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Palo Alto real estate attorney Julia Wei providing commentary & insight into trends in California real estate law & lending law, mortgages & foreclosures.

Using California’s Enforcement of Judgment Law to Collect on Your Judgment Works Best While the Debtor is Alive.

August 26th, 2016 · California Judgment Enforcement/Collection, California Lending & Mortgage Law

How Do You Collect Your Multi-Million Dollar Judgment After The Debtor Dies?

By: Julia M. Wei, Esq.

Don’t Wait Nine Months After Judgment to Start Collecting.

Recently, the California Court of Appeals issued an opinion finding that even though the judgment creditor had used the wrong judicial process, his execution of the $2M judgment against the deceased’s estate would stand.

John C. Torjesen obtained a $2 million judgment against defendants
Harry Mansdorf, and his trust on January 31, 2012. Nine months later, on September 17, 2012, judgment creditor obtained a writ of execution and on October 11, 2012, the Ventura County Sheriff‟s Department, at the direction of Torjesen, levied on property (the Malibu property) owned by Mansdorf. One problem for creditor – the debtor had died a few weeks earlier on August 27, 2012.

So what happened here? Judgment creditor starts a sheriff’s sale on the judgment, but the debtor died before the creditor started the judgment levy. Under California law, judgments creditors are bound by the statutes found in the California Enforcement of Judgments law (“EJL”). The EJL sets forth the rules on judgment levies, sheriff sales, wage garnishments, debtor examinations and other post-judgment mechanics for judge creditors to follow.

What that means is that when Torjesen commenced a sheriff’s sale, he was using the EJL statutes. However, because the judgment debtor was deceased and under California law, the EJL no long applies to the judgment debtor’s estate. Instead, the Court explained:

“The statutory scheme could not be more clear: following the death of a judgment debtor, a judgment cannot be enforced against the judgment debtor‟s property, or property in his trust, by levying on that property under a writ of execution, and the judgment creditor must instead proceed under the Probate Code. (Code Civ. Proc., § 686.020; Prob. Code, §§ 9300, 19300.)”

Creditors have a separate process that they must observe under the Probate Code during the claim period. Torjesen obviously did not follow those rules and the consequence might have been moot but for the fact that a competing creditor came out of the woodwork. Shortly after the notice of levy, Jaime DeJesus Gonzalez filed a third party claim to the Malibu house that about to be levied upon. Gonzalez had a deed that purported to transfer title from Mansorf to Mansorf and Gonzalez as joint tenants. Since Mansor had died, theoretically, Gonzalez became the sole owner of the Malibu property before Torjesen’s levy and thus deprived the judgment creditor of reaching any equity in the Malibu house.

For a variety of legal missteps, Gonzalez apparently failed to complete his third party battle and Torjesen prevailed by default. However, two years later, Gonzalez showed up with new counsel and filed a motion to vacate the trial court’s order that vacated his third party claim. The trial court denied it and this appellate opinion followed. The Torjesen opinion addressed the lower court’s fundamental jurisdiction and noted that although Torjesen improperly used the EJL to enforce his judgment, the superior court had jurisdiction to evaluate the claim. However, since Gonzalez, having waited two years, was untimely in challenging that Order. The only way Gonzalez’s argument would have merit is if the court had no jurisdiction and thus the order it issued was void ab initio.

Conclusion: The takeaway is that both parties probably waited too long to move on their respective claims. Understandably, the judgment creditor may have not have been thinking about the debtor’s lifespan and since a judgment is enforceable for up to 10 years, his timeframe was not particularly long to wait 9 months. However, as to Gonzalez, his facts did not favor his case either. For his allegation that his arrangement with the debtor occurred in 2008 it seemed dubious why he would wait until after Mansorf’s death four years later to record the deed.  Secret deeds (or "wild deeds") are problematic as they circumvent the state's recording process.  Later, his abandoning the claim only to try after two years was certainly untimely. Lesson learned: don’t sit on your claims.

[Torjesen vs. Mansdorf (July 5, 2016) Second Appellate District]


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California Small Business Guide to Getting Paid – 7 Tips to Collect Accounts Receivables for Goods or Services Valued Over $10k and Less than $25k.

