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in re Weisband, arizona bankruptcy case, discusses when it is proper to lift the automatic stay in bankruptcy court so they can sell your property

 

In Re Barry Weisband, 427 B.R. Chapter 13 (Dist. Ariz. 2010). Case No. 4:09-bk-05175-EWH.

The following is general legal information only, and just my interpretation of the Weisband case.  Other interpretations may be possible.  In addition, law often changes, please check to make sure this is good and valid case law at the time if reading.  Steve Vondran is a Phoenix Foreclosure and Bankruptcy Lawyer and also serves Clients in California where he is also licensed to practice law.  He can be reached at  (877) 276-5084.

Facts:

Barry Weisband filed for Chapter 13 Bankruptcy in March of 2009.  One of his listed assets was his real property located at 5424 E. Placita Apan in Tucson, AZ.  Weisband obtained the property when he executed a promissory note for $540,000 to GreenPoint Mortgage Funding secured by a deed of trust on October 6, 2006.  The deed of trust was signed by Weisband on October 9 and recorded October 13 of the same year (2006).  Importantly, the deed of trust named GreenPoint as the lender and MERS as the beneficiary “solely as nominee for GreenPoint, its successors and assigns.”  On an undated and separate piece of paper, GreenPoint endorsed the note to GMAC. GMAC therefore had physical possession of the original note in late 2006.

LOAN SECURITIZATION - THE FIVE CONTRACTS AT ISSUE IN THIS CASE:

(1) 4/10/06 FLOW INTERIM SERVICING AGREEMENT (between Green Point and Lehman) – The “FISA” AGREEMENT.

According to GMAC, GreenPoint entered into an agreement with Lehman to sell loans it originated to Lehman Brothers Holdings under a “Flow Interim Servicing Agreement” (FISA) executed on an earlier date of 4/10/06.  Under this Flow Agreement, GreenPoint agreed to sell certain loans to Lehman, and Green Point was to remain as servicer of these loans.  As the Court later discussed, there was never any proof that Lehman got any transfer of notes from Green Point (recall the endorsement above was to GMAC, not to Lehman), and no assignment of the Deed of Trust from MERS.

(2) 11/1/06 MORTGAGE LOAN SALE AND ASSIGNMENT AGREEMENT (between Lehman and SASC Corporation) – The “MLSAA” AGREEMENT.

Under this agreement Lehman would sell/transfer the loans it received from Green Point to Structured Asset Securities Corporation (SASC).  SASC Corporation would then create a securitized loan trust (called the “Green Point Funding Trust”) under a separate Trust Agreement (discussed below) and SASC would be entitled to receive the principle and interest payments.  As discussed below, there was again no proof that SASC ever got any transfer of any note or deed of trust in regard to the debtors loan as GMAC had argued.

(3) 11/1/06 SECURITIZED LOAN TRUST AGREEMENT (between SASC, Aurora Loan Services, and US National Bank).  Under this agreement, the following parties assumed the following roles:

(1) SASC, was Trustor

(2) U.S. Bank, was Trustee

(3) Aurora, was “Master Loan Servicer”

(4) 11/1/06 – RECONSTITUTED SERVICING CONTRACT (which essentially claimed Green Point would be the servicer of the loans in the trust.  However, Green Point went out of business in 2007).

(5) 11/1/06 SECURITIZED SERVICING AGREEMENT – (“SSA”) (between GMAC, Lehman, and Aurora Loan Services)

Under this agreement, GMAC was to service the loans in the securitized loan trust (essentially leaving Aurora Loan Services as the “master servicer” and GMAC as the “sub-servicer”).

IF YOU ARE STILL FOLLOWING THE STORY YOU ARE TO BE COMMENDED.  AT THIS POINT, TO RECAP, GREEN POINT ORIGINATES THE LOANS, MERS IS THE BENEFICIARY UNDER THE DEED OF TRUST IN A NOMINEE CAPACITY FOR GREEN POINT AND ITS SUCCESSORS AND ASSIGNS, AND THE ORIGINAL NOTE WAS TRANSFERRED AND ENDORSED TO GMAC, BUT THE LOANS ARE SOLD TO LEHMAN, AND THEN ASSIGNED TO SASC WHO CREATES A LOAN TRUST WHERE THE LOANS ARE ALLEGEDLY HELD AND SASC HAS THE RIGHT TO PRINCIPLE AND INTEREST PAYMENTS EVEN THOUGH GMAC HAS THE ORIGINAL NOTE.  WELCOME TO SECURITZED LOANS.

At some point, the debtor became delinquent on the loan, and filed for Chapter 13 bankruptcy protection.  While the automatic stay was in effect, MERS assigned the Deed of Trust to GMAC (apparently trying to convey standing on GMAC to file the motion to lift the automatic stay).  There was never any proof of any transfer of the loan or deed of trust to Lehman, or to SASC, and no proof the note or deed of trust wound up in the securitized trust, or that the debtors loan was subject to the SSA (servicing agreement purporting to confer sub-servicer status on GMAC).

GMAC then filed a motion to lift the automatic stay (to try to sell the property) and the Debtor objected to GMAC’s proof of claim.  In filing its proof of claim in support of its motion to lift the automatic stay, GMAC attached a copy of the note and the MERS assignment of the Deed of Trust, and an endorsement on a separate piece of paper (the endorsement was on an allonge and not attached to the note).

This dispute set the stage for an evidentiary hearing to determine whether or not GMAC had the legal right to lift the automatic stay in bankruptcy.

As discussed in the case: “GMAC advances three different arguments in support of its claim to be a “party in interest” with standing to seek relief from stay:

(1) First, GMAC asserts it has standing because the Note was endorsed to GMAC and GMAC has physical possession of the Note (although recall the loans were supposedly sold to Lehman and then to SASC who would theoritcally own the debtors loan).   In essence GMAC seemed to be claiming it owned the loan as evidenced by its attachment to the proof of claim.  This simply was not true.  This was GMAC’s so called “custodian assignee” argument (i.e. we hold the note as a custodial guardian for the true owner of the loan).

(2) Second, GMAC asserts that by virtue of the MERS Assignment of the Deed of Trust, it is a beneficiary of the DOT and entitled to enforce and foreclose the DOT under Arizona law. (again, how could GMAC have a security interest in the debtors property if the loans were sold to Lehman, and then to SASC who had the right to receive principle and interest payments – a traditional concept of “beneficiary”)?  There is also legal authority that MERS assignment of the Deed of Trust, without the note, is null and void and conveys nothing.  See our blog posting on In re Walker case in California Bankruptcy Court.

(3) Third, GMAC asserts it has standing because it is the servicer of the Note. The court addresses each of GMAC’s claims in turn.”

As a last resort, GMAC argued it was the authorized loan servicer (sub-servicer under the 11/1/06 SSA agreement).   The Court would eventually hold there was no proof the trust ever got the note and deed of trust so there was no way to know for sure that GMAC was the authorized servicer of a loan that did not appear to be covered or included in the SSA.

Legal Issue:

Did GMAC have constitutional / prudential standing to bring the Motion to Lift the Automatic Stay in Bankruptcy Court and was it the real party interest to bring such claim?

Holding:

No.  GMAC was not the holder of the note under entitled to enforce such under Arizona law and did not have constitutional standing as a “custodian’s assignee,” and was not the real party in interest entitled to seek relief from the automatic bankruptcy stay.  Their motion to lift the automatic stay was therefore denied.

The Court’s Rationale:

The Court first discussed the two relevant concepts of (a) CONSTITUTIONAL STANDING and (b) PRUDENTIAL STANDING - Real Party in Interest (both are required to bring the lift-stay motion:

CONSTITUTIONAL STANDING / PRUDENTIAL STANDING (REAL PARTY IN INTEREST)

To this point the Court held:

“Nevertheless, in order to establish a colorable claim, a movant for relief from stay bears the burden of proof that it has standing to bring the motion. In re Wilhelm, 407 B.R. 392, 400 (Bankr. D. Idaho 2009). The issue of standing involves both “constitutional limitations on federal court jurisdiction and prudential limitations on its exercise.” Warth v. Seldin, 422 U.S. 490, 498 (1975). Constitutional standing concerns whether the plaintiff’s personal stake in the lawsuit is sufficient to have a “case or controversy” to which the federal judicial power may extend under Article III. Id.; see also Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-60 (1992); Pershing Park Villas Homeowners Ass’n v. United Pac. Ins. Co., 219 F.3d 895, 899 (9th Cir. 2000).

Additionally, the “prudential doctrine of standing has come to encompass several judicially self-imposed limits on the exercise of federal jurisdiction.’” Pershing Park Villas, 219 F.3d at 899. Such limits are the prohibition on third-party standing and the requirement that suits be maintained by the real party in interest. See Warth v. Seldin, 422 U.S. at 498-99; Gilmartin v. City of Tucson, 2006 WL 5917165, at *4 (D. Ariz. 2006). Thus, prudential standing requires the plaintiff to assert its own claims rather than the claims of another. The requirements of Fed. R. Civ. P. 17, made applicable in stay relief motions by Rule 9014, “generally falls within the prudential standing doctrine.” In re Wilhelm, 407 B.R. at 398.

NEXT, THE COURT APPLIED THE LAW TO THE FACTS OF THE CASE TO DETERMINED WHETHER GMAC HAD STANDING TO BRING THE LIFT-STAY MOTION.

As to GMAC’s first argument, GMAC did not demonstrate it was the holder of the note under Arizona law (A.R.S. 47-3301 says only the “holder” of the note can enforce it).  The court cited A.R.S. Section 47-1201(B)(21)(a) defining a holder as “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.”  Because GMAC’s endorsement was on a separate piece of paper (allonge) rather than fixed to the note, it could not be considered the holder of the loan.  The allonge must be affixed to the note to effectuate a legal transfer of the note.  Therefore, the possession of the original note (one GMAC produced in court) meant nothing as GMAC “didn’t prove the note was properly payable to GMAC.”  In addition, the allonge endorsement was not included with GMAC’s proof of claim, further indicating that it had not been affixed to the note at the time of transfer.

NOTE: the Court noted an exception to the allonge rule (the allonge endorsement need not be attached to the note) if 4 elements are shown: (1) if the assignment of the note was signed and notarized on the same day as the trust deed, (2) if the assignment specifically referenced the escrow number, (3) if the assignment identified the original note holder, and (4) if the assignment recited that the note was to be attached.See in re Nash, 49 B.R. 254, 261 (Bankr. D. Ariz. 1985) where “holder” in due course status was established.

Nevertheless, the court concluded that GMAC did not qualify under this exception because there was no proof that that the allonge containing the special endorsement from GreenPoint to GMAC was executed at or near the time the note was executed.  SPECIFICALLY, THE COURT STATED:

“GMAC cannot overcome the problems with the unaffixed Endorsement by its physical possession of the Note because the Note was not endorsed in blank and, even if it was, the problem of the unaffixed endorsement would remain. As a result, because GMAC failed to meet its burden of demonstrating that the Endorsement was proper, it has failed to demonstrate that it is the holder of the Note.”

