FORECLOSURE TIPS: OVERVIEW OF TENANTS RIGHTS FOLLOWING EVICTION (NEW HOPE FOR MODIFYING INVESTMENT PROPERTIES?)
Hi again, we have posted information on previous blogs about tenants rights following eviction. Here is an overview of what we are looking at. The following is general legal information only and is not legal advice, or to be construed as legal advice. For specific questions please contact a real estate or foreclosure defense Attorney. Steve Vondran, Esq. practices law in the areas of Real Estate, Bankruptcy, and Foreclosure Defense. He assists homeowners in California and Arizona where he is licensed to practice law. He also holds a real estate broker's license in both states. He can be emailed at Steve@VondranLaw.com or called at (877) 276-5084.
•(1) IF YOU HAVE A FANNIE MAE LOAN THAT IS BEING THREATENED WITH FORECLOSED, FANNIE MAE, THROUGH THE LOAN SERVICER, MAY ACCEPT A DEED IN LIEU OF FORECLOSURE AND ALLOW A "DEED FOR LEASE" PROGRAM THAT ALLOWS UP TO A ONE YEAR LEASE AND POSSIBLE EXTENSIONS TO THE HOMEOWNER.
Here were some of the General Guidelines we discussed:
GENERAL GUIDELINES FOR FANNIE MAE DEED FOR LEASE RENT-BACK PROGRAM:
•(2) Contact your loan servicer and see if you are eligible for the program and eligible to execute a "deed-in-lieu" of foreclosure (this means you sign over the deed to the loan holder in lieu of being foreclosed on). The owner of the loan, through the loan servicer, must agree to accept the deed-in-lieu of foreclosure. This is a requirement of the program. In some cases, you may only qualify for Deed in Lieu if you only have a first mortgage. In other instances, you may qualify if the second mortgagee releases your lien.
•(3) The property must be primary residence / owner occupied (landlord-owner may qualify if tenant uses property as primary residence).
•(4) Borrower must be able to pay market rent for the lease (which is a one year lease and option to extend by term or month-to -month). A property management company will determine market rate.
•(5) Rent payment cannot exceed 31% of Gross Monthly Income (yes, you will be required to submit financials).
•(6) Borrower cannot have had more than 12 late payment s on loan and cannot be in Bankruptcy.
•(7) FHA and VA loans do NOT qualify.
•(8) Borrower must have made at least three payments on loan.
•(9) House remains for sale and any new owner of the home would take "subject to" the lease.
•(2) FREDDIE MAC HAS A SIMILAR LEASE-BACK PROGRAM (CALLED THE REO RENTAL INITIATIVE) BUT IT DOES NOT INVLOVE THE DEED IN LIEU OF FORECLOSURE. ONCE THE FREDDIE LOAN IS FORECLOSED ON, THE LOAN SERVER MAY GRANT THE HOMEOWNER, OR REMAINING TENANT OF A RESIDENTIAL INVESTMENT PROPERTY TO STAY OVER ON A MONTH TO MONTH BASIS.
•(3) UNDER THE HELPING FAMILIES SAVE THEIR HOMES ACT OF 2009, PURSUANT TO THE PROTECTING TENANTS AT FORECLOSURE ACT OF 2009, ANY BONA FIDE LEASE HOLDER MUST BE GIVEN AT LEAST 90 DAYS NOTICE BEFORE THEY C AN BE EVICTED.
Here is a look at the text of the law (the bold, italics, caps and underlines are my own-doing). Note the law expires ("sunsets") on December 31, 2012.:
TITLE VII--PROTECTING TENANTS AT FORECLOSURE ACT SEC. 701. SHORT TITLE. This title may be cited as the `Protecting Tenants at Foreclosure Act of 2009'.
SEC. 702. EFFECT OF FORECLOSURE ON PRE-EXISTING TENANCY. (a) In General- In the case of any foreclosure on a federally-related mortgage loan or on any dwellingor residential real property after the date of enactment of this title, any immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to-
(1) the provision, by such successor in interest of a notice to vacate to any bona fide tenant at least 90 days before the effective date of such notice; and
(2) the rights of any bona fide tenant, as of the date of such notice of foreclosure-
(A) under any bona fide leaseentered into before the notice of foreclosure to occupy the premises until the end of the remaining term of the lease, except that a successor in interest may terminate a lease effective on the date of sale of the unit to a purchaser who will occupy the unit as a primary residence, subject to the receipt by the tenant of the 90 day notice under paragraph (1); or
(B) without a lease or with a lease terminable at will under State law, subject to the receipt by the tenant of the 90 day notice under subsection (1), except that nothing under this section shall affect the requirements for termination of any Federal or State subsidized tenancy or of any State or local law that provides longer time periods or other additional protections for tenants.
NON-LEGAL EASE TRANSLATION: (but this is not legal advice please check with your attorney): Where a residential property sold in foreclosure, the remaining tenant (who must be a BONA FIDE TENANT - See Below for definition) is entitled to receive notice of their rights: mainly, that they have the right to live out the term of their lease - ASSUMING THE LEASE WAS ENTERED INTO PRIOR TO THE FORECLOSURE SALE, HOWEVER, the Successor in interest to the property (i.e. the bank that could not dump the property at a foreclosure sale, or, a successful bidder at the foreclosure auction) MAY TRY TO SELL THE PROPERTY, AND MAY EVICT THE TENANT WITH 90 DAYS NOTICE, BUT ONLY IF THE PERSON BUYING THE HOUSE PLANS ON LIVING THERE (AS OPPPOSED TO USING IT AS AN INVESTMENT PROPERTY OR SIMPLY "FLIPPING" THE PROPERTY).
If there is no lease in effect at the time of foreclosure (let's say a tenant was living in the property under an oral lease, or month to month lease terminable at will) the tenant must be given the 90 day notice to vacate before they can be evicted. That is a mouthful, I know. The end result is adding the three months along with the time needed to evict a tenant (assuming they do not voluntarily vacate) adds more frustration to lenders and third-party purchasers of the property and creates rules they must comply with.
WHAT IS A BONA FIDE TENANT UNDER THE HELPING FAMILIES SAVE THEIR HOMES ACT OF 2009 / PROTECTING TENANTS AT FORECLOSURE ACT OF 2009?
Only a bona fide tenant is entitled to the 90 day notice and the possibility to exercise the full term of any existing lease. Here is how the law defines bona fide tenants:
(b) Bona Fide Lease or Tenancy - For purposes of this section, a lease or tenancy shall be considered bona fide only if:
(1) the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant;
(2) the lease or tenancy was the result of an arms-length transaction; and
(3) the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit's rent is reduced or subsidized due to a Federal, State, or local subsidy.
(c) Definition- For purposes of this section, the term `federally-related mortgage loan' has the same meaning as in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602).
TRANSLATION: DO NOT TRY TO ENTER INTO A SHAM LEASE PRIOR TO BEING FORECLOSED UPON IN ORDER TO TRY TO GET AN EXTRA 90 DAYS IN THE HOUSE. BUT THEN AGAIN, I SUPPOSE THE LENDER WOULD BE FORCED TO LITIGATE THIS ISSUE IN AN EVICTION PROCEEDING AND PROVE IT IS A SHAM.
NOTE: There is also a section of the law that discuss tenants rights regarding Section 8 Housing. This Section states:
SEC. 703. EFFECT OF FORECLOSURE ON SECTION 8 TENANCIES. Section 8(o)(7) of the United States Housing Act of 1937 (42 U.S.C. 1437f(o)(7)) is amended-- (1) by inserting before the semicolon in subparagraph (C) the following: `and in the case of an owner who is an immediate successor in interest pursuant to foreclosure during the term of the lease vacating the property prior to sale shall not constitute other good cause, except that the owner may terminate the tenancy effective on the date of transfer of the unit to the owner if the owner- (i) will occupy the unit as a primary residence; and
(ii) has provided the tenant a notice to vacate at least 90 days before the effective date of such notice, and
(2) by inserting at the end of subparagraph (F) the following: `In the case of any foreclosure on any federally-related mortgage loan (as that term is defined in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602)) or on any residential real property in which a recipient of assistance under this subsection resides, the immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to the lease between the prior owner and the tenant and to the housing assistance payments contract between the prior owner and the public housing agency for the occupied unit, except that this provision and the provisions related to foreclosure in subparagraph (C) shall not shall not affect any State or local law that provides longer time periods or other additional protections for tenants.
BOTTOM LINE ON FEDERAL TENANTS RIGHTS FOLLOWING FORECLOSURE
What might this mean in practice? In one case, recently we tried to perform a loan workout a major lender on an investment property. They were not willing to work-out or modify the loan. I think they were confident the property will sell at a public auction, and the house (and compliance with the Tenants Rights Law set forth herein) would be somebody else's problem to deal with. After there were no bidders at the foreclosure sale, and the property reverted back to the lender, NOW THEY ARE MOTIVATED TO MODIFY THE LOAN AND WILL TAKE A BETTER LOOK AT A MODIFICATION. So the end result may be increased change of loan modification for investment properties. I do not believe lenders want to get into the "landlord business." Being a landlord carries its own inherent risks. Note: Although this is a federal law ("law of the land") individual states are free to provide even greater protections to tenants. Please consult with an attorney before making any decisions.
On May 20, President Obama signed into law "Helping Families Save Their Homes Act of 2009." This law is now the "law of the land" superseding any State laws that provide less protection to tenants of foreclosed loans.
The Law allows Tenants of foreclosed properties to stay in their homes for 90 days following eviction (for month to month leases), or for the entire term of the lease they are in (ex. a yearly lease). The protections go into effect immediately and expire at the end of 2012
It is estimated that in California, every one in three homes being foreclosed on has a tenant, so these are very important legal rights.
Fannie Mae Launches "Deed for Lease" Program for Homeowners who do not qualify for loan modifications
The following is general legal information only and is not legal advice, or to be construed as legal advice. For specific questions please contact a real estate or foreclosure defense Attorney. Steve Vondran, Esq. practices law in the areas of Real Estate, Bankruptcy, and Foreclosure Defense. He assists homeowners in California and Arizona where he is licensed to practice law. He also holds a real estate broker's license in both states. He can be emailed at Steve@VondranLaw.com or called at (877) 276-5084.
