What Homeowners Needs to Know About Proof of Claim in Bankruptcy Proceedings

12 Monday May 2014

Posted by BNG in Bankruptcy, Federal Court, Foreclosure Defense, Judicial States, Litigation Strategies, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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A. General
1. Except in Chapter 11 cases, in which certain scheduled claims are “deemed filed” a creditor desiring to receive distributions in a bankruptcy case must file a timely proof of claim.

2. A proof of claim is a written statement that sets forth the creditor’s claim. It must conform substantially to Official Form 10, which can be found in the Bankruptcy Rules. While completing the proof of claim form is not difficult, it must be done carefully to avoid mistakes that could give the trustee or the debtor grounds to defeat the claim.

3. In most cases, the Court will have sent to creditors a proof of claim form with the initial Notice of Commencement of Case.

4. With the implementation of mandatory electronic case filing (ECF) in most districts, proofs of claim must be filed electronically if filed by counsel, unless the lawyer has obtained an exemption.

B. Definition of Claim
1. A “claim” in bankruptcy is defined as:
“(A) a right to payment, whether or not reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or
(B) a right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured.
2. A “Debt” is defined in bankruptcy as “a liability on a claim.”
3. Claims “arise” for bankruptcy purposes when all “transactions” or acts necessary for liability occur.
4. A claim arises regardless of whether the claim is contingent, liquidated, or matured when the petition is filed.

C. Filing Proofs of Claim
1. As noted above, proofs of claim must substantially conform to Official Form 10.
2. The creditor or the creditor’s agent must sign the proof of claim.
3. Copies of the documents evidencing the claim, and evidence of perfection of any security interest claimed, must be attached to the proof of claim.
4. The bar date establishes the date by which proofs of claim must be filed against the estate. The bar date is similar to a statute of limitations and must be strictly observed.
5. For non governmental creditors, claims must be filed within 90 days after the first date set for the meeting of creditors. The bar date for governmental claims is 180 days after the date of the order for relief.
6. In Chapter 11 cases, the court fixes the bar date for filing proofs of claim and notice of such deadline must be given to all creditors and parties in interest.
7. A creditor may seek leave for an extension of time to file a late proof of claim due to inadvertence, mistake, or carelessness amounting to “excusable neglect” as well as due to intervening circumstances beyond the parties’ control.

D. Secured Claims
1. “Secured claims” include “liens,” “security,” “security agreements” and “secured claims.”
2. An allowed claim secured by a lien on property in which the estate has an interest, or that is subject to setoff, is a “secured claim” to the extent of the value of the creditor’s interest in the estate’s interest in the property, or the amount subject to setoff. A secured claim carries the right to “adequate protection” of collateral.
3. Secured creditors are not required to file proofs of claim. The secured creditor holding a pre-bankruptcy lien need not file a proof of claim to preserve its status as a secured creditor, and the lien will pass through the bankruptcy case unaffected regardless of whether the secured creditor files a proof of claim. When there is a pre-petition arrearage, the secured creditor may wish to file a proof of claim to establish its claim for treatment in a Chapter 11 or 13 plan. Similarly, where the claim is only partially secured, the creditor may wish to file a proof of claim to establish a claim for the unsecured portion of its debt.
4. Common Mistakes
a. Failure to provide proof of debt. Rule 3001(c) requires that evidence of all claims based on a writing be filed with the proof of claim form. Most claims have some documentary evidence that should be filed with the proof of claim.
b. Misuse of check boxes. Official Form No. 10 contains boxes to check only for secured and priority claims. An unsecured claim without priority status under the Bankruptcy Code is the default, and there is no box to check for unsecured, non-priority claims. Creditors should only claim secured or priority status if there is a good faith basis to do so.
b. Failure to provide proof of perfection of security interest. The nature of the proof required depends upon the requirements for perfection of a security interest in the underlying collateral. For example, the creditor should provide copies of certificates of title for motor vehicles and manufactured homes, a copy of the recorded deed of trust for real estate, and copies of the recorded UCC-1 financing statement(s) for security interests in other personal property. If the documentation is lengthy, a summary may be provided.
c. Improper claim of priority status. Priority claims as prescribed by the Bankruptcy Code are paid before other claims, which is a considerable advantage. Creditors often claim priority status when they are not legally entitled to do so. A creditor should not file a proof of claim form alleging priority status without a good faith basis to do so.
d. Late Filed Claims. With few exceptions, claims filed after the bar date are subject to disallowance. Creditors who learn of a bankruptcy filing should file promptly a proof of claim even if they do not receive official notice from the Court.
e. Failure to indicate amended claim. Duplicate proofs of claim are a recurring problem for bankruptcy trustees. The proof of claim contains a box to check if a proof of claim replaces or amends a previously filed proof of claim. Creditors often file replacement or amended proofs of claim without checking the “replace” or “amends” box. This creates obvious confusion because it is not clear whether the latest claim is a new, separate claim. If the box is not checked, the debtor or the trustee may object on the grounds that one of the claims is a duplicate of the other, and an inattentive creditor may find that the preferred claim is disallowed. Checking the “amends” or “replace” box makes it clear that there is only one claim. It may be helpful to explain the reason for the amendment on the face of the proof of claim or in an attachment.

E. Allowance of Claims and Objections
1. If a proof of claim is timely and properly filed, it is “deemed allowed” unless a party in interest objects.
2. Claims scheduled as undisputed, fixed or liquidated in Chapters 9 and 11 are deemed allowed even if no proof of claim is filed.
3. A “party in interest” may object to the proof of claim. The objection becomes a “contested matter.” If the objection is joined with a demand for relief of the kind specified in Bankruptcy Rule 7001, it becomes an adversary proceeding. At least 30 days notice of a hearing is required on an objection to a proof of claim.
4. Once filed, a proof of claim constitutes “prima facie evidence of the validity and amount of the claim”. As a result, the party objecting to a properly filed proof of claim has the initial burden of presenting sufficient probative evidence to overcome the prima facie effect of the proof of claim.
5. Once the objector has produced “sufficient evidence to place the claimant’s entitlement at issue”, the burden of proof then shifts to the creditor to establish the validity and amount of its claim. The claimant bears the ultimate burden of establishing a valid claim by a preponderance of the evidence.
6. Neither the Bankruptcy Code nor the Bankruptcy Rules establish an absolute deadline for filing an objection to a claim. In Chapter 7 cases, objections should be filed prior to any distribution by the Chapter 7 trustee. In Chapter 11 cases, the plan of reorganization will often include a deadline to object to claims.

F. Effect of Filing a Proof of Claim.
1. A proof of claim supersedes the claim as scheduled by the debtor.
2. A claim is “deemed allowed” unless and until an objection is filed.
3. Only creditors holding allowed claims are entitled to vote on the confirmation of a Chapter 11 plan of reorganization. If a party objects to a claim prior to the claimant voting on a plan of reorganization, the claimant is ineligible to vote on the plan. On request of the claimant, the Bankruptcy Court, after notice and a hearing, can temporarily allow the claim for voting purposes in an amount that the Bankruptcy Court deems proper.
4. A creditor must hold an allowed claim in order to receive a distribution under a Chapter 7, a Chapter 13, or a Chapter 11 bankruptcy case. A properly executed and filed proof of claim establishes a creditor’s allowed claim, unless a party in interest objects.
5. There is some risk for a creditor in filing a proof of claim because the creditor is generally deemed to have submitted itself to the jurisdiction of the Bankruptcy Court for purposes of the claim and issues related to the treatment and payment of the claim. This may not be desirable in all circumstances. It may result in a waiver of the right to a jury trial.

