered calls;

(4) whether consumers should have a right to stop covered calls at any point the consumer wishes; and 

(5) whether callers should be required to inform consumers of such a right.

 

A copy of FCC's NPRM is available at:  Link to NPRM

 

As you may recall, Congress amended the TCPA in the Bipartisan Budget Act of 2015 to allow autodialed calls "made solely to collect a debt owed to or guaranteed by the United States" without the prior express consent of the called party. 

 

The amendments also require the FCC to "prescribe regulations to implement the requirements" within nine months of enactment of the amendments (i.e., by Aug 2, 2016), and to adopt rules to "restrict or limit the number and duration" of these covered calls.

 

"Solely to collect a debt"

 

Among other things, the FCC proposes to interpret "solely to collect a debt" to mean "only those calls made to obtain payment after the borrower is delinquent on a payment."  The FCC also proposes that "servicing calls" -- i.e., "calls to convey debt servicing information" -- should be included in covered calls.

 

The FCC seeks comment on how it should interpret the term "delinquent," or whether covered calls may "only be made after the debtor is in default," how it should define "default," and whether a distinction should be made "between default caused by non-payment and a default resulting from a different cause under the terms of the debt instrument."

 

The FCC also seeks comment on what types of calls should be included in "servicing calls," how to distinguish servicing calls from "marketing calls," whether covered calls should be allowed to start only after a borrower is delinquent on a payment, and whether delinquency should also be a trigger for debt servicing calls.

 

"Owed to or guaranteed by the United States"

 

The FCC also seeks comment on the meaning of the phrase "a debt owed to or guaranteed by the United States," including "whether there are any circumstances under which a party other than the federal government obtains a pecuniary interest in a debt such that the debt should no longer be considered to be 'owed to . . . the United States.'"

 

For example, the FCC asks for comment on "[w]hat is a debt 'owed to' the United States and a debt 'guaranteed by' the United States?," and "[d]oes the phrase 'owed to or guaranteed by' include debts insured by the United States?," and "would a debt still be 'owed to . . . the United States' if the right to repayment is transferred in whole or part to anyone other than the United States, or a collection agency collects the funds and then remits to the federal government a percentage of the amount collected?" 

 

Who May Be Called

 

The FCC seeks comment on whether the phrase "solely to collect a debt" should "include only calls to the person or persons obligated to pay the debt," and whether the FCC should "limit covered calls to the cellular telephone number the debtor provided to the creditor, e.g., on a loan application."

 

The FCC also seeks comment on "whether calls to persons the caller does not intend to reach, that is persons whom the caller might believe to be the debtor but is not, are covered by the exception," and proposes to exclude such calls from the exception. 

 

In addition, the FCC proposes "that calls to a wireless number a debtor provided to a creditor, but which has been reassigned unbeknownst to the caller, are not covered by the exception, but have the same one-call window the [FCC] has found to constitute a reasonable opportunity to learn of reassignment." 

 

Who May Make Covered Calls

 

The FCC proposes to allow "calls made by creditors and those calling on their behalf, including their agents," but asks whether "there a limiting principle to determining who should be deemed to be acting on behalf of the creditor."

 

The also seeks comment on "whether and, if so, how the Supreme Court's recent decision in Campbell-Ewald Co. v. Gomez [regarding unaccepted offers of judgment, and the mootness doctrine] should inform our implementation of the Budget Act amendments to the TCPA."

 

Limits on Number and Duration of Covered Calls

 

The FCC proposes to limit the number of covered calls to three per month, per delinquency and only after delinquency.  The FCC also proposes "that the limit on the number of calls should be for any initiated calls, even if unanswered by a person."

 

The FCC also seeks comment on "the maximum duration of a voice call, and whether [it] should adopt different duration limits for prerecorded- or artificial-voice calls than for autodialed calls with a live caller," whether the FCC should limit the length of text messages, and how to count "debt servicing calls" for purposes of the proposed three-call limit per month.

 

Consumer's Ability to Stop Covered Calls

 

The FCC proposes "that consumers should have a right to stop [covered] calls at any point the consumer wishes," and that "stop-calling requests should apply to a subsequent collector of the same debt."

 

The FCC also proposes "to require callers to inform debtors of their right to make such a request," and seeks comment "on when and how callers should provide such notice."

 

The FCC also seeks comment on whether callers making covered calls should be required "to record any request to stop calling and provide a record of such a request to subsequent callers along with other information about the debt."