Here is a basic outline of the Fannie Mae DEED FOR LEASE program. As you may know, Fannie Mae is a government sponsored entity (partially privately owned corporation) that buys loans from so-called "lenders" and Fannie Mae then securitizes these loans, and the loans are often serviced by a loan servicer on their behalf as "investor" of the loan.
Fannie Mae has launched a new Deed for Lease Program designed to (1) Minimize displacement of families being foreclosed upon, and (2) Prevent neighborhood blight caused by vacant foreclosed homes.
Some initial research indicates as few as 1,200 homeowners may have been assisted by this program, while Fannie Mae has (during the same general period) foreclosed on roughly 57,000 homes. This means, don't count on the program working, but it is worth investigating. Fannie Mae showcases some of its foreclosed properties on www.HomePath.com
GENERAL GUIDELINES FOR FANNIE MAE DEED FOR LEASE RENT-BACK PROGRAM:
•(2) Contact your loan servicer and see if you are eligible for the program and eligible to execute a "deed-in-lieu" of foreclosure (this means you sign over the deed to the loan holder in lieu of being foreclosed on). The owner of the loan, through the loan servicer, must agree to accept the deed-in-lieu of foreclosure. This is a requirement of the program. In some cases, you may only qualify for Deed in Lieu if you only have a first mortgage. In other instances, you may qualify if the second mortgagee releases your lien.
•(3) The property must be primary residence / owner occupied (landlord-owner may qualify if tenant uses property as primary residence).
•(4) Borrower must be able to pay market rent for the lease (which is a one year lease and option to extend by term or month-to -month). A property management company will determine market rate.
•(5) Rent payment cannot exceed 31% of Gross Monthly Income (yes, you will be required to submit financials).
•(6) Borrower cannot have had more than 12 late payment s on loan and cannot be in Bankruptcy.
•(7) FHA and VA loans do NOT qualify.
•(8) Borrower must have made at least three payments on loan.
•(9) House remains for sale and any new owner of the home would take "subject to" the lease.
Note: Freddie Mac has a similar program, although it only applies following foreclosure of the property (no deed-in-lieu) and leases are typically month to month rather than a yearly lease.
Note2: From what I am told, the deed-in-lieu of foreclosure will have a less impact on your credit, although your credit will still be damaged.
Note3: Also, you need to check with your tax attorney, accountant, or CPA to see if there are any tax implications to signing over the deed-in-lieu. We are not financial advisers.
DO YOU HAVE AN FHA LOAN THAT NEEDS MODIFICATION? NEW PROGRAM ALLOWS PRINICPAL LOAN BALANCE REDUCTIONS AND FIXED INTEREST RATES.
The following is general information. Steve Vondran practices real estate, bankruptcy and foreclosure defense and can be reached at steve@vondranlaw.com or (877) 276-5084. He helps homeowners in California and Arizona where he is licensed to practice law.
Effective August 15, 2009 HUD announced a new loan modification program that would allow homeowners with an FHA loan, who could not qualify for any other loan modification, to apply for a FHA HAMP program (making home affordable), that may allow borrowers with FHA loans to keep their homes and avoid foreclosure. The general details of this FHA loan modification program are as follow (additional terms and conditions may apply, please contact an Attorney or a HUD Counselor at HUD.gov)
BASIC QUALIFICATION GUIDELINES:
•(1) You must be at least 30 days late on your mortgage, but no more than 12 months delinquent. However, you cannot force a delinquency merely by failing to make loan or mortgage payments
•(2) Seasoning requirement: the FHA loan must be at least 4 months old
•(3) The property must be the primary residence of the borrower, owner-occupied and a single family dwelling 104 units
•(4) The borrower must currently be paying more that 31% of their gross monthly income toward their mortgage payment (front-end DTI more than 31% of their gross monthly income)
•(5) The maximum back-end ratio (ratio of all expenses against gross monthly income) cannot exceed 55%. So if you make $10,000 gross monthly income, you cannot have more than $5,500 in total debt following the loan modification
•(6) Your loan servicer must be FHA approved and participating in the program (note: the fha loan servicer can be incentivized up to $1,250 to provide you with the modification
DETAILS OF THE FHA LOAN MODIFICATION:
•(1) The servicer may write down your mortgage to 31% of your gross monthly income (so if you make $10,000 per month, and your current mortgage payment is $4,000, the fha loan servicer can write you down to $3,100 monthly payment - which payment will include TAX, INSURANCE, PRINCIPAL AND INTEREST). What they call "PITI."
•(2) The amount of principal that gets written down is placed in a HUD partial Claim account. The amount placed into the HUD account would only be payable by the borrower if the house is sold or refinanced or at the end of the HAMP modification term.
•(3) If you have a second mortgage, the second mortgage holder will have to agree to subordinate their lien to the partial claim of HUD in order for the modification to work
•(4) The interest rate on the loan will be a fixed interest rate.
•(5) Impounding for tax and insurance is required.
•(6) OTHER IMPORTANT FEATURES: THERE ARE NO MAXIMUM LOAN LIMITS AND NO MAXIMUM MORTGAGE AMOUNTS AS THE OBAMA MAKING HOME AFFORDABLE PROGRAM HAS, AND IN ADDITION, YOU DO NOT HAVE TO HAVE A FANNIE OR FREDDIE LOAN AS THE CURRENT HAMP PROGRAM REQUIRES.
•(7) There are no credit application fees, no costs for the program, no mortgage insurance premiums, and no appraisal required.
•(8) You will be required to submit true and accurate financials, and an affidavit of hardship (yes, a true hardship is required (loss of job, loss of income, divorce, medial issues, etc.)
•(9) GROSS MONTHLY INCOME: In determining your gross monthly the lender or loan servicer may consider many different sources of income such as: wages/salaries, overtime, commissions, tips and bonuses, pension income, retirement income, unemployment income and rental income.
BOTTOM LINE: The FHA loan modification program is pretty darn cool if you qualify. Contact HUD for more details, or contact an attorney to discuss your foreclosure defense case. More information on the underwriting guidelines for the program can be found here: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-23mlatach.doc
The following is general legal information only and not to be construed as legal advice.
California tenants have rights when residential property is being foreclosed upon. The following two sections apply where a lender, trustee, beneficiary or authorized agent is seeking to foreclose on residential real property in the State of California:
(1) Under California Civil Code Section 2924.8 the following must be posted where the lender knows a tenant is in possession of residential real property subject to eviction
(a) Upon posting a notice of sale pursuant to Section 2924f, a trustee or authorized agent shall also post the following notice, in the manner required for posting the notice of sale on the property to be sold, and a mortgagee, trustee, beneficiary, or authorized agent shall mail, at the same time in an envelope addressed to the "Resident of property subject to foreclosure sale" the following notice in English and the languages described in Section 1632: "Foreclosure process has begun on this property, which may affect your right to continue to live in this property. Twenty days or more after the date of this notice, this property may be sold at foreclosure. If you are renting this property, the new property owner may either give you a new lease or rental agreement or provide you with a 60-day eviction notice. However, other laws may prohibit an eviction in this circumstance or provide you with a longer notice before eviction. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any rights you may have."
The following provisions also apply:
(b) It shall be an infraction to tear down the notice described in subdivision:
within 72 hours of posting. Violators shall be subject to a fine of one hundred dollars ($100).
A state government entity shall make available translations of the notice described in subdivision
which may be used by a mortgagee, trustee, beneficiary, or authorized agent to satisfy the requirements of this section.
This section shall only apply to loans secured by residential real property, and if the billing address for the mortgage note is different than the property address.
This section shall remain in effect only until January 1, 2013, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2013, deletes or extends that date.
(2) Under California Code of Civil Procedure Section 1161(b) the following provisions apply in regard to foreclosed property wherein a tenant resides in the subject property:
1161b. (a) Notwithstanding Section 1161a, a tenant or subtenant in possession of a rental housing unit at the time the property is sold in foreclosure shall be given 60 days' written notice to quit pursuant to Section 1162 before the tenant or subtenant may be removed from the property as prescribed in this chapter. (b) This section shall not apply if any party to the note remains in the property as a tenant, subtenant, or occupant. (c) This section shall remain in effect only until January 1, 2013, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2013, deletes or extends that date.
ABOUT US:
The Law Offices of Steve Vondran in licensed to practice law in California and Arizona. Steve Vondran, Esq. is a licensed attorney and real estate broker in California and Arizona.
Arizona Office (Esplanade): 2415 E. Camelback Road, Suite 700, Phoenix, AZ, 85020.California Office (Fashion Island): 620 Newport Center Drive, Suite 1100, Newport Beach, CA 92660_____________________________________________________________________________
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The foregoing information is general legal information only and shall not be relied upon as legal advice, or a substitution for legal advice. If you have specific legal questions about your foreclosure case, or loan modification case you should seek out the advice of a real estate attorney. In addition, the information posted above may not be 100% complete, accurate or up-to-date. The Law Offices of Steve Vondran is licensed to practice law in the state of Arizona and California and only seeks to solicit and serve Clients in these two states. Steve Vondran, Esq. is a licensed attorney and real estate broker in California and Arizona. He can be reached by email at steve@vondranlaw.com or toll free (877) 276-5084. This is an advertisement and communication pursuant to State Bar Rules. Please do not send us private or confidential information through any of our above-listed websites. Sending us an email does not create an attorney-client relationship (only signing a legal retainer will do this).
NOTICE: The foregoing information is general legal information only and shall not be relied upon as legal advice, or a substitution for legal advice. If you have specific legal questions about your foreclosure case, or loan modification case you should seek out the advice of a real estate attorney. In addition, the information posted above may not be 100% complete, accurate or up-to-date. The Law Offices of Steve Vondran is licensed to practice law in the state of Arizona and California and only seeks to solicit and serve Clients in these two states. Steve Vondran, Esq. is a licensed attorney and real estate broker in California and Arizona. He can be reached by email at steve@vondranlaw.com or toll free (877) 276-5084. This is an advertisement and communication pursuant to State Bar Rules. Please do not send us private or confidential information through any of our above-listed websites. Sending us an email does not create an attorney-client relationship (only signing a legal retainer will do this).