As to their second argument, the MERS assignment of the deed of trust DID NOT provide GMAC with Standing.  The Court noted that an assignee of a deed of trust “stands in the shoes” of the assignor, taking only those “rights and remedies the assignor held.  SINCE MERS HAD NO FINANCIAL INTEREST IN THE NOTE, THERE WAS NONE TO TRANSFER TO GMAC, AND NO STANDING CONFERRED TO GMAC BY ASSIGNING THE DEED OF TRUST.

HERE IS WHAT THE COURT SAID AS TO THE MERS ASSIGNMENT OF THE DEED OF TRUST TO GMAC:

“GMAC argues that it has standing to bring the Motion as the assignee of MERS. In this case, MERS is named in the DOT as a beneficiary, solely as the “nominee” of GreenPoint, holding only “legal title” to the interests granted to GreenPoint under the DOT. A number of cases have held that such language confers no economic benefit on MERS. See, e.g., In re Sheridan, 2009 WL 631355, *4 (Bankr. D. Idaho 2009); In re Mitchell, 2009 WL 1044368, *3-4 (Bankr. D. Nev. 2009); In re Jacobson, 402 B.R. 359, 367 (Bankr. W.D. Wash. 2009). As noted by the Sheridan court, MERS “collect[s] no money from [d]ebtors under the [n]ote, nor will it realize the value of the [p]roperty through foreclosure of the [d]eed of [t]rust in the event the [n]ote is not paid.” 2009 WL 631355 at *4.

Because MERS has no financial interest in the Note, it will suffer no injury if the Note is not paid and will realize no benefit if the DOT is foreclosed. Accordingly, MERS cannot satisfy the requirements of constitutional standing. GMAC, as MERS’ assignee of the DOT, “stands in the shoes” of the assignor, taking only those rights and remedies the assignor would have had. Hunnicutt Constr., Inc. v. Stewart Title & Trust of Tucson, Trust No. 3496, 187 Ariz. 301, 304 (Ct. App. 1996) citing Van Waters & Rogers v. Interchange Res., Inc., 14 Ariz. App. 414, 417 (1971); In re Boyajian, 367 B.R. 138, 145 (9th Cir. BAP 2007). Because GMAC is MERS’ assignee, it cannot satisfy the requirements of constitutional standing either.”

Third, the Court rejected GMAC’s argument that they had standing to pursue the lift stay motion as the servicer of the note.  The court reasoned that because there was insufficient evidence that the note and the deed of trust were transferred to the final Trust (ex. from Green Point to Lehman, to SASC to the Trust), GMAC could not claim that it was the servicer of the note as claimed – there was no proof the NOTE AND DEED OF TRUST were part of the Trust.  To this point the Court discussed the nature of securitized loans:

Securitization of residential mortgages is “the process of aggregating a large number of notes secured by deeds of trust in what is called a mortgage pool, and then selling security interests in that pool of mortgages.” Kurt Eggert, Held Up In Due Course: Predatory Lending, Securitization, and the Holder in Due Course Doctrine, 35 CREIGHTON L. REV. 503, 536 (2002). The process begins with a borrower negotiating with a mortgage broker for the terms of the loan. Then, the mortgage broker either originates the loan in its own name or in the name of another entity, which presumably provides the money for the loan. Almost immediately, the broker transfers the loan to the funding entity. “This lender quickly sells the loan to a different financial entity, which pools the loan together with a host of other loans in a mortgage pool.” Id. at 538.

The assignee then transfers the mortgages in the pool to another entity, which in turn transfers the loans to a special purpose vehicle (“SPV”,) whose sole role is to hold the pool of mortgages. Id. at 539. “The transfer to the special purpose trust must constitute a true sale, so that the party transferring the assets reduces its potential liability on the loans and exchanges the fairly illiquid loans for much more liquid cash.” Id. at 542. Next, the SPV issues securities which the assignee sells to investors. Id. at 539.

Once the securities have been sold, the SPV is not actively involved. It “does not directly collect payments from the homeowners whose notes and deeds of trust are held by the SPV.” Id. at 544. Rather, servicers collect the principal and interest payments on behalf of the SPV. Id. Fees are associated with the servicing of loans in the pool. Therefore, GMAC WOULD HAVE  constitutional standing if it is the servicer for the Note and DOT because it would suffer concrete injury by not being able to collect its servicing fees. In re O’Kelley, 420 B.R. 18, 23 (D. Haw. 2009). In this case, however, the evidence does not demonstrate that the Note and DOT were transferred to the Trust, and, without that evidence, there is no demonstration that GMAC is the servicer of the Note.

NOTE:  AFTER DETERMING THERE WAS NO STANDING FOR GMAC TO PURSUE THE MOTION TO LIFT THE BANKRUPTCY STAY, THE COURT ADDRESSED THE DEBTORS ARGUMENT THAT “ONLY THE SECURITIZED LOAN INVESTORS HAVE STANDING TO LIFT THE STAY.” The court, in rejecting this argument stated:

The Debtor argues that, in an asset securitization scheme, only the securities investors have standing to seek stay relief because they are the only parties with a financial interest in the securitized notes. However, because the Debtor executed the Note and received consideration (which he used to purchase the house), the contract is enforceable regardless of who provided the funding. In other words, the fact that the funds for a borrower’s loan are supplied by someone other than the loan originator, does not invalidate the loan or restrict enforcement of the loan contract to the parties who funded the loan. A number of cases and treatises recognize that consideration for a contract, including a promissory note, can be provided by a third party. See, e.g., DCM Ltd. P’ship v. Wang, 555 F. Supp. 2d 808, 817 (E.D. Mich. 2008); Buffalo County v. Richards, 212 Neb. 826, 828-29 (Neb. 1982); 3 WILLISTON ON CONTRACTS  7:20 (Richard A. Lord, 4th ed. 2009); RESTATEMENT (SECOND) OF CONTRACTS  71(4) (2009).

Notes are regularly assigned and the assignment does not change the nature of the contract. The assignee merely steps into the shoes of the assignor. In re Boyajian, 367 B.R. 138, 145 (9th Cir. BAP 2007); In re Trejos, 374 B.R. 210, 215 (9th Cir. BAP 2007). No additional consideration is required, as opposed to a novation which creates a new obligation. Id. at 216-17 citing RESTATEMENT (SECOND) OF CONTRACTS 280, cmt. e. Therefore, the Debtor’s argument that the Note is unenforceable because the funder of the Note was not the payee fails. The Note is still valid and can be enforced by the party who has the right to enforce it under applicable Arizona law.

THE COURT ALSO ADDRESSED WHAT TYPE OF PROOF OF NOTE ASSIGNMENT IS REQUIRED TO LIFT THE AUTOMATIC STAY:

A movant for stay relief need only present evidence sufficient to present a colorable claim not every piece of evidence that would be required to prove the right to foreclose under a state law judicial foreclosure proceeding is necessary. In re Emrich, 2009 WL 3816174, at *1 (Bankr. N.D. Cal. 2009). Accordingly, not every movant for relief from stay has to provide a complete chain of a note’s assignment to obtain relief.

Arizona’s deed of trust statute does not require a beneficiary of a deed of trust to produce the underlying note (or its chain of assignment) in order to conduct a Trustee’s Sale. Blau v. Am.’s Serv. Co., 2009 WL 3174823, at *6 (D. Ariz. 2009); Mansour v. Cal-W. Reconveyance Corp., 618 F. Supp. 2d 1178, 1181 (D. Ariz. 2009); Diessner v. Mortg. Elec. Registration Sys., 618 F. Supp. 2d 1184, 1187 (D. Ariz. 2009). It would make no sense to require a creditor to demonstrate more to obtain stay relief than it needs to demonstrate under state law to conduct a judicial or non-judicial foreclosure. Moreover, if a note is endorsed in blank, it is enforceable as a bearer instrument. See In re Hill, 2009 WL 1956174, at *2 (Bankr. D. Ariz. 2009). Therefore, this Court declines to impose a blanket requirement that all movants must offer proof of a note’s entire chain of assignments to have standing to seek relief although there may be circumstances where, in order to establish standing, the movant will have to do so.

Conclusion:

The Weisband Court held that GMAC lacked standing to move for relief of stay (both constitutional and prudential standing – real party in interest).  GMAC’s possession of the original note did not entitle it to enforce the note because the allonge was not properly affixed to the note meaning there was no right to seek payment on the note.  MERS has no financial interest in a deed of trust (because is collects no loan payments and is not injured in the event of foreclosure) so it has no real interest to transfer to the assignee (who stands in the shoes of the assignor) and so the assignment of the deed of trust (security for payment of the loan) is essentially a transfer of no legal interests.  The in re Walker blog we wrote and cited above also lends credence to this position.  Finally, without proof that a note and deed of trust was transferred to the underlying securitized loan trust (at least evidence sufficient to raise a colorable claim of transfer of ownership of the trust), GMAC could not claim standing as a loan servicer (although it is injured in the sense that it loses the right to collect loan payments when a borrower is in default).  The Court did not make exactly clear what kind of proof was required, and indicated a full chain of transfer may not be required, but there may be some cases where it is.  As such, GMAC’s motion was denied, and they could not lift the stay.  What the consequences of that are is anybody’s guess.  Perhaps it is time for the debtor to file an adversary proceeding to challenge the validity of the lien?  Perhaps there is some type of settlement?

 

2 comments • Steve Vondran • August 09 2010 11:39AM

WITHOUT THE NOTE – AREN'T THEY TRYING TO GET YOUR HOUSE FOR FREE! Bankruptcy Law is Setting the Record Straight!

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In re Walker – California Court (Eastern District Bankruptcy Court) confirming what we have been saying all along – MERS HAS NO INTEREST TO CONVEY TO ANY OTHER LENDER, in this case, CitiBank. Where is the note?

The following is general legal information only, and not a substitute for legal advice.  If you have specific foreclosure and bankruptcy questions, please seek out a qualified foreclosure attorney or bankruptcy lawyer in your area.  Steven C. Vondran, Esq., is licensed to practice law in California and Arizona.  He can be reached at (866) 70-DEBTS or (866) 703-3287.

Introduction:

If someone owed you a million dollars would you have a copy of the agreement, and would you safeguard that agreement?  Of course.  But what we are witnessing in our State and Federal Courts in California, Arizona and across the nation, is lenders who cannot legally prove they have the right to enforce your mortgage.  Why?  They don’t have the original promissory note.  The reason for this is complicated and we will talk about the secondary loan market in other posts on UltimateBK.com.  Suffice it to say that if you walked into a small claims court and demanded payment on a written contract, the judge would want to see a copy of the written contract.  However, when it comes to securitized loans (especially in private non-judicial foreclosure settings) apparently you don’t have a right to ask if the real lender is foreclosing on you.  If Wallmart sends you a Notice of Default and Notice of Sale for example, you are supposed to take their word for it that they can foreclose on you, and basically go quietly and gently into the foreclosure night.  You have no right after all, being a delinquent borrower and asking such questions.