December 31st, 2015 · California Judgment Enforcement/Collection

California Small Business Guide to Getting Paid

7 Tips to Collect Accounts Receivables for Goods or Services Valued Over $10k and Less than $25k.

Once a borrower or customer owes you over $10k, you are now in excess of the small claims court jurisdiction. That means that you have a choice:
   • Go after the debtor for the maximum amount of $10k on your own; or
   • Pursue them in a civil claim in the Superior Court, potentially represented by       counsel.

Claims in this dollar range can be litigated in the “Limited Jurisdiction” and you can have an attorney represent you in a civil action at this level whereas in small claims court, you must represent yourself. Additionally, in civil cases, both parties have the right of appeal whereas in a small claims suit, only the defendant can appeal.

A key difference is also that in a civil action, parties have the right to conduct discovery. That means that in some claims where you need documents or information from the other side, you have an opportunity to seek it out before your trial.

In this “limited jurisdiction” dollar range, discovery is limited and there are special discovery forms that can be used for economic discovery in this type of claim.

More importantly, if you have a written contract with an attorney fee provision, it makes sense to seek counsel to represent you and stay out of small claims court.

You can find other technical and administrative advice on the court’s self-help centers but here are my suggestions on collecting what you are owed.

1. Start with a demand letter.
2. Find and Properly Identify Your Defendant.
3. Assess the Collectability of Your Defendant.
4. Prepare Your Complaint.
5. Generate a Discovery Plan.
6. Consider the Use of Experts.
7. Evaluate Settlement Opportunities.

1. Start with a demand letter.  Before filing suit, consider sending a demand letter to the debtor. This will also assist you in the preparation of your own case on many levels. It means you will assess how to locate the defendant, that you have calculated what you are owed down to the penny and you are aware of your collection avenues. Additionally, you may be entitled to pre-judgment interest.

2. Find and Properly Identify Your Defendant.  If you did prepare a demand letter, than you have already addressed some important pre-filing considerations, such as where to locate the debtor and how much you are really owed. Also, if the defendant is a corporation, it will be important to know whether they are a California entity and what type, since that could alter your service of process requirements and/or collectability.

3. Assess the Collectability of Your Defendant. The next major consideration is the collectability of the debtor. Depending on your prior relationship with the debtor, you may have significant information about their assets and collectability. A special consideration may be whether or not the borrower is insolvent and the potential bankruptcy filing of the defendant. If that is the case, you should consider engaging bankruptcy counsel to give you a rundown of the risks and process that creditors will go through to pursue such a debtor.

When interviewing counsel, you would be well served to request a litigation budget from your attorney. Often, cases settle before going to trial and that means that you are not likely to recover your attorney’s fees (or perhaps only a portion) because people are often willing to compromise their claim in order to receive a speedier resolution. Avoid the potential of a pyrrhic victory, when your litigation spending rapidly outstrips what you could recover from the defendant. The litigation budget can assist you in determining what stages you would be most willing to discount your claim in order to settle and net more.

4. Prepare your complaint.  The Judicial Council provides a number of standardized forms. In some cases, they can even be utilized to file a Complaint against the defendant. Otherwise, it is best to engage counsel for drafting purposes as there are a number of technical pleading requirements.

5. Generate a Discovery Plan.  To prove your case, you need evidence. This could be receipts, invoices, bookkeeping records and of course, any written agreement(s) you have with the defendant. Much like the old days of letters exchanged by snail mail, usually you only have one side of the story. That means the use of written discovery can be used to obtain evidence from the other side to fill in the gaps in your case.

Also, your evidence must be authenticated. This means that you need a credible witness with first hand knowledge of the evidence you intend to present.

6. Consider the Use of Experts.  Presenting evidence in a persuasive and clear manner is what an expert can do for you. For example, if you have many pages of accounting records to present, often it can be tedious for the factfinder to listen to. However, an expert is in a position to summarize records, present an opinion and support that opinion with the evidence that she or he reviewed.

7. Evaluate Settlement Opportunities.  At the first case management conference, your judge will ask you if you are going to a form of alternative dispute resolution. That means that prior to the conference, you should have already considered and discussed the possibility of mediation with a neutral facilitator. The mediator is often a retired judge or very seasoned attorney. If you do not go to mediation before trial, the court will often set you for a mandatory settlement conference which is very close in time to the trial. That means that between the filing the complaint and the trial itself is a long stretch of time where settlement could occur at any point. In a case where the dollar amount owed is certain, there are pre-trial motions that may make sense to file and spur the other side to consider their odds of settling now versus after losing the motion.

