FYI: Cal App Ct Rejects Borrower's HBOR "Dual Tracking" and SPOC Allegations

The Court of Appeals of California, Second Appellate District, recently held that a borrower failed to state a cause of action for alleged violations of the "dual tracking" and "single point of contact" provisions of California's Homeowners Bill of Rights (HBOR, Calif. Civ. Code, '§§ 2923.6, 2923.7) because:

 

(1) the borrower did not allege acceptance of a loan modification agreement within 14 days after receiving it; and

(2) the borrower's allegations demonstrated that the servicer assigned a customer service representative to process the loan modification application.

 

The Court also dismissed the borrower's allegations of lack of standing to foreclose, illegal substitution of trustee, and fraud as meritless and held that the doctrine of res judicata applied to the borrower's new theory of wrongful foreclosure which was premised on the same primary right as past litigation that had resulted in final judgments allowing foreclosure proceedings to go forward.

 

Of note, the Court prefaced its ruling by stating:

 

"'The purpose of the law of contracts is to protect the reasonable expectations of the parties.' (Ben-Zvi v. Edmar Co. (1995) 40 Cal.App.4th 468, 475.) This principle applies to the law of 'mortgages.'  A person who borrows money from a bank to purchase or refinance a home has a reasonable expectation that the bank will fund the loan. The bank has a reasonable expectation that monthly mortgage payments will be made. Here, appellant's reasonable expectations were met. The bank's were not. Nonpayment of the mortgage for approximately eight years while the borrower remains in possession is an egregious abuse. Respondent argued, and the trial court agreed, that appellant is 'gaming the system.' The game is over."

 

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

 

This lawsuit was the fifth in a series of state and federal lawsuits brought by a borrower since 2009 challenging a servicer's efforts to foreclose upon his real property. The lawsuits concerned similar allegations of claimed wrongful foreclosure procedures and the bank's standing to foreclose.

 

In 1992, the borrower acquired residential property. He subsequently obtained a $500,000 loan from a lender, and executed an adjustable interest rate promissory note in favor of the lender. A deed of trust was recorded to secure the loan.

 

Sixteen years later, the Federal Deposit Insurance Corporation, as receiver for the lender, and a bank entered into a Purchase and Assumption Agreement whereby the bank purchased all right, title, and interest in the assets of the lender. The agreement also stated that the bank specifically purchased all mortgage servicing rights and obligations of the lender.

 

A year later, in 2009, the borrower defaulted on the loan, and the bank's foreclosure trustee recorded a notice of default and a notice of trustee's sale.

 

Before the foreclosure sale, the borrower filed a complaint against the foreclosure trustee and the bank, alleging that the notice of default was not properly recorded, that it was not filed in compliance with Cal. Civil Code section 2923.5, and that the notice of sale was not properly recorded. The trial court dismissed the action without leave to amend.  The borrower appealed and the Court of Appeal, affirmed the trial court's judgment of dismissal.

 

In 2011, the foreclosure trustee recorded a second notice of trustee's sale. The borrower filed a second action against the foreclosure trustee, alleging that the notice of default was defective and that the bank violated section 2923.52 by giving premature notice of sale. The trial court dismissed this action. The borrower appealed, and the Court of Appeal affirmed the trial court's judgment of dismissal.

 

In 2012, the foreclosure trustee recorded another notice of trustee's sale. In response, the borrower filed a third lawsuit against the bank, this time in federal court. In part, he repeated allegations made in his previous state court cases regarding the misspelling of his first name. The borrower also challenged bank's right to nonjudicial foreclosure.

 

The trial court granted the bank's motion to dismiss the action without leave to amend.  The borrower appealed, and the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal without leave to amend. See Gillies v. JPMorgan Chase Bank N.A. (Gillies III) (9th Cir. 2016) 644 Fed.Appx. 716.