Some might say you are simply “trying to get your house for free.”  But let me ask you this, if a “lender” is seeking to foreclose, or assert rights in a bankruptcy court, and if they cannot produce LEGAL EVIDENCE THAT THEY ARE THE OWNER OF THE LOAN (whether by purpose or by mistake), who is the one actually trying to get a house for free?  This is the question we are asking and trying to get an honest answer to.  The California Commercial Code and Arizona commercial code (the two states where we are licensed to practice law) both set forth specific rules for the enforceability of commercial notes.  Why is it asking too much that an alleged creditor be able to prove its legal status to collect on your loan?

Facts of the Walker case:

Citibank, N.A. (the alleged creditor in this case), submitted a “Proof of Claim” in the amount of $1,320,650.52.  The Debtor objected arguing Citibank was not the real party in interest, and had no standing to file the claim under Federal Rule of Bankruptcy Procedure 3001(c).

In this case, when the borrower took out the loan, Bayrock Mortgage was the so-called “lender” and MERS was listed on the Deed of Trust as being the “nominee of the lender its successors and assigns”

MERS attempted (supposedly as nominee of Bayrock) to assign the Deed of Trust to Citibank (the deed of trust is the security for payment of the note and is merely an incident of the debt).  The Debtor claimed MERS had no interest in the note to convey to Citibank, and therefore Citibank got nothing by the MERS assignment of the Deed of Trust.  No other evidence of note ownership (i.e. Citibank did not offer the original note as evidence) was offered by Citibank in filing its proof of claim.

Legal Issue:

Whether Citibank could prove it was the real party in interest entitled to bring a proof of claim in the bankruptcy Court.

Court’s Ruling: 

No.  Citibank is not a real party in interest and can not establish such.

Rationale: 

(1) In California, to perfect the transfer of mortgage paper as collateral, the OWNER should PHYSICALLY DELIVER the NOTE to the transferee.  Bear v. Golden Plan of California, Inc., 829 F.2d 705, 709 (9th Cir. 1986).  Taking this at face value, the original “lender” (in this case Bayrock Mortgage) should physically transfer the note to Citibank, if Citibank wants to be able to claim they are the new owner of the loan.

(2) The Court went on, “without physical transfer (of the note) the sale of the note could be invalid as a fraudulent conveyance (under Cal. Civ. Code Section 3440) or as unperfected (under Cal. Com. Code 9313-9314)” See Roger Bernhardt, California Mortgages and Deeds of Trust and Foreclosure Litigation Section 1.26 (4th ed. 2009).

 

(3) The note should have been physically transferred by Bayrock (the original “lender”), and endorsed and delivered to Citibank.  It was not.  The law on endorsements was not followed (See Cal Comm Code Section 3109, 3201, 3203, and 3204).  The attachment to the proof of claim did not offer this proof.

(4) MERS acted only as a “nominee” for Bayrock Mortgage under the Deed of Trust.  Since no evidence was offered that the promissory note had been transferred, MERS could only transfer what ever interest it had in the Deed of Trust. 

 

(5) However, MERS was purporting to assign the Deed of Trust (not the note) and the “Note and Deed of Trust are inseparable………the former as essential and the later as an incident.”  An assignment of the note carries the mortgage with it while the assignment of the later alone is a nullity” (yes, you heard it, when MERS attempts to assign only a Deed of Trust, the security for the debt, the attempted assignment “is a legal nullity”).  See Carpenter v. Longan, 83 U.S. 271, 274 (1872).  Note: The Carpenter case is a case the lenders themselves like to cite.  I have seen it in pleadings.  Yet, they usually cite this when they have not offered any proof, any usually not even any allegation they the note was assigned to them.  See also Henley v. Hotaling, 41 Cal. 22, 28 (1871); Seidell v. Tuxedo Land Co., 216 Cal. 165, 170 (1932); California Civil Code Section 2936.  The Court went on: “therefore, when one party receives the note and the other receives the deed of trust, THE HOLDER OF THE NOTE PREVAILS regardless of the order in which the interests were transferred.”  (See Adler v. Sargent, 109 Cal. 42, 49-50 ((1895).   Given these cases, who the holder of the note is becomes the essential proof question. 

NOTE: DOES THIS MAKE IT A “HOUSE FOR FREE” QUESTION IF A BORROWER, BASED UPON THIS CASE LAW RELIED UPON BY OTHER BANKRUPTCY JUDGES IN CALIFORNIA, INSISTS TO KNOW WHO OWNS THE LOAN?  ISN’T THIS AN ESSENTIAL QUESTION OF LAW?  DOESN’T THE LAW APPLY TO EVERYONE, EVEN BANKS?

 

(6) The Court went on to discuss how MERS does not own the underlying note, deed of trust, and has no right to try to transfer it and no right to foreclose.  Yes, you heard that right. MERS cannot try to transfer your note or deed of trust.  The Court cited In re Foreclosure Cases, 521 F. Supp. 2d 650, 653 (S.D. Oh. 2007), In re Vargas, 396 B.R. 511, 520, (Bankr. C.D. Cal. 2008), Landmark Nat’l Bank v. Kesler, 216 P.3d 158 (Kan. 2009), and LaSalle bank v. Lamy, 824 N.Y.S. 2d 769, (N.Y. Sup. Ct. 2006).  In this case, MERS offered no proof that it would have owned the loan at issue and therefore, the court determined it had absolutely no interest to transfer to Citibank, and Citibank therefore had nothing either.  Without proof it owned the note, there was likewise no right to attempt to transfer the deed of trust to Citibank.  As a result, Citibank has no right to assert a claim in the bankruptcy case.

(7) It is also interesting to note that the Plaintiff in this case also pointed out that 4 SEPARATE ENTITIES CLAIMED AN INTEREST IN THE DEED OF TRUST.  We have seen similar scenarios in cases we have worked on.  One has to ask: “what in the world is going on here” as we have asked in some of our cases.  The Court answered the question in a sound fashion when he stated “THE TRUE OWNER OF THE UNDERLYING PROMISSORY NOTE NEEDS TO STEP FORWARD TO SETTLE THE CLOUD THAT HAS BEEN CREATED SURROUNDING THE RELEVANT PARTIES RIGHTS AND INTERESTS UNDER THE DEED OF TRUST.”  Now that’s not too much to ask for in a civilized society right?

 

(8) The Court Concluded that “11 U.S.C. Section 502(a) provides that a claim supported by a proof of claim is allowed unless a party in interest objects.”  THIS POINTS OUT THE IMPORTANCE OF CALLING YOUR SELF-PROCLAIMED “LENDER” IN A BANKRUPTCY COURT.   Here, “Citibank is unable to assert a claim for payment in this case.”

 

(9) So what happens to Citibank?  That is a good question.  The Court closed out its holding by stating: “the court disallowing the proof of claim does not alter or modify the trust deed or the fact that SOMEONE has an interest in the property which can be subject thereto…………..the claim is disallowed in its entirety with LEAVE TO AMEND for the OWNER of the PROMISSORY NOTE to file a Claim in this case by June 18, 2010.”

 

Conclusion/ Thoughts:

It is clear some Bankruptcy judges in California are requiring PROOF that an entity actual owns the note before it is allowed to come into a BK Court and make demands upon the Court.  Citibank needs to come forward with the original note and proof of ownership of the loan at issue.  A purported assignment of the deed of trust alone, by MERS (an entity without the right to transfer or assign the deed of trust according to the Court) will not suffice. 

Although the “produce the note” theory will most likely not provide tangible thoughts in a private foreclosure (non-judicial) there is legal authority and legal case law that dictates our commercial law standards in regard to proving note ownership still applies, EVEN THOUGH A BORROWER MAY BE IN DEFAULT.  Where a fortune 500 lender, who is in the best position of protecting their legal interests, cannot produce the original note in a bankruptcy court, THEY ARE SEEKING TO GET A HOUSE FOR FREE. 

This seems to be the point some people are missing.  Without proof of loan ownership and the right to effectuate on the security, the lender (who may simply be mistaken after all) is in the position of seeking a huge financial windfall at the expense potentially, of the REAL CREDITOR.  Such a proposition puts a borrower at risk of “financial double jeopardy” in having to reopen their bankruptcy again in the future should the true owner of the loan appear with physical possession of a properly endorsed note in hand.  No one is above the law, or at least that was the idea at one time.  

If you are in bankruptcy court and your lender files a proof of claim, or seeks to file a motion to lift the automatic stay in bankruptcy (in order to go sell your house in a private sale), make sure they are the real party in interest to the action by demanding they “prove they are your creditor” (how do they do that?  Simple, pull out the note endorsed to them, they should have physical possession of the note).

To keep track of these issues and more in the bankruptcy context, visit our new bankruptcy website at http://www.UltimateBK.com 

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2 comments • Steve Vondran • August 03 2010 12:39PM

Foreclosure College Launches! First Seminar for Foreclosure and Bankruptcy Lawyers begins in September 2010

 

FORECLOSURECOLLEGE.NET "BOOTCAMP" – Helping Lawyers Fight and Win the War on Foreclosure!

TWO DAY SEMINAR - NEWPORT BEACH, CALIFORNIA - SEPTEMBER 2010 (Date to be announced)

For Information on Foreclosure College Dates please visit http://www.ForeclosureCollege.net 

__________________________________________________________________________________________

Introduction: Foreclosures and bankruptcies do not appear to be ending anytime soon.  The lenders, loan servicers and investors of securitzed loans are making things more difficult than ever on desparate homeowners.  SB94 passed in October 11, 2009 literally forcing brokers and attorneys out of the loss mitigation business and left California homeowners grasping for information about how to best take on these 5000 pound gorrillas.  Is there anything a conscientious lawyer can do to legally and ethically help these homeowners in financial distress and trying to save their homes from foreclosure?  YES THERE IS!  There are still a certain class of lawsuits that can and should be filed against financial institutions that willingly violate the state and federal rights of homeowners.  It is literally shocking to see the amount of abuses that go on, and if not identified, go unnoticed and unchallenged.  For example, foreclosure laws that are not followed, invalid substitution of trustees, selling homes while a modification was in effect, TILA rescission letters ignored, RESPA QWR's ignored, demands to identify the holder of the loan ignored, demands to agree to unwarranted deficiency judgments as part of the loss mitigation process, etc.  These are but a few of the things that are becoming somewhat typical in the foreclosure marketplace.  This foreclosure seminar will help the legal practitioner identify, assert, and stand up for the legal rights of their clients through civil lawsuits and bankruptcy actions.

IF YOU ARE A CALIFORNIA LAWYER LOOKING TO GET INTO THE FORECLOSURE DEFENSE BUSINESS, (OR A PRACTICING REAL ESTATE OR BANKRUPTCY LAWYER ALREADY HANDLING CASES IN THIS AREA), THIS SEMINAR SHOULD BE OF SIGNIFICANT VALUE TO YOU.  LEARN THE INSIGHTS ATTORNEY STEVE VONDRAN HAS LEARNED IN HIS TWO YEARS FIGHTING THE FORECLOSURE BATTLE.  LEARN THE TIPS, TRICKS, AND INSIGHTS STEVE VONDRAN HAS LEARNED, AND OBTAIN COPIES OF THE FORECLOSURE MATERIALS HE USES IN HIS DAILY BATTLE AGAINST THE LENDERS AND LOAN SERVICERS.
THE GOAL OF FORECLOSURE COLLEGE IS TO HELP YOU BETTER UNDERSTAND THE LEGAL ISSUES FACING YOUR CLIENTS, AND HELP YOU MORE EFFECTIVELY ADVOCATE ON THEIR BEHALF BY LEARNING TO SEPARATE THE FACT FROM THE FICTION, AND GOOD CASES FROM BAD.