     Collection requires fortitude and persistence. Expects delays and stall tactics from the defendant, who obviously avoids paying the more roadbloacks he, she or it puts up to your collection efforts. Plaintiffs can make a business decision to take a discount if collectability is very uncertain.


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California Small Business Guide to Getting Paid

December 31st, 2014 · California Judgment Enforcement/Collection

How to Collect Accounts Receivables for Goods or Services Valued < $10k.

Running a small business means that you will occasionally run into an accounts receivable situation. If you are a trade, like a flooring supplier, you also have the added remedy of the mechanic’s lien (assuming you followed the pre-lien procedures) but for the rest of the small businesses out there, the only recourse may be small claims court.

5 Preliminary questions to ask yourself:

  1. Is the amount owed below $10k? a. If yes, then you can sue for the entire amount in small claims court. b. If no, is it close enough to $10k that you are willing to forego the amount over $10k?
  2. Do I have a contract with the debtor? a. If yes, is there an attorney fee provision? In the case of debts over $10k, and where the contract contains an attorney fee provision, small claims court may not be the right avenue for you. The downside of small claims court is that if you are the plaintiff, the decision is final and cannot be appealed so consider this carefully and you may want to hire an attorney to prosecute your case and collect your debt for you.
  3. Do I Want to Present My Case Myself? a. If not, you may have a problem, as you generally cannot be represented by an attorney in small claims court.  TIP⇒ Consider hiring counsel for a limited engagement to prepare you for the court proceedings and assist you with organizing your arguments and evidence. b. Are you incorporated? If your business is incorporated, then in order to appear in small claims court, only an employee, officer or director may act on the corporation’s behalf and present the corporation’s case in small claims court. The corporation may not hire an attorney solely to represent the corporation in the small claims proceeding. c. Are you an association? Similarly, only a regularly employed person of the association or entity may appear on behalf of the association in a small claims action.
  4. Where Can The Defendant Be Sued? a. In the law, one of the first considerations is jurisdiction, meaning which court has the power to summon the defendant to appear or otherwise issue a binding, enforceable order? If you have a contract with the debtor, then the debtor can be sued in the county where the contract was entered into, or where the services were performed or where the defendant resides.
  5. Is this Debtor Collectible? a. In some rare cases, you may have some financial information already about the debtor (in a loan situation, you may have a loan application), but usually, you do not have way to know if they have a hefty enough bank balance to pay the debt. Chances are that the reason they did not pay you in the first place is because they did not have the money. However, if they own a home, or later inherit property, your judgment can attach to the real property in the form of an Abstract of Judgment. Short of a bankruptcy discharge, the Judgment is good for ten years. If you believe the debtor is gainfully employed, you can garnish their wages or levy on their bank account. It takes some effort and coordination, but again, that depends on how motivated you are to collect this receivable owed to you.

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What Happens to an Abstract of Judgment When the Debtor Files Bankruptcy?

August 7th, 2013 · California Judgment Enforcement/Collection, Creditor's Rights in Bankruptcy, Residential Real Estate

 By: Julia M. Wei, Esq.

Normally when a party wins at trial, all the prevailing party has is a judgment. It takes more than the issuance of a judgment to get paid on it if the debtor is being evasive.

In order to “perfect” the judgment, the judgment creditor can and should request the court clerk issue the Abstract of Judgment. A creditor can then record it in any county that the debtor owns property. If the debtor owns anything in that county, the abstract will attach to the property, even after acquired property and then the judgment becomes a lien against the property. California statutes in the Enforcement of Judgment section are pretty clear – the lien remains until the judgment is satisfied.

If the debtor then files bankruptcy, perfected judgment liens would NOT be extinguished through sections 550 and 551 of the Bankruptcy Code.

In the recent case of Daff v. Wallace (In re Cass), the debtor transferred her house to her daughter and reserved a life estate for herself. Debtor and daughter also had an agreement to transfer the house back to the Debtor later—clearly a fraudulent transfer, solely for the purpose of hinder or evading creditors. Creditors sued on the fraudulent transfer and obtained a judgment, and recorded the Abstract of Judgment.

Here is the first twist—the Debtor didn’t actually own any thing in the county where the abstract was recorded since she had fraudulently transferred it to her daughter.