 

In 2015, a new foreclosure trustee recorded a notice of trustee's sale setting a foreclosure sale of the property. The borrower responded by filing yet another complaint alleging violations of the California Homeowners Bill of Rights (HBOR), lack of standing to foreclose, unlawful substitution of trustee, fraud, injunctive relief, and damages. He also obtained a temporary restraining order and filed an application for a preliminary injunction.

 

Once again, the bank demurred, asserting that the borrower's allegations did not state facts sufficient to constitute a cause of action. The trial court sustained the demurrer without leave to amend, vacated the temporary restraining order, denied the borrower's request for a preliminary injunction, and dismissed the borrower's action. The borrower appealed again,

 

For his first cause of action, the borrower alleged that the bank violated the "dual-tracking" prohibition of HBOR, Cal. Civil Code ' 2923.6 (c), by proceeding with the foreclosure while his loan modification application was pending. He also alleged that the bank did not assign "a single point of contact," as required by ' 2923.7 (a).

 

As you may recall, Cal. Civ. Code § 2923.6(c)(2) permits a "mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent" to record a notice of default or notice of sale or conduct a trustee's sale if a borrower does not accept a first lien loan modification offer within 14 days of the offer.

 

Cal. Civ. Code § 2923.7(a) requires that "[u]pon request from a borrower who requests a foreclosure prevention alternative, the mortgage servicer shall promptly establish a single point of contact and provide to the borrower one or more direct means of communication with the single point of contact."

 

The Court of Appeal rejected the borrower's arguments, noting that the allegations of his complaint belied his contention that the bank violated HBOR, because he did not allege that he accepted the loan modification during the four month period after he received the modification agreement and before the servicer recorded the notice of sale. 

 

In addition, the Appellate Court held that the borrower's allegations demonstrated that the bank assigned a customer service representative to whom the borrower submitted his loan modification application.

 

For his second cause of action, the borrower alleged that the bank lacked standing to foreclose because he alleged that the note and deed of trust were sold to a third party before the bank assumed the assets of the lender.

 

The Court of Appeal, taking judicial notice of the agreement between the bank and the Federal Deposit Insurance Corporation, disagreed. It dismissed the borrower allegations as speculation with no reasonable basis.

 

For his third cause of action, the borrower alleged that the bank was not the beneficiary of his trust deed and could not substitute the servicer as trustee to foreclose his property.

 

Again, the Court of Appeal disagreed, holding that it was beyond dispute that the bank succeeded to the lender's interest as beneficiary, and affirming the trial court's conclusion that that the borrower did not state a cause of action regarding the substitution of trustee.

 

In his fourth cause of action, the borrower alleged that the bank committed fraud on each occasion that it noticed a trustee's sale by misstating his name although he admitted that the misspelling was a clerical error.

 

The Appellate Court concluded that the allegation of fraud did not state a cause of action, observing no reasonable person would be confused by this minor typographical error. It noted that the notices contained the street address of the property and correctly spelled the borrower's surname.

 

Thus, the Appellate Court held that the trial court properly denied the borrower's motion for a preliminary injunction.

 

The Court also rejected the borrower's arguments concerning his new theory of wrongful foreclosure, noting that it was the same primary right that the borrower had always claimed and was precluded by the principle of res judicata. See Weikel v. TCW Realty Fund II Holding Co. (1997) 55 Cal.App.4th 1234, 1245.

 

By now, the borrower had lost three superior court cases, a federal case in the United States District Court, an appeal in the Ninth Circuit Court of Appeals. He also lost an emergency petition for relief in the Ninth Circuit as well as in the United States Bankruptcy Court.

 

The Court of Appeal admonished the borrower, who was an attorney, for not complying with lawful court orders, and continuing to tax the legal system in an attempt to retain possession of his house.