FEDERAL TRUTH IN LENDING LAW
The Truth in Lending Act (TILA) is a cornerstone of consumer credit legislation. The Statute is Congress's effort to guarantee the the accurate and meaningful disclosure of the costs of consumer credit and thereby to enable consumers to make informed choices in the marketplace. See 15 U.S.C. § 1601(a). The Act is designed to protect borrowers who are not on an equal footing with creditors either in bargaining power or with respect to the knowledge of credit terms. In other words, TILA was passed to aid the unsophisticated consumer. See Thomka v. A.Z. Chevrolet, Inc. 619 F.2d 246 (3d Cir. 1980). The Act is also remedial and must be liberally construed in favor of borrowers. See King v. California, 784 F.2d 910 (9th Cir. 1986). Except where Congress has relieved lenders of liability for noncompliance, it is a strict liability statute. Courts should continue to assure that consumers are accorded the full remedies available under the Act for violations found, even if they might seem technical. See Rodash v. AIB Mortgage Co., 16 F.3d 1142, 1145, 1149 (11th Cir. 1994). Although Congress permitted the Federal Reserve Board to issue regulations implementing TILA (Reg Z), and to issue interpretations and official staff commentary that the Courts consider to be persuasive authority, the FRB's authority is not without limits, and a regulation that conflicts with TILA cannot stand. See Fabricant v. Sears, Roebuck, Clearinghouse No. 54,563 (S.D. Fla. Mar. 5, 2002).
NOTICE OF RIGHT TO CANCEL - DISCLOSURE REQUIREMENTS
A common violation we find (and you can check your loan documents to see if you have such a violation) is that in a refinance transaction each borrower or person with ownership interest in the property did not receive two copies each of the federally required notice of right to cancel. If this is true, and your loan was originated within the statutory three year period (note that arguments for equitable tolling may exist) then this violation, although appearing technical in nature, can trigger an extended three year right to cancel your loan.
Under Federal Truth in Lending Law, each Borrower, or person with ownership interest in the property, (in a non-purchase loan or other exempt transaction) in which a security interest, including any such interest arising by operation of law, is or will be retained or acquired in any property which is used as the principal dwelling, shall be provided with TWO (2) COMPLETED copies EACH of a notice of right to rescind (cancel). It is the lender’s obligation to complete these forms and deliver TWO copies to each Borrower or person with Ownership interest in the Property. 15 U.S.C. § 1635(a), Reg. Z §§ 226.5(b), 226.23(b). If each borrower or person with ownership interest is not provided two adequate copies of this Notice, an extended three year right to rescind is permitted under the Federal Truth in Lending Law.
The notice shall identify the transaction or occurrence and clearly and conspicuously disclose the following:
The retention or acquisition of a security interest in the consumer's principal dwelling.
The consumer's right to rescind, as described in paragraph (a)(1) of this section.
How to exercise the right to rescind, with a form for that purpose, designating the address of the creditor's place of business.
The effects of rescission, as described in paragraph (d) of this section.
The date the rescission period expires. (See Reg. Z §§ 226.15(b)(5) and 226.23(b)(5))
See Meyer v. Argent Mortgage Co., (In re Meyer), 379 B.R. 529 (Bankr. E.D. Pa. 2007).If the notice is subject to more than one sensible reading, and different results ensue depending upon which of the readings is adopted, the creditor has not met the “clear and conspicuous standard.” SeeHandy v. Anchor Mortgage Corp., 464 F.32 760, 764 (7th Cir. 2006).
TWO KEY POINTS WE WILL ARGUE (when the two copies each are received but the rescission dates are not filled in – a common TILA violation)
(1)The Lender must fill in the form and dates (not the borrower) – If the creditor uses the proper model form, properly completed…......and fulfills all other requirements, the borrower has no rescission right. This position is supported by the actual text of the law - See 15 U.S.C. §1635(h) - which states:
Limitation on rescission:
“An obligor shall have no rescission rights arising solely from the form of written notice used by the creditor to inform the obligor of the rights of the obligor under this section, if the creditor provided the obligor the appropriate form of written notice published and adopted by the Board, or a comparable written notice of the rights of the obligor, that was properly completed by the creditor, and otherwise complied with all other requirements of this section regarding notice.”
The plain-meaning implication of this statutory provision SEEMS TO BE clear (and therefore is controlling), the lender has the obligation to complete these forms, it is not the borrowers duty to determine what dates to insert into the forms, much less at the direction of a mobile notary. In fact, the escrow instructions and lender's instruction sheet for the notice of right to cancel form usually set forth the requirement that the dates be inserted before the borrower is asked to sign all copies. We will present credible testimony on this point as well. For now, please see attached Exhibit “A” which sets forth the evidence currently in our possession, of which we will rely on, and will build our discovery foundation upon.
This reading of the law (that it is the lender's obligation to insert the dates, and not the borrowers) is also consistent with the requirement #5 (set forth above) that “the lender shall clearly and conspicuously identify the date the rescission period expires.” In fact, at least two courts have held in the First and Second circuit: “the complexity of business transactions under TILA means that the average consumer cannot figure out when TILA rights expire.....” See Bonney v. Wash. Mutual Bank, No. 08-30087 (D. Mass. July 30, 2008). Placing this burden on the borrower strips the “truth” from the transaction.
Finally, adding yet more support that the lender, not the borrower, must fill in the dates of the TILA right to rescind notice is a holding from another court which held: “Under both TILA and Regulation Z, the test for disclosure of the rescission right is whether the form of notice that the lender provided constitutes a clear notice of that right. See Porter v. Mid-Penn Consumer Discount Co., 961 F.2d 1066, 1076 (3d Cir.1992) (“the law does not require an ideal notice of rescission rights, just a clear, accurate and conspicuous one.”).........the right to rescind can be clearly disclosed only ifthose two dates are filled in.” See Meyer v. Argent Mortgage Co., (In re Meyer), 379 B.R. 529 (Bankr. E.D. Pa. 2007).
(2) The Lender is required to provide TWO copies of the notice of right to cancel to EACH borrower along with a copy of all of the material TILA disclosures. Failure to meet these requirements also provides an extended three year right to rescind the loan transaction. See 15 U.S.C. § 1635(a); Reg. Z §§ 226.15(b), 226.23(b) and Webster v. Centex Home Equity Corp. (In re Webster), 300 B.R. 787 (Bankr. W.D. Okla. 2003).
HERE IS ANOTHER WAY TO GET THE EXTENDED THREE YEAR RESCISSION RIGHT (USUALLY A LOAN AUDIT IS REQUIRED) The material disclosures required in a closed-end transaction, (APR, including the existence of a variable rate feature, Finance Charge, Amount Financed, Total of Payments, and Payment schedule) the failure of which to disclose results in an extended three year right to rescind. See Gaono v. Town & Country Credit, 324 F.3d 1050, 1053, (8th Cir. 2003).
Where only one copy of the notice of right to cancel is received, or where each borrower does not receive two signed and completed copies of the required right to cancel an extended three year right to rescind will apply.
Note: the lender will argue “the borrower signed an acknowledgement that they received two copies each, and therefore there is no TILA violation, sorry case closed.” It seems these lenders and loan servicers forget to read the following section of the law which we will frequently have to raise.
REBUTTABLE PRESUMPTIONS UNDER TILA
Even assuming for the sake of argument that there are two signed, dated, and accurately completed notice of right to cancel documents in the lender's possession (or the consumer's acknowledgment of receipt of two completed copies), this merely raises a rebuttable presumption that the lender delivered two copies to the borrower. See 15 U.S.C. § 1635(c), and Johnson v, New Century Mortgage Corp., 320 F. Supp. 2D 606, 611 (E.D. Mich. 2004). Courts permit competent testimony to rebut this assertion of the lender.
The critical factor is not whether the creditor has two signed and completed copies of the notice, but whether the borrower has possession of two signed, dated, and completed copies of the notice of right to cancel. Whether borrowers were delivered a blank notice of right to cancel is a question of fact that will not be decided on a motion to dismiss. See Clay v. Johnson, 77 F.Supp. 2D 879 (N.D. Ill. 1999). The debtor's denial of receipt of the notices and disclosures creates a question of fact that will not be decided on summary judgment even where the borrower signed acknowledgement of having received two copies of the notice. See Moore v. Mortgagestar, Inc. 2002 U.S. Dist. LEXIS 27457, (W.D. W. Va. Dec. 18, 2002). Once the borrower rebuts the presumption of delivery (through competent testimony, affidavits, etc.) the burden shifts to the creditor to prove the delivery of the documents. See Bell v. Parkway Mortgage, Inc., 309 B.R. 139, 157 (Bankr. E.D. Pa 204).
In addition, where the debtors testify that they did not receive the disclosures (even if not “totally convincing”), the debtor's should prevail if the credit cannot produce from its own records any copy of the disclosures. See In re Pinder, 83 B.R. 905, 913.
In most cases, especially where the borrower has credibility and kept track of all their loan documents (and where a mobile notary was used to sign the loan docs) the borrower can normally make a fair argument to rebut any assertion that the lender complied with the clear and conspicuous notice requirements and can counter any such assertion with competent testimonial evidence.
THE FOLLOWING IS SOME GENERAL INFORMATION ON EXERCISING RESCISSION RIGHTS:
THREE YEAR EXTENDED RIGHT TO RESCIND
(a) Consumer's right to rescind. (1) “In a credit transaction in which a security interest is or will be retained or acquired in a consumer's principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind the transaction….”