G. Objections

(1) An objection to claim is a “contested matter” under FRBP 9014. Except to the
extent otherwise provided in this rule, an objection to claim must comply with
LBR 9013-1 and be titled “Motion for Order Disallowing Claim” unless the
objection is to become an adversary proceeding pursuant to FRBP 3007(b).
(2) A claim objection must include the number, if any, assigned to the disputed claim
on the court’s claims register.
(3) A separate objection must be filed to each proof of claim unless:
(A) The objection pertains to multiple claims filed by the same creditor;
(B) The objection is an omnibus claim objection; or
(C) The court orders otherwise.
(4) An omnibus claim objection asserts the same type of objection to claims filed by
different creditors (e.g., claims improperly filed as priority claims, duplicate claims,
claims filed after the bar date, etc., as described in FRBP 3007(d)). In addition to
the requirements set forth in FRBP 3007(e), an omnibus claim objection must:
(A) Identify the name of each claimant and the claim number in the caption of
the objection; and
(B) Include as exhibits the documents supporting each claim objection
organized and indexed by claim number.
(5) If more than 20 objections in a case are noticed for hearing on a single calendar,
the objector must comply with the supplemental procedures contained in the Court
Manual available from the clerk and on the court’s website.
(b) Notice and Hearing.
(1) A claim objection must be set for hearing on notice of not less than 30 days.
(2) The claim objection must be served on the claimant at the address disclosed by the claimant in its proof of claim and at such other addresses and upon such parties as
may be required by FRBP 7004 and other applicable rules.
(3) Notice of the objection on or conforming to court-mandated form F 3007-1.3,
Notice of Objection to Claim must be served with the claim objection. The notice
must advise the claimant of the date, time, and place of hearing, and state:
(A) A response must be filed and served not later than 14 days prior to the date
of hearing set forth in the notice; and
(B) If a response is not timely filed and served, the court may grant the relief
requested in the objection without further notice or hearing.
(4) The court will conduct a hearing on a claim objection to which there is a timely
response.
(5) If the claimant timely files and serves a response, the court, in its discretion, may
treat the initial hearing as a status conference if it determines that the claim objection involves disputed fact issues or will require substantial time for presentation of evidence or argument.
(6) If the claimant does not timely file and serve a response, the court may sustain the
objection and grant the motion for order disallowing the claim without a hearing.
(A) The objector must file a declaration attesting that no response was served
upon the objector. The declaration must identify the docket number and filing date of the objection to claim, notice, and proof of service of the notice and objection to claim, and be served on the claimant.
(B) The objector must also lodge a proposed order prepared and served in accordance with LBR 9021-1 which provides for service of the entered order on the claimant and counsel, if any, and the United States trustee.
(c) Evidence Required.
(1) An objection to claim must be supported by admissible evidence sufficient to
overcome the evidentiary effect of a properly documented proof of claim executed
and filed in accordance with FRBP 3001. The evidence must demonstrate that the
proof of claim should be disallowed, reduced, subordinated, re-classified, or
otherwise modified.
(2) A copy of the complete proof of claim, including attachments or exhibits, must be
attached to the objection to claim, together with the objector’s declaration stating
that the copy of the claim attached is a true and complete copy of the proof of
claim on file with the court, or, if applicable, of the informal claim to which
objection is made.
(3) If the complete proof of claim is not readily available from the court file, the
objector may formally request a copy from the holder of the claim by serving the
creditor with a notice in substantially the same form as court-approved form.

H. Notice of Request for a Copy of Proof of Claim.
F 3007-1.2, Notice of Request for a Copy of Proof of Claim.
(A) The request must advise the holder of the claim that failure to supply a complete copy of the proof of claim, including all attached documentation, within 30 days of the notice may constitute grounds for objection to the claim based on the claimant’s failure to provide requested documentation to support the claim.
(B) If an objection is filed on this basis, it must be accompanied by a declaration providing evidence that the proof of claim was not readily available from the court file or otherwise.
(4) If the basis for the objection is that the proof of claim was filed after the bar date,
the objection must include a copy of each of the following:
(A) The bar date order, if any;
(B) The notice of bar date; and
(C) Proof of service of the notice of bar date.
(5) If the basis for the objection is that there are duplicate proofs of claim, the objection must include a complete copy of each proof of claim.

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How Homeowners Can Effectively Challenge Lender’s Proof of Claim in Bankruptcy Adversarial Proceedings

11 Sunday May 2014

Posted by BNG in Bankruptcy, Federal Court, Foreclosure Defense, Fraud, Judicial States, Litigation Strategies, Non-Judicial States, Pro Se Litigation, State Court, Trial Strategies, Your Legal Rights

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Many Homeowners who find the need to file a Chapter 13 Bankruptcy years after lenders has failed to modify their mortgage loans may find the needs to pursue the unscrupulous lenders through the the special proceeding in the Bankruptcy law called “Adversarial Proceeding”.

When Homeowners in Chapter 13 Bankruptcy listed their lender as “Unsecured Credit”, the burden of proof usually shift to the creditor to show how its claims against the borrower is secured. Doing so, requires that the lender present the necessary documentary proof and then ascertain how it came about acquiring those payment rights or the right to institute and maintain foreclosure action against Homeowner’s property.

When lenders are listed as “Secured Creditors”, even though the word “secured” made it appear as if the lender has all the rights in the world to pursue the foreclosure, absolutely not. The bankruptcy law requires that all claimants listed on the Chapter 13 Bankruptcy timely file what is called a “proof of claim”, as to their entitlement for the interest they were claiming. Whether or not such “proof of claim” is timely filed by the lender determines how its interest if any, is going to be protected when the Trustee distributes the money. However, if Homeowners commenced what is know as “Adversarial Proceeding” within that Chapter 13 Bankruptcy proceedings, then lenders are forced to substantiate their claims. This is the point where all events in the mortgage loan transaction comes to light including but not limited to “assignments and transfers, possession of deeds of trust, mortgage or notes, recordings in the county, MERS issues etc. The burden thus still shifts to the lender to show how it came about with the rights of ownership or enforcement it is claiming against Homeowner’s property.

Ordinarily, the first step a creditor will take upon learning of a debtor’s bankruptcy case is to file a proof of claim to seek payment of money owed. A claim or interest that has been filed with the court will be allowed, and will serve as the basis for distribution of the creditors claim, unless a party in interest objects. Once filed, a proof of claim constitutes prima facie evidence of the validity and amount of the claim. Often times months or even years will go by before a creditor hears anything further about his claim from the debtor, trustee or any other party. Consequently, an objection to a claim may be brought long after the claim was filed. There is no absolute deadline in the Code or Rules for filing an objection to a claim. In Chapter 7 cases, objections should be filed prior to any distribution by the trustee and in Chapter 11 cases, oftentimes the plan of reorganization will include a deadline to object to claims. Typically, a claim objection is preceded by a letter requesting additional documentation from the claimant by the debtor or trustee.

If a Trustee or Debtor files an objection to claim, the objection becomes a “contested matter.” If the objection is joined with a demand for relief of the kind specified in Bankruptcy Rule 7001 (governing adversary proceedings), it becomes an adversary proceeding. At least thirty days notice of a hearing is required on an objection to a claim. Once an objection has been filed, the burden of proof shifts to the creditor to prove the amount and validity of the claim. The claimant bears the ultimate burden of establishing a valid claim by a preponderance of the evidence.