ABOUT STEVE VONDRAN, ATTORNEY

Attorney Steve Vondran will be giving the seminar.  He has been a real estate attorney for about 6 years and prior to becoming an attorney was a mortgage loan officer at American Home Equity in Irvine, California.  He has also sold residential and commercial real estate, the later with DAUM commercial real estate.  When the loss mitigation business blossomed over two years ago, Mr. Vondran was one of the first attorneys that starting focusing his practice on helping homeowners with their foreclosure issues.  He was responsible for helping over 50 California Real Estate Brokers legally operate in the loan modification business by having them set-up to do business through the California Department of Real Estate (DRE) with approved advance fee agreements and verified accountings.  He has also represented California clients in loan modification process - pre-SB94, and has filed predatory lending lawsuits seeking TRO's, injunctions, and money damages against major lenders such as Wachovia, Wells Fargo, Indymac, Bank of America, SPS, Cal-Western Reconveyance, Executive Trustee Services, and more.  He has also represented Clients in Chapter 7 bankruptcy actions, including filing oppositions to motions to lift the automatic stay in bankruptcy and filing adversary proceedings in bankrupty Court.  Mr. Vondran is a member of the State Bar for both Arizona and California, and is a licensed real estate broker in both jurisdictions.  He is admitted to practice law in most state and federal courts in California and Arizona and is a member of the Orange County Trial Lawyers Association.

DOES FORECLOSURE COLLEGE QUALIFY FOR DRE MCLE CONTINUING EDUCATION UNITS?

We plan to file an application with the California State Bar to provide continuing education (MCLE) units for this Foreclosure Seminar.  AT THIS TIME THERE IS NO MCLE UNITS.

WHO SHOULD ATTEND FORECLOSURE COLLEGE?

(1) California Attorneys looking to make a lateral move into foreclosure defense/bankruptcy
(2) Current California Attorneys looking for tips, tricks, strategies, and insights that may help in providing more effective advocacy and representation
(3) Other Interested Professionals

WHAT TOPICS WILL BE ADDRESSED AT FORECLOSURE COLLEGE?

(1) The Battlefield: understanding the loss mitigation landscape / MERS & securitized loans (who owns my loan?) / Chain of Title
(2) Know thy enemy: understanding the nature of the beast (the lenders and loan servicers and their attorneys)
(3) Overview of available Loss Mitigation Options (short sale / deed in lieu / bankruptcy / modification) / SB94
(4) The law of short sales / short sale considerations / deficiency judgments
(5) Loss mitigation without Litigation (mortgage mediation) / HAMP & other loss mitigation programs / mathematics of modification / Trial Plan Fraud
(6) Understanding Forensic Loan Audits / Predatory Lending / Holder in Due Course
(7) Truth in Lending Rescission / Recoupment – Your Most Powerful Weapon?
(8) Setting a case up for litigation (QWR’s / Debt Validation / Beneficiary statements / Chain of title)
(9) Suing your broker: option arm loans and fiduciary duties / RESPA & YSP
(10) Foreclosure process: foreclosure laws and common violations / California one action "security first" rule
(11) What to expect when litigating your loan / causes of action / removal / TRO & Injunction / Fee Models
(12) What is lis pendens in California and how to use it?
(13) What is quiet title in California and when to use it?
(14) What is produce the note theory?
(15) The Indymac / FDIC / OneWest bank phenomena
(16) All roads lead to bankruptcy: “prove you are my creditor” strategy
(17) Bankruptcy adversary proceedings & challenging proof of claim
(18) Bankruptcy fighting lender / servicer lift-stay motions
(19) Understanding Foreclosure Scams / Law Centers / Homeowner recourse
(20) Attorney Ethics issues that may arise in Foreclosure Defense

WHAT MATERIALS YOU WILL RECEIVE AT FORECLOSURE COLLEGE?

FORECLOSURE COLLEGE ATTENDEES WILL RECEIVE A THREE THREE RING BINDER INCLUDING THE FOLLOWING VALUABLE MATERIALS:

(Some Documents will be provided on a Removable disc)

(1) COPY OF QUALIFIED WRITTEN REQUEST LETTER
(2) COPY OF DEMAND TO IDENTIFY HOLDER OF THE LOAN LETTER UNDER 15 USC 1641
(3) COPY OF TRIAL PLAN FRAUD / BREACH OF CONTRACT LETTER
(4) COPY OF LOAN MOD SCAM LETTER
(5) COPY OF TILA RESCISSION LETTER
(6) SAMPLE OF ATTORNEY LOAN AUDIT / PREDATORY LENDING CHECKLIST
(7) TRO / PRELIMINARY INJUNCTION CHECKLIST

WHAT IS THE COST OF FORECLOSURE COLLEGE?

$2,500 (INCLUDES REFRESHMENTS DURING SEMINAR / THERE WILL BE SPECIAL PRICING ON HOTEL ROOMS)

WHERE WILL THE FORECLOSURE SEMINAR COLLEGE TAKE PLACE?

The Seminar will be held in September (TBA) in Newport Beach, California.  Starting time is 8:30 am - 5:00 pm (Saturday and Sunday).  Exact location will be announced as soon as ascertained.  A minimum of 7 attendees is required in order for the event to take place.  If the event does not take place, a full refund will be immediately provided.  TO BOOK YOUR SEAT CALL (877) 276-5084

 

6 comments • Steve Vondran • July 25 2010 05:22PM

Foreclosure College Launches! First Seminar for Foreclosure and Bankruptcy Lawyers begins in September 2010

FORECLOSURECOLLEGE.NET "BOOTCAMP" – Helping Lawyers Fight and Win the War on Foreclosure!

ONE AND ONE HALF DAY SEMINAR - NEWPORT BEACH, CALIFORNIA - OCTOBER 7TH AND 8TH 2010 (Location to be announced)

For Information on Foreclosure College Dates please visit http://www.ForeclosureCollege.net 

__________________________________________________________________________________________

Introduction: Foreclosures and bankruptcies do not appear to be ending anytime soon.  The lenders, loan servicers and investors of securitzed loans are making things more difficult than ever on desparate homeowners.  SB94 passed in October 11, 2009 literally forcing brokers and attorneys out of the loss mitigation business and left California homeowners grasping for information about how to best take on these 5000 pound gorrillas.  Is there anything a conscientious lawyer can do to legally and ethically help these homeowners in financial distress and trying to save their homes from foreclosure?  YES THERE IS!  There are still a certain class of lawsuits that can and should be filed against financial institutions that willingly violate the state and federal rights of homeowners.  It is literally shocking to see the amount of abuses that go on, and if not identified, go unnoticed and unchallenged.  For example, foreclosure laws that are not followed, invalid substitution of trustees, selling homes while a modification was in effect, TILA rescission letters ignored, RESPA QWR's ignored, demands to identify the holder of the loan ignored, demands to agree to unwarranted deficiency judgments as part of the loss mitigation process, etc.  These are but a few of the things that are becoming somewhat typical in the foreclosure marketplace.  This foreclosure seminar will help the legal practitioner identify, assert, and stand up for the legal rights of their clients through civil lawsuits and bankruptcy actions.

IF YOU ARE A CALIFORNIA LAWYER LOOKING TO GET INTO THE FORECLOSURE DEFENSE BUSINESS, (OR A PRACTICING REAL ESTATE OR BANKRUPTCY LAWYER ALREADY HANDLING CASES IN THIS AREA), THIS SEMINAR SHOULD BE OF SIGNIFICANT VALUE TO YOU.  LEARN THE INSIGHTS ATTORNEY STEVE VONDRAN HAS LEARNED IN HIS TWO YEARS FIGHTING THE FORECLOSURE BATTLE.  LEARN THE TIPS, TRICKS, AND INSIGHTS STEVE VONDRAN HAS LEARNED, AND OBTAIN COPIES OF THE FORECLOSURE MATERIALS HE USES IN HIS DAILY BATTLE AGAINST THE LENDERS AND LOAN SERVICERS.
THE GOAL OF FORECLOSURE COLLEGE IS TO HELP YOU BETTER UNDERSTAND THE LEGAL ISSUES FACING YOUR CLIENTS, AND HELP YOU MORE EFFECTIVELY ADVOCATE ON THEIR BEHALF BY LEARNING TO SEPARATE THE FACT FROM THE FICTION, AND GOOD CASES FROM BAD.

ABOUT STEVE VONDRAN, ATTORNEY

Attorney Steve Vondran will be giving the seminar.  He has been a real estate attorney for about 6 years and prior to becoming an attorney was a mortgage loan officer at American Home Equity in Irvine, California.  He has also sold residential and commercial real estate, the later with DAUM commercial real estate.  When the loss mitigation business blossomed over two years ago, Mr. Vondran was one of the first attorneys that starting focusing his practice on helping homeowners with their foreclosure issues.  He was responsible for helping over 50 California Real Estate Brokers legally operate in the loan modification business by having them set-up to do business through the California Department of Real Estate (DRE) with approved advance fee agreements and verified accountings.  He has also represented California clients in loan modification process - pre-SB94, and has filed predatory lending lawsuits seeking TRO's, injunctions, and money damages against major lenders such as Wachovia, Wells Fargo, Indymac, Bank of America, SPS, Cal-Western Reconveyance, Executive Trustee Services, and more.  He has also represented Clients in Chapter 7 bankruptcy actions, including filing oppositions to motions to lift the automatic stay in bankruptcy and filing adversary proceedings in bankrupty Court.  Mr. Vondran is a member of the State Bar for both Arizona and California, and is a licensed real estate broker in both jurisdictions.  He is admitted to practice law in most state and federal courts in California and Arizona and is a member of the Orange County Trial Lawyers Association.

DOES FORECLOSURE COLLEGE QUALIFY FOR DRE MCLE CONTINUING EDUCATION UNITS?

We plan to file an application with the California State Bar to provide continuing education (MCLE) units for this Foreclosure Seminar.  AT THIS TIME THERE IS NO MCLE UNITS.

WHO SHOULD ATTEND FORECLOSURE COLLEGE?

(1) California Attorneys looking to make a lateral move into foreclosure defense/bankruptcy
(2) Current California Attorneys looking for tips, tricks, strategies, and insights that may help in providing more effective advocacy and representation
(3) NEWLY MINTED LAWYERS
(3) Other Interested Professionals

WHAT TOPICS WILL BE ADDRESSED AT FORECLOSURE COLLEGE?