(b) Exercising the right of Rescission:
226.23(3) –“The consumer may exercise the right to rescind until midnight of the third business day following consummation, delivery of the notice required by paragraph (b) of this section, or delivery of all material disclosures, whichever occurs last.If the required notice or material disclosures are not delivered, the right to rescind shall expire 3 years after consummation, upon transfer of all of the consumer's interest in the property, or upon sale of the property, whichever occurs first. In the case of certain administrative proceedings, the rescission period shall be extended in accordance with section 125(f) of the Act.” There is also legal precedence for “tolling” the statute beyond three years where fraudulent concealment is shown. See Bank of New York v. Waldon, 751 N.Y.S.2d 341 (Sup. Ct. 2002).
226.23(2): (2) “To exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram or other means of written communication. Notice is considered given when mailed, when filed for telegraphic transmission or, if sent by other means, when delivered to the creditor's designated place of business.” There is also legal precedence for the proposition that filing a lawsuit demanding to exercise rescission rights is also sufficient notice. See Garedakis v. Indymac Bank, 2004 WL 2254676 (N.D. Cal. Oct. 4, 2004) and Jones v. Saxon Mortgage, Inc. 161 F.2d 2 (table), 1988 WL 614150 (4th Cir. Sept. 9, 1998).
EFFECTS OF RESCISSION UNDER TILA (IN GENERAL):
I. STEP ONE:
When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void and the consumer shall not be liable for any amount, including any finance charge.
THIS MEANS THE SECURITY INTEREST BECOMES VOID BY OPERATION OF LAW.
Following the 2003 Yamamoto decision (discussed below) the FRB added language to the commentary, (Section 226.23 of Regulation Z implements § 1635(b)). Which stated:
When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void and the consumer shall not be liable for any amount, including any finance charge.
Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action necessary to reflect the termination of the security interest.
If the creditor has delivered any money or property, the consumer may retain possession until the creditor has met its obligation under paragraph (d)(2) of this section. When the creditor has complied with that paragraph, the consumer shall tender the money or property to the creditor....
The procedures outlined in paragraphs (d)(2) and (3) of this section may be modified by court order.
Note: This suggests section (1) above is NOT altered, and so when a consumer rescinds, "the security interest becomes void." Unless the Court alters the procedure, the Courts have the discretion.
Where the TILA statute is clear it must be followed. Courts only have the power to alter whether the lender has to tender first, or the borrower has to tender first. See Yamamotov. Bank of New York, 329 F.3d 1167 (9th Cir. 2003), but see Semar v. Platte Valley Federal Savings & Loan Association, 791 F.2d 699, 705-06 (9th Cir.1986) (which stands for the proposition that the Court can alter the “procedure” of TILA but not the “substance” of TILA). The substance of TILA, as described above, is that the security interest becomes void upon the exercise of rescission, (although the Court can alter this procedure by requiring the borrower to tender first).
In Yamamoto, the Court held:
“There is no reason why a court that may alter the sequence of procedures after deciding that rescission is warranted, may not do so before deciding that rescission is warranted when it finds that, assuming grounds for rescission exist, rescission still could not be enforced because the borrower cannot comply with the borrower's rescission obligations no matter what. Such a decision lies within the court's equitable discretion, taking into consideration all the circumstances including the nature of the violations and the borrower's ability to repay the proceeds. If ... it is clear from the evidence that the borrower lacks capacity to pay back what she has received (less interest, finance charges, etc.), the court does not lack discretion to do before trial what it could do after. Determinations regarding rescission procedures shall be made on a “case-by-case basis, in light of the record adduced.”
This case illustrates that the Courts hold the ultimate power to exercise their discretion in any TILA rescission case, and does not NECESSARILY require that the borrower prove its ability to tender as a pre-condition to exercising rescission rights.
In fact, a California Court, in Pelayo v. Home Capital Funding, Slip Copy, 2009 WL 1459419, S.D.Cal.,2009, recently denied a lenders motion to dismiss a TILA rescission claim where the Defendant argued that the borrower was required to tender before rescission could be allowed (the Defendant essentially arguing that the security instrument was not automatically void), and where the Defendant argued the Court could not hear the case until the lender made its decision within 20 days (essentially arguing the TILA claim was not ripe for review). The Court held that the case could be heard and denied Defendant’s motion to dismiss. This ruling suggests that although the Court is permitted to modify the rescission procedure and require proof of tender by the Borrower first, it was also free NOT to modify the procedure and essentially treat the security instrument as being void (as the TILA statute requires), thus making the rescission case ripe for review.
There is also legal precedent which suggests that a Court could exercise its “equitable discretion” under TILA and allow the borrower to make payments over time as part of meeting the borrower’s tender requirement (essentially reducing the monthly payment over time). See. In re Stuart, 367 B.R. 541, 552 (Bankr.E.D.Pa.2007); Shepeard v. Quality Sliding & Window Factory, Inc., 730 F.Supp. 1295 (D.Del.1990) (allowing borrower to satisfy tender obligation by making monthly payments); Mayfield v. Vanguard Sav. & Loan Ass'n, 710 F.Supp. 143, 149 (E.D.Pa.1989) (allowing borrower to satisfy tender obligation by making monthly payment).
Also note, SOMETIMES (THIS IS PULLED OFF ONE LOAN) the Notice of Right to Cancel Form given to the borrower states:
“If you cancel the transaction, the mortgage/lien/security interest is also canceled. Within 20 CALENDAR DAYS after we receive your notice, we must take the steps necessary to reflect the fact that the mortgage/lien/security interest on your home has been cancelled, and we must return to you any money or property you have given us or to anyone else in connection with this transaction.
You may keep any money or property we have given you until we have done the things mentioned above, but you must then offer to return the money or property. If it is impractical or unfair for you to return the property, you must offer its reasonable value. You may offer to return the property at your home or at the location of the property. Money must be returned to the address below. If we do not take possession of the money or property within 20 CALENDAR DAYS of your offer, you may keep it without further obligation.”
This SEEMS TO BE a legal assertion, in the form of an admission, that the security interest is automatically void upon the consumer’s exercise of rescission. Upon the consumers act of “cancelling the transaction” the “mortgage/lien/security interest is also cancelled.” A creditor should not be permitted to renege on this assertion (estoppels applies) and the lender is bound by law to honor it.
II. STEP TWO
Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action necessary to reflect the termination of the security interest.
Note: THE LENDER /SERVICER WILL NOT WANT TO DO THIS SO DON’T COUNT IT. In most cases, they would rather face a judge and see if you can prove your ability to tender.
III. STEP THREE
If the creditor has delivered any money or property, the consumer may retain possession until the creditor has met its obligation under paragraph (d)(2) of this section. When the creditor has complied with that paragraph, the consumer shall tender the money or property to the creditor or, where the latter would be impracticable or inequitable, tender its reasonable value. At the consumer's option, tender of property may be made at the location of the property or at the consumer's residence. Tender of money must be made at the creditor's designated place of business. If the creditor does not take possession of the money or property within 20 calendar days after the consumer's tender, the consumer may keep it without further obligation.
Again, the Court may alter only steps two and step three per the Federal Reserve Board’s commentary set forth above. Such FRB opinion should be seen as persuasive legal authority.
THE OTHER NICE THING ABOUT A TRUTH IN LENDING RESCISSION CLAIM IS THAT IT IS APPLICABLE AGAINST ANY AND ALL LOAN ASSIGNEES WITHOUT FEAR OF A HOLDER IN DUE COURSE ARGUMENT.
ASSIGNEE LIABILTY FOR RESCSSION
While assignees are only liable for TILA “statutory damages” that are “apparent on the face of the loan documents” assignees are subject to the rescission right to the same extent as the original creditor.
15 U.S.C. §1641(c) states:
Right of rescission by consumer unaffected
Any consumer who has the right to rescind a transaction under section 1635 of this title may rescind the transaction as against any assignee of the obligation.
See also the case of Ocwen Fed. Bank v. Russell, 53 P.3d 312 (Haw Ct. App. 2002) which rejected the assignees holder in due course argument as being no defense to rescission. As other courts have held: “without such protection for the consumer the right of rescission would provide little or no effective remedy.” See Stone v. Mehlberg, 728 F. Supp. 1341, 1348, (W.D. Mich 1989). A loan servicer is deemed an assignee if it “is or was the holder of the obligation.” See 15 U.S.C. §1641(f)(1). Please see our request to identify the holder of the loan obligation or master loan servicer below.
As a final note, in regard to reviewing whether any additional damages may be levied against an assignee of a loan, in the Meyer case cited above the Court held:
“TILA Section 1641 addresses the circumstances under which an assignee may be liable for violations committed by the prior holder. For loans-such as this one-which are secured by real estate, the statute provides as follows:
Liability of assignee for consumer credit transactions secured by real property
Except as otherwise specifically provided in this subchapter, any civil action against a creditor for a violation of this subchapter, and any proceeding under section 1607 of this title against a creditor, with respect to a consumer credit transaction secured by real property may be maintained against any assignee of such creditor only if -
(A) the violation for which such action or proceeding is brought is apparent on the face of the disclosure statement provided in connection with such transaction pursuant to this subchapter; andthe assignment to the assignee was voluntary.
For the purpose of this section, a violation is apparent on the face of the disclosure statement if the disclosure can be determined to be incomplete or inaccurate by a comparison among the disclosure statement, any itemization of the amount financed, the note, or any other disclosure of disbursement....”
We hereby reserve our rights and will seek to hold any assignees liable for any other violations uncovered following discovery.
Also note there is case law that dictates an injunction against foreclosure is also permitted even in the absence of a tender ability at the outset of the litigation. “Rescission premised upon tender is not mandatory but an option within the equitable powers of the court.” Avila v. Stearns Lending, 2008 WL 1378231 (C.D. Cal April 7, 2008).
Also note, the Courts have recognized the right to seek an injunction against foreclosure where this right (rescission) is ignored by the lender or assignee. See Horton v. California Credit Corp., 2009 WL 700223 (S.D.Cal.) 2009. Note, that the 9th Circuit Court did not require an initial “tender” obligation from the borrower in granting the injunction where missing dates on the TILA notice of right to cancel were found.