Filing a successful proof of claim is the key to unlocking a creditor’s right to recover against a debtor in bankruptcy. Only in limited circumstances may a creditor recover against the debtor’s estate without properly filing a proof of claim. This article addresses the various stages of filing, attacking and defending a proof of claim.

A proof of claim is “a written statement setting forth a creditor’s claim.” To aid creditors, the judiciary has created an “Official Form” for filing proofs of claim that comply with the Bankruptcy Code and Rules. The deadline for filing proofs of claim is fixed by the Bankruptcy Court.

The proof of claim serves to give notice to the Bankruptcy Court, the debtor-in-possession/trustee, and other interested parties of the creditor’s claim. Beyond alerting others to the existence of the claim, it also begins the process of establishing the amount of the claim, by requiring the creditor to specify the amount owed as of the petition date. Finally, the proof of claim identifies thetype of claim, such as whether it is a secured or unsecured claim, and any priority asserted by the creditor. The proof of claim is therefore more than just a “written statement” of the creditor’s claim, but also the opening salvo in the creditor’s attempt to obtain a distribution from the debtor’s estate which must be completed with care.

The Official Form requires a claimant to describe its claim as an unsecured or secured priority claim. Claims receive different treatment under the Bankruptcy Code, depending upon the priority, and accordingly, this required designation is more than a technicality. A secured claimant who has perfected a security interest in a particular piece of collateral is entitled to receive a distribution from that specific property before any other creditors can recover from that specific property. If the claim is unsecured, the Bankruptcy Code establishes a schedule of “priorities” giving the order in which unsecured claimants are paid back, based on the type of claim, until the debtor’s estate is exhausted. As a few examples, priority unsecured claims (in order) include domestic support obligations; wages, salaries and commissions; consumer deposits; and other unsecured claims.

More basic requirements for filing a proof of claim include a signature by the creditor or its authorized agent. Further, if the claim is based on a written document, the creditor should file a copy of the document; or if the document is no longer available, the creditor should explain how it came to be lost or destroyed. If the creditor possesses a security interest in the debtor’s property, the creditor should include evidence of the security interest’s perfection.

While the ultimate burden of persuading the Bankruptcy Court that the claim is valid always rests with the claimant, once a creditor files a proof of claim complying with these rules, the proof of claim becomes “prima facie evidence of the validity and amount of the claim.” If left unchallenged, the creditor will be entitled to receive distributions from the debtor’s estate in order to satisfy its claim. As courts have recognized, this effectively shifts the burden to objectors to present evidence casting doubt on the claim, with such evidence carrying at least equal evidentiary force as the details in the proof of claim. However, the objector having done so, the burden returns to the claimant to demonstrate the ultimate validity of its claim.

The Bankruptcy Code and Rules allow for a “party in interest” to object to the proof of claim. Such objections must be written and filed with the Bankruptcy Court. The objector must also serve a copy on the claimant at least 30 days before the hearing on the objection. The objector should also make it clear that this is an objection to a proof of claim filed in the case and specify which proof of claim is affected.

One typical tactic that objectors employ is the so-called “omnibus objection,” resulting from the fact that many claims are vulnerable to objections on the same basis. As a consequence, objectors will often set forth a general legal basis for a reduction or elimination of particular claims, and then attach as an exhibit a list of claims to which the objection applies. For example, claims that were filed late-that is, they were filed after the claims filing deadline, are often the subject of a so-called “omnibus objection.”

Before 2007, this type of objection posed additional challenges to claimants. It was often difficult for claimants to know whether they had been named in the objection because the Bankruptcy Rules did not require objectors to list claims in alphabetical or numerical order, meaning that a creditor could easily miss that its proof of claim was being challenged among the hundreds or even thousands of claims named in just a single omnibus objection. This required a careful inspection of the attached exhibit to determine if its claim was affected.

Seeing the need to impose limits on such unwieldy objections, the judiciary amended the Bankruptcy Rules to make omnibus objections more accessible to creditors. First, the amended Bankruptcy Rules allow omnibus objections only on limited grounds, including duplication, claims that were filed in the wrong case, amended claims, late claims and other procedural objections.

Other than circumscribing when an objector can employ an omnibus objection, the Bankruptcy Rules now also detail how the objection can be made, with the ultimate goal of making it easier for creditors to determine whether one of their claims has been named. The omnibus objection must list claimants alphabetically (and additionally list them by category of claims if appropriate) and provide a cross-reference to claim numbers. For each claim, the objector must state the grounds of the objection and cross-reference the pages in the omnibus objection pertinent to the stated grounds.

An omnibus objection must also explain, “in a conspicuous place,” that claimants receiving a copy of the objection should find their names and claims therein. These rules prohibit objectors from naming more than 100 claims per omnibus objection. Finally, the title of the objection must state the objector’s identity and its ground for objection and be numbered consecutively with the objector’s other omnibus objections.

The objection may assert the claim is not reflected in the debtor’s books and records, the amount of the claim or classification of the claim is incorrect or other grounds specific to the nature of the claim. Creditors have difficulty where the objection to their claim is not explicitly specific to their claim, as it may be combined with dozens of other claims in an Omnibus Objection. Often an Omnibus Objection results from having many claims that are vulnerable to objections on the same basis and thus, will contain the basis of the Objection and a corresponding list or chart identifying the creditor’s claim to which the objection applies.

At this point, it may be beneficial for the creditor to hire experienced bankruptcy counsel to defend their claim. If a timely response is not given to the objection, the claim will likely be disallowed and thus, the creditor receives nothing from the bankruptcy estate, despite having had a valid claim. If a timely response is filed, the Bankruptcy Court will conduct an evidentiary hearing to establish the validity of the claim, along with its amount as of the petition date. The hearing is usually scheduled when the objection is filed. The Court may however establish a discovery schedule prior to the hearing if the claim dispute so requires. Ordinarily, if an objection to a claim is raised, the court (after notice and a hearing) determines the amount of the claim as of the date of the filing of the bankruptcy petition, and allows the claim, unless it deems it not allowable under Section 502, such as a claim that is unenforceable due to a valid defense and a claim for post-petition interest on an unsecured claim.

Of course, if no objection is made, the creditor will be entitled to receive distributions from the debtor’s estate in order to satisfy its claim.

After an objection is filed, the creditor is required to submit a written response. If a timely response is filed, the Bankruptcy Court will conduct an evidentiary hearing to establish the validity of the claim, along with its amount as of the petition date. Often, the hearing is scheduled at the time the objection is filed; however, depending upon the size and nature of the claim, the court may establish a discovery schedule prior to the hearing. The court will generally look to non-bankruptcy law to determine whether to allow the claim.

The proofs of claim process demonstrates how important it is that the respective parties get their roles right. Creditors must be diligent in properly filing a proof of claim to recover from the debtor’s estate and in carefully filling out the Official Form to ensure that their claims are properly characterized and quantified. A party in interest must make a cogent objection to the proof of claim sufficient to overcome its presumption of validity and take heed of recent changes to the rules governing omnibus objections.

