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Court Allows Borrower’s Mortgage Fraud Lawsuit to Proceed

In Lona v. Citibank, a California appellate court recently held that a homeowner could proceed with his mortgage fraud lawsuit against his lender. In 2007, a homeowner (“plaintiff”) refinanced his home loan in response to a mortgage broker’s “marketing enticement.” Plaintiff’s modest monthly income was insufficient to cover the $12,381.36 monthly payment (the payment was roughly four times plaintiff’s monthly income). Because he could not make his payments, the lender declared a default and sold the property at a trustee’s sale. In response, plaintiff filed a lawsuit against the lender, loan servicer and trustee to set aside the sale, alleging that he had fallen prey to a predatory lending scheme. Plaintiff asserted that the loan was invalid because the defendants had ignored his ability to repay the loan and that he did not understand the transaction due to his limited English fluency.

The defendants filed a summary judgment motion (a request to dispose of the case in advance of a trial if there are no material factual disputes). They argued that plaintiff had not tendered the amount due on the loan and that there were no applicable exceptions to this requirement. They further argued that plaintiff had not demonstrated any irregularities in the sale and that plaintiff had voluntarily entered into the loans. The trial court granted summary judgment in favor of the defendants. Plaintiff appealed.

Initially, the appellate court found there was no evidence of any irregularity in the foreclosure notice and sale procedure. The court then considered plaintiff’s argument that the loan was unconscionable. Plaintiff based this argument on the high monthly payment amount, as well as a balloon payment requirement. Plaintiff had raised these issues in his opposition to the motion, but the defendants did not file a reply in support of their motion. In response to defendants’ failure to address plaintiff’s arguments, the court noted that “given the extreme disparity between the amount of the monthly loan payments and [plaintiff’s] income, this was sufficient to create a triable issue on the question whether the loans were overly harsh and one-sided and thus…unconscionable.” This evidence was sufficient to defeat summary judgment. However, the court noted, “this evidence may not ultimately be persuasive at trial.”

Importantly, the court explained:

Our holding does not mean that a borrower may defeat a motion for summary judgment in an action to set aside a trustee’s sale merely by alleging that he or she did not understand the terms of the loan documents signed or could not afford the loan. In this case, the primary reasons for reversing the summary judgment are the moving parties’ failure to address all of the allegations of the…complaint and their failure to properly demonstrate that [plaintiff] had no evidence to support his claims. In addition, after [plaintiff’s] opposition argued that the loan was void for illegality at the time of signing and submitted evidence that demonstrated an extreme disparity between [plaintiff’s] income and the amount of his monthly payments, [defendants] made no effort to address this evidence, with argument or legal authority.

Finally, the court addressed the tender issue. Typically, if a defaulted borrower wants to set aside a trustee’s sale, the borrower must offer to pay the full amount of the debt for which the property was security. This is known as the tender requirement, to which there are some recognized exceptions. Plaintiff relied on the exception that tender is not required when the borrower’s action attacks the validity of the debt. He also alleged that tender is not required when the person who seeks to reverse the trustee’s sale has a counterclaim or offset against the lender. Because the defendants did not address these exceptions to the tender rule in their motion, the court held that they had not met their burden on summary judgment. The court noted, “[a] defendant that moves for summary judgment has the burden to show that it is entitled to judgment with respect to all theories of liability asserted by plaintiff.”

By reversing summary judgment in favor of defendants, the appellate court’s ruling allowed plaintiff’s action to proceed.

Hannah M. Shafsky, Attorney This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Law Group Obtains A Successful Loan Settlement

The Law Group recently successfully resolved numerous issues associated with two loans for one of our clients. While the clients applied for a loan modification on their first loan, we obtained a rescission of the notice of default. This allowed the clients enough time to obtain the loan modification. At the same time, we negotiated with the junior lienholder on a settlement of the second loan. The lender’s initial position was that it would not consider any settlement of a second loan. However, after significant pressure from our office, the lender eventually agreed to settle the loan for substantially less than the principal balance. The overall result is that our clients now have one loan on their property with more manageable terms, rather than two loans with less favorable terms and the looming threat of property foreclosure. Shannon B. Jones and Hannah Shafsky handled on this matter.