(1) The Battlefield: understanding the loss mitigation landscape / MERS & securitized loans (who owns my loan?) / Chain of Title
(2) Know thy enemy: understanding the nature of the beast (the lenders and loan servicers and their attorneys)
(3) Overview of available Loss Mitigation Options (short sale / deed in lieu / bankruptcy / modification) / SB94
(4) The law of short sales / short sale considerations / deficiency judgments
(5) Loss mitigation without Litigation (mortgage mediation) / HAMP & other loss mitigation programs / mathematics of modification / Trial Plan Fraud
(6) Understanding Forensic Loan Audits / Predatory Lending / Holder in Due Course
(7) Truth in Lending Rescission / Recoupment – Your Most Powerful Weapon?
(8) Setting a case up for litigation (QWR’s / Debt Validation / Beneficiary statements / Chain of title)
(9) Suing your broker: option arm loans and fiduciary duties / RESPA & YSP
(10) Foreclosure process: foreclosure laws and common violations / California one action "security first" rule
(11) What to expect when litigating your loan / causes of action / removal / TRO & Injunction / Fee Models
(12) What is lis pendens in California and how to use it?
(13) What is quiet title in California and when to use it?
(14) What is produce the note theory?
(15) The Indymac / FDIC / OneWest bank phenomena
(16) All roads lead to bankruptcy: “prove you are my creditor” strategy
(17) Bankruptcy adversary proceedings & challenging proof of claim
(18) Bankruptcy fighting lender / servicer lift-stay motions
(19) Understanding Foreclosure Scams / Law Centers / Homeowner recourse
(20) Attorney Ethics issues that may arise in Foreclosure Defense

WHAT MATERIALS YOU WILL RECEIVE AT FORECLOSURE COLLEGE?

FORECLOSURE COLLEGE ATTENDEES WILL RECEIVE A THREE THREE RING BINDER INCLUDING THE FOLLOWING VALUABLE MATERIALS:

(Some Documents will be provided on a Removable disc)

(1) COPY OF QUALIFIED WRITTEN REQUEST LETTER
(2) COPY OF DEMAND TO IDENTIFY HOLDER OF THE LOAN LETTER UNDER 15 USC 1641
(3) COPY OF TRIAL PLAN FRAUD / BREACH OF CONTRACT LETTER
(4) COPY OF LOAN MOD SCAM LETTER
(5) COPY OF TILA RESCISSION LETTER
(6) SAMPLE OF ATTORNEY LOAN AUDIT / PREDATORY LENDING CHECKLIST
(7) TRO / PRELIMINARY INJUNCTION CHECKLIST

WHAT IS THE COST OF FORECLOSURE COLLEGE?

$4,500 (INCLUDES REFRESHMENTS DURING SEMINAR / THERE WILL BE SPECIAL PRICING ON HOTEL ROOMS).  THIS IS THE PRICE OF YOUR FIRST TRANSACTION.  OUR GOAL IS TO GIVE YOU THE KEYS TO THE CASTLE AND HELP YOU BE ABLE TO HIT THE GROUND RUNNING IN THIS BUSINESS.

WHERE WILL THE FORECLOSURE SEMINAR COLLEGE TAKE PLACE?

The Seminar will be held on Saturday, OCTOBER 7TH AND 8TH, 2010 in Newport Beach, California.  Starting time is 8:30 am - 5:00 pm (THURSDAY) and 8:30-12:00 Friday.  Exact location will be announced as soon as ascertained.  A minimum of 10 attendees is required in order for the event to take place.  If the event does not take place, a full refund will be immediately provided.  TO BOOK YOUR SEAT CALL (877) 276-5084

 

0 comments • Steve Vondran • July 25 2010 05:20PM

DO YOU NEED A REAL ESTATE LAWYER TO REPRESENT YOU IN A DRE HEARING / AUDIT / INVESTIGATION? WHAT TO EXPECT IN A DRE AUDIT

Introduction

So you get a letter from the California Department of Real Estate (DRE) informing you that they are auditing or investigating you.  You wonder which client complained and why you are subject to the audit.  Then you take a look at all the documents they are requesting and you form a theory as to why they want to investigate your books, practices, and operation.  You think to yourself, "should I hire a real estate lawyer to represent me in this matter" or "maybe I can just represent myself, give the DRE auditor the documents they are asking for and hope it all works out okay."  After all, you have done nothing wrong or fraudulent.  This is the common scenario we see.

Typical Documents the DRE auditor may request as part of a DRE audit or investigation (this is not an exclusive or exhaustive list - there may be other requirements)

(1) Copy of all salesperson agreements and licenses, and copy of broker licenses
(2) Copy of your corporate records (Articles of Incorporation, corporate information, Secretary of State information etc.), DBA's
(3) Bank statements for all corporate bank accounts and trust accounts used in connection with licensed activity
(4) Reconciliation statements for trust accounts (including separate records for each beneficiary)
(5) Trust fund records of receipts and disbursements
(6) Deposit Records and cancelled checks for trust accounts used in licensed activity
(7) Trust account and general bank account signature cards
(8) Escrow account records and bank statements
(9) Transaction files (ex. loan modifications / short sales / loans
(10) Advance Fee Contracts (ex. loan modification advance fee agreements that have received a letter of non-objection from DRE)

This is typical of the documents the DRE may request in your DRE audit.  Typically you need to gather and locate all these documents and have them ready for fro DRE inspection on the date of the hearing.  The DRE investigation may be conducted at the place of the brokerage business, or may be held at the DRE office in Los Angeles, California on 4th street or some other designated place.

Typical Questions you can expect in a DRE audit or investigation

When the DRE starts the questioning process, you can usually expect just one senior auditor (sometimes a DRE auditor traineee may be there) and you can expect about 1 hour worth of questioning (they will have a 10-15 page question package with them.  Here is a sample of the types of questions you may hear.

(1) Do you have a copy of your corporate records?  Is the corporation in good standing with the Secretary of State?  Do you have DBA records?
(2) Are you the sole officer of your corporation?  Any other owners of stock?
(3) Do you have any agreements with your corporation?
(4) Do you have a branch office?
(5) Do you hold any licenses with California Department of Corporations?  HUD licensed?
(6) What types of loan activities are you engaged in (ex. escrow, loans, loan modifications, residential real estate sales, commercial sale or loan workouts, short sales etc.)
(7) Be prepared to describe the nature of your activities (who does what, etc.)
(8) How many files have you done?  Do you have copies of each file?
(9) Do you collect advance fees?  How many times?  Do you negotiate loans?  Do you place money in a trust account?
(10) Do you accept advance fees for appraisals or credit reports?
(11) Do you have written rate lock agreements for your loan clients?
(12) Do you fund any of your own loans?
(13) Expect DETAILED questions regarding your trust account activities.
(14) You may be asked to fill out a loan mod questionnaire or other documents on the spot
(15) You may be asked if your advertising materials for loan modifications were approved by the DRE prior to usage
(16) There are a whole host of other types of questions that may arise.

Should you hire a California Real Estate Lawyer for DRE audit or investigation?  Factors to consider.

Now, you may be able to gather all your documents, appear at the hearing and represent yourself.  Here are just a few reasons you may want to consider having a DRE lawyer available to appear with you at the DRE audit/investigation.  My clients have normally been very pleased to have a lawyer at their side, and here are a few reasons.

(1) We first try to understand your case and try to figure out what they are looking for.
(2) A DRE Defense Lawyer can help you identify any potential legal issues you may be facing.
(3) Having a DRE Defense Lawyer show up and appear and serve as a "second set of ears" at the hearing.  Usually, the DRE licensee is nervous during these hearings, and having a DRE defense attorney at your side provides a certain comfort level.
(4) We can have the DRE auditor clarify ambiguous questions that arise, so that we make an accurate of a record as possible (the initial hearing is not normally tape recorded)
(5) A DRE Defense lawyer can review any documents that they may present on the spot and confront you with.  This serves a valuable role.
(6) Having the presence of a DRE defense attorney may prevent the DRE auditor from over-reaching in certain areas during the questioning process
(7) We can help follow up and provide the required documents the auditor has requested
(8) We can serve as your advocate in both oral and written discussions (much like an athlete COULD represent themselves in negotiations, sometimes it is better to have a third party fighting for you)
(9) In the event a further disciplinary action is required, you will already have counsel familiar with your case and the parties involved.
(10) Having a lawyer represent you at a DRE hearing sends a message that you take your real estate license very serious, and that it is important enough to have someone assist you in facilitating ful cooperation with the DRE representatives.

These are the TOP 10 REASONS TO HIRE A LAWYER TO REPRESENT YOU AT A DRE AUDIT, INVESTIGATION OR HEARING IN CALIFORNIA.

CONTACT ATTORNEY STEVE VONDRAN AT (877) 276-5084 FOR A FREE INITIAL CONSULTATION.

About Steve Vondran, DRE Defense Lawyer

Steve Vondran is licensed to practice law in both Arizona and California.  He is also a DRE licensed real estate broker in both states.  He has experience in commercial and residential real estate, as well as loan transactions (former loan officer), and loan modifications (he has setup over 50 companies to engage in loan modifications by having a DRE advance fee agreement approved receiving "letters of non-objection" for both loan modification agreements and verified accountings.  He has also represented numerous brokers and licensee in DRE audits and investigations.  Aside from DRE representation, Mr. Vondran is heavily involved in predatory lending litigation against major lenders and loan servicers, and he challenges certain loans in bankruptcy.  Mr. Vondran can also be reached at steve@vondranlaw.com

This is an advertisement and communication pursuant to state bar rules

0 comments • Steve Vondran • July 21 2010 10:38PM

California DRE advance fee short sales agreement........can you legally accept an advance fee for short sales work in California?

On October 11, 2009, SB94 was passed into law.  For those two or three people out there who may have missed it, this is what the law was about:

This bill would, until January 1, 2013, prohibit any person, including 

a real estate licensee, who negotiates, attempts to negotiate, arranges, 

attempts to arrange, or otherwise offers to perform residential mortgage 

loan modifications or other forms of mortgage loan forbearance, as 

specified, for a fee or other compensation paid by a borrower, from 

demanding or receiving any preperformance compensation, as specified, 

requiring any security as collateral for final compensation, or taking a 

power of attorney from a borrower, and would make a violation of that 

prohibition a misdemeanor or subject to specified fines. By creating a 

new crime, the bill would impose a state-mandated local program. 

 

This bill would redefine the term “advance fee” to mean a fee, 

regardless of the form, that is claimed, demanded, charged, received, 

or collected by a licensee from a principal before fully completing each 

and every service the licensee contracted to perform, or represented 

would be performed, as specified. 



For most brokers (and attorneys alike, except the scam law groups and law centers who tried to get creative and break their modification services into a series of separate retainers - which apparently does not pass legal muster) this law meant the death of trying to help homeowners navigate the confusing, frustrating, and time consuming loan modification process.  So much for freedom of contract thanks to a few bad apples out there.  As a result of SB94 many brokers have turned to short sales where advance fees don't have to be charged, because the process is akin to the sale of a house where up-front or advance fees have not previously been charged.  Not too many people were willing to perform exhaustive loan modifications on a contingency fee basis it seems, and for good reason.  The SB94 law did not prohibit charging advance fees for short sales work as a short sale does not involve modifying a loan, or loan forbearance (at least this appears to be the meaning attached to this, and makes sense in light of the California State Bar article pasted below).  That being said, I cannot guarantee this interpretation and each person reading this is required to do their own research to determine legal compliance obligations.