What Homeowners in Washington Needs to Know About Saving Their Homes

10 Saturday May 2014

Posted by BNG in Case Laws, Case Study, Federal Court, Foreclosure Crisis, Foreclosure Defense, Fraud, Judicial States, Landlord and Tenant, Legal Research, Litigation Strategies, Mortgage Laws, Non-Judicial States, Note - Deed of Trust - Mortgage, Pro Se Litigation, RESPA, State Court, Your Legal Rights

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This outline covers mainly Washington law, but an effort has been made to include information that will be useful in most foreclosure contexts. Bankruptcy and tax issues pervade foreclosures, but are beyond the scope of this article. The focus is upon residential foreclosures as opposed to commercial foreclosures although there is substantial overlap.

TABLE OF CONTENTS

I. GENERAL CONSIDERATIONS

A. WHETHER TO REINSTATE, DEFEND OR GIVE-UP
B. OFFENSIVE STRATEGY

II. DEFENDING NONJUDICIAL DEED OF TRUST FORECLOSURES
A. INTRODUCTION
B. PROCEDURE FOR RESTRAINING TRUSTEE’S SALES
C. DEFENSES BASED ON TRUSTEE MISCONDUCT
D. POST-SALE REMEDIES
E. SETTING ASIDE THE TRUSTEE’S SALE
F. ADDITIONAL STATUTORY REMEDIES
G. RAISING DEFENSES IN THE UNLAWFUL DETAINER
(EVICTION) ACTION
H. DAMAGES FOR WRONGFUL FORECLOSURE

III. DEFENDING JUDICIAL FORECLOSURES
A. INTRODUCTION
B. HOMESTEAD RIGHTS
C. UPSET PRICE
D. DEFICIENCY JUDGMENTS
E. REDEMPTION RIGHTS
F. POSSESSION AFTER SALE
G. POST FORECLOSURE RELIEF

IV. MISCELLANEOUS ISSUES
A. BANKRUPTCY
B. WORKOUTS (DEED IN LIEU)
C. LENDER LIABILITY
D. MOBILE HOME FORECLOSURES
E. TAX CONSEQUENCES OF FORECLOSURE

V. THE GOVERNMENT AS INSURER, GUARANTOR OR LENDER
A. INTRODUCTION
B. HUD WORKOUT OPTIONS
C. THE VA HOME LOAN PROGRAM
D. RURAL HOUSING LOANS

VI. RESOURCES

I. GENERAL CONSIDERATIONS

A. WHETHER TO REINSTATE, DEFEND OR GIVE-UP

By far the most important decision that must be initially made is whether the property is worth saving. This is often ignored and wasted effort is expended when there is no “equity” (realistic fair market value minus all debt, liens, property taxes, anticipated foreclosure costs, late fees, and selling costs) in the property.
The options are as follows:
1. Reinstatement. Pay the costs and late charges and stop the process. In most non-judicial foreclosures this is permitted up until the date of sale. In Washington the lender must allow reinstatement 10 days prior to the sale date. See RCW 61.24. Often a lender or relative will loan necessary funds and take a subordinate lien on the property to do so. The makes sense only if the new payments are within the means of the debtor.
2. Sell the Property. If there is equity, but no ability to reinstate, then immediately list and sell the property to recoup equity.
3. Obtain Foreclosure Relief. Most government insured loans (if, VA, FHA) have programs allowing (or requiring) lenders to assist defaulting borrowers. See discussion under §V infra. Check into these options immediately.
4. Give Up. This is actually an option as most state laws permit the debtor to remain in possession during the foreclosure process and redemption period rent-free. Most laws, especially in non-judicial foreclosure states – do not allow (or at least limit) deficiencies. Debtors contemplating bankruptcy should take advantage of homestead rights and redemption rights. If there is no equity or negative equity and no ability to make payments, there is no economic reason to try to avoid foreclosure.
5. Defend the Foreclosure. After all of the above have been considered, defense of the foreclosure may be warranted. This outline discusses some defenses that may result in re-instatement of the mortgage or recovery of equity.
B. OFFENSIVE STRATEGY
In addition to defenses that may be raised, there may be affirmative claims that can be brought against the lender which should be immediately determined and raised in a counterclaim or set-off or, in the case of non-judicial foreclosure, brought by separate suit and coupled with an injunction against continuing the non-judicial foreclosure. These claims can also be brought in bankruptcy. See, e.g. In re Perkins, 106 BR 863 (1989).
A few examples of affirmative claims:
1. Truth-in-Lending Act Violations. Often lenders will hand the debtor a claim, which can turn a debt into an asset. If the Truth-in-Lending disclosure statement is less than one year old, there may be damage claims for improper disclosure. See, 15 U.S.C. 1635. More importantly, there may be a right of rescission, which can be exercised up to three years after the closing resulting in a tremendous advantage to the borrower. See, e.g., Beach v. Ocwen Fed Bank, 118 S. Ct. 1408 (1998).
2. Usury. If a state usury law applies (usually on seller financed real estate), this can parlay a debt into an asset. Federal pre-emption generally prevents this, but there are exceptions. See, RCW 19.52.
3. Mortgage Broker Liability, Lender Liability, Unfair or Deceptive Acts or Practices. Numerous claims that arise in the mortgage financing context give rise to set-offs that can allow negotiation out of the foreclosure. See e.g. Mason v. Mortgage America, 114 Wn. 2d 842 (1990). Intentional breach of contract gives rise to emotional stress damages. See, Cooperstein v. Van Natter, 26 Wn. App. 91 (1980); Theis v. Federal Finance Co., 4 Wn. App. 146 (1971).
Under a new federal statute to regulate high interest, predatory loans, Congress enacted in 1994 the Home Ownership and Equity Protection Act (effective on loans after October 1, 1995). This amendment to the Truth-In-Lending Act requires greater disclosures in loans where a number of factors exist such as, points exceeding 8% and other excessive costs. Penalties include enhanced damages and rescission. See 15 U.S.C. 1602(u) and 15 U.S.C. 1640(a).
The Mortgage Broker Practices Act, RCW 31.04 and the Consumer Protection Act also have enhanced damages and attorney fees.

II. DEFENDING NONJUDICIAL DEED OF TRUST FORECLOSURES

A. INTRODUCTION

The deed of trust is currently one of the most common devices for securing conventional and government insured or guaranteed real estate loans. The deed of trust may be typically foreclosed either judicially as a mortgage or non-judicially. Set forth below are the jurisdictional variations in security agreements and the most common foreclosure procedures#.

