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.