 

 

 

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

 

 

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FYI: CFPB Issues Supervisory Report Addressing "Unfair" Coding Errors, Other Issues

The federal Consumer Financial Protection Bureau (CFPB) recently issued its "Supervisory Highlights - Issue 12, Summer 2016" report, focusing attention on automobile origination, debt collection, mortgage origination, small dollar lending, fair lending, and remedial actions, reflecting supervisory activity generally completed between January 2016 and April 2016.

 

The CFPB reported deficiencies in Compliance Management Systems and other software-related systems in various industries.  The Bureau also emphasized the ECOA "special purpose credit programs" found at various lenders, noting that it "generally takes a favorable view of conscientious efforts that institutions may undertake to develop special purpose credit programs to promote extensions of credit to any class of persons who would otherwise be denied credit or would receive it on less favorable terms."

 

A copy of the report is available at:  Link to Report

 

 

Automobile Origination

 

Add-On Gap Coverage Products:  The CFPB reports that "one or more auto lenders deceptively advertised the benefits of their gap coverage products, leaving the impression that these products would fully cover the remaining balance of a consumer's loan in the event of vehicle loss," when in fact "the product only covered amounts below a certain loan to value ratio."

 

Disclosure of Payment Deferral Terms:  The CFPB also reports that "one or more auto lenders engaged in a deceptive practice by using a telephone script that created the false overall net impression that the only effects of taking advantage of a loan deferral would be to extend the maturity of the loan and to accrue interest during the deferral, but omitted informing consumers that the subsequent payment would be applied to the interest earned on the unpaid amount financed from the date of the last payment received from the consumer," which "could result in the consumer paying more finance charges than originally disclosed."

 

 

Debt Collection

 

Widespread Coding Errors:  The CFPB reports finding numerous instances in which debt sellers "sold thousands of debts that did not properly reflect that: (1) the accounts were in bankruptcy, (2) the debt sellers had concluded the debts were products of fraud, or (3) the accounts had been settled in full."  In this CFPB's view, this is an "unfair" practice.

 

Misleading Statements Regarding Payment Options:  The CFPB also reports finding numerous instances of representations regarding payment options that conflicted with the collectors' own policies.  For example, the CFPB found instances in which "collectors falsely represented to consumers that a down payment was necessary in order to establish a repayment arrangement, when the collectors' policies and procedures included no such requirement," or "falsely represented that the only option for repayment was using a checking account, when the debt collectors' policies and procedures did not limit repayment to checking accounts."

 

 

Mortgage Loan Origination

 

Effect of Discount Credits:  The CFPB reports that "[o]ne or more institutions incorrectly calculated the amount financed on loans with discount credits, and subsequently incorrectly calculated the finance charge on the same loans," resulting in "a negative finance charge and an amount financed that exceeded the stated loan amount."

 

AfBAs:  The CFPB reports finding that "affiliated business arrangements" that did not fully meet the requirements of RESPA, such as providing a referral and requiring the use of an affiliated provider of flood determination and tax services.  The CFPB noted that "[t]he majority of consumers who received the incorrect ABA disclosure did not pay the fees charged by the affiliated service provider as these fees were lender paid."

 

FCRA Adverse Action Notices:  The CFPB reports finding that "[o]ne or more institutions took adverse action based on information in consumer reports but failed to make the required disclosures."

 

Interest Disclosures for Interest-Only Loans:  The CFPB reports finding that "[o]ne or more institutions offering interest-only bridge loans failed to accurately disclose the interest payment because it erroneously included a portion of the monthly payment amount that was to be applied to fees financed into the principal balance."

 

 

Small Dollar Lending

 

Pre-Authorized EFT Disclosures:  The CFPB reports finding installment loan agreements that "failed to set out an acceptable range of amounts to be debited, in lieu of providing individual notice of transfers of varying amounts."

 

 

Fair Lending

 

HMDA Coding:  The CFPB reports finding instances where "after issuing a conditional approval subject to underwriting conditions, the institutions did not accurately report the action taken on the loans or applications."

 

Providing an example, the CFPB notes finding instances in which the lenders "issued a conditional approval subject to the applicants meeting underwriting conditions, and then the applicants withdrew their applications before the institutions made a credit decision, the institutions incorrectly coded the action taken as 'Application denied' (Code 3) or 'File closed for incompleteness' (Code 5) instead of 'Application withdrawn' (Code 4).