Here’s the second twist – the Debtor filed for Chapter 7 bankruptcy and the Chapter 7 Trustee got involved in the litigation and entered into a stipulated judgment avoiding the fraudulent transfer—bringing the asset back into the bankruptcy estate.

Naturally, the creditors and the trustee’s disagreed as to how sale proceeds of the asset should be paid. Judgment creditors claimed the lien attached to the sale because the fraudulent transfer was voided. The trustee claimed that the lien was invalid because the transfer to the daughter took place before the abstract of judgment was recorded.

Victory for the Judgment Creditor:
Clearly, California law supports the creditors here and the bankruptcy court agreed. The trustee appealed and the Ninth Circuit BAP agreed with the creditors too. The transfer to the daughter was void as if it had never happened, therefore the creditor’s lien was properly attached and the creditor was entitled to the sales proceeds.

Pyrrhic Victory?
The creditors litigated this matter through two state court actions and one bankruptcy adversary proceeding and appeal. That is essentially four stages of litigation. The number of years and the amount of attorney’s fees to chase down this debtor must have been tremendous.


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Why Lenders, Loan Servicers and Trustees Need to Understand the Intengan Case

April 1st, 2013 · Foreclosure Defense Lawsuits, Foreclosures, Residential Real Estate, Trust Deeds

 Today my colleague Simon Offord published a short case update in our firm’s monthly newsletter* regarding the case of Intengan v. BAC Home Loans Servicing (March 22, 2013).

He writes: “… the 1st District Court of Appeal recently held that a homeowner may pursue a wrongful foreclosure claim against a loan servicer even though the lender provided a declaration of due diligence regarding its alleged attempts to contact the borrower. Specifically, the Court found that because the due diligence declaration entered with the Notice of Default did not provide any specific facts to support the conclusion that the lender tried to contact the borrower, what the lender actually did to comply with the statute was reasonably subject to dispute. Therefore, the borrower alleged sufficient facts to support a cause of action for wrongful foreclosure.”

I don’t have same space constraints that Simon had to discuss the issue so I wanted to elaborate on why this ruling is so significant for private lenders, mortgage loan servicers, mortgage brokers and trustees defending against wrongful foreclosure lawsuits.

1. Wrongful Foreclosure Cases Will Now Take Longer to Defend Because It Will be Difficult to Challenge Faulty Complaints by Demurrer.

California’s non-judicial foreclosures laws are in codified in the California Civil Code, beginning with the newly added sections of 2920.15 et seq. The Code requires that loan servicers comply with certain notice provisions. Here in Intengan, the Court noted:
“Civil Code section 2923.5 precludes a trustee (like respondent ReconTrust) or mortgage servicer (such as BAC/respondent Bank of America) from recording a notice of default until 30 days after the loan servicer has made initial contact with the borrower to assess the borrower's financial situation and explore options for avoiding foreclosure, or has satisfied the due diligence requirements of the statute. (Civ. Code, § 2923.5, subd. (a)(1).) Due diligence requires sending a letter by first class mail, making three attempts to contact the borrower by telephone, and sending a certified letter if no response is received within two weeks of the telephone attempts. (Civ. Code, § 2923.5, subd. (e).)”

Normally, when a defendant such as the loan servicer or trustee is faced with this type of complaint, their counsel will file a demurrer challenging the sufficiency of the allegations. Additionally, it is customary to seek judicial notice of documents such as the Trustee’s Deed, the Notice of Default and the Notice of Trustee’s Sale (usually publicly recorded documents). As is also customary in the industry, the Notice of Default contains a declaration that the Trustee has complied with the requirements of the Code.

Plaintiff-borrowers can prevail in an early demurrer to fight another day given that the evidence of whether a lender/trustee complied with the law is a factual dispute—not something that can disposed of with a demurrer.

In Integan, the plaintiff (rightfully) objected to the taking of judicial notice of the underlying facts in the trustee’s declaration because those were disputed facts and could not be judicially noticed as being true.

“While judicial notice could be properly taken of the existence of Jones' declaration, it could not be taken of the facts of compliance asserted in the declaration, at least where, as here, Intengan has alleged and argued that the declaration is false and the facts asserted in the declaration are reasonably subject to dispute.”