 

The Court observed that no litigant has an entitlement to file a lawsuit seeking relief from an alleged wrong and then not follow the court's ruling denying relief. By submitting to the court to resolve a dispute, a litigant who is willing to abide by an order granting relief must be willing to abide by an order denying relief. The sanctity and integrity of a final judgment must be honored or there is no such thing as a final judgment. See People v. Barragan (2004) 32 Cal.4th 236, 255.

 

The Court of Appeal therefore affirmed the trial court's dismissal of the complaint.

 

 

 

 

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   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

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

 

Webinars

 

and

 

California Finance Law Developments

 

 

FYI: 7th Cir Rejects "Anti-Tying" Challenge to Software Company's Required Use of Bank

The U.S. Court of Appeals for the Seventh Circuit recently held that a bank's relationship with a software services company, under which the software services company required its customers to use the bank for the depositary services ancillary to the software, did not violate anti-tying provisions of the federal Bank Holding Company Act, at 12 U.S.C. § 1972. 

 

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

 

A bankruptcy trustee hired an administrative services company to provide a variety of services in a bankruptcy proceeding.  Among other things, the administrative services company provides software to bankruptcy trustees to help manage a bankruptcy, including keeping track of documents, distributing money to creditors, and complying with reporting obligations. The company uses the defendant bank as the depository for the banking services provided through the software.

 

The contract between the bankruptcy trustee and the administrative services company required the trustee to hire the bank to provide the banking services, and to deposit with the bank substantially all the funds in any bankruptcy estate in which the trustee uses the administrative services company's services. A separate contract between bankruptcy trustee and the bank authorized the bank to withdraw a monthly fee for the services it rendered in the bankruptcy proceedings.

 

The plaintiff law firm was a creditor in a bankruptcy proceeding for which the bankruptcy trustee engaged the administrative services company and the bank.  The plaintiff filed a claim in the bankruptcy and received a distribution of $12,472.55. The firm should have received $12,666.90 but the trustee deducted $194.35 to pay for a small part of the bank's fee for services.

 

The law firm alleged that the contracts between the trustee and the administrative services company, the trustee and the bank, and the company and the bank, violated the anti-tying provisions of the federal Bank Holding Company Act, at 12 U.S.C. § 1972.

 

As you may recall, 12 U.S.C. § 1972(1)(E)  states that:

 

a bank shall not in any manner extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition or requirement --

 

that the customer shall not obtain some other credit, property, or service from a competitor of such bank, a bank holding company of such bank, or any subsidiary of such bank holding company, other than a condition or requirement that such bank shall reasonably impose in a credit transaction to assure the soundness of the credit.

 

The law firm alleged that by requiring the bankruptcy trustee to obtain banking services exclusively from the bank, the bank conditioned its provision of services on the bankruptcy trustee's not obtaining equivalent services from a competitor of that bank, thus violating the anti-tying provisions of the federal Bank Holding Company Act. The district court rejected this argument and dismissed the lawsuit with prejudice.

 

On appeal, the Seventh Circuit held that the law firm "fails to distinguish between exclusive dealing and a single transaction."  Here, the Court explained, the bank did not condition its provision of services to the bankruptcy trustee on his agreeing to only hire the bank in any bankruptcy proceeding in which he is the trustee.  This the Court noted would be exclusive dealing.

 

Instead, the Seventh Circuit reasoned, the bankruptcy trustee here was free to hire a different bank and a different administrative services company in his next trusteeship.  Although the bankruptcy trustee might again hire the administrative services company and the bank in a future bankruptcy, he has not committed to hiring the company or the bank.

 

Thus, the Court held, there is no exclusive dealing.

 

The Seventh Circuit recited that the anti-tying provisions of the federal Bank Holding Company Act have been interpreted as "prohibiting exclusive dealing practices -- those that attempt to prevent customers from dealing with other banks."  Exchange National Bank of Chicago v. Daniels, 768 F.2d 140, 143 (7th Cir. 1985).  However, the Court noted that the bankruptcy trustee was not forced to deal with the administrative services company and the bank, and could easily hire a different administrative services company and bank in another proceeding.