The question I have is whether or not the short sale process warrants the charging of an advance fee, or whether these should be done just like a typical real estate listing transaction wherein the broker does not get paid until the deal closes.  The one catch that perhaps justify the charging of an advance fee for short sales is the reality that no matter how good you do the job, and regardless of how many offers you bring to the lender, you are still subject to lender/investor approval (just like those good ole loan modifications) and a stubborn second lien holder or back-room investor may not agree to your short sale offer even though it is more than fair.  In these circumstances, would it make sense to charge an advance fee for these services?  If so, how much.  I am throwing this question out there for debate.  

Recently it has come to my attention that the DRE may be approving advance fee agreements for short sale services.  Here is a copy of what I recently found on the California State bar website in regard to short sales (fraud) http://www.calbar.org:

Officials issue warning about short sale fraud

The State Bar, Attorney General Edmund G. Brown Jr. and the state Department of Real Estate warned homeowners last month about an alarming rise in short sale fraud across California. “While short sales can provide homeowners with a last-ditch alternative to foreclosure, this market is rife with scam artists,” Brown said. “Homeowners and buyers, agents, and lenders should beware of short sale negotiators who operate without licenses, use straw buyers or charge illegal fees.”

A short sale is an arrangement in which a homeowner sells his or her home for less than the outstanding mortgage, with the consent of the lender.

With so many homeowners now considering short sales, an entire industry of so-called short sale negotiators has emerged. These individuals solicit homeowners by promising to expedite the process and help coax lenders into taking part in the transaction.

The Department of Real Estate is investigating more than 40 complaints of short sale fraud, up from “virtually zero” cases only three months ago, a spokesman said.

In April, the Obama administration launched a new initiative called the Home Affordable Foreclosure Alternatives Program, which encourages homeowners in financial distress — especially those who have failed to complete a trial modification or qualify for a loan modification — to consider a short sale as an alternative to foreclosure.

Before working with — or paying — any short sale negotiator, homeowners should consider the following red flags:

No License - With limited exceptions, only licensed real estate agents or attorneys can engage in short sale negotiations with a homeowner’s lender.

Up-front fees - Licensed real estate agents wishing to collect up-front fees from homeowners for short sale transactions must first submit an advance fee contract to the DRE and receive a no-objection letter.

Surcharges - With many distressed properties listed well below market value, negotiators and agents are charging potential buyers thousands of dollars in surcharges and hidden fees just to place an offer on a home. These illegal fees are frequently not disclosed and are paid outside escrow.

Straw buyers and house flipping - In this scheme, short sale negotiators misrepresent the market value of a property to a homeowner’s lender by only submitting offers on the property from an affiliated straw buyer. After the home is purchased below market value, the fraudsters immediately flip it and pocket the difference.

Short sale negotiators and agents use a number of titles, including debt negotiator, debt resolution expert, loss mitigation practitioner, foreclosure rescue negotiator, short sale processor, short sale coordinator and short sale expeditor.

Homeowners can also learn more about avoiding mortgage and real estate fraud by visiting the DRE website at: http://www.dre.ca.gov/cons_alerts.html. A complaint form can be accessed online at: http://www.dre.ca.gov/frm_consumer.html.

“Short sale fraud appears to be the fraud of the moment, and it is proliferating statewide,” according to Real Estate Commissioner Jeff Davi. “Consumers, licensees and lenders must all arm themselves with the tools necessary to avoid such scams.”



What this tells me is the DRE may be reviewing, and possibly approving short sale agreements.  As some of you may know, my law firm has setup over 50 companies to legally perform loan modifications in California with approved advance fee agreements.  We were one of the first companies to have these agreements approved and we want to be on the forefront of short sale advance fee approvals if in fact the DRE is reviewing and approving these.  We have a call out to the top brass at the DRE to discuss this issue.  In the meantime, if anyone wants to submit a short sale advance fee agreement to the DRE to seek approval to charge an up-front advance fee for California short sales work please contact my office to discuss.  (877) 276-5084.  We look forward to helping California brokers legally perform their short sale in the State of California as we did with loan modifications.  We also offer our "California Law of Short Sales" PDF with each purchase. 


0 comments • Steve Vondran • July 18 2010 03:28AM

The California “One Action Rule” (Security-First Rule) – Can you second mortgage lender sue you on the note for default of the junior mortgage / deed of trust

  We have been getting many calls lately from California homeowners (and even some commercial business owners) asking us if their lender can hold them liable for their second mortgage in California.  And if so, can they sue them on the note without first seeking the foreclosure route.  This article will attempt to provide some illumination to these issues and will relate to owner occupied single-family residences in California who have second mortgages that are in default or at risk of going into default.  At issue is the One Action / Security First Rule of California Code of Civil Procedure Section 726(a).

 This article is general legal information only and not intended to serve as legal advice or a substitute for legal advice.  As law is constantly changing and evolving, the information may not be 100% complete, accurate or up-to-date.  For specific questions about your legal liability in regard to junior loans, please contact a skilled and experienced real estate or foreclosure defense lawyer.

 Steve Vondran is a California Real Estate Lawyer who is licensed to practice law in California and Arizona.  He also holds a real estate broker’s license in California and Arizona and has a background in mortgage brokering and commercial real estate.  HE can be reached at steve@vondranlaw.com or (877) 276-5084.

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 The common second mortgage default scenario: 

 You own a home and have a first and second mortgage, both secured by a deed of trust on your primary residence.  The first mortgage is 500k and the second mortgage is 100k.  You are paying the first mortgage but are delinquent on the second mortgage.  The second mortgagee is threatening to sue you on the note or otherwise hold you liable for your default on the second mortgage.  You are concerned and don’t know whether or not they can sue you or not or whether you should try to workout a deal with them.

 The general rule regarding a lenders rights when you are in default of your promissory note, and assuming the deed of trust has a “power of sale clause,” is the ONE ACTION RULE:

 A secured lender has the option of “electing its remedies” when a deed of trust and note and not being paid as agreed.  They can either pursue judicial foreclosure (which means they file a lawsuit against you seeking a court order to sell your real property, and to seek a deficiency judgment if the loan is not subject to California’s anti-deficiency laws under section 580 of the Civil Code) or, they can seek to pursue a non-judicial foreclosure sale (which allows them to sell your property after sending you a notice of default, deed of trust, and complying with other provisions of California Civil Code Section 2924 et seq – the California Foreclosure Laws.

 What this means then is a secured lender must either seek to go to court to foreclose on your judicially, or then can seek to perform a non-judicial foreclosure sale.  The COMPLETION of either one constitutes an “action.”

 Now, in most cases, a junior lien holder (i.e. a second mortgagee) is not going to foreclose on you either judicially or non-judicially.  Why is that?  Because in order for them to get paid, they first mortgage holder (the senior lien holder) would have to get paid first following the trustee sale (in the case of a non-judicial foreclosure sale) or following the Court ordered sale of the property in a judicial foreclosure.  In these times when property values are declining faster than temperatures at the north pole, second mortgage holders are not often left holding a lot of “security” for the loans they gave to borrowers.  This raises a problem.  Many of the junior lien holders have no security and no interest in foreclosing.  What these junior note holders might want to do is to waive the security and “sue you on the note.”  The question is, whether they have the legal right to do this in California?

 Enter the California “One Action Rule.”  What does the one action rule state?  Well, lets start by getting the statutory law on the table – California Code of Civil Procedure Section 726, the (“Security First”) One Action Rule

 (a) There can be but one form of action for the recovery of any debt or the enforcement of any right secured by mortgage upon real property or an estate for years therein, which action shall be in accordance with the provisions of this chapter. In the action the court may, by its judgment, direct the sale of the encumbered real property or estate for years therein (or so much of the real property or estate for years as may be necessary), and the application of the proceeds of the sale to the payment of the costs of court, the expenses of levy and sale, and the amount due plaintiff, including, where the mortgage provides for the payment of attorney's fees, the sum for attorney's fees as the court shall find reasonable, not exceeding the amount named in the mortgage.

 (b) The decree for the foreclosure of a mortgage or deed of trust secured by real property or estate for years therein shall declare the amount of the indebtedness or right so secured and, unless judgment for any deficiency there may be between the sale price and the amount due with costs is waived by the judgment creditor or a deficiency judgment is prohibited by Section 580b, shall determine

the personal liability of any defendant for the payment of the debt secured by the mortgage or deed of trust and shall name the defendants against whom a deficiency judgment may be ordered following the proceedings prescribed in this section. In the event of waiver, or if the prohibition of Section 580b is applicable, the decree shall so declare and there shall be no judgment for a deficiency. In the event that a deficiency is not waived or prohibited and it is decreed that any defendant is personally liable for the debt, then upon application of the plaintiff filed at any time within three months of the date of the foreclosure sale and after a hearing thereon at which the court shall take evidence and at which hearing either party may present evidence as to the fair value of the real property or estate for years therein sold as of the date of sale, the court shall render a money judgment against the defendant or defendants for the amount by which the amount of the indebtedness with interest and costs of levy and sale and of action exceeds the fair value of the real property or estate for years therein sold as of the date of sale. In no event shall the amount of the judgment, exclusive of interest from the date of sale and of costs exceed the difference between the amount for which the real property or estate for years therein was sold and the entire amount of the indebtedness secured by the mortgage or deed of trust. Notice of the hearing shall be served upon all defendants who have appeared in the action and against whom a deficiency judgment is sought, or upon their attorneys of record, at least 15 days before the date set for the hearing. Upon application of any party made at least 10 days before the date set for the hearing the court shall, and upon its own motion the court at any time may, appoint one of the probate referees provided for by law to appraise the real property or estate for years therein sold as of the time of sale. The probate referee shall file the appraisal with the clerk and the appraisal is admissible in evidence. The probate referee shall take and subscribe an oath to be attached to the appraisal that the referee has truly, honestly and impartially appraised the real property or estate for years therein to the best of the referee's knowledge and ability. Any probate referee so appointed may be called and examined as a witness by any party or by the court itself. The court shall fix the compensation, in an amount as determined by the court to be reasonable, but the fees shall not exceed similar fees for similar services in the community where the services are rendered, which may be taxed and allowed in like manner as other costs.

 (c) No person holding a conveyance from or under the mortgagor of real property or estate for years therein, or having a lien thereon, which conveyance or lien does not appear of record in the proper office at the time of the commencement of the action need be made a party to the action, and the judgment therein rendered, and the proceedings therein had, are as conclusive against the person holding the unrecorded conveyance or lien as if the person had been a party to the action. Notwithstanding Section 701.630, the sale of the encumbered real property or estate for years therein does not affect the interest of a person who holds a conveyance from or under the mortgagor of the real property or estate for years therein mortgaged, or has a lien thereon, if the conveyance or lien appears of record in the proper office at the time of the commencement of the action and the person holding the recorded conveyance or lien is not made a party to the action.