Nonjudicial

# 1

Jurisdiction
Customary Security Agreement
Customary Foreclosure Procedure

Alabama
Mortgage
Nonjudicial

Alaska
Deed of Trust
Nonjudicial

Arizona
Deed of Trust
Nonjudicial

Arkansas
Mortgage
Judicial

California
Deed of Trust
Nonjudicial

Colorado
Deed of Trust (Semi-judicial)
Public Trustee’s Sale

Connecticut
Mortgage

Judicial-Strict Foreclosure

Delaware
Mortgage
Judicial

Dis. of Col.
Deed of Trust
Nonjudicial

Florida
Mortgage
Judicial

Georgia
Security Deed
Nonjudicial

Hawaii
Mortgage
Judicial

Idaho
Mortgage
Judicial & Nonjudicial

Illinois
Mtg. & D.T.
Judicial

Indiana
Mortgage
Judicial

Iowa
Mortgage
Judicial

Kansas
Mortgage
Judicial

Kentucky
Mortgage
Judicial

Louisiana
Mortgage
Judicial

Maine
Mortgage
Judicial (Nonjudicial for Corporate Borrower)

Maryland
Deed of Trust
Nonjudicial

Massachusetts
Mortgage
Nonjudicial

Michigan
Mortgage
Nonjudicial

Minnesota
Mortgage
Nonjudicial

Mississippi
Deed of Trust
Nonjudicial

Missouri
Deed of Trust
Nonjudicial

Montana
Instlmnt. Contract
Nonjudicial

Nebraska
Deed of Trust Mortgage
Judicial & Nonjudicial

Nevada
Deed of Trust
Nonjudicial

New Hampshire
Mortgage
Nonjudicial

New Jersey
Mortgage
Judicial

New Mexico
Mortgage
Judicial

New York
Mortgage
Judicial

North Carolina
Deed of Trust
Judicial

North Dakota
Mortgage
Judicial

Ohio
Mortgage
Judicial

Oklahoma
Mortgage
Judicial

Oregon
Deed of Trust
Nonjudicial

Pennsylvania
Mortgage
Judicial

Puerto Rico
Mortgage
Judicial

Rhode Island
Mortgage
Nonjudicial

South Carolina
Mortgage
Judicial

South Dakota
Mortgage
Judicial & Nonjudicial

Tennessee
Deed of Trust
Nonjudicial

Texas
Deed of Trust
Nonjudicial

Utah
Deed of Trust
Nonjudicial

Vermont
Mortgage
Strict Foreclosure

Virgin Islands
Mortgage
Judicial

Virginia
Deed of Trust
Nonjudicial

Washington
Deed of Trust
Nonjudicial

West Virginia
Deed of Trust
Nonjudicial

Wisconsin
Mortgage
Judicial

Wyoming
Mtg. & Installment Contracts

foreclosure is allowed in approximately one-half of the states. Also listed are the states that permit nonjudicial foreclosure and their relevant statutes#. With nonjudicial foreclosure, it is not necessary to utilize the court for the foreclosure sale unless a deficiency judgment is sought. Nonjudicial foreclosure is often the preferred method of foreclosure because it is more efficient than judicial foreclosure and quicker. The nonjudicial foreclosure procedure has been found constitutional between private parties on the basis that there is no state action#, but there is a serious question as to whether the government can direct a lender to use a nonjudicial procedure#.

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Judicial
# ALABAMA: ALA. CODE §§35-10-1 TO 35-10-10; [FORECLOSURE AFTER 12/1988 §§35-10-11 TO 35-10-16]
(1991).
Alaska: Alaska Stat. §§34.20.090 to 34.20.100 (1991).
Arizona: Ariz. Rev. Stat. Ann. §§33-807 to 33-814 (West 1991).
Arkansas: Ark. Code Ann. §§18-50-108; 18-50-116 (1987).
California: Cal. Civ. Code §§2924 to 2924(h) West 1992).
D.C.: D.C. Code Ann. §§45-715 to 45-718 (1991).
Georgia: Ga. Code Ann. §§9-13-141; 44-14-162.4; 44-14-48; 44-14-180 to 187 (Harrison 1991).
Idaho: Idaho Code §§6-101; 104; 45-1502 to 45-1506 (1991).
Iowa: Iowa Code Ann. §654.18 (West 1992).
Maine: Me. Rev. Stat. Ann. tit. 14, §§7-105; 7-202 (1988).
Massachusetts: Mass. Gen. Laws Ann. ch. 183, §§19, 21; ch. 244, §§11-15 (West 1992).
Michigan: Mich. Comp. Laws Ann. §§451-401 et seq.; 600.2431; 600.3201 et seq.; 600.3170 (West 1992).
Minnesota: Minn. Stat. Ann. §§580.01 to 580.30; 582.01 et seq. (West 1992).
Mississippi: Miss. Code Ann. §§11-5-111; 15-1-23; 89-1-55 (1972).
Missouri: Mo. Ann. Stat. §§442.290to 443.325 (Vernon 1992).
Montana: Mont. Code Ann. §§25-13-802; 71-1-111; 71-1-223 to 232, 71-1-311 to 317 (1991).
Nebraska: Neb. Rev. Stat. §§76-1001 to 1018 (1981).
Nevada: Nev. Rev. Stat. §§107.020; 107.025; 107.080 to 107.100; 40.050; 40.453 (Michie 1991).
New Hampshire: N.H. Rev. Stat. Ann. §§479:22 to 479:27 (1991).
New York: N.Y. Real Prop. Acts §§1401 to 1461 (McKinney 1992).
North Dakota: N.D. Cent. Code §35-22-01 (1992).
Oklahoma: Okla. Stat. Ann. tit. 46, §§40 to 49 (West 1992).
Oregon: Or. Rev. Stat. §§86.705 to 86.795 (1989).
Rhode Island: R.I. Gen. Laws §§34-11-22; 34-20-4; 34-23-3; 34-27-1 (1984).
South Dakota: S.D. Codified Laws Ann. §§21-48-1 to 21-48-26; 21-48A-1 to 21-48A-5 (1992).
Tennessee: Tenn. Code Ann. §§35-5-101 to 35-5-112 (1991). See, Note, Power of Sale Foreclosures in
Tennessee, 8 Mem. St. U.L. Rev. 871 (1978).
Texas: Tex. Prop. Code Ann. §§51-002; 51.003; 51.005 (West 1992).
Utah: Utah Code Ann. §§57-1-23 to 57-1-34 (1986).
Vermont: Vt. Stat. Ann. tit. 12, §§4531a to 4533 (1991).
Virginia: Va. Code Ann. §§55-59.1 to 55-59.4; 55-61 to 55-66.7 (Michie 1991).
Washington: Wash. Rev. Code Ann. §§61.24.010 to 61.24.130 (West 1992).

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West Virginia: W. Va. Code §§38-1-3 to 38-1-12 (1991).
Wyoming: Wyo. Stat. §§34-4-101 to 34-4-113 (1991).

# See Charmicor, Inc. v. Deaner, 572 F.2d 694 (9th Cir.1978); Northrip v. Federal National Mortgage Association, 527 F.2d 23 (6th Cir.1975); Barrera v. Security Building & Investment Corp., 519 F.2d 1166 (5th Cir. 1975); Bryant v. Jefferson Federal Savings & Loan Association, 509 F.2d 511 (D.C. Cir.1974); Lawson v. Smith, 402 F.Supp. 851 (N.D.Cal.1975); Global Industries, Inc. v. Harris, 376 F.Supp. 1379 (N.D.Ga.1974); Homestead Savings v. Darmiento, 230 Cal.App.3d 424, 281 Cal.Rptr. 367 (1991); Leininger v. Merchants & Farmers Bank, macon, 481 So.2d 1086 (Miss.1986); Wright v. Associates Financial Services Co. of Oregon, Inc., 59 Or.App.688, 651 P.2d 945 (1983), certiorari denied 464 U.S. 834, 104 S.Ct. 117, 78 L.Ed.2d 116 (1983); Kennebec Inc. v. Bank of the West, 88 Wash.2d 718, 565 P.2d 812 (1977); Dennison v. Jack, 172 W.Va. 147, 304 S.E.2d 300 (1983).
# Island Financial, Inc. v. Ballman, 92 Md.App. 125, 607 A.2d 76 (1992); Turner v. Blackburn, 389 F.Supp. 1250 (W.D.N.C.1975); Vail v. Derwinski, 946 F.2d 589 (8th Cir.1991), amended by 956 F.2d 812 (8th Cir.1992) and Boley v. Brown, 10 F.3d 218 (4th Cir.1993) which held that the VA’s control over the foreclosure process in VA guaranteed loan foreclosures constitutes sufficient governmental action to trigger due process protections. Accord, U.S. v. Whitney, 602 F. Supp. 722 (W.D. N.Y. 1985); U.S. v. Murdoch, 627 F. Supp. 272 (N.D. Ind. 1986). See Also Leen, Galbraith & Gant, Due Process and Deeds of Trust – Strange Bedfellows, 48 Wash.L.Rev. 763 (1973).