 

As another example, the CFPB notes finding instances in which the lenders "incorrectly coded the action taken as 'Application approved but not accepted' (Code 2) instead of 'Application denied' (Code 3) after the applicants failed to respond to a conditional approval subject to the applicants meeting underwriting conditions", and the lenders "did not send the applicants either a written notice of incompleteness or an adverse action notice as required by Regulation B."

 

 

 

 

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

 

 

 

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FYI: Cal App (4th Dist) Holds Alleged Foreclosure by Wrong Beneficiary Enough for Wrongful Foreclosure, No Tender Required

The Court of Appeals of California, Fourth District, recently held that a homeowner who has been foreclosed on by one with no right to do so — by those allegations alone — sustains prejudice or harm sufficient to constitute a cause of action for wrongful foreclosure.

 

Citing Glaski v. Bank of America (2013) 218 Cal.App.4th 1079, the Appellate Court also held that, because the plaintiff properly alleged the foreclosure was void and not merely voidable, tender was not required to state a cause of action for quiet title or for cancellation of instruments. 

 

A copy of the opinion is available at:  Link to Opinion

 

In 2005, the plaintiff obtained a loan secured by her house.  On April 27, 2009, after the plaintiff defaulted on the loan, the successor in interest to the lender recorded an assignment of the deed of trust to a beneficiary and substituted the trustee.  On the same day, the new trustee recorded a notice of default against the plaintiff, as she was more than $15,000 in arrears. The lender's successor in interest was listed under the contact information on the notice of default.

 

In July 2009, the trustee recorded a notice of trustee's sale.  On November 9, 2009, the lender's successor in interest recorded an assignment of the same deed of trust to a second beneficiary. That same day, the trustee recorded a trustee's deed upon sale on behalf of the lender's successor in interest and the successor acquired the property in exchange for a credit bit.

 

On December 28, 2009, the lender's successor in interest recorded an assignment in order to correct the assignment of April 27, 2009, to the first beneficiary, stating the assignment to the second beneficiary was the correct one.

 

The plaintiff filed an action for (1) wrongful foreclosure, (2) quiet title, and (3) cancellation of instruments against the successor in interest, trustee and first beneficiary.  After allowing amendments to the allegations, the trial eventually sustained the defendants' demurrer and dismissed the complaint with prejudice.

 

As you may recall, the elements of an action for wrongful foreclosure in California are: (1) the trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the party attacking the sale (usually but not always the trustor or mortgagor) was prejudiced or harmed; and (3) in cases where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the amount of the secured indebtedness or was excused from tendering.

 

A beneficiary or trustee under a deed of trust who conducts an illegal, fraudulent or willfully oppressive sale of property may be liable to the borrower for wrongful foreclosure.  See Chavez v. Indymac Mortgage Services (2013) 219 Cal.App.4th 1052, 1062 [162 Cal.Rptr.3d 382]; Munger v. Moore (1970) 11 Cal.App.3d 1, 7 [89 Cal.Rptr. 323].  A foreclosure initiated by one with no authority to do so is wrongful for purposes of such an action. See Barrionuevo v. Chase Bank, N.A., supra, 885 F.Supp.2d at pp. 973-974; Ohlendorf v. American Home Mortgage Servicing (E.D.Cal. 2010) 279 F.R.D. 575, 582-583.

 

The plaintiff alleged that the only entity that was entitled to foreclose on the mortgage was the first beneficiary. The plaintiff alleged that the second beneficiary had no right to foreclose because it had never become beneficiary of the deed of trust.

 

The Appellate Court cited the Supreme Court of California's recent ruling in Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919.  The Supreme Court of California in Yvanova held that a borrower has legal authority—standing—"to claim a nonjudicial foreclosure was wrongful because an assignment by which the foreclosing party purportedly took a beneficial interest in the deed of trust was not merely voidable but void, depriving the foreclosing party of any legitimate authority to order a trustee's sale." 62 Cal.4th at pp. 942-943.

 

The plaintiff alleged that in November 2009, the successor in interest had nothing to assign to the second beneficiary because it had previously (in April 2009) assigned the promissory notes and deed of trust to the first beneficiary. According to the plaintiff, the successor in interest, having assigned all beneficial interest in the note and deed of trust to the first beneficiary in April 2009, could not assign again the same interests to the second beneficiary in November 2009.