 

In addition, the Court held that there was no evidence -- or even any argument -- that the $194.35 fee deducted from the plaintiff's share of the bankruptcy distribution for the bank's services was exorbitant or that the fee would have been lower had the trustee been allowed to hire a different bank or a plurality of banks.

 

Accordingly, the Seventh Circuit affirmed the judgment of the district court.

 

 

 

 

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   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

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

 

Webinars

 

and

 

California Finance Law Developments 

 

FYI: Mass SJC Holds Omission of Post-Foreclosure Notice Did Not Void Foreclosure

The Massachusetts Supreme Judicial Court ("SJC") recently affirmed a lower court's ruling that a mortgagee's failure to send a post-foreclosure notice required by Mass. Gen. Laws c. 244, § 15A does not render a foreclosure void. 

 

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

 

A mortgagee notified a borrower that he was in default under the terms of his mortgage.  The mortgagee subsequently foreclosed on the property, and commenced a summary process action.  The borrower then filed suit against the mortgagee, and the mortgagee moved to dismiss the borrower's claims. 

 

In opposition to the mortgagee's motion to dismiss, the borrower argued among other things that the foreclosure was void because the mortgagee failed to strictly comply with the power of sale set forth in Mass. Gen. Laws c. 183, § 21, and further regulated by Mass. Gen. Laws c. 183, §§ 11-17C. 

 

Specifically, the borrower argued that the mortgagee failed to comply with Mass. Gen. Laws c. 244, § 15A, which states:

 

a mortgagee conveying title to mortgaged premises pursuant to the provisions of this chapter shall, within thirty days of taking possession or conveying title, notify . . . the office of assessor or collector of taxes of the municipality in which the premises are located and any persons, companies, districts, commissions or other entities of any kind which provide water or sewer service to the premises, of said taking possession or conveying title.

 

The mortgagee did not dispute that it did not provide the required post-foreclosure notice, but maintained that this omission did not render the foreclosure void.  The trial judge agreed, noting that the duty of notification set forth in Section 15A arises after foreclosure, and is not a duty that affects the right to foreclose.  The borrower appealed.

 

On appeal, the SJC noted that it previously held that one who sells under the power of sale "must follow strictly its terms" or the sale will be "wholly void."  U.S. Bank Nat'l Ass'n v. Ibanez, 458 Mass. 637, 646 (2011). 

 

As the SJC also noted, the requirement of strict compliance and when it is, and is not, required, was further considered in several subsequent cases.  In those cases, the SJC collectively referred to Mass. Gen. Laws c. 244, §§ 11-17C, collectively, as the provisions that further regulate the power of sale set forth in Mass. Gen. Laws c. 183, § 21. 

 

However, the SJC noted that those earlier cases all related to the relationship between a mortgagee and mortgagor.  Here, the Court noted that the obligation set forth in Section 15A to provide a post-foreclosure notice to a taxing authority or water and sewer utility involves the foreclosing mortgagee and a third-party. 

 

Thus, the Court held that a failure to comply with the provisions of Section 15A does not create any potential harm to the mortgagor.  Accordingly, the SJC held, the mortgagee's failure to provide notice as set forth in Section 15A had no consequential effect on the borrower.

 

In affirming the trial court's decision, the SJC noted that, although the language in its earlier decisions suggested that failure to strictly comply with any provision contained in Mass. Gen. Laws. c. 244, §§ 11-17C will render a foreclosure void, that was not its intent. 

 

Accordingly, the SJC held that, because Mass. Gen. Laws c. 244, § 15A does not set forth any pre-foreclosure requirements that are part of the foreclosure process, a mortgagee's failure to comply with Section 15A's post-foreclosure provisions does not render a foreclosure void.

 

 

 

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   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

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

 

Webinars

 

and

 

California Finance Law Developments