CONCLUSION
If you have a refinance loan within the last three years (meaning it has not been more than three years since your last refinance, you may want to look at your previous loan file and determine whether or not you have a right to rescind the loan. In some cases, you will need to perform a mortgage loan audit to detect under-disclosure of APR and finance charges and other material disclosure violations. In other cases, look at your notice of right to cancel documents and see if you got two completed copies of the notice of right to cancel document (for each borrower or person with ownership interest in the property) and see if the rescission dates are filled in and otherwise accurate. If not, you may have an extended three year right to rescind your loan, and if so, you need to send in a rescission letter to protect your rights. If the lender refuses to acknowledge your legal rights under Truth in Lending Law (TILA) you may have grounds to file for an injunction to halt any slated foreclosures. In many cases, you will need to show some ability to tender back to the lender, the amounts which you would owe them (your loan balance) minus the amounts they owe you pursuant to their TILA tender obligation.
This area of the law can be tricky, so you may want to meet with an Attorney to discuss your case. In California, no attorney or other persona may accept advance fees for loan modifications pursuant to SB 94.
The following is general legal information only and should not be relied upon as legal advice or a substitute for legal advice. For specific advice, contact an attorney. Steve Vondran, Esq. is a Real Estate Attorney licensed to practice law in Arizona (serving greater Phoenix) and California (Serving most areas of California). He currently practices foreclosure defense and predatory lending law. He can be emailed with comments at steve@vondranlaw.com
Introduction: Many of the major lenders have been implementing President Obama’s Making Home Affordable Loan Modification Program (HAMP). The details of the program provide that lenders who believe that California and Arizona homeowners (these are the two states I am licensed to practice law in but the program applies in other states as well) qualify for loan modification programs should provide the homeowner with a three month “trial plan” modification program.
The lenders have been rolling out HAMP and have been sending homeowners these three month trial plan agreements.
For the purposes of this article I will refer to these agreements as “contracts” for the simple reason that they look like contracts (they have terms and conditions like a contract and signature blocks for both parties). The homeowner typically performs as if they are adhering in good faith to the terms of the contract, and the lender is accepting payments on the stated understanding that of the homeowner makes the three required payments set forth in the “contract” that the “lender” (see our produce the note articles) will provide the homeowner the badly needed loan modification that the lender has agreed to give if all payments are made under the trial plan, and assuming no material representations of the homeowner have changed.
Everything sounds groovy so far. The lenders appear to be working out loan modifications and saving neighborhoods from financial disaster, and the bailout money appears to be put to a worthwhile use.
What might/could happen next is interesting, yet disturbing at the same time:
The borrower typically makes all of their three scheduled trial plan payments on time
The borrower also submits all of the requested financial documentation in complying with the terms of the contract
After the third and supposedly final payment is made, we are learning some homeowners are told that either (a) they do not qualify for the loan modification (b) there are missing documents and more must be submitted before a “final decision” can be reached, and or (c) they get a whole new trial plan offer as if the homeowner is supposed to start all over again.
Another variation is getting the final loan mod and being asked to submit all the final documentation on the very next day (which is literally impossible to do, but which raises a “mailbox rule” issue for contract lawyers).
Bottom line, the promised final mod seems to be getting stuck in the loan modification pipeline. Is this being intentionally done? Are the lenders simply overloaded? Are they playing games with homeowners so they can simply “suck” more payments out of California and Arizona homeowners who may not be making their mortgage payments in the hopes of a loan modification (some people are told you will not be considered for a loan modification unless you are late on your payments – there is some truth to that but “imminent threat of being late” on the mortgage is supposed to be considered as well).
So we are left with a bunch of homeowners scratching their heads as to what is happening with the federal bailout money and communities that seek rising foreclosure stripping away their equity asking the same questions. Are the lenders engaged in fraud? Is this a bad faith breach of contract? Are the lenders required to follow-through with the loan modification when the borrower complies with the terms of the modification trial plan agreement?
LET’S DISCUSS SOME BASIC LEGAL INFORMATION AND ATTACKS THAT MAY BE USED TO FORCE THE LENDER TO COMPLY WITH THE AGREEMENTS (SPECIFIC PERFORMANCE OF THE CONTRACT).
(1) Fraud / Negligent Misrepresentation
Generally speaking, the elements of fraud are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity; (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damages. Lazar v. Superior Court, 12 Cal. 4th 631, 638, 49 Cal. Rptr. 2d 377 (1996).
The elements of negligent misrepresentation are similar to intentional fraud except for knowledge that the representation is false. Charnay v. Cobert, 145 Cal. App. 4th 170, 184-85, 51 Cal. Rptr. 3d 471, 482 (2006). In a claim for negligent misrepresentation, the elements are: (1) the misrepresentation of a past or existing material fact; (2) without reasonable ground for believing it to be true; (3) with intent to induce another’s reliance on the fact misrepresented; (4) justifiable reliance on the misrepresentation; and (5) resulting damages. Id.; see also Alliance Mortgage Co. v. Rothwell, 10 Cal. 4th 1226, 1239, fn. 4, 44 Cal. Rptr. 2d 352 (1995) (negligent misrepresentation is a species of the tort of deceit and like fraud, requires a misrepresentation, justifiable reliance, and damages).
In the loan modification trial plan offer setting the lender purports (depending upon the language of the trial plan offer – each document must be reviewed to make an accurate determination), the lender is acting as if the borrower applies for a loan modification. If the lender / loan servicer have absolutely no intent to provide a loan modification at all, (legal discovery would be required in most cases to try to prove this) then it would appear the lender is doing nothing more than to try to obtain additional loan payments from the borrower, and to ultimately “time release” the foreclosure of the property onto the marketplace.
These are items that may be tough to prove, but as some of the article on our website indicate, lenders are aware that not all loan modification trial plans will result in a successful loan modification. Where the lender/servicer has absolutely no intent to provide a modification, the trial plan offer may be fraudulent, and as discussed below, violate the duty of good faith and fair dealing implied in every contract.
Again, however, the lenders/servicers will probably try to argue that the trial plan agreement is not really a contract at all, but rather an offer to negotiate or some type of preliminary negotiation. Again, you are well advised to have an attorney review your trial plan agreement.
(2) Fraudulent Inducement
This is a claim which is like a hybrid claim of breach of contract and tort. The essence of the claim is that the defendant fraudulently induced a party to enter into a contract.
This cause of action generally requires knowing and intentional false statements of material fact (a material factual omission may not be sufficient but should be explored) which reasonably induce a homeowner to rely on the statements, and which false statements were relied upon to their detriment.
Where this action lies, the Courts may allow specific performance of the contract as a remedy and where fraud is clearly shown, punitive damages may be available.
(3) Breach of Covenant of Good Faith and Fair Dealing
Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” Carma Developers, Inc. v. Marathon Dev. Cal., Inc., 2 Cal.4th 342, 371, 6 Cal.Rptr.2d 467, 826 P.2d 710 (1992) (quoting Restatement (Second) of Contracts § 205). “The covenant of good faith finds particular application in situations where one party is invested with a discretionary power affecting the rights of another. Such power must be exercised in good faith. See Marsu, B.V. v. Walt Disney Co.,185 F.3d 932, C.A.9 (Cal.),1999.
The Cause of action for tortious breach of implied covenant of good faith and fair dealing exists if special relationship between parties is characterized by elements of public interest, adhesion, and fiduciary responsibility. Kittredge Sports Co. v. Superior Court, 213 Cal.App.3d 1045, 261 Cal.Rptr. 857
The duty of good faith and fair dealing arises from every contract as an implied covenant generating both a contractual obligation and a duty in tort. Hess v. Transamerica Occidental Life Ins. Co., 235 Cal.Rptr. 715. The Implied covenant of good faith and fair dealing is an equitable doctrine which may validate otherwise unenforceable agreements. It is a doctrine of equity that the courts may use to achieve a just result when a contract (ex. The loan modification trial plan agreement) is unclear regarding a party's obligations and the doctrine can then allow the court to enforce what might otherwise be deemed an unenforceable agreement.
The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the benefits of the agreement Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d at p. 818, 169 Cal.Rptr. 691, 620 P.2d 141.
A “breach of a specific provision of the contract is not a necessary prerequisite” to a breach of an implied covenant of good faith and fair dealing. Carma Developers, Inc. v. Marathon Dev. Cal., Inc., 2 Cal.4th 342, 371, 6 Cal.Rptr.2d 467, 826 P.2d 710 (1992) “[T]he covenant is implied to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenant) frustrates the other party's rights of the benefits of the contract.” See Los Angeles Equestrian Ctr., Inc. v. City of Lose Angeles, 17 Cal.App.4th, 434, 447, 21 Cal.Rptr.2d 313 (1993).
As a general principle, there can be no breach of the implied promise or covenant of good faith and fair dealing where the contract expressly permits the actions being challenged, and the defendant acts in accordance with the express terms of the contract. See Clark v. America's Favorite Chicken Co., 110 F.3d 295 (5th Cir. 1997) (applying Louisiana law)
This is so even where the contractual provision at issue is one that purports to grant to the defendant absolute discretion to take certain actions or engage in certain conduct under the contract; such a provision, stated simply, permits the defendant substantial latitude, and as long as the discretion is exercised as permitted under the contract, and without evident bad faith motive or malice, its exercise cannot be a breach of the more general implied promise of good faith and fair dealing. See Clark v. America's Favorite Chicken Co., 110 F.3d 295 (5th Cir. 1997).
Yet, even where a defendant is given absolute discretion, it must exercise that discretion in good faith. See Travellers Intern., A.G. v. Trans World Airlines, Inc., 41 F.3d 1570 (2d Cir. 1994) . Thus, a party who "evades the spirit of the contract,” willfully renders imperfect performance, or interferes with performance by the other party, may be liable for breach of the implied covenant of good faith and fair dealing. See Paul v. Howard University, 754 A.2d 297, 145 Ed. Law Rep. 702 (D.C. 2000).
Some courts have focused on the reasonable expectations of the parties, (See Savers Federal Sav. and Loan Ass'n v. Home Federal Sav. and Loan Ass'n, 721 F. Supp. 940, 945 (W.D. Tenn. 1989)while others have focused on whether the action taken by the breaching party was arbitrary and capricious. See Coles Dept. Store v. First Bank (N.A.)--Billings, 240 Mont. 226, 783 P.2d 932, 936, 11 U.C.C. Rep. Serv. 2d 1074 (1989).
