Get the dirt on California's Grittiest Real Estate Lending and Foreclosure law blog!

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

The “For Sale By Owner” (FSBO) Transaction – the Duty of Disclosure

May 18th, 2012 · Residential Real Estate

 Sellers are usually better off when they work with a reputable listing agent.  However, in transaction where the seller has already found their own buyer and the parties have agreed upon the price, the parties usually do not have any brokers involved.  

The biggest thing to watch for in those FSBO deals is that the seller needs to understand their duty of disclosure under California law.  

I'm no Scorsese, but here is a little snippet to entertain you and educate you on what sellers should disclose in a residential real estate sale:

FOR SALE BY OWNER, Part 1 – DISCLOSURES


By Julia M. Wei, Esq.

CLIENT: I have found a buyer for my house without using a Realtor. Can you assist me with the transaction?

ATTORNEY: Yes. Have you all agreed on the material terms, such as price and close of escrow date?

CLIENT: Yes. However, we have not written anything up. What should we do next?

ATTORNEY: Normally the buyer's agent writes the offer, however, since neither of you have an agent, we should use the standard purchase offer form published by either the California Association of Realtors or the Peninsula Regional Data Services.

CLIENT: Ok. That's fine with me. Besides the contract, what do I need to provide the buyer?

ATTORNEY: California law requires you to fill out and provide the Transfer Disclosure Statement. In addition to the TDS, many buyers would like the Seller's Supplemental Checklist, however it is optional.I recommend that sellers use the supplemental disclosure to help them remember what repairs and property conditions that they should disclose to the buyer. After so many years of owning a home, it's easy to forget all the little repairs you have made. Remember, you must disclose anything that would be material to the buyers. For example, if the window leaked this past winter and you repaired it in the summer but it hasn't rained yet, you don't know if it still leaks. Sellers often forget to disclose things they "fixed" which can lead to problems later.

CLIENT: I've only lived there 2 and a half years so there haven't been very many changes beyond cosmetic changes.

ATTORNEY: Do you still have the original disclosures from when you bought the place?

CLIENT: I think so.

ATTORNEY: great! You should provide those as well to the buyers.Don't try to figure out what to leave out disclose more! Give the buyers every thing you can remember and then let them decide if they need to do more investigation. Also, I always recommend that sellers give the buyers any repair receipts for two reasons. The buyer knows what was repaired and when. Further, if the buyer is really worried about the repair, they can call that vendor and find out more information. and two, the buyer will be able to work with that vendor later when they own the house.

CLIENT: Are there any more disclosures I need to think about?

ATTORNEY: The contract will specify that you provide disclosures such as the Lead paint, whether the water heater is strapped down, the natural hazards report and more. In some cases these items can be ordered from a vendor for a "California" oriented disclosure package.

CLIENT: So when should we do all the disclosures?

ATTORNEY: As soon as possible! The contract requires you to do it five days after signing but each material disclosure gives the buyers a 3 day right of rescission. I'll get started on drafting the purchase agreement and I will provide you with a copy of the TDS and Supplemental to get started on your disclosures, ok?

CLIENT: Perfect. Thanks!
 

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Bank Buys Worthless Note, Borrower Awarded Attorney Fees Against Bank

April 18th, 2012 · California Lending & Mortgage Law, Foreclosures, Trust Deeds

Buying Notes and Deeds of Trusts:
Bank Buys Worthless Note, Borrower Awarded Attorney Fees
By: Julia M. Wei, Esq.

Investors, collection agencies, scavenger funds and institutional lenders buy promissory notes all the time. If the note is secured by a deed of trust against real property, the buyer takes the risk of collection of the debt, but hopes that the value of the collateral will be sufficient. Those notes are discounted because the buyer takes the note subject to all defects that occurred in the origination or underwriting and may not be able to foreclose in an expedient fashion.

The risk premium goes up (and correspondingly, the discount increases) when the collateral has already been foreclosed upon and the purchaser is just buying the debt instrument. In the recent case of Bank of America v. Mitchell, the bank bought a 2nd position note after the 1st position lienholder had already foreclosed on the borrower.

The case law in California is clear, if the same bank originates two loans, and non-judicially forecloses on the senior deed of trust, the borrower is protected from that lender suing for a deficiency judgment on the 2nd Note.