B. PROCEDURE FOR RESTRAINING TRUSTEE’S SALE

Anyone having an interest in the real property security, including the borrower, may restrain the non-judicial foreclosure of a deed of trust on any proper ground#. Proper grounds for enjoining a trustee’s sale include: (1) there is no default on the obligation, Salot v. Wershow, 157 CA.2d 352, 320 P.2d 926 (1958), (2) the deed of trust has been reinstated, (3) the notice of default, notice of sale, or proposed conduct of the sale is defective, Crummer v. Whitehead, 230 CA.2d 264, 40 CR 826 (1964), (4) the lender has waived the right to foreclose, (5) a workout/settlement has been agreed to, (6) equitable reasons that would entitle a debtor to close a sale of the property or complete a refinance, (7) to enforce government relief programs, and trustee misconduct. Finally, there may be defenses to the debt (i.e. usury, truth in lending violations, misrepresentation of the seller, breach of warranty by the seller, etc.) or set-offs, which substantially reduce the debt.

1. Time for Filing Action
The action can presumably be filed any time before the scheduled trustee’s sale, but the sooner the better. Under Washington law, if one seeks to restrain the sale, five days notice must be given to the trustee and the beneficiary. See the Revised Code of Washington (hereinafter “RCW”) 61.24.130(2); Note, supra, footnote 4. A trustor in California has at least one hundred and ten days (after the recording of the notice of default) to seek to enjoin the sale. In California, fifteen days are required for noticing a motion for a preliminary injunction. See CCP section 1005.

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# See, e.g., Reiserer v. Foothill Thrift and Loan, 208 Cal.App.3d 1082, 256 Cal.Rptr. 508 (1989) (unpublished opinion); Metropolitan Life Insurance Company v. La Mansion Hotels & Resorts, Ltd., 762 S.W.2d 646 (Tex.App.1988); Bekins Bar V Ranch v. Huth, 664 P.2d 455 (Utah 1983); National Life Insurance Co. v. Cady, 227 Ga. 475, 181 S.E.2d 382 (1971); Peoples National Bank v. Ostrander, 6 Wn.App. 28, 491 P.2d 1058 (1971). See, generally, note, Court Actions Contesting The Nonjudicial Foreclosure of Deeds of Trust in Washington, 59 Wash.L.Rev. 323 (1984); Restraining Orders in Non-Judicial Deed of Trust Foreclosures, Property Law Reporter, June 1987 (Vol. 3 Nos. 4 & 5).

2. Effect of Lis Pendens
Filing a lis pendens at the time the lawsuit is commenced constitutes constructive notice to purchasers and others dealing with the property of the claims and defenses asserted by the plaintiff#. Even if the plaintiff does not seek an order restraining the trustee’s sale or a restraining order is denied, purchasers at the sale acquire the property subject to the pending litigation#.

3. Notice of Application for Restraining Order
In Washington, a person seeking to restrain a trustee’s sale must give five days notice to the trustee setting forth when, where and before whom the application for the restraining order or injunction will be made. See RCW 61.24.130(2). See also Civil Rules 6 and 81 of the Civil Rules for Superior Court regarding computation of time.

________________________________

# Putnam Sand & Gravel Co. v. Albers, 14 CA3d 722, 92 CR 636 (1971).

# Avco Financial Services Loan, Inc. v. Hale, 36 Ohio App.3d 65, 520 N.E.2d 1378 (1987); Land Associates, Inc. v. Becker, 294 Or. 308, 656 P.2d 927 (1982), appeal after remand 74 Or.App. 444, 703 P.2d 1004 (1985).

4. Payment Obligation
When a preliminary injunction is sought, many states require the petitioner to post an injunction bond to protect the lender from injury because of the injunction#. Some courts require the party seeking the injunctive relief to pay to the court the amount due on the obligation#. If the amount due on the obligation is in dispute, most courts will require the borrower to tender at least what he/she acknowledges is due#.
Under Washington law, if the default is in making the monthly payment of principal, interest and reserves, the court requires such sum to be paid into the court every thirty days. See RCW 61.24.130(1)(a). A practice tip: even if local law does not require this, it would advantageous to offer to make ongoing payments. Then the creditor loses nothing during the pendency of the suit. In the case of default on a balloon payment, the statute requires that payment of the amount of the monthly interest at the new default rate shall be made to the court

clerk every thirty days. See RCW 61.24.130 (1)(b). If the property secured by the deed of trust is an owner occupied single family dwelling, then the court must require the party seeking to restrain the trustee’s sale to make the monthly payment of principal interest and reserves to the clerk of the court every 30 days. See RCW 61.24.130(1).
Although the amount that the party seeking to restrain the trustee’s sale must pay as a condition of continuing the restraining order would ordinarily be the regular monthly payment on the obligation, RCW 61.24.130(1)(a), when there is a balloon payment past due, RCW 61.24.130(1)(b) provides:

In the case of default in making payments of an obligation then fully payment by its terms, such sum shall be the amount of interest accruing monthly on said obligation at the non-default rate, paid to the clerk of the court every thirty days.

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# See Hummell v. Republic Federal Savings & Loan, 133 Cal.App.3d 49, 183 Cal.Rptr. 708 (4th Dist.1982); Broad & Locust Associates v. Locust-Broad Realty Co., 318 Pa.Super. 38, 464 A.2d 506 (1983); Strangis v. Metropolitan Bank, 385 N.W.2d 47 (Minn.App.1986); Franklin Savings Association v. Reese, 756 S.W.2d 14 (Tex.App.1988); Koegal v. Prudential Mutual Savings, Inc., 51 Wn.App. 108 (1988).

# See Ginther-Davis Center, Limited v. Houston National Bank, 600 S.W.2d 856 (Tex.Civ.App. 1980), error refused n.r.e.; see also Tiffany, Real Property, § 1549 (3d Ed. 1939) for a list of cases; Thompson, Real Property § 5179 (1957). Cf. Grella v. Berry, 647 S.W.2d 15 (Tex.App.1982).
# See Glines v. Theo R. Appel Realty Co., 201 Mo.App.596, 213 S.W. 498 (1919).

This is consistent with the intent to preserve the status quo while the lawsuit is pending and provide security only for prospective harm.

Failure to seek a restraint may constitute a waiver of all rights to challenge a sale for defects whenever the party who received notice of the right to enjoin the trustees sale, had actual or constructive knowledge of a defense to foreclosure prior to the sale, and failed to bring an action to enjoin the sale. The doctrine of waiver would thus preclude an action by a party to set aside a completed trustee’s sale#. Finally, RCW 61.24.130 allows the court to consider the grantor’s equity in determining the amount of security. This would significantly help a borrower avoid a costly bond. An appraisal showing equity should persuade a court that the lender is protected while the underlying dispute is resolved in court.