In determining whether a party has breached the obligation or covenant of good faith and fair dealing, a court must examine not only the express language of the parties' contract, but also any course of performance or course of dealing that may exist between the parties. See Sanpete Water Conservancy Dist. v. Carbon Water Conservancy Dist., 226 F.3d 1170 (10th Cir. 2000) (applying Utah law). Note: The court may be unwilling to imply any duty that the parties could not reasonably expect from the terms of their contract). Hejmadi v. Amfac, Inc., 202 Cal. App. 3d 525, 547-549, 249 Cal. Rptr. 5, (1st Dist. 1988).
Generally speaking, a Breach of the covenant is a breach of contract. Tort recovery for breach of the covenant of good faith and fair dealing is available only in limited circumstances, generally involving a special relationship between the contracting parties, such as the relationship between an insured and its insurer.
Potential Damages: In general, contract damages are available (not including pain and suffering or emotional damages) but the “benefit of the bargain” damages (consequential damages and perhaps specific performance of the contract – forcing the other party to provide the loan modification as agreed in the trial plan modification offer). See Pasadena Live, LLC v. City of Pasadena, 114 Cal. App. 4th 1089, 8 Cal. Rptr. 3d 233 (2d Dist. 2004), reh'g denied, (Feb. 4, 2004).
(4) Violation of California Civil Code Section 17200
California's unfair competition law (Business and Professions Code Section 17200 et seq.) defines “unfair competition” to mean and include “any unlawful, unfair or fraudulent business act or practice.” See Kasky v. Nike, Inc., 27 Cal. 4th 939, 949, 119 Cal. Rptr. 2d 296 (2002). By defining unfair competition to include any unlawful business act or practice, “the UCL permits violations of other laws to be treated as unfair competition that is independently actionable.” In essence, an action based on the UCL to redress an unlawful business practice “borrows” violations from other laws and treats these violations, when committed pursuant to business activity, as unlawful practices independently actionable under Section 17200 and subject to the distinct remedies provided there under. See Stop Youth Addiction, Inc. v. Lucky Stores, Inc., 17 Cal. 4th 553, 566-67, 71 Cal. Rptr. 2d 731 (1998).
There is no single definition for the phrase "unfair business practices." It is an evolving concept reflecting the ingenuity of unscrupulous business persons in concocting new schemes to gain advantage at someone else's expense. The existence of an unfair business practice is a question of fact determined in light of all the circumstances surrounding a case. See People ex rel. Bill Lockyer v. Fremont Life Ins. Co., 104 Cal.App.4th 508, 128 Cal.Rptr.2d 463, Cal.App. 2 Dist.,2002.
Sperry & Hutchinson, supra, 405 U.S. 233, 92 S.Ct. 898, 31 L.Ed.2d 170, describes the test for fairness as one developed by the Federal Trade Commission to determine “whether a practice that is neither in violation of the antitrust laws nor deceptive is nonetheless unfair.” The test as stated by the court is as follows: “ ‘(1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise-whether, in other words, it is within at least the penumbra of some common-law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers (or competitors or other businessmen).’
It is not necessary that all three components of this standard be satisfied; a practice may be unfair because of the degree to which it meets one of these criteria, or because to a lesser extent it meets all three. Expert testimony may be used to prove that business conduct is unfair. The court must determine on a case-by-case basis whether the alleged conduct is unethical, oppressive, or unscrupulous, or whether it was an appropriate exercise of good business judgment. This is a balancing test, whereby the fact finder weighs the utility of the offending party's conduct against the gravity of harm to the injured party or the public at large.
(5) Violation of California Consumer Legal remedies Act (Cal Civ. Code Section 1770 et seq.)
California's Consumers Legal Remedies Act (CLRA) establishes a nonexclusive statutory remedy for unfair methods of competition and unfair or deceptive acts or practices undertaken by any person in a transaction intended to result or which results in the SALE OR LEASE OF GOODS OR SERVICES to any consumer. See Gonzalez v. Proctor and Gamble Co., S.D.Cal.2007, 247 F.R.D. 616.
Purpose of California Consumers Legal Remedies Act (CLRA) is to attempt to alleviate social and economic problems stemming from deceptive business practices. See America Online, Inc. v. Superior Court (App. 1 Dist. 2001) 108 Cal.Rptr.2d 699.
I. Loan transactions are “goods or services” under the Act.
California Civil Code section 1754 provides that the CLRA "shall not apply to any transaction which provides for the construction, sale, or construction and sale of an entire residence or ... for the sale of a lot or parcel of real property, including any site preparation incidental to such sale." However, this provision bars application of the CLRA only to transactions for the sale or construction of real property; it does not also exclude financial services related to such transactions.
Cases in support of this proposition include:
Jefferson v. Chase Home Finance LLC, No. C06-6510, 2007 WL 1302984 (N.D.Cal. May 3, 2007) (concluding that the loan transactions between a mortgage finance company and the plaintiff involved "more than the provision of a loan; they also include the financial services of managing the loan.")
Knox v. Ameriquest Mortgage Co., No. C05-00240, 2005 WL 1910927 (N.D.Cal. Aug. 10, 2005) (finding that, in the context of predatory lending allegations and after a review of the case law, "California courts generally find financial transactions to be subject to the CLRA.");
In re Ameriquest Mortgage Co., No 05-CV-7097, 2007 WL 1202544, (N.D.Ill. Apr. 23, 2007) (stating, in dicta, that "it is not inconceivable that Plaintiffs could prove the existence of tangential 'services' associated with their residential mortgages and establish that these transactions were covered by the CLRA.").
In an unreported decision (Jefferson v. Chase Home Finance, LLC - 2007 WL 1302984, N.D.Cal., 2007.) the Court stated:
"the arranging of the loan, including but not limited to its origination, processing, documentation, wire-transmittal and underwriting constitutes 'services' within the meaning of subsection(b) of § 1761 of the CLRA......Plaintiffs did not seek just a loan; they sought defendants' services in developing an acceptable refinancing plan by which they could remain in possession of their home. Thus, unlike the Berry case cited above......the present case involves more than the mere extension of a credit line. Instead, the circumstances here deal not just with the mortgage loan itself, but also with the services involved in developing, securing and maintaining plaintiffs' loan.....in fact, in an effort to create an appropriate refinancing package, plaintiffs met with defendants' agent three times before finally agreeing on a payment plan that plaintiffs and defendants found acceptable.”
II. Prohibited Acts
Section 1770 prohibits, (among other things), the following:
Knowingly misrepresenting the character, uses and benefits of its products and services; Knowingly misrepresenting the standard and quality of products and services; Advertising goods or services with intent not to sell them as advertised; Misrepresenting that the consumer will receive.....an economic benefit if the earning of the benefit is contingent on an event to occur subsequent to the consummation of the transaction and, inserting an unconscionable provision in the contract (the Court will look to California Civil Code section 1670.5 in making the unconscionability determination).
CASES ILLUMINATING THE UNCONSCIONABILITY PRINCIPLE INCLUDE THE FOLLOWING:
Civil Code section 1670.5 follows the law developed primarily in the sale of goods, governed by the Uniform Commercial Code, in enabling courts to grant relief from unconscionable contracts or clauses. “The principle is one of the prevention of oppression and unfair surprise.” Whether a contract is unconscionable or not is a question of law for the Court. Shadoan v. World Savings & Loan Assn., 219 Cal.App.3d 97, 268 Cal.Rptr. 207 (1990).
As stated by the court in the seminal case of Williams v. Walker-Thomas Furniture Company (D.C.Cir.1965) 350 F.2d 445, 449, “Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.”
Absence of meaningful choice occurs when a party to a bargain has little choice but to accept the terms stated by the other party. Hidden Terms in an agreement may qualify to show absence of meaningful terms.” See A & M Produce Co. v. FMC Corp. 135 Cal.App.3d 473, 486 (1982).
A contract may be procedurally unconscionable under California law when the party with substantially greater bargaining power presents a take-it-or-leave it contract to a customer, even if the customer has a meaningful choice as to service providers. Shroyer v. New Cingular Wireless Services, Inc., C.A.9 (Cal.)2007, 498 F.3d 976.
Discussion: California and Arizona homeowners (greater phoenix area) who are lead to believe that they qualify for a loan modification given the representations made by and concerning the trial plan modification program, may have a claim to assert for damages. It is not certain you can prove that the lenders loan modification services are covered by the act, but it does appear to be a claim worth investigating at any rate.
III. DAMAGES AVAILABLE
(A) Any consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by Section 1770 may bring an action against that person to recover or obtain any of the following:
Actual damages, but in no case shall the total award of damages in a class action be less than one thousand dollars ($1,000 minimum).
An order enjoining the methods, acts, or practices.
Restitution of property.
Punitive damages.
Any other relief that the court deems proper.
(B) Any consumer who is a senior citizen or a disabled person, as defined in subdivisions (f) and (g) of Section 1761, as part of an action under subdivision (a), may seek and be awarded, in addition to the remedies specified therein, up to five thousand dollars ($5,000) where the trier of fact does all of the following:
(C) Finds that the consumer has suffered substantial physical, emotional, or economic damage resulting from the defendant's conduct.
NOTE: GENERALLY, WHEN ASSERTING A CLAIM UNDER THE CALIFORNIA LEGAL REMEDIES ACT, A POTENTIAL PLAINTIFF MUST GIVE THE LENDER A 30 DAY RIGHT TO CURE NOTICE THAT GIVES THEM THE OPPORTUNITY TO REMEDY THEIR VIOLATION PRIOR TO FILING A LAWSUIT.