This has been true since the Simon v. Superior Court holding. [4 Cal.App.4th 63 (1992).] The reasoning is straightforward, the bank (holding the senior lien) controls whether to sue for a judicial foreclosure, or whether to non-judicially foreclose. Further, the bank determines whether to memorialize the debt with one note and deed of trust or ten notes and deed of trust. The Simon Court made it clear that manipulation by the lender could not circumvent the anti-deficiency protections available to the borrower (§580d) or the One Action Rule (§726).

The Mitchell case has a slight twist from Simon in that Mitchell involved a re-sold loan after the foreclosure. Dr. George Simon was the borrower on two loans from Bank of America where Bank of America (original lender) still held both notes. Mitchell actually addresses the secondary market for notes.

Facts: In 2006, Michael Mitchell borrowed $315k from GreenPoint Mortgage Funding to buy his house.*** The debt was memorialized by two promissory notes and secured by two deeds of trusts against one property ($262k and $63k respectively). GreenPoint foreclosed on the senior loan in 2009, and then sold the junior loan to Bank of America in 2010—more than a year later. BofA then sued Mitchell for the $63k.

BofA was obviously taking the position that it was the "sold out junior lienholder" as a result of the first lender's foreclosure. Mitchell brought a demurrer and won, the bank appealed.

Appeal: The appellate court affirmed, ruling in favor of the borrower, finding the case to be squarely in line with Simon vs. Superior Court. B of A argued that Mitchell had different facts from Simon, since the purchaser at the first foreclosure sale was a third party, rather than the foreclosing bank. The court did not find persuasive Bank's argument the presence of a bidders at the sale protected the borrower. The Court noted that the assignee bank bought the second note subject to all defenses that would have been available to the borrower against the original holder of the note. Since the borrower could have successfully asserted the Simon ruling against Greenpoint, it was still available to the borrower to assert against BofA. Caveat emptor (buyer, beware)!

The court also affirmed the award of attorney fees in favor of the borrower, $8,400. [Bank of America v. Mitchell, 2012 Westlaw 1177866, April 10, 2012]

Special thanks to Professor Dan Schechter of Loyola Law School for his Commercial Finance Newsletter article on this case. Professor Schechter noted that Mitchell is distinguishable from National Enterprises, Inc. v. Woods, 94 Cal.App.4th 1217, 115 Cal.Rptr.2d 37 (2001) based on the timing of the assignment (when the note was sold). In NEI, when the senior assignee foreclosed, the court held that the junior assignee was not affected by the senior's behavior. However, in Mitchell, the foreclosure on the senior deed of trust occurred prior to the assignment.

***The opinion states: “Appellant Bank of America’s (Bank) predecessor in interest loaned respondent Michael Mitchell (Mitchell) $315,000 to purchase a home, secured by two notes and first and second deeds of trust.” I find it puzzling that the case does not discuss the fact that the loans were purchase money loans and that there is no discussion of CCP §580b. The facts make it clear that the loan in dispute was a piggy back second, used to purchase the property. Since it was used to pay part of the purchase price, the statute should apply and there is no need to delve into the reasoning of Simon and 580(d).

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Mortgage Lender Bulletin – Recent Cases in Borrower Lawsuits Signal a Turning of the Tides

January 17th, 2012 · California Lending & Mortgage Law, Foreclosure Defense Lawsuits, Foreclosures, Trust Deeds

By: Julia M. Wei, Esq.

A series of cases have come down in the last few weeks that have some very serious ramifications for lenders.

The most dramatic case is that of Lona v. Citibank, based on a property right here in my back yard. The fact pattern in Lona is that the bank foreclosed and Lona sued the bank to void the sale on the absurd theory that the lender made him an unconscionable loan he couldn’t possibly afford therefore the loan was void. (Apparently, he’s a mushroom farmer in Hollister making $40k/yr)*.

Lona alleged that he agreed to refinance the home, on which he owed $1.24 million at the time, in response to an ad. The monthly payments were more than four times his income, so unsurprisingly, he defaulted within five months and the home was sold at a trustee’s sale in August 2008.

Lona obtained two re-financed loans: the first being $1.125 million, a 30-year term and an interest rate that was fixed at 8.25% for five years and adjustable annually after that, with a cap of 13.255 and the second loan being $375,000, with a term of 15 years, a fixed rate of 12.25%, monthly payments of nearly $4,000, and a balloon payment of $327,000 at the end of the 15 year term.

Lona testified that English was not his first language, he was 50 years old at the time of the loan and he that he did not understand the loan documents. Of course, he also did not read the loan documents.