2. Tender Offer Rule Is Being Whittled Away
There is a disturbing chain of cases that seems to suggest that there are exceptions to the Tender Offer Rule. Plaintiff Intengan cites Pfeifer v. Countrywide Home Loans, Inc. for the premise that no tender is required if there is no sale to set aside and lenders had not complied with the condition precedent to foreclosure. The Intengan court declined to rule on the issue of whether tender was required in this case but did have some dicta that is troubling, saying:

“While the tender requirement may apply to causes of action to set aside a foreclosure sale, a number of California and federal courts have held or suggested that it does not apply to actions seeking to enjoin a foreclosure sale — at least where the lenders had allegedly not complied with a condition precedent to foreclosure. (See, e.g., Pfeifer v. Countrywide Home Loans, Inc. (2012) 211 Cal.App.4th 1250, 1280-1281 [failure to allege tender of full amount owed did not bar declaratory relief or injunctive relief based on wrongful foreclosure, where lenders had not yet foreclosed and borrowers alleged that lenders had not complied with servicing regulations that were a condition precedent to foreclosure]; Mabry v. Superior Court (2010) 185 Cal.App.4th 208, 225 [borrower not required to tender full amount of indebtedness in seeking to enjoin foreclosure sale based on alleged failure to comply with Civ. Code, § 2923.5] (Mabry); Barrionuevo v. Chase Bank, N.A. (N.D. Cal. Aug. 6, 2012) 885 F.Supp.2d 964, 2012 U.S. Dist. LEXIS 109935, at pp. *12-13 & fn. 4 [no tender requirement where foreclosure sale had not yet occurred, in case where noncompliance with Civ. Code, § 2923.5 was alleged] (Barrionuevo).)”

Ultimately, of all the laundry list of allegations that the borrower had against the lenders and servicer in this case, (quiet title, slander of title, unfair competition, fraud, intentional misrepresentation), the only cause of action that survived was wrongful foreclosure on the evidentiary grounds discussed above. As to quiet title, the Intengan court opined that the borrower had NOT complied with the tender offer rule:
“Here, Intengan has not alleged a tender of the outstanding indebtedness or even her willingness and ability to do so. As discussed ante, her allegation that she was willing to tender the reasonable mortgage payments is insufficient. A valid tender of performance must be of the full debt, in good faith, unconditional, and with the ability to perform. (Civ. Code, §§ 1486, 1493, 1494, 1495.)”

Wrongful foreclosure litigation was expensive and time consuming even before this ruling. If a borrower challenges that certain events occurred, the trustee/lender/servicer needs to be prepared to have admissible evidence that compliance has occurred. Furthermore, the expectation that these cases can be dealt with at the demurrer level has to be adjusted that this matter is going to be subject to a Motion for Summary Judgment, which is a much more involved motion.

*These types of case updates are not found anywhere on the firm’s website but if you subscribe (click here to subscribe) to the newsletter, the firm’s weekly blog articles and video blogs are compiled into one monthly update for the reader, and the newsletter includes additional free premium content such as the case update.


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What You Didn’t Hear About the Fiscal Cliff Vote – Mortgage Debt Relief

January 4th, 2013 · California Lending & Mortgage Law, Current Affairs, Foreclosures, Residential Real Estate, Trust Deeds

By Julia M. Wei, Esq.

Buried in the New Year’s Day bill was SEC. 202, which extended the Mortgage Debt Forgiveness Relief Act through 2013. Except, the section was cryptically called “EXTENSION OF EXCLUSION FROM GROSS INCOME OF DISCHARGE OF QUALIFIED PRINCIPAL RESIDENCE INDEBTEDNESS.” That means for homeowners who were approved for short sales or were foreclosed upon through December 31, 2013, they are still eligible for the tax relief to avoid the tax on the debt forgiveness (which is ordinarily considered income).

If you recall, the original law was passed in 2007 and intended to provide relief through the end of 2009.  However, it became clear that lenders were still conducting foreclosure sales and approving short sales after 2009 and so the relief was extended by the Emergency Economic Stabilization Act of 2008 to continue through December 31, 2012. 

If you're interested in reading the bill, it's here and Section 202 starts on Page 25.


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New California Foreclosure Laws for 2013

November 6th, 2012 · California Lending & Mortgage Law, Foreclosures, Trust Deeds

 In July, I posted a snippet about the "Homeowner's Bill of Rights" ("HOBR" or "HOBoR"), also known as the California Foreclosure Reduction act.