CONSLUSION:
If you were given a trial plan loan modification offer, agreement, or other documents, and you made payments under the trial plan as agreed in the loan mod document, and any material representations that you made pursuant to the agreement DID NOT CHANGE from the time you entered into the contract, to the time your final payment was made; and if the lender or loan servicer refused to follow through with the trial plan, said you don’t qualify for a loan modification, or sold you house from underneath you, you may need to see a real estate, predatory lending, and foreclosure attorney to review whether or not you have a valid legal case to assert for either specific performance of the contract, or potentially money damages, including potentially punitive damages.
There are causes of action that may be applied in the loan modification trial plan context such as fraud, deceit, fraudulent inducement to contract, breach of implied covenant of good faith and fair dealing, and/or violation of the California Legal Remedies Act. Lenders and loan servicers, who were well financed by the federal bailout, should not be preying in California and Arizona homeowners in the greater Phoenix area by trying to “trick” them into making additional loan payments were foreclosure is inevitable given the lender/loan servicer’s mindset as to whether or not you are truly a loan modification candidate.
The Law Offices of Steve Vondran in licensed to practice law in California and Arizona. Steve Vondran, Esq. is a licensed attorney and real estate broker in California and Arizona.
Arizona Office (Esplanade): 2415 E. Camelback Road, Suite 700, Phoenix, AZ, 85020.California Office (Fashion Island): 620 Newport Center Drive, Suite 1100, Newport Beach, CA 92660_____________________________________________________________________________
Our Real Estate Law Services:
Loan Modifications / Loan Workouts (World Savings and Wachovia Loans
Commercial Lease Modifications
DRE audits, hearings and investigations
Real Estate Broker admissions cases
Foreclosure Defense
Mortgage Law & Predatory Law
Phoenix Real Estate Zoning Attorney – Greater Phoenix (Scottsdale, Goodyear, Buckeye, Casa Grande etc.)
SOME OF THE ABOVE WEBSITES CAN BE VIEWED AT WWW.CUSTOMLAWNBLOGS.COM (CREATOR OF MY LEGAL BLOGS). THEY ARE OPERATED BY WWW.CONTINGENCYCASE.COM WEBSITE WHICH IS A WEBSITE DIRECTORY FOR CONTINGENCY CASE LAWYERS ACROSS THE UNITED STATES).
The foregoing information is general legal information only and shall not be relied upon as legal advice, or a substitution for legal advice. If you have specific legal questions about your foreclosure case, or loan modification case you should seek out the advice of a real estate attorney. In addition, the information posted above may not be 100% complete, accurate or up-to-date. The Law Offices of Steve Vondran is licensed to practice law in the state of Arizona and California and only seeks to solicit and serve Clients in these two states. Steve Vondran, Esq. is a licensed attorney and real estate broker in California and Arizona. He can be reached by email at steve@vondranlaw.com or toll free (877) 276-5084. This is an advertisement and communication pursuant to State Bar Rules. Please do not send us private or confidential information through any of our above-listed websites. Sending us an email does not create an attorney-client relationship (only signing a legal retainer will do this).
WELL FOLKS, WE HAVE BEEN TALKING ON OUR RADIO SHOW FOR SEVERAL WEEKS NOW ABOUT THE SB94 LOAN MODIFICATION LAW. THIS LAW WAS INTRODUCED BY SENATOR CALDERON (BANKING AND FINANCE COMMITTEE) AND WAS DESIGNED TO PREVENT ANYONE (INCLUDING ATTORNEYS AND REAL ESTATE BROKERS) FROM ACCEPTING ANY ADVANCE FEES FROM ANY CALIFORNIA HOMEOWNER FOR LOAN MODIFICATION SERVICES OR LOAN FORBEARANCE SERVICES. WHAT THIS TRANSLATES TO IS THAT ATTORNEYS AND BROKERS CANNOT ACCEPT ANY MONEY IN ADVANCE OF PERFORMING ALL SERVICES THEY CONTRACT FOR (I.E. THEY WILL HAVE A HARD TIME PAYING THEIR OVERHEAD) AND THEREFORE VERY FEW COMPANIES, INCLUDING ATTORNEYS, WILL CONTINUE TO HELP CALIFORNIA HOMEOWNERS WHEN IT COMES TO LOAN MODIFICATION SERVICES.
SENATOR CALDERON CALLED THE SIGNING OF THE BILL ON OCTOBER 11, 2009 A "HUGE VICTORY." NOT SURE IF HE MEANT A HUGE VICTORY FOR THE BANKS AND LENDERS OR A VICTORY FOR CALIFORNIA HOMEOWNERS. KEEP IN MIND, A HOMEOWNERS "FREEDOM OF CONTRACT" WAS LITERALLY STRIPPED AWAY LEAVING MANY HOMEOWNERS ON THEIR OWN TO PERFORM THE FOLLOWING LOAN MODIFICATION SERVICES WHICH APPARENTLY THE BANKS WOULD RATHER HAVE YOU DO FOR YOURSELF:
(1) Review your loan documents for instances of predatory lending, including finding truth in lending violations that may give you a right to rescind your loan. If you know how to do your own forensic loan analysis, great for you. Lenders and loan investors would prefer you do not raise any legal violations over the loans they either originated, or purchased on the secondary market.
(2) Pull a chain of title and send debt validation letters to lenders, investors and loan servicers seeking to foreclose on you (i.e. make them validate that they are owed a debt).
(3) Send a demand that the loan servicer identify the holder of the loan (so you can validate the debt and make sure the chain of title is accurate). The failure to comply raises a legal claim.
(4) Ensure that California foreclosure laws are followed - 2923.5-2924 et seq. (the failure to comply raises a legal claim)
(5) Send a qualified written request to challenge any billing, fee, or accounting disputes (the failure to comply raises a legal claim)
(6) Package and submit your financial documents
(7) Draft and submit a hardship letter
(8) Introduce relevant comparison properties so that the lender can calculate the true loss that will ensue by pursuing foreclosure (net present value test). Also lends itself to 2923.6 arguments.
(9) Contact the lender on a weekly or bi-weekly basis to ascertain status on your case (if you do not call with frequency and log your calls, we have found you tend to get lost in the shuffle etc.). Note, homeowners trying to save their homes normally have jobs, and trying to take a 1/2 hour to an hour a week to call your lender while at work may not be a smart move. Also, if you would rather pay someone to avoid this, you have no right to do so.
(10) Review and advise on trial plan offers (having seen several different plans, professional advisors are better equipped to tell homeowners what the "contract" means)
(11) Re-submit your loan modification package if you are denied
These are just some of the steps legitimate and quality lawyers and brokers can provide. However, the state feels you should be well equipped to do this yourself. You do not need to pay anyone to help you. If you cannot do it, then you are advised to call HUD.gov free counselors. Those are your only choices (assuming of course that you cannot find a broker or attorney willing to work for free and hope that you pay them at the end - a risk most are not willing to take based on my conversations with fellow professionals).
So there you have it folks, another lost freedom - the freedom to contract as you see fit. As Benjamin Franklin said, those who trade freedom for security will get neither and deserve neither.
Since we cannot perform loan modifications and accept advance fees, our show will discuss the legal side of foreclosure. Our office is still accepting World Savings and Wachovia Loans on a 100% contingency fee basis (no advance fees). Other than that, our only other function appears to be limited to filing lawsuits to vindicate predatory lending loans and/or to file for injunctions (assuming these acts are still permitted which we are currently researching). Again people, if you do not stand up for your rights, you will lose them as we have seen. Loan modification fraud has always been illegal and subject to prosecution and we just wish the right to earn a living and provide a legitimate service to some California homeowners who required it would have been protected. Last I checked, the banks were not opening their doors and allowing you to bring in your loan file to your local bank and have them consider you for a loan modification on the spot (heck, the love fees they could even charge a fee which most people would be happy to pay if they could be quickly considered for a modification). Instead, they are put into a 3-12 month pipeline and essentially asked to fend for themselves. A "huge victory" senator Calderon?
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The following is general legal information only and should not be relied upon as legal advice. From the years 2001-2008 most loans originated by so called ìlendersî (who lent none of their own money as can usually be verified by looking at the ìlenderísî financials) were securitized and sold on WALL STREET to investors such as mutual funds, municipal funds, hedge funds, insurance companies and foreign investors.
When Wall Street stepped into the picture during these years, the underwriting standards for most, if not all originating ìlendersî dropped significantly as the originating ìlenderî was more incentivized to produced as many assignable loans (or better yet, Security instruments) as it could in order to feed the Wall Street money-making machine that financially craved as many as these loans as could be produced.
The original ìlendersî rarely lent their own money which can be proved by looking at the originating ìlenderísî balance sheet. In fact, the originating ìlenderî had already contracted to sell the loan to a loan aggregator, investment banker or other entity and was to be paid back for the full loan amount plus typically a 2.5% return on the loan originated (i.e. these ìmiddlemenî in the securities transaction were all paid in full and had no interest in the loan and could not be deemed a ìlenderî but rather a conduit in a single securities transaction). Thus, it is clear the ìoriginating lenderî was doing nothing more than using borrower to issue unregulated negotiable securities (certificates of asset backed securities) on behalf of the Wall Street investors who were the true ìlendersî who funded the loan and who are entitled to any payment that may be due on the loan.
To state it another way, the activities of the originating ìlenderî in creating the negotiable security, along with the coordinated and contracted participation of the middlemen loan aggregators, investment bankers and others, was a SINGLE TRANSACTION that was literally designed to encourage predatory loans to be originated by the ìstraw manî or ìstand-inî originating ìlenderî that resulted in providing and issuing negotiable securities for literally anyone that could fog a mirror. Moreover, the more predatory the loan/security (ex. deceptive teaser rates, obscured negative amortization products, balloon payments, YSP, onerous pre-payment penalties, failure to properly underwrite, bait and switch tactics at the signing table, false assertions of a right to refinance, appraisal fraud, unverified stated income loans, etc.) often the more that was paid - higher yields - to both the originating ìlender,î the securities middlemen, and the ultimate investor-beneficiary.
What this created was a system wherein literally anyone with a pulse and FICO score over 500, was able to obtain a mortgage loan in the form and issue the negotiable security that would be sold on Wall Street. For the originating ìlender,î knowing that Wall Street would fund the loan through its investors, incentivized the originating ìlenderî to cut corners on proper underwriting and instead produce as many assignable notes as possible without regard to the ramifications.