After Citibank foreclosed, it filed an unlawful detainer action (“UD”) to evict Lona, but the UD was consolidated with Lona’s lawsuit to void and set aside the foreclosure sale. According to Citibank, Lona had been “living for free” in the house and had not posted bond or paid any “impound funds.” (since 2007!!!)

San Benito County Superior Court Judge Harry Tobias said Lona’s “bare allegations” were not enough to persuade him that the bank or the broker had engaged in misconduct and that it was “hard to believe” that the Lonas weren’t “responsible for their own conduct,” especially since they owned other property that had been foreclosed upon.

Despite the craziness of Plaintiff’s theory, the appellate court rendered a 32 page opinion that discussed in major detail that:
1) The borrower did not have to tender offer (which goes against almost a century of a legal precedent); and
2) The borrower’s allegations of the loan being unconscionable were not wholly disproven by the lenders.

The Court decision stated “Lona had received $1.5 million from the lenders and had not made any payments since June 2007. Meanwhile, he and his wife continued to live in the house for free, without paying rent or any impound funds…” and so it was quite aware of the inequities or injustice of the situation. However, the Court still concluded that the Lenders did not meet their burden of proof on summary judgment and so the case may continue at its snail pace until trial. [Lona v. Citibank No. H036140. Court of Appeals of California, Sixth District. (December 21, 2011.)]

The other case that came down a week before Lona (Dec. 21) was the Bardasian (Dec. 15) case, where the borrower sued because the lender’s trustee did not discuss loan mod options with her as required by Civil Code Section 2923.5. The court granted the borrower’s injunction and like Lona, the borrowers did not tender, nor put up an undertaking or surety for the bond. The lower court had ruled at the injunction hearing that the trustee had not complied with the code and that Bardasian must bond in the amount of $20k. When she failed to do so, the lower court dissolved the injunction.

On appeal, the appellate court concluded that since the injunction had been issued after the court had ruled on the merits stating:

“Plaintiff seeks postponement of the foreclosure sale until the defendants comply with Civil Code [section] 2923.5. Plaintiff has established that BAC Home Loan Servicing did not comply with Civil Code section 2923.5 prior to the issuance of the notice of default on September 15, 2010.” “Plaintiff states under penalty of perjury that no contact was ever made at least 30 days before the notice of default was issued…”

that the injunction was not actually “preliminary” at all, but that the plaintiffs had essentially won their argument showing that the defendants had not complied with Section 2923.5 and so no Notice of Default could successfully issue and the trustee’s sale could not take place until Section 2923.5 had been complied with. (Bardasian v. Santa Clara Partners Mortgage C068488. Court of Appeals of California, Third District. (December 15, 2011).

So in one month, two appellate cases came down where the borrower could either pursue voiding a trustee’s sale or enjoin one without tendering!

2012 will prove to be an interesting year as more decisions stemming from the subprime meltdown start coming down the pipeline.

* The decision contained a footnote that Lona’s loan application that apparently stated Lona made $20k/month, or $240k/yr. Clearly, as stated income loans go, that was a whopper!
 

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Wrong Opening Bid? Tough. Bidder Gets Benefit of Trustee’s Error.

November 3rd, 2011 · Foreclosures, Trust Deeds

By Julia M. Wei, Esq.

In the recent case of Biancalana v. T.D. Service Company, California foreclosure bidder Biancalana came out the winner on appeal.

In September of 2008, Biancalana bid at the trustee’s sale of a property on Winchester Dr. in Watsonville (Santa Cruz County). Lucky for him, the trustee (and possibly the loan servicer), T.D. Service Company, erroneously stated that $22k was the opening bid. That amount was in fact, merely the delinquency and the lender was actually seeking an opening bid of $220k. Whoops!

There were no other bids so Biancalana’s bid of $22k was the high bid. Later TD realized their error and refused to issue the Trustee’s Deed. Accordingly, Biancalana sued for specific performance.

TD brought a motion for summary judgment on the grounds that there was an error in the foreclosure process, and the sale was voidable. They lost but brought a motion for reconsideration due to “new law” from the case of Millenium Rock v. TD (yes, same defendant!) which came down November of 2009, just two months after TD had lost on their motion for summary judgment.

A quick review of Millenium – the trustee had instructed TD to submit an opening bid of $382k, which they did but the auctioneer misread the script and announced the opening bid and legal description for a different property but attributing it to a different street address. The confusion resulted in the bidder’s high bid of $51k being accepted. Accordingly, the Court in Millenium concluded that the auctioneer’s error was a fatal ambiguity which created a defect in the foreclosure process, which rendered the sale voidable.