At the firm's law blog, I later wrote with more specificity about HOBR explaining some of the requirements that have changed about notices to foreclosure sales -- such as:

  • Before a Notice of Default ("NOD") may be recorded, the borrower is entitled to a Pre-NOD notice advising of the borrower's right to documentation.
  • After an NOD is recorded, the servicer must send the borrower a notice within 5 business days advising of foreclosure prevention alternatives ('FPA")
  • The servicer must send the borrower a written acknowledgment letter 5 days after receipt of borrower's loan modification application.
  • Denial letters of loan mod applications must include information about the appeals process
  • Foreclosure notices must be personally served. 
  • If a trustee's sale is post-poned more than 10 days, the servicer must provide a written notice to the borrower within 5 business days.
  • Most importantly - the servicer must rescind the NOD or cancel the trustee's sale when the borrower executed a "permanent foreclosure prevention alternative.

In addition to HOBR, Governor Jerry Brown also signed into law SB1191 in late September, which requires landlords in foreclosure to disclose that fact to prospective tenants.  This law goes into effect January 1, 2013.  More details here on the firm's blog and here and Senator Simitian's site.



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Private Lender Fails to Tighten Up Promissory Note, Loses ~$200K of Interest

September 25th, 2012 · California Lending & Mortgage Law, Foreclosures

 By: Julia M. Wei, Esq.

Lenders may not be scrutinizing their loan documents as closely as borrowers are these days. Certainly, private lender Hyman Levy had a rude awakening when the appellate court concluded Levy was NOT entitled to default interest when the borrower did not make the balloon payment on a loan of $2.7M.

Mr. Levy, a philanthropist, made a $2.7M loan to the JCC at a rate of 5%. The loan was secured by the property where the JCC was operating its facilities. The note had language commonly seen in notes, such as an acceleration clause. For example, if the borrower defaulted, or had sold or otherwise transferred the property without lender approval, the entire amount of the loan would become due immediately. (The provision is also referred to sometimes as a “due on sale” or “due on encumbrance” clause.)

In that same paragraph as the acceleration clause, the note allowed for default interest at a rate of 11.25%, which would accrue AFTER the lender accelerated the loan.

Here’s how it would work:

Borrower misses 3 payments ==> Lender accelerates ==> from this point on, default rate applies

However, in Mr. Levy’s case, he did not accelerate the loan (possibly because he had no grounds to do so) and it matured after a year. The JCC did not pay it off. The parties had been negotiation for a long time, and finally, Mr. Levy recorded a Notice of Default since it had been a year since the loan matured (entitling him to 2 years of interest!).

Here’s where things went wrong for the lender:
• Lender asked for $455k of interest (2 years of interest at 5% is only $270k);
• Lender asked for $15k of attorney’s fees when only $4k was actually related to the foreclosure;
• Lender did not provide the borrower’s attorney with an explanation of the fees thereby violating California Civil Code § 2943, subd. (a)(5);
• Lender rejected borrower’s offer of the loan amount plus $270k of interest; and
• The borrower paid the full amount in protest and sued.

California Law Puts the Burden on the Lender to Expressly State When Default Interest Can Be Charged.

Mr. Levy’s note was boiler plate, possibly more than 10 years out of date, because a case had already come down a decade ago against the lender on the same issue. A lender cannot charge default interest if the loan has not been accelerated.

Levy tried to argue that the maturity was a missed payment and that the acceleration was AUTOMATIC. WRONG.  The contract did not say that default interest could apply after maturity.

In contrast, the compounding provision was very clear, “Should interest not be paid when due, it shall thereafter bear like interest as principal, but such unpaid interest so compounded shall not exceed an amount equal to simple interest on the unpaid principal at the maximum rate permitted by law.” The Court agreed with Levy that the compounding provision was automatic so the borrower lost that challenge.

The JCC was awarded the attorney’s fees on appeal and the matter was remanded back to the trial court to recalculate the interest at the lower rate, and to credit the JCC for 21 days of interest since Levy did not respond to the JCC’s request for an explanation of the interest calculation. [JCC Development Corp. vs. Levy, 2012 Westlaw 3776544 (Cal.App.).]

Better Drafting Next Time
Lenders can learn some lessons from Mr. Levy’s case:
1. Tighten up the language of your promissory notes.
2. Know the basis for accelerating a loan.
3. Respond to the borrower’s request in a timely fashion.