 

The Appellate Court held that, under Yvanova, a homeowner has standing to challenge an assignment as void because success on the merits would prove the purported beneficiary is not, in fact, the mortgagee and therefore lacks any right to foreclose on the mortgage. 62 Cal.4th at pp. 935-936.

 

Rejecting the defendants' arguments to the contrary, and assuming the plaintiff's allegations are true as required on review of the demurrer (motion to dismiss), the Appellate Court held that the assignment to second beneficiary was void and not merely voidable.

 

The defendants argued that the recording of the assignment to the first beneficiary merely served as notice of a transfer but does not actually transfer the interest in property. However, the Appellate Court held that the case the defendants relied upon -- U.S. Hertz Inc. v. Niobrara Farms (1974) 41 Cal.App.3d 68 -- was materially distinguishable because it involved a notice of substitution of trustee, not assignment of the deed of trust.

 

Further, the defendants argued that the corrective assignment in December 2009 demonstrated that beneficial interest had been assigned to the second beneficiary, not the first beneficiary. However, the defendants did not cite any authority to support the argument that a corrective assignment recorded after a nonjudicial foreclosure is completed has any legal effect.

 

The defendants also argued that the corrective assignment merely showed that the successor in interest made procedural errors in the documents. However, the Appellate Court noted that at the demurrer (motion to dismiss) stage, the court must assume the facts plead by the plaintiff are true. The plaintiff alleged, and judicially noticeable documents affirmed, that at the time of the nonjudicial foreclosure sale, the first beneficiary was the proper beneficiary.

 

The Appellate Court held that the plaintiff sufficiently alleged that the foreclosure was wrongful because an assignment by which the foreclosing party purportedly took a beneficial interest in the deed of trust was void.

 

Next, the Appellate Court addressed the prejudice pleading requirement. The plaintiff argued that prejudice or harm, beyond the wrongful foreclosure, should not be required to be alleged to state a cause of action where it is alleged the foreclosing beneficiary's interest is void.

 

The Appellate Court held that, when a non-debtholder forecloses, a homeowner is harmed because he or she has lost her home to an entity with no legal right to take it.  The Court not that, but for the void assignment, the incorrect entity would not have pursued a wrongful foreclosure. Therefore, the Court held, the plaintiff sufficiently alleged that the void assignment was the cause-in-fact of the homeowner's injury, and that this was all a plaintiff is required to allege on the element of prejudice.

 

The Appellate Court noted that the Supreme Court of California in Yvanova held that "the bank or other entity that ordered the foreclosure would not have done so absent the allegedly void assignment. Thus, '[the identified harm—the foreclosure—can be traced directly to [the foreclosing entity's] exercise of the authority purportedly delegated by the assignment.'" 62 Cal.4th at p. 937.

 

The Appellate Court also found "strong policy reasons favoring this approach," as in the Court's view a contrary rule would lead to a situation where anyone can foreclosure on a homeowner because some other party had the right to foreclose.

 

The Court rejected the opinion cited by the defendants as incorrectly and exclusively focusing on the plaintiff's ability to have avoid any foreclosure, and interpreting prejudice narrowly.  The Court held that the defendants' cited opinion were inconsistent with the policies underlying the standing rule in Yvanova: "The borrower owes money not to the world at large but to a particular person or institution, and only the person or institution entitled to payment may enforce the debt by foreclosing on the security." 62 Cal.4th at p.938.

 

Also, the Court noted, the rulings cited by the defendants failed to recognize that the measure of damages for wrongful foreclosure is similar to tort damages: all proximately caused damages.

 

The Appellate Court held that the plaintiff's allegations that she sustained compensatory damages were sufficient for overcoming a demurrer (motion to dismiss), and therefore that the trial court erred in dismissing the case.

 

The Court also found that the trial court erred in sustaining the demurrer (motion to dismiss) for the plaintiff's causes of action for quiet title and cancellation of instruments on the grounds that tender is a necessary element for a quiet title cause of action.

 

However, citing Glaski v. Bank of America (2013) 218 Cal.App.4th 1079, the Appellate Court held that because the plaintiff properly alleged the foreclosure was void and not merely voidable, tender was not required to state a cause of action for quiet title or for cancellation of instruments.  Accordingly, the Court found that tender was not required to state a cause of action for these claims because the purported assignment was void.

 

Accordingly, the Fourth DCA reversed the trial court's ruling.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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