When a party knew or should have known that they might have a cause of action to set aside the sale but unreasonably delayed commencing the action, causing damage to the defendant, the doctrine of laches may bar the action#.

_________________________________

# Koegel v. Prudential Mutual Savings, Inc., 51 Wn. App. 108, 114 (1988); Steward v. Good, 51 Wn. App. 509, 515 (1988).

C. DEFENSES BASED ON TRUSTEE MISCONDUCT

Most defenses that are available in judicial foreclosures are also available in nonjudicial foreclosures of deeds of trust. Defenses may include violation of Truth-in-Lending, usury statutes, other consumer protection legislation, or special requirements when the government is the lender, insurer, or guarantor, infra. Other defenses are unique to nonjudicial foreclosure of deeds of trust because they relate to the particular obligations imposed upon trustees who conduct the sale of the real property.

1. Breach of Fiduciary Duties
A trustee selling property at a nonjudicial foreclosure sale has strict obligations imposed by law. In most states, “a trustee is treated as a fiduciary for both the borrower and the lender.”#

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# Carlson v. Gibraltar Savings, 50 Wn. App. 424, 429 (1988).
# Baxter & Dunaway, The Law of Distressed Real Estate (Clark Boardman Company, Ltd., November 1990). See Spires v. Edgar, 513 S.W.2d 372 (Mo.1974).

In McPherson v. Purdue, 21 Wn. App. 450, 452-3, 585 P.2d 830 (1978), the court approved the following statement describing the duties of a trustee from California law:
Among those duties is that of bringing “the property to the hammer under every possible advantage to his cestui que trusts,” using all reasonable diligence to obtain the best price.

In Cox v. Helenius, 103 Wn.2d 383, 388, 693 P.2d 683 (1985), the Washington Supreme Court adopted the following view:
Because the deed of trust foreclosure process is conducted without review or confrontation by a court, the fiduciary duty imposed upon the trustee is “exceedingly high”.

The court went on to illuminate four duties of the trustee:

(1) The trustee is bound by his office to use diligence in presenting the sale under every possible advantage to the debtor as well as the creditor;

(2) The trustee must take reasonable and appropriate steps to avoid sacrifice of the debtor’s property and his interest;

(3) Once a course of conduct is undertaken that is reasonably calculated to instill a sense of reliance thereon by the grantor, that course of conduct can not be abandoned without notice to the grantor; and

(4) When an actual conflict of interest arises between the roles of attorney for the beneficiary and trustee, the attorney should withdraw from one position, thus preventing a breach of fiduciary duty.

In Blodgett v. Martsch, 590 P.2d 298 (UT 1978), it was stated that “the duty of the trustee under a trust deed is greater than the mere obligation to sell the pledged property, . . . it is a duty to treat the trustor fairly and in accordance with a high punctilio of honor.” The Supreme Court in Blodgett went even further and found that the breach of this confidential duty may be regarded as constructive fraud#.

The general rule is summarized in Nelson & Whitman, Real Estate Finance Law, (West Publishing Co., 3d Ed. 1994), §7.21:
. . . a trustee in a deed of trust is a fiduciary for both the mortgagor and mortgagee and must act impartially between them. As one leading decision has stated, “the trustee for sale is bound by his office to bring the estate to a sale under every possible advantage to the debtor as well as to the creditor, and he is bound to use not only good faith but also every requisite degree of diligence in conducting the sale and to attend equally to the interest of debtor and creditor alike, apprising both of the intention of selling, that each may take the means to procure an advantageous sale.”

Mills v. Mutual Building & Loan Association, 216 N.C. 664, 669, 6 S.E.2d 549, 554 (1940).
The fiduciary duty of a trustee to obtain the best possible price for trust property that it sells has been discussed in nonjudicial and other contexts#.

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# See also McHugh v. Church, 583 P.2d 210, 214 (Alaska 1978).

However, this “fiduciary” characterization of a trustee is not accepted in all jurisdictions. The California Supreme Court has stated,
“The similarities between a trustee of an express trust and a trustee under a deed of trust end with the name. ‘Just as a panda is not a true bear, a trustee of a deed of trust is not a true trustee.’ *** [T]he trustee under a deed of trust does not have a true trustee’s interest in, and control over, the trust property. Nor is it bound by the fiduciary duties that characterize a true trustee.”

Monterey S.P. Partnership v. W.L. Bangham, Inc. 49 Cal.3d 454, 462, 261 Cal.Rptr. 587,592 (1989).

In most jurisdictions, a trustee cannot, without the express consent of the trustor, purchase at the sale that he conducts#. A court may impose additional affirmative duties (beyond the statutory requirements) upon the trustee in certain circumstances.

This could include a requirement that a trustee’s sale be continued, if necessary, to prevent a total loss of the debtor’s equity. West v. Axtell, 322 Mo. 401, 17 S.W.2d 328 (1929). RCW 61.24.040(6) authorizes a trustee to continue a trustee’s sale for a period or periods totaling 120 days for “any cause he deems advantageous.”

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# See Cox v. Helenius, supra, at p. 389; Allard v. Pacific National Bank, 99 Wn. 2d 394, 405, 663 P.2d 104 (1983), modified by 99 Wn.2d 394, 773 P.2d 145 (1989). superseded by RCW 11.100.140 as stated in Conran v. Seafirst Bank, 1998 Wn.App. Lexis 156.. See also National Life Insurance Company v. Silverman, 454 F.2d 899, 915 (D.C. Cir. 1971), in which the court stated that the same good faith is required of trustees under a deed of trust of real estate as is required of other fiduciaries.

# See Smith v. Credico Industrial Loan Company, 234 Va. 514, 362 S.E.2d 735 (1987); Whitlow v. Mountain Trust Bank, 215 Va. 149, 207 S.E.2d 837 (1974).

However, the Washington Court of Appeals has ruled that the trustee need not exercise “due diligence” in notifying interested parties of an impending sale. Morrell v. Arctic Trading Co., 21 Wn. App. 302, 584 P.2d 983 (1978). Further, the general rule is that a trustee is not obligated to disclose liens or other interests which the purchaser could or should have discovered through his or her own investigation. Ivrey v. Karr, 182 Md. 463, 34 A.2d 847, 852 (1943). The Washington courts have held that even when a trustee is aware of defects in title, the trustee only undertakes an affirmative duty of full and accurate disclosure if s/he has made any representations or answered any questions concerning the title. McPherson v. Purdue, 21 Wn. App. 450, 453, 585 P.2d 830 (1978). However, despite this general rule, there is authority behind the proposition that a trustee has a fiduciary duty to restrain the sale due to defects known to the trustee. In Cox v. Helenius, 103 Wn.2d 383,*,693 P.2d 683 (1985), in which the trustee knew that the right to foreclose was disputed and that the attorney for the trustor had failed to restrain the sale, the court held that the trustee should have either informed the attorney for the trustor that she had failed to properly restrain the sale or delayed foreclosure. As a result of the trustee’s failure to do so, the sale was held void.

Trustees are not permitted to “chill the bidding” by making statements which would discourage bidding, for example, a statement that it is unlikely that the sale will be held because the debtor intends to reinstate#. If a trustee does engage in “chilled bidding”, the sale is subject to being set aside#.

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# See, Nelson & Whitman, supra, Section 7.21; Dingus, Mortgages-Redemption After Foreclosure Sale in

Missouri, 25 Mo.L.REV. 261, 284 (1960).