(d) If the real property or estate for years therein mortgaged consists of a single parcel, or two or more parcels, situated in two or more counties, the court may, in its judgment, direct the whole thereof to be sold in one of the counties, and upon these proceedings, and with like effect, as if the whole of the property were situated in that county.

 (e) If a deficiency judgment is waived or prohibited, the real property or estate for years therein shall be sold as provided in Section 716.020. If a deficiency judgment is not waived or prohibited, the real property or estate for years therein shall be sold subject to the right of redemption as provided in Sections 729.010 to 729.090, inclusive.

 (f) Notwithstanding this section or any other provision of law to the contrary, any person authorized by this state to make or arrange loans secured by real property or any successor in interest thereto, that originates, acquires, or purchases, in whole or in part, any loan secured directly or collaterally, in whole or in part, by a mortgage or deed of trust on real property or an estate for years

therein, may bring an action for recovery of damages, including exemplary damages not to exceed 50 percent of the actual damages, against a borrower where the action is based on fraud under Section 1572 of the Civil Code and the fraudulent conduct by the borrower induced the original lender to make that loan.

(g) Subdivision (f) does not apply to loans secured by single-family, owner-occupied residential real property, when the property is actually occupied by the borrower as represented to the lender in order to obtain the loan and the loan is for an amount of one hundred fifty thousand dollars ($150,000) or less, as adjusted annually, commencing on January 1, 1987, to the Consumer Price Index as published by the United States Department of Labor.

 (h) Any action maintained pursuant to subdivision (f) for damages shall not constitute a money judgment for deficiency, or a deficiency judgment within the meaning of Section 580a, 580b, or 580d of the Code of Civil Procedure.

   Wow, that is a mouthful.  What does it all mean?  Well there are many cases in California that attempt to ascertain what this section really means.  Without going into great detail, here are a few general observations that appear to be well accepted in regard to California’s one action rule (aka single action rule):

 (1) Secured Lender’s have the right to choose or elect how they want to foreclose on you.  They can go the judicial foreclosure route (i.e. file a lawsuit and potentially seek a deficiency judgment) or they can seek to go the non-judicial foreclosure route.  The non-judicial foreclosure route is NOT technically considered to be an “action” because such is done privately and does not involve use of the Courts (except the small little often unmentioned fact that foreclosure trustee sales are normally carried out of the courthouse steps).  The “action” part of the ONE ACTION RULE seems to refer to resorting to a judicial foreclosure and the court process.  That being said, a secured lender may elect to “double track” or “dual track” by filing both a non-judicial foreclosure action AND seeking to pursue a non-judicial foreclosure at the same time.  Why would they do this?  Well following a completed non-judicial foreclosure sale there is no way to seek a deficiency judgment in most cases and by filing the judicial foreclosure lawsuit, the lender may be able to keep you sweating with the threat of a deficiency judgment (assuming your loan is not protected purchase money under 580).  But again, once one action is completed, that should be the end of the road for the lender under the ONE ACTION RULE.

 Keep in mind, a “secured creditor” can be any creditor of any type of loan or judgment that has a security interest on your real property.  This includes for example the case where one party got a divorce judgment for 100k against the other forcing them into bankruptcy when the creditor tried to enforce the note without first foreclosing.  See DiSalvo v. DiSalvo (in re DiSalvo) (BAP 9th Cir. 1998) 221 B.R. 769.  In that case, the Court held that the 726(a) rule applied and since the creditor forced the debtor into bankruptcy court without first filing for foreclosure, that sanctions were appropriate against the creditor (at first the judge wiped out the debt completely, which I believe was reversed on appeal).  At any rate, sanctions for the 726 violation was appropriate even though the case did not involve a bank dealing with a defaulting borrower under a promissory note and deed of trust.

 Now TWO QUICK POINTS: you may be wondering what the rationale is for having the SINGLE ACTION rule in California.  The stated rationale you will often hear is to protect the debtor against multiple actions that affect the debt.  It is not clear how allowing dual tracking serves that purpose but sa la vie.

 Next, you may be asking, what would a lender prefer to do to enforce their debt?  File a non-judicial foreclosure sale or seek a judicial (court) foreclosure? Here are some quick pros and cons about each to keep in mind:

 NON-JUDICAL FORECLOSURE v. JUDICAL (COURT / LAWSUIT) FORECLOSURE - PROS AND CONS

 ·      Non Judicial Foreclosure is probably the preferred route for most lenders.  It is quicker and cheaper and does not involve attorney fees to the extent litigation does.  Judical foreclosure involves filing a lawsuit, service of process, discovery, potential for lender counterclaims (such as TILA recoupment claims – discussed in other blogs). 

·      In a private trustee sale, there is no judicial oversight, and the lenders would prefer this sort of freedom.  In one particular regard being that of the “produce the note theory.”  This is where a lender would be asked to show it holds an original copy of the promissory note to prove it has the right to enforce the debt.  If the lender files a suit in a court of law, this is something they may be required to show to prove their STANDING to file the lawsuit and to prove they are the REAL PARTY IN INTEREST TO BRING THE LAWSUIT.  Given the nature of MERS loans, securitized loans, and the secondary loan market, they don’t want to be bothered with these “technicalities” as they seem to believe it is.  In a private sale, anyone could essentially foreclose on you, at least in my opinion.  There is no judicial oversight of any of these types of issues. 

·      There is no right of redemption following a private trustee sale as there is in a judicial foreclosure sale.  What this normally translates to is more money for the lender at the foreclosure auction.  Why?  If you were bidding on property at a judicially ordered sale, and if you knew the defaulting borrower would have one full year to redeem the property and get it back, you probably would pay less, and the bids would come in less to take into account this potential contingency. 

·      In a Court of law, there are statutes of limitations that don’t apply to the same extent in a non-judicial foreclosure setting.  The statute of limitations in a California written breach of contract case is 4 years.  Another reason why non-judicial foreclosure sales are often preferred, sometimes out of necessity. 

Now back to the ONE ACTION RULE in California.  What the above amounts to is that the lender must chose what it wants to do and how to foreclose on their security instrument (the mortgage or deed of trust), but regardless of which route a secured lender chooses, under Section 726, they must FIRST SEEK TO GET THEIR MONEY OUT OF THE SECURITY THEY HOLD ON YOUR PROPERTY BEFORE THEY CAN EVER SEEK TO WAIVE THE SECURITY AND JUST GO AND SUE YOU ON THE NOTE (SUE FOR BREACH OF CONTRACT AND TRY TO GET A JUDGMENT AGAINST YOU). 

That means, a second mortgage holder holding a secured junior lien cannot just try to take you to court and sue on the note.  They must wait for the first mortgage holder to foreclose on you and take what they can get.  Or, they must initiate the foreclosure, see what proceeds are derived, see that the senior lien-holder gets paid all that they are owed and then take whatever peanuts are left after that as their proceeds.  In this declining real estate market where so many people are “upside-down” this often is not a very attempting proposition for second mortgage holders / loan servicers such as Wachovia, Wells Fargo, Chase, WAMU, Bank of America, Countrywide, Deutsche, SPS, OCWEN, U.S. Bank, Citimortgage, etc.  If one of these lenders who are secured, partially secured etc., try to sue you without first foreclosing then you will want to either make sure you raise the 726 defense, or else seek sanctions against them for failing to comply with the California One-Action Rule.  If you don’t raise the defense, you waive it and shoot yourself in the foot.  Again, the creditor must proceed against the security initially to be in compliance with the law. 

But note that there appear to be at least a few circumstances where a junior lien holder can legally get around the 726 one action rule and sue directly on the obligation, namely where their security has become “LEGALLY WORTHLESS” (but be sure to contrast that with “ECONOMICALLY WORTHLESS” which is not subject to a 726 workaround). 

SITUATIONS WHERE A JUNIOR LIEN (SECOND MORTGAGE) MAY BECOME LEGALLY WORTHLESS ENTITLING THE HOLDER OF THE LOAN TO SUE YOU DIRECTLY WITHOUT FORECLOSING: 

(1)  When the real property doesn’t exist - See  Dyer Law & Collection Co. v. Abbott, 52 CA 545, (1921).

(2)  Where the security is destroyed: See Cohen v. Marshall, 197 Cal, 117 (1925) wherein the Court stated: “There can be but one action for the recovery of any debt, or the enforcement of any right secured by mortgage upon real or personal property, which action must be in accordance with the provisions of this chapter.” It is the settled law, however, that in case of a failure or destruction of the security, without the fault of the mortgagee, the mortgagee will not be restricted to a procedure which manifestly must prove to be vain and idle.”

(3)  When the real property is not owned by the borrower – See Otto v. Long, 127 C 471 (1900).  The Court set forth some rationale for the one action rule: “1. To confine the mortgagee to one action; 2. To make the security the primary fund from which satisfaction is to be made; and 3. To give plaintiff a judgment for the deficiency, if any, remaining after exhausting the security.”

(4)  Where a senior lien holder forecloses (“sold out junior”) and the junior is left POSITIVELY holding nothing but a bag of foreclosure dust, then for all practical purposes their lien/security is deemed legally worthless and they are entitled to sue on the note to try to collect something off their debt.  See Roseleaf Corporation v. Willy F. Chierghino, 59 Cal.2d 35, (1963) wherein the Court held: “the one form of action rule of section 726 does not apply to a sold out junior lienor…….there is no reason to compel a junior lienor to go through foreclosure when there is nothing left to sell…….their security has been rendered valueless by a senior sale.”  A senior foreclosure sale conveys the property to the purchaser free of all junior liens and the junior can then sue on the note and seek a deficiency subject to 580 anti-deficiency protections (which may be reduced in an action on the note) and any other “non-recourse” provision that may have been provided for.  NOTE:  in these circumstances, the borrower may be subject to both the foreclosure of the first mortgage and a suit for breach of the note on the second (i.e. multiple actions that 726(a) was seeking to avoid).

(5)  Where the mortgage (security) not properly perfected: “A simple action on a note has been permitted where the mortgage was void for the reason that it lacked the signature of the mortgagor's wife (Powell v. Patison, 100 Cal. 236.  See Giandeini v. Ramirez, 11 Cal.App.2d 469 (1936). 

These are but a few examples where the junior lender may get around the security-first rule.  Again, if you are dealing with a second mortgage holder who merely BELIEVES that the real estate market has declined to the point where the security is ECONOMICALLY WORTHLESS, (ex. market dropped) this should not allow them to waive the security and try to sue you for breach of contract.  See Barbieri v. Ramelli, 84 C 154, (1890) and Giandeini v. Ramirez, 11 CA2d 469, (1936). Be on the lookout for this and raise the 726(a) “security first defense” and seek monetary sanctions.  In these cases, the law in California is to force the second mortgage holder to foreclose on the property judicially and let the market place decide if they are right.  See Security-First National Bank v. Chapman, 31 CA2d 182 (1939).  If after the first is paid, there are insufficient funds, then the junior creditor should seek the deficiency judgment within three months, if available. 