The Securitization system was further set up in such a way as to eliminate the risks caused by predatory lending, defaulting loans, and other risks by insuring and cross-collateralizing thousands of loans in a loan pool. In fact, if foreclosure is pursued, we will show that the above referenced loan has in fact been paid-off in full by insurance proceeds, money from various guarantors, by the investors, and/or by the federal government. If the loan has been paid, there is no right to foreclose or threaten foreclosure.
The promissory notes and deeds of trust were separated making the notes unenforceable. MERS was used to track ownership of loan servicing rights and ownership rights and even pretends, at times, to be the beneficiary of many loans even though they do not collect any loan payments, have no right to collect such, and have no other financial interest other than being paid its ordinary fees for the tracking and registration service. MERS typically fails to record any assignments of the loans in the property County Recorderís office. This was done to avoid the paying of fees, among other reasons.
At the end of the day, in many cases a predatory loan was originated by the ìoriginating lenderî who was financed by the Wall Street investor in an elaborate unregistered security scheme. The loans were sliced and diced into loan pools, and many different investors are known to be the so-called ìowners of the noteî although no one, (including MERS, the originating ìlenderî, the Mortgage Loan Aggregators, Investment Bankers and the final Wall Street Investors) can produce a copy of the original promissory note that proves ownership of the ìloanî obligation and right to collect payments and ultimately foreclose.
If there is no note, and/or no properly recorded assignments of such, there can be no enforceable debt obligations. This is not a new principle, but rather embodies age-old principles and requirements of commercial law such as the Uniform Commercial Coded (U.C.C.).
Failure to provide validation of the debt or proof of ownership of the note/recorded assignments SHOULD MAKE A LENDER, LOAN SERVICER, INVESTOR, AND/OR TRUSTEE THINK TWICE BEFORE attempting, or undertaking any of the following acts ñ WHICH MAY BE WORTH CHALLENGING IN THE PROPER CASE (Note: we believe a proper case normally requires other more firmly established legal rights, such as a federal truth in lending violation raising extended rescission rights, fraud, or some other historically recognized ground for filing a lawsuit, rather than merely asserting a bare ìproduce the noteî defense):
No foreclosure should be permitted where the California Foreclosure statutes are not followed. Under California Law (California Civil Code Section 2923-2924 et seq. ñ California Foreclosure Law) the ìbeneficiary or their authorized agentî is required to contact the borrower to assess their financial information and discuss modification options. This statutory section requires, it would seem, the TRUE AND ACTUAL BENEFICIARY (I.E. THE TRUE HOLDER OF THE NOTE) to make contact and certify such contacts with the homeowner/borrower prior to making the required declaration in the Notice of Default. Failure to have the TRUE AND ACTUAL BENEFICIARY, AND/OR THEIR AUTHORIZED AGENT (who shall be required to prove first that they are complying with California Foreclosure law on behalf of the TRUE AND ACTUAL BENEFICIARY) precludes and nullifies any attempted foreclosure, and makes any assertion of such, and filing of the Notice of Default with the California County Recorder, fraudulent.
No one other than the TRUE AND ACTUAL BENEFICIARY, OR THEIR DULY AUTHORIZED AGENT SHOULD BE ABLE TO ASSERT PROPER STANDING AND PROVE THAT IT IS A REAL PARTY IN INTEREST IN ANY LEGAL PROCEEDING, INCLUDING RESPONDING TO A TEMPORARY RESTRAINING ORDER (TRO); PRELIMINARY INJUNCTION; BANKRUPTCY; OR EVICTION ACTION. As discussed above, without proof of ownership of the note and all required recorded assignments, any attempt to show up and defend any of the above actions (by the ìpretender lendersî and/or their ìagentsî who cannot prove their right to engage in any of the herein referenced activities) will result in attempting to perpetrate a ìfraud on the courtî and might wind up the subject of a motion for sanctions and other proper judicial relief. Moreover, any attorney/trustee attempting to pursue any of the herein referenced actions on behalf of a beneficiary or their agent, who cannot satisfy and prove ownership, would be well advised to consider all of the legal ramifications.
No one other than the TRUE AND ACTUAL BENEFICIARY, OR THEIR DULY AUTHORIZED AGENT SHOULD BE ABLE TO ASSERT a right to collect Loan payments (including principal and interest), late fees, attorney fees, etc., and may not legally demand or collect such. All funds illegally collected from California Homeowners might be subject to the appointment of a receiver or the imposition of a constructive trust in a lawsuit demanding a full refund along with damages and attorney fees.
NOTES: These are just a few basic ideas to consider in regard to debt validation and produce the note theories. Again, it would seem the case might be better if you have a traditional and historically recognized legal theory (aside from commercial code) to bring and to basically try to bend the judges ear on the PRODUCE THE NOTE STRATEGY, as a side issue, rather than the focal point of the lawsuit. Judges may be reluctant to having their courts used as a grounds for testing somewhat novel legal theories where some might see it as an attempt to ìget your home for free when you are in default of the loan documents.î If granted, this may also lead to ìfloodgate litigation.î
As referenced, above, many loan servicers try to keep it secret who the real ìlenderî or ìbeneficiaryî of a loan is. I suppose the securitization process demands secrecy in debt collection to make it work. Of course, this seems counter-intuitive that a person is not entitled to know who their debt is actually owed to. Steve Vondran can be reached at steve@vondranlaw.com or (877) 276-5084.
This blog is to announce a joint venture between the Law Offices of Steven C. Vondran and the Law Office of Daryl Thompson. As many of you who have been reading my blogs probably realize, there was/is an epidemic of loan modification scam and ripoff cases affecting California Homeowners. The California State bar has been inundated by over 1,000 complaints of loan modifications scams and ripoffs per month. In addition, the California Department of Real Estate (DRE) has also experienced the same types of complaints against attorneys, brokers, "attorney-backed" and "attorney based" - law centers and law groups, foreclosure consultants, and others who are engaged in accepting advances fees for loan modifications. The same holds true for the Federal Trade Commission (FTC) and the California Attorney General. These regulators are now out in full force seeking to suspend and revoke real estate and law licenses and in some cases may be seeking to put violators in jail.
Now, our office has stood up for people that we believe were wrongly scammed and victimized by loan modification brokers and attorneys who were literally ripping people off. This will not change. However, one thing we have also noticed is that in this process, there are some people who simply did not qualify for a loan modification and did not therefore receive a loan modification who then complained to the above-mentioned regulatory agencies which in many cases will trigger a investigation and perhaps subsequent investigation, indictment, and/or licensing proceeding. In other words, there are many individuals coming under investigative scrutiny, and while some of these cases are undoubtedly valid, others are likely wrongful forcing the named defendants to justify their activities and otherwise defend themselves.
In some cases, we are hearing that individuals who work for companies deemed to be scam loan modification companies are also being indicted and coming under licensing and other scrutiny. At the end of the day, there is a major "round-up" of companies and individuals facing disciplinary and other legal action in regard to their loan modification activities.
These cases will test many different areas of the law and ethics including:
(1) California Foreclosure Consultant Law
(2) California Laws of Fraud and Deceit
(3) Issues of Breach of Fiduciary Duty
(4) Criminal Law and Criminal Procedure
(5) California Attorney Ethics including fee-splitting, partnership with non-attorneys, runners and cappers, etc.
(6) False Advertising
(7) DRE advance fee agreement rules
(8) Trust Fund Accounting
(9) Search and Seizure
(10) SB 94 (illegal collection of advance fees under the new law which prohibits such)
Thus, the interplay between criminal law and real estate law makes these types of cases challenging to analyze and defend. The join venture between our law firms is designed to help you analyze your case given these multiple legal and ethical issues that must be explored.
If you are being charged with a crime (district attorney of attorney general), or with administrative licensing or disciplinary proceeding (DRE or State Bar) you need legal counsel on your side that can determine what defenses, if any, are available to you. As is typical in any case of this nature, it is often in your best interest not to speak to anyone until you have spoken to your lawyer.
Contact us for a confidential discussion of your case.
We have provided a website that provides resources involving the regulatory investigations, criminal proceedings, and other resources involving the loan modification fallout at www.ThompsonVondran.com.
The foregoing information is general legal information only and shall not be relied upon as legal advice, or a substitution for legal advice. If you have specific legal questions about your foreclosure case, or loan modification case you should seek out the advice of a real estate attorney. In addition, the information posted above may not be 100% complete, accurate or up-to-date. The Law Offices of Steve Vondran is licensed to practice law in the state of Arizona and California and only seeks to solicit and serve Clients in these two states. Steve Vondran, Esq. is a licensed attorney and real estate broker in California and Arizona. He can be reached by email at steve@vondranlaw.com or toll free (877) 276-5084. Daryl Thompson, Esq. is only licensed to practice law in California.
This is an advertisement and communication pursuant to State Bar Rules. Please do not send us private or confidential information through any of our above-listed websites. Sending us an email does not create an attorney-client relationship (only signing a legal retainer will do this). Past indications and references to success in other cases is not indicative of future results and cannot be relied upon as such. Every case, lender, investor, borrower, and property are different.
Offices:
Arizona Office (Esplanade): 2415 E. Camelback Road, Suite 700, Phoenix, AZ, 85020.
California Office (Fashion Island): 620 Newport Center Drive, Suite 1100, Newport Beach, CA 92660
KEYWORDS: DRE DEFENSE LAWYER / DRE DEFENSE ATTORNEY / LOAN MODIFICATION CRIMINAL DEFENSE / FORECLOSURE CONSULTANT DEFENSE LAWYER / STATE BAR INVESTIGATION HEARINGS / DRE LICENSING ISSUES / CALIFORNIA ATTORNEY GENERAL LOAN MODIFICATION / CRIMINAL DEFENSE AND DUE PROCESS / ADVANCE FEE AGREEMENT VIOLATIONS / SB 94 LEGAL VIOLATIONS / DISTRICT ATTORNEY LOAN MOD CHARGES
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