Biancalana appealed. On appeal, the Sixth District concluded that the Trustee was the beneficiary’s agent, that the error was caused by the Trustee’s own negligence and that this negligence was not a procedural irregularity in the foreclosure sale. This ruling was in line with the case of 6 Angels, Inc. v. Stuart-Wright Mortgage, Inc. (2001). the lender/beneficiary intended to set the opening bid at $100,000.00, but the trustee mistakenly set the opening bid at $10,000.00.

Plaintiff, 6 Angels, was the successful bidder, paying a dollar more than the opening bid of $10k. The trustee refused to deliver the Trustee’s Deed, and 6 Angels sued. The Court held that a successful challenge to a sale requires evidence of a defect in the sale procedures, causing prejudice to the person attacking the sale. Mere inadequacy of the price without a procedural irregularity is insufficient to set aside the sale.

In 6 Angels, the mistake in the opening bid was the lender/beneficiary’s own negligence, and was totally outside of the foreclosure procedures (“dehors the sale proceedings”). The Trustee was ordered to deliver the Deed to 6 Angels.

Accordingly, TD’s motion for summary judgment was instructed to be vacated and Biancalana, the bona fide purchaser at sale was awarded the costs of this appeal. Ultimately, it looks like the lender will suffer the consequence for the trustee's error and the trustee will need to make the lender whole. [Biancalana v. T. D. Service Company, Oct. 31, 2011]

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Buying a condo or townhouse? 3 Things to Know about HOA’s

October 12th, 2011 · Neighbors and Boundary Law

By: Julia M. Wei, Esq.

Home prices being what they are here in the Palo Alto area, many first time homebuyers opt to purchase a townhouse or condominium.  When they do so, they receive a thick stack of documents, including the disclosures and the HOA docs.

Reviewing the HOA packet can be intimidating, and I have advised many purchasers who are too time-crunched to review the CC&Rs and offer some of the most frequent issues to watch for in the Codes, Covenants and Restrictions (CC&R's) in this article linked below:  

bayarearealestatelawyers.com/neighbor-issues/3-things-to-watch-for-when-buying-into-an-hoa/

Some CC&R's can really restrict your lifestye.  Avid bicyclist? Perhaps you have several bikes and were planning to park them with your car in the garage. Some CC&R’s restrict the amount and types of storage permitted in the garage.

Also, if you are trying to obtain financing for purchasing into an HOA, there may be loan requirements on owner-occupancy in the HOA.  Living in a group environments means relinquishing some rights, and buyers may be unaware to what degree.  One horror story involved a homeowner who replaced his lawn with eco-friendly, water saving synthetic grass but was forced to remove it after the HOA Board got involved.

Further, if you find yourself in the position where you must actually litigate an HOA dispute, my colleague Henry Chuang offers the following insights:

"As a matter of law, HOAs are required to have an internal dispute resolution procedure which a homeowner can initiate to resolve disputes that have arisen. This basically means that in the HOA handbook that homeowners receive when they purchase their house, there should be a section on managing disputes with the HOA. If the HOA has established a dispute resolution procedure, then the homeowner must utilize it before proceeding further. It is important to note that if the homeowner asks the HOA to participate under this process, the HOA must comply. However, if the HOA requests the homeowner to participate, the homeowner can choose not to attend."

From: HOA Litigation, a How To Guide.

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MERS – California shoots down the borrower lawsuits, again.

September 14th, 2011 · California Lending & Mortgage Law, Foreclosure Defense Lawsuits, Foreclosures, Trust Deeds

 

 In other parts of the country, and in bankruptcy court, borrowers have had some success with the argument that since MERS is a "nominee" and "nominee" is not defined in the loan documents, that it does not have standing to initiate foreclosure.

That argument has been far less successful in California, in large part because of these factors:

  1. Non-judicial foreclosures only require that the trustee on the deed of trust conduct the foreclosure. 
  2. The deed of trust is recorded and so are any substitutions and assignments (in other states, MERS had tried to circumvent the recording statutes by not recording this transfers with the County recorder).
  3. The borrower (or "Trustor") has signed the Deed of Trust and voluntarily consented to a 3rd party conducting the Trustee's sale, regardless of who the beneficiary is.