-Hannah M. Shafsky, Attorney
-Shannon B. Jones, Partner, This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Governor Brown Proposes Changes With Regard to the Department of Real Estate

On January 5, 2012, Governor Brown submitted a proposed budget to the California Legislature. That budget proposed a consolidation of state agencies, which would result in the Department of Real Estate becoming a bureau under the Department of Consumer Affairs. The existing Office of Real Estate Appraisers would also become a bureau under the Department of Consumer Affairs. The basis of the Governor’s proposal is that the Department of Consumer Affairs regulates most other professions, including doctors, architects and accountants through different boards and commissions. He has suggested that this would be an appropriate regulatory function for the real estate licensees.

It is unclear how the California Association of Realtors (CAR) will respond to this proposal. A position will likely be established at the CAR meetings in late January 2012.

-Shannon B. Jones, Partner, This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Court Holds That Borrowers’ Attempt to Obtain Permanent Loan Modification Did Not Bar Foreclosure Proceedings

In Nungaray v. Litton Loan Servicing, LP, 11 C.D.O.S. 14131, a California appellate court recently held that a borrowers’ attempt to complete a loan modification agreement did not bar the lender’s completion of foreclosure proceedings.

In 2006, plaintiffs refinanced their property and obtained a $500,000 promissory note, which was secured by a deed of trust. In 2009, plaintiffs defaulted on their payments on the note and the trustee commenced a non-judicial foreclosure proceeding. Several months later, plaintiffs executed a “Loan Workout Plan,” which required plaintiffs to provide financial documentation and make trial period payments. The Plan documents also stated that any foreclosure would be suspended, but could resume if the borrowers did not comply with the Plan requirements. The Plan was one of the initial steps in the loan modification process. When the loan servicer did not receive all of the requested financial documentation, it returned some of the payments under the Plan. Thereafter, the lender terminated the Plan and continued the foreclosure. The bank purchased the property at the trustee’s sale and thereafter, evicted plaintiffs from the property.

Plaintiffs brought suit, arguing that the Plan was an enforceable contract. They argued that they believed their loan had been modified. The Court construed the language of the Plan and determined that there was no basis for plaintiffs’ contention that they had a final loan modification. The language of the Plan expressly stated the contrary and there were several conditions in the Plan that plaintiffs had not met.

Plaintiffs also argued that the lender and loan servicer violated the one-form-of-action and security-first rules of Civil Procedure Section 726 by retaining payments under the Plan and applying them against the unpaid principal balance on the loan. They alleged that the bank waived its security interest in the property by accepting the trial period payments. The Court disagreed, stating that Section 726 was inapplicable. The Court explained that plaintiffs had voluntarily paid the monthly payments in the hopes of obtaining a loan modification and that in exchange, the bank had suspended the foreclosure proceedings for six months. The Court did not consider the payments as an election to not foreclose pursuant to the one-form-of-action rule of Section 726. Because the Plan was in effect a forbearance agreement, there was no ground to apply the one-action or security-first rules of Section 726.

The appellate court affirmed the decision of the lower court, which had entered summary judgment in favor of the defendants.

Hannah M. Shafsky, Attorney, This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Law Firm Obtains Dismissal of Wrongful Foreclosure Action

Shannon B. Jones Law Group recently successfully defended a broker and agent in a lawsuit filed in federal court by a borrower alleging that their property had been wrongfully foreclosed. The borrowers asserted claims against the real estate agent claiming that the agent was somehow involved in the wrongful foreclosure and had wrongfully discarded their personal possessions after the foreclosure. Our office filed a motion to dismiss. When faced with the motion to dismiss, the plaintiffs voluntarily dismissed the action without receiving any form of compensation. Shannon B. Jones and David M. Austin defended this action.

-Shannon B. Jones, Partner, This e-mail address is being protected from spambots. You need JavaScript enabled to view it

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