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California Passes “Homeowner Bill of Rights” Legislation

July 2nd, 2012 · California Lending & Mortgage Law, Current Affairs, Foreclosures, Residential Real Estate, Trust Deeds

 With much fanfare, the Attorney General's office announced today the passage of a collection of bills intended to protect homeowners who are attempting a loan modification.  

Among the key provisions, the statutes will:

-Require creditors to provide documentation to a borrower that establishes the creditor’s right to foreclose on real property prior to recording a notice of default.
-Require creditors to provide documentary evidence of ownership, the chain of title to real property, and the right to foreclose, at the time of the filing of a notice of default.
-Prohibit creditors from recording a notice of default when a timely-filed application for a loan modification or other loss mitigation measure is pending.
-Prohibit creditors from recording a notice of sale when a timely-filed application for a loan modification or other loss mitigation measure is pending.
-Prohibit creditors from recording a notice of sale while a borrower is in compliance with the terms of a trial loan modification or after another loss mitigation measure has been approved.
-Require creditors to disclose why an application for a loan modification or other loss mitigation measure has been denied.
-Require that notices of foreclosure sales be personally served, including notices of foreclosure sale postponement.
-Provide homeowners with a private right of action in instances in which the requirements set forth in the legislation are not followed.

These cluster of bills (Senate Bill 1470-74) will amend California Civil Code Section 2923.5 and 2924 (which is where the non-judicial foreclosure laws are located) and will add new sections: 2923.6, 2924.9, 2924.10, 2924.11, 2924.12, 2924.13, 2924.14, 2924.15, and 2924.16 to the Civil Code.

Perhaps the most important for consumers is that this legislation bars dual-tracking, which I have always considered to be a confusing and misleading process.

 The documentation required to "prove" that a lender has the right to foreclose seems a bit nebulous to me, but there is a list of suggested documents and the new process will require a statement setting forth the facts supporting why the beneficiary (or its agent or assignee) has the right to foreclose. These parts of the statute seem unduly burdensome. It would have been easier to default to what the bankruptcy court requires in the Proof of Claim process instead, which is pretty standardized at this point.


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Foreclosure Investors: Getting Relief When the Occupant Files for Bankruptcy

May 21st, 2012 · Co-Ownership of Real Property, Creditor's Rights in Bankruptcy, Foreclosures, Residential Real Estate

 By: Julia M. Wei, Esq.

What happens when you buy a property at a trustee's sale in California and the borrower files for bankruptcy?

Foreclosure Buying and Bankruptcy
by: dirtblawg


Client: Do you remember that investment property I bought at a foreclosure sale?

Real Estate Attorney: I think so, was it the one you needed to fix up before you could rent it out or sell it?

Client: Yes. It was occupied and now the former borrowers have filed for bankruptcy.

Real Estate Attorney: Oh no! Are all your savings tied up in that property?

Client: Yes. Now my partner and I don't know what happens next in the bankruptcy.

Real Estate Attorney: You need to bring a motion for relief to get relief from the automatic stay. Then when you have your Order, you can go back to the state court and continue with your unlawful detainer action to get the Writ of Possession.

Client: How long does that take?

Real Estate Attorney: The motion for relief requires 14 days notice to the debtor, but some bankruptcy judges in the California Northern District have an expedited one for evictions. Until you have the order, you cannot take any acts against the debtor or it is a violation of the automatic stay.

Client: That's great! Much faster than I thought! What do I need to prove in a motion for relief?

Real Estate Attorney: You will need to give evidence that you are the new owner of record, and provide the Trustee's Deed. Ok?

Client: I can do that!

Real Estate Attorney: Wait, one thing to watch out for. The debtor may claim that it was a wrongful foreclosure sale. With all the attention in the media about "robo signing" borrowers believe the foreclosure sale was "void"

Client: Really? Does that mean that I can't get possession of the property?

Real Estate Attorney: No. But some bankruptcy judges may require a further hearing or further briefing. However, since you are the successful bidder at auction, you are the bona fide purchaser for value and California law is in your favor.

Client: Ok. So, if the debtor is not claiming any defect with the foreclosure sale, I will be able to get an order for relief to continue with the eviction, right?

Real Estate Attorney: Yes.


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