Another thing to look out for, if a Creditor takes security for an obligation, and the security is worthless at the time the creditor takes the mortgage or deed of trust to secure the obligation, the one action rule should still apply, and the creditor should be forced to foreclose on the security first.  This happened in the case of In re DiSalvo, 221 B.R. 769, 9th Cir. 1998).  In this case the Court stated: “there was evidence in this case that the security was without value at the time the trust deed was executed…….a creditor does not have the right to accept worthless security and then waive it, thereby converting the obligation into a personal one……where, as in this case, the mortgage on its face purports to be a security for a debt, a foreclosure and sale is the proper mode for determining whether the security is in fact valueless.”  (Citing the Security-First Case above). 

The same rationale holds that foreclosure should be pursued rather than an action on the note for attachment if your second mortgage is even PARTIALLY SECURED.   Again, it is up to the marketplace to make the determination as to value, not a lender.  

So, in most cases, your second mortgage will probably be either under-secured (partially secured) or not secured at all.  But the lender should follow the one action rule and choose a foreclosure path (either judicial or non-judicial) and seek to foreclose on the “security first” and recover a deficiency judgment only if not barred by the section 580 California anti-deficiency judgment statute (which basically protects purchase money – also the subject of another blog). Again, these are fact-intensive inquiries and if you have a question about potential liability in regard to your second, or first mortgage, contact a foreclosure or real estate lawyer.  In the words of Forrest Gump, “that’s all I got to say about that.”

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 KEYWORDS:  CALIFORNIA ONE ACTION RULE / CALIFORNIA SECURITY-FRIST RULE / CALIFORNIA FORECLOSURE DEFENSE LAWYER / CALIFORNIA FORECLOSURE DEFENSE ATTORNEY / CALIFORNIA CHAPTER 7 BANKRUPTCY / DEFICIENCY JUDGMENT LIABILITY / CAN SECOND MORTGAGEE SUE ON THE NOTE? / JUNIOR LIEN HOLDER FORECLOSURE OPTIONS / NEWPORT BEACH FORECLOSURE LAWYER / NON-JUDICICAL FORECLOSURE SALE V. JUDICIAL FORECLOSURE SALE.

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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  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.  Law is always changing. 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).  Copyright 2010 – Vondran law - All Rights Reserved

 

 

 

0 comments • Steve Vondran • July 18 2010 02:48AM

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0 comments • Steve Vondran • June 16 2010 07:26PM

BASIC INFORMATION REGARDING FILING A LIS PENDENS IN ARIZONA AFTER FILING A PREDATORY LENDING, WRONGFUL FORECLOSURE, ETC. LAWSUIT

THE FOLLOWING IS GENERAL LEGAL INFORMATION.  IF YOU HAVE SPECIFIC QUESTIONS, PLEASE CONTACT A PHOENIX REAL ESTATE LAWYER.

We have been getting a lot of questions lately on lis pendens and quiet title law in Arizona.  Some people confuse these two important foreclosure defense topics.  Basically, after you file a lawsuit, and if your lawsuit involves title to real property (be careful there are penalties for wrongfully filing a lis pendens), then you may will want to file a lis pendens that puts potential buyers of your home (ex. at a foreclosure auction) on "constructive notice" of your lawsuit.  A lis pendens (which means notice of pending litigation in latin) normally serves to cloud the title and prevents third parties from wanting to purchase your property (hard to get title insurance if there is a lis pendens on your property).

HERE IS A LINK TO THE ARIZONA LIS PENDENS STATUTE IN ARIZONA:

http://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/12/01191.htm&Title=12&DocType=ARS

HERE IS WHAT THE ARIZONA LIS PENDENS LAW SAYS:

12-1191. Notice of pendency of action affecting title to real property; filing; constructive notice to purchaser or encumbrancer; release of notice of pendency of action; failure to issue release; liability

A. In an action affecting title to real property, the plaintiff at the time of filing the complaint, or thereafter, and the defendant at the time of filing the defendant's pleading when affirmative relief is claimed in such pleading, or thereafter, may file in the office of the recorder of the county in which the property is situated a notice of the pendency of the action or defense. In any action to foreclose a mechanics' or materialmen's lien pursuant to title 33, chapter 7, article 6, the lien claimant shall file a notice of pendency of action as prescribed by section 33-998 within five days of filing the action or raising the defense. The notice shall contain the names of the parties, the object of the action or affirmative defense, the relief demanded and a description of the property affected.

B. The recorder shall file the notice and record and index it in the names of the parties to the action, and thereafter a purchaser or encumbrancer of the property affected shall be held to have constructive notice of the pendency of the action and the claims therein made except as prescribed in subsection D of this section.

C. If a notice of pendency of action has been recorded pursuant to this section and the action is dismissed without prejudice for lack of prosecution, the plaintiff or plaintiffs of the action, within thirty days after such dismissal, shall issue to the defendant of the action a release of the notice of pendency of action. Such release shall be in the form of a recordable document. Failure to grant such release shall subject the person filing the notice of action or defense to liability in the amount of one thousand dollars and also to liability for actual damages.

D. After the withdrawal or release of a notice of pendency of action or recordation of a certified copy of an order expunging a notice of pendency of action and before the recordation of a certified copy of the judgment or decree in the action, the following apply:

1. The notice of pendency of action and any of the information derived from the notice does not constitute actual or constructive notice of any of the matters contained in the notice or any matters related to the action.

2. The notice of pendency of action and any of the information derived from the notice does not create a duty of inquiry in any person dealing thereafter with the affected property.

3. Except for a person who is a nonfictitious party to the action at the time of recording the notice of withdrawal, the release of the notice of pendency of action or the order expunging the notice of pendency of action, a person shall not be deemed to have actual knowledge of the action, any of the matters contained in the notice or any matters related to the action, if both of the following apply:

(a) That person for valuable consideration becomes a purchaser, transferee, mortgagee or other encumbrancer of any interest in the real property that is subject to the action.

(b) That person acquires that interest by a conveyance that is recorded after the notice of withdrawal or release or order of expungement and before the recording of a certified copy of a judgment or decree issued in the action.

  1. A person described in paragraph 3 shall not be deemed to have notice of the action or notice of any matters related to the action even if the person has actual knowledge of the action or matter and regardless of when or how that knowledge was acquired.

HERE IS THE ARIZONA LIS PENDENS SECTION SECTION 33-998 DESCRIBED ABOVE:

http://www.azleg.state.az.us/ars/33/00998.htm

33-998. Limitation of action to foreclose lien; attorney fees

A. A lien granted under the provisions of this article shall not continue for a longer period than six months after it is recorded, unless action is brought within that period to enforce the lien and a notice of pendency of action is recorded pursuant to section 12-1191 in the office of the county recorder in the county where the property is located. If a lien claimant is made a party defendant to an action brought by another lien claimant, the filing within such period of six months of an answer or cross-claim asserting the lien shall be deemed the commencement of an action within the meaning of this section.

B. In any action to enforce a lien granted under this article, the court may award the successful party reasonable attorney fees.

GENERAL OVERVIEW OF ARIZONA LIS PENDENS LAW:

  1. FILE YOUR LAWSUIT, IF IT AFFECTS TITLE TO REAL PROPERTY YOU MAY ALSO FILE A LIS PENDENS WITH THE COUNTY RECORDER AFTER THE LAWSUIT IS FILED.
  2. I GENERALLY PROVIDE WRITTEN NOTICE TO ANY AND ALL ADVERSE PARTIES BY CERTIFIED MAIL BEFORE I FILE THE LIS PENDENS
  3. FILE THE LIS PENDENS PROMPTLY AFTER FILING THE LAWSUIT, THIS WILL PUT POTENTIAL PURCAHSERS OF YOUR PROPERTY ON “CONSTRUCTIVE NOTICE THAT A LAWSUIT AFFECTING TITLE TO REAL PROPERTY IS PENDING
  4. SOME PEOPLE CONFUSE LIS PENDENS WITH QUIET TITLE. SEE OUR OTHER BLOGS WHICH DISCUSS QUIET TITLE. GOOGLE “VONDRAN QUIET TITLE.”

2 comments • Steve Vondran • June 15 2010 07:32PM

do you have the legal right to know who owns your loan? Under New Truth in Lending (TILA) Amendment, the answer is AMAZINGLY, YES!


           Under a recent amendment to Truth in Lending Law signed into law on May 20, 2009, (The Helping Families Save Their Homes Act of 2009) a creditor that purchases or is assigned a mortgage loan (including hedge funds or other investment funds), even if from affiliate entities, must notify the borrower in writing of a sale or transfer of his or her mortgage loan, not later than 30 days after the transaction's completion.  The new subsection 131(g) of TILA is codified at 15 U.S.C. 1641(g).

 

 For purposes of this disclosure obligation, the term "mortgage loan" means any consumer credit transaction that is secured by the principal dwelling of a consumer.  The definition of “mortgage loan” in Section 404(b) of the Act encompasses both closed-end and open-ended mortgage loans, regardless of lien position. The term “creditor” refers to any owner of the loan following the sale, transfer, or assignment of the debt, and is not limited to the definition of “creditor” for other purposes under TILA.  This means, even a hedge fund or investment fund that does not normally extend “consumer credit” but which acquires more than one consumer mortgage in any 12-month period is still required to give notice under this new section.

 The intent of this amendment to TILA is to facilitate mortgagors’ ability to exercise their rescission rights by providing them with the identity of the owner of their mortgage loan and contact information for the owner or their agent.  The required notice under the Act must include all of the following information in order to fully comply with Section 131(g) of TILA, the newly amended section of TILA:


(1) The identity, address, and telephone number of the new creditor;

the date of transfer;

(2) How to reach an agent or party having authority to act on behalf of the new creditor;

(3) The location of the place where transfer of ownership of the debt is recorded; and

(4) Any other relevant information regarding the new creditor.

 

        This disclosure would be in addition to any transfer of servicing notice required under the Real Estate Settlement Procedures Act.  This new statutory obligation subjects purchasers of mortgage loans to civil liability if they fail to make the required disclosures.  The civil liability provisions of TILA were amended to afford borrowers a private right of action against the assignee for noncompliance with this disclosure obligation.  A consumer would be able to recover actual damages, as well as statutory damages of no more than: (i) $4,000 in individual actions, or (ii) the lesser of $500,000 or 1% of a creditor's net worth in a class action.

The Federal Reserve Board has issued a Interim Final Rule which you can review at the following website:

http://www.federalreserve.gov/reportforms/formsreview/RegZ_20091120_ifr.pdf

 

The Interim Rule has clarified a few key points:

 ·      Whoever is identified as the owner of the loan must be the actual owner (and not any appointed loan servicer agent); 

·      If there are multiple alleged owners (covered persons) in regard to a mortgage loan, identifying information must be provided for each covered person, and the covered persons can decide amongst themselves which entity will actually provide the notice to the borrower; 

·      The date of acquisition of the loan (which triggers the 30 day notification rule) is the date of the acquisition that is recognized in the books and records of the covered person; 

Other rules and clarifications are also set forth in the Interim decision of the Federal Reserve Board.  

 

 

0 comments • Steve Vondran • June 02 2010 05:08PM