Recently, in the case of Robinson v. Countrywide and MERS, the California Court of Appeals again shot down the borrower's arguments for wrongful foreclosure and cited faithfully from the case of Gomes v. Countrywide.  The Gomes case is allegedly seeking cert to go to the California Supreme court so I will be following that trend with interest.

The Robinson court stated: "We agree with the Gomes court that the statutory scheme (§§ 2924-2924k) does not provide for a preemptive suit challenging standing. Consequently, plaintiffs‟ claims for damages for wrongful initiation of foreclosure and for declaratory relief based on plaintiffs‟ interpretation of section 2924, subdivision (a), do not state a cause of action as a matter of law.

(Robinson v. Countrywide; Case no. E052011, Sept. 12, 2011)

What's the bottom line?  Both the Robinson Court and the Gomes Court have made it pretty clear that in California, a borrower cannot challenge the foreclosure process solely on the grounds that the lender did not have authority to foreclose.  

I want to be clear though that this could have a different result under a judicial foreclosure because in that circumstance, the court clerk is required to hand cancel the debt instrument, which requires the original promissory note.

Lastly, my comment about these types of cases from borrowers is that the borrower is in default under the loan and judges know that the borrowers owe the money so there isn't much sympathy for these types of "technical" challenges to a foreclosure.

Instead, the lawsuits that have more traction are the ones where the borrowers have taken acts in reliance of promises of the lender, and have made efforts to make payments or sell other assets to pay the lender--but the lender foreclosed anyway or "dual tracked" them during this timeframe.  In those circumstances, the borrowers as plaintiffs have been able to survive the demurrer stage of the lawsuit.

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In California, a Foreclosure Sale is Final–Except when the Judge Says It Isn’t.

September 7th, 2011 · California Lending & Mortgage Law, Creditor's Rights in Bankruptcy, Foreclosure Defense Lawsuits, Foreclosures, Trust Deeds

The law in California on non-judicial foreclosures has been pretty firm for some time - the Trustee's Sale is FINAL as to a bona fide purchaser for sale if the Trustee's Deed is issued and recorded within 15 days of the sale.  At least until one bankruptcy judge in California's Central District disagreed.

The Relation Back Doctrine

Section 2924h of the California Civil Code governs bidding rules for the trustee’s sale at a nonjudicial foreclosure. The statute contains a provision – set forth in section 2924h(c) – that deems the trustee’s sale to be “final” upon the acceptance of the last and highest bid, and deemed perfected as of 8 a.m. on the actual date of the sale if the trustee’s deed is recorded within 15 calendar days of the sale.

One bankruptcy court has relied on this provision to hold that the postpetition issuance of a deed does NOT violate the automatic stay because the recordation of the deed within 15 days of the sale causes the sale to relates back to 8 a.m. on the sale date, thereby preceding the filing of a bankruptcy petition (and, as a corollary, the imposition of the automatic stay). In re Garner, 208 B.R. 698 (Bankr. N.D. Cal. 1997)

In Re Gonzalez

On Aug. 1, 2011, Judge Wallace of the Central District went against the weight of established law in California and issued a lengthy memorandum concluding that the Trustee's Sale is not final if a bankruptcy petition is filed before the Trustee's Deed is issued.

He reasoned that the Trustee has the power to not issue the deed for a variety of reasons and since it is the deed itself that actually conveys title, that the BFP does NOT have title until the Trustee's Deed is actually issued.  

In the Gonzalez case, the lender conducted the foreclosure sale on Feb. 22, 2011. The trustee then issued the deed on Feb. 25, 2011.  In between that time, the borrower filed for bankruptcy protection and the automatic stay went into effect.

Judge Wallace concluded that the lender was not entitled to relief from the automatic stay, that the trustee's deed issuance was a violation of the automatic stay and the Deed was void.

This decision isn't binding in other courts, but the reasoning should folks pause as it suggests there may be some loopholes that should be taken care of by the legislature. [In re Gonzalez, No 6:11-BK-15665-mw]

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California Attorney General Sues “Mass Action” Lawyers

August 23rd, 2011 · California Lending & Mortgage Law, Current Affairs, Foreclosure Defense Lawsuits, Foreclosures

 It's bad enough when people are dealing with their underwater properties, but to then have attorneys tell them to join these "mass action" lawsuits like it's a silver bullet to stop the foreclosure sale is egregious.  Apparently, the Attorney General thought so too and she sued them and the law firms have been placed into receivership.  

The California State bar has seized the practices and attorney accounts of the attorney defendants:

The Law Offices of Kramer & Kaslow; Philip Kramer, Esq; Mitchell J. Stein & Associates; Mitchell Stein, Esq. (aka "the Doberman" or "Dobie"); Christopher Van Son, Esq.; Mesa Law Group Corp.; and Paul Petersen, Esq.

According to the AG's press release:

...defendants preyed on desperate homeowners facing foreclosure by selling them participation as plaintiffs in mass joinder lawsuits against mortgage lenders. Defendants deceptively led homeowners to believe that by joining these lawsuits, they would stop pending foreclosures, reduce their loan balances or interest rates, obtain money damages, and even receive title to their homes free and clear of their existing mortgage. Defendants charged homeowners retainer fees of up to $10,000 to join as plaintiffs to a mass joinder lawsuit against their lender or loan servicer.
 

What's illegal about what these lawyers were doing?  According to the Complaint and Temporary Restraining Order:


-False advertising, in violation of section 17500 of the Business and Professions Code
-Unfair, fraudulent and unlawful business practices, in violation of section 17200 of the Business and Professions Code
-Unlawful running and capping, in violation of section 6152, subdivision (a) of the Business and Professions Code (i.e., a lawyer unlawfully paying a non-lawyer to solicit or procure business)
-Improper fee splitting (defendants unlawfully splitting legal fees with non-attorneys)
-Failing to register with the Department of Justice as a telephonic seller.

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Getting Attorney’s Fees in a Bankruptcy Non-dischargeability Action

July 19th, 2011 · California Judgment Enforcement/Collection, Creditor's Rights in Bankruptcy

By: Julia M. Wei, Esq.

Generally, a prevailing party (the winner) will not recover attorneys’s fees and costs unless authorized by statute or by contract. In the bankruptcy context of non-dischargeability actions, the Supreme Court case of Cohen v. de la Cruz addresses the issue of attorney’s fees. In summary, the test under Cohen is whether the party would have been able to recover attorney’s fees under state or federal (non-bk) law.

Cohen interpreted USC 523(a)(2)(A), 523 (a)(1)(B)(a)(4), (a)(6), and (a)(9) as clear examples where damages including attorney’s fees would be non-dischargeable.

In the recent case of In Re: Dinan, creditor Fry had loaned the Dinans $165k that they later failed to repay. When the Dinans filed for bankruptcy, Fry sought non-dischargeability of the debt under 523 (a)(14) on the grounds that the money he lent the borrowers had been applied to pay their taxes.

After prevailing, his attorney then brought a motion seeking to recover $55k in attorney’s fees. The bankruptcy court rather whimsically granted $2k.

Up on appeal, the Ninth Circuit Bankruptcy Appellate Panel concluded that Fry was entitled to have the attorney’s fees also survive Dinans’ dischargeability and sent the matter back down to the lower court to more reasonably determine the amount of attorneys’ fees awarded. [In re: Dinan 9th Cir. Bap, May 12, 2011.]

 

 

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How the Deed of Reconveyance Works in California

June 28th, 2011 · California Lending & Mortgage Law, Trust Deeds

I have had a surprisingly number of clients run into the problem of an old Deed of Trust (old loan) that was paid off, but remains against title.  This can be fairly time consuming to clean up and I've written an article about this for my firm's blog here.

A brief excerpt:

California Civil Code section 2941 (b)(1) requires the beneficiary, upon payoff, to “execute and deliver to the trustee the original note, deed of trust, request for a full reconveyance....” The trustee then executes and records the full reconveyance within 21 days of receipt of the documents from the beneficiary, delivers a copy of the reconveyance to the beneficiary and, upon request, delivers the original note and deed of trust to the trustor. (Civ.Code § 2941, subd. (b)(1)(A)-(C).)

What happens if the Trustee or the Benficiary does NOT do this? The statute provides two backup methods to help the owner clear title to their property. First, upon request by the trustor, the beneficiary must substitute itself in as trustee and execute a full reconveyance. (Civ.Code § 2941, subd. (b)(2).) Second, if neither the trustee nor the beneficiary has executed the full reconveyance within 75 calendar days after the loan payoff, “a title insurance company may prepare and record a release of the obligation” after giving notice of its intent to do so to the trustor, trustee, and beneficiary. “The release issued pursuant to this subdivision shall be entitled to recordation and, when recorded, shall be deemed to be the equivalent of a reconveyance of a deed of trust.” (Civ.Code § 2941, subd. (b)(3)(B).)
 

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