# Biddle v. National Old Line Ins. Co., 513 S.W.2d 135 (Tex.Civ.App.1974), error refused n.r.e.; Sullivan v. Federal Farm Mortgage Corp., 62 Ga.App.402, 8 S.E.2d 126 (1940).

# Queen City Savings v. Manhalt, 111 Wn.2d 503 (1988).

2. Strict Construction of the Deed of Trust Statute
The nonjudicial foreclosure process is intended to be inexpensive and efficient while providing an adequate opportunity for preventing wrongful foreclosures and promoting the stability of land titles#. However, statutes allowing foreclosure under a power of sale contained within the trust deed or mortgage are usually strictly construed. Id. at 509.
Recent decisions have moved away from the strict construction ruling, holding that some technical violations of statutes governing nonjudicial foreclosures will not serve as grounds for setting aside sale when the error was non-prejudicial and correctable. See Koegal, supra at 113. An example of a non-prejudicial and correctable error is noncompliance with the requirement that the trustee record the notice of sale 90-days prior to the actual sale when actual notice of the sale was given to the debtors 90-days prior to the sale and the lack of recording caused no harm. Steward, supra at 515. Further, inconsequential defects often involve minor discrepancies regarding the notice of sale. In Bailey v. Pioneer Federal Savings and Loan Association, 210 Va. 558, 172 S.E.2d 730 (1970), where the first of four published notices omitted the place of the sale, the court held that since there was “substantial compliance” with the requirements specified by the deed of trust and since the parties were not affected in a “material way,” the sale was valid#. In another case, where the notice of sale was sent by regular rather than by statutorily required certified or registered mail and the mortgagor had actual notice of the sale for more than the statutory period prior to the sale, the sale was deemed valid#. Clearly a grantor must show some prejudice.

D. POST-SALE REMEDIES

1. Statutory Presumptions
The Washington Deed of Trust Act contains statutory presumptions in connection with a trustee’s sale that are similar to those found in most other states. # RCW 61.24.040(7) provides, in part:

. . . the [trustee’s] deed shall recite the facts showing that the sale was conducted in compliance with all of the requirements of this chapter and of the deed of trust, which recital shall be prima facie evidence of such compliance and conclusive evidence thereof in favor of bona fide purchasers and encumbrancers for value.

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# See also Tarleton v. Griffin Federal Savings Bank, 202 Ga.App. 454, 415 S.E.2d 4 (1992); Concepts, Inc. v. First Security Realty Services, Inc., 743 P.2d 1158 (Utah 1987).

# Macon-Atlanta State Bank v. Gall, 666 S.W.2d 934 (Mo.App.1984). For a complete list of defects considered “insubstantial”, see Graham v. Oliver, 659 S.W.2d 601, 604 (Mo.App.1983).
# See also Cal. Civ. Code § 2924 (West 1981); Utah Code Ann.1953, 57-1-28; West’s Colo.Rev.Stat. Ann. §38-39-115; Or.Rev.Stat. 86.780; So.Dak.Compiled Laws 21-48-23.

Such provisions are designed to protect bona fide purchasers and to assure that the title passed through a trustee’s sale will be readily insurable. However, although the required recitals are described as “conclusive” in favor of bona fide purchasers and encumbrancers for value, there is extensive case law setting forth the basis for rebutting these presumptions. They also don’t apply to a dispute between the grantor and grantee. See, generally, Nelson & Whitman, Real Estate Finance Law, (2d ed. 1985) § 7.21 ff. Some states employ other means of stabilizing titles, such as title insurance. Yet another means of stabilizing titles is to include a provision in the deed of trust that in the event of a trustee’s sale, the recital will be conclusive proof of the facts. See, Johnson v. Johnson, 25 Wn. 2d 797 (1946); Glidden v. Municipal Authority, 111 Wn. 2d 341 (1988), modified By Glidden v. Municipal Authority, 764 P.2d 647 (1988).

2. The Bona Fide Purchaser
The law is well settled that a bona fide purchaser, in order to achieve that status, must have purchased the property “for value.” See RCW 61.24.040(7).

The general rule is set forth in Phillips v. Latham, 523 S.W.2d 19, 24 (Tex. 1975):

[The purchaser] cannot claim to be a good-faith purchaser for value because the jury found . . . that the sale price of $691.43 was grossly inadequate. These findings are not attacked for lack of evidence. Although good faith does not necessarily require payment of the full value of the property, a purchaser who pays a grossly inadequate price cannot be considered a good-faith purchaser for value.

Further, if a lis pendens has been recorded, it “will cause the purchaser to take subject to the plaintiff’s claims.” Bernhardt, California Mortgage & Deed of Trust Practice (2d Edition 1990).

A purchaser will not then constitute a bona fide purchaser able to utilize the presumptions of regularity in recitals of the trustee’s deed. See CC § 2924. The beneficiary of a deed of trust is not a bona fide purchaser. See Johnson, supra.

E. SETTING ASIDE THE TRUSTEE’S SALE

Setting aside a trustee’s sale is largely a matter for the trial court’s discretion. Crummer v. Whitehead, 230 Cal. App. 2d 264, 40 Cal. Rptr. 826 (1964); Brown v. Busch, 152 Ca. App. 2d 200, 313 P.2d 19 (1957). After a trustee’s sale has taken place, a trustor or junior lienor may bring an action in equity to set aside the sale. See Crummer v. Whitehead, 230 Cal. App. 2d 264, 40 Cal. Rptr. 826 (1964); see also Note, “Court Actions Contesting The Nonjudicial Foreclosure of Deeds of Trust In Washington,” 59 Wash.L.Rev. 323 (1984)#.

An action may be brought to set aside a trustee’s sale under circumstances where the trustee’s sale is void. Cox v. Helenius, 103 Wn.2d 383, 693 P.2d 683 (1985). In those circumstances where the defect in the trustee’s sale procedure does not render the trustee’s sale void, the court will probably apply equitable principles in deciding what relief, if any, is available to the parties. A general discussion of equitable principles in contexts other than trustee’s sale can be found in Eastlake Community Council v. Roanoake Associates, 82 Wn.2d 475, 513 P.2d 36 (1973) and Arnold v. Melani, 75 Wn.2d 143, 437 P.2d 908 (1968). Although it is preferable to raise any defenses to the obligations secured by the deed of trust or other defects in the nonjudicial foreclosure process prior to the trustee’s sale, a trustee’s sale can presumably be set aside if there was a good reason for not restraining it. Possible reasons could include those described below.

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# Attempting to Set Aside Deed of Trust Foreclosure Because of Trustee’s Fiduciary Breach, 53 Missouri L. Rev. 151 (1988).

1. Breach of the Trustee’s Duty

a. Inadequate Sale Price

The general rule on using inadequate sale price to set aside a deed of trust sale is stated in Nelson & Whitman, supra, § 7.21:

All jurisdictions adhere to the recognized rule that mere inadequacy of the foreclosure sale price will not invalidate a sale, absent fraud, unfairness, or other irregularity. Stating the rule in a slightly different manner, courts sometimes say that inadequacy of the sale price is an insufficient ground unless it is so gross as to shock the conscience of the court, warranting an inference of fraud or imposition#.

In Cox v. Helenius, supra, at p. 388, the court indicated that the inadequate sale price coupled with the trustee’s actions, would have resulted in a void sale, even if not restrained.

Generally, unless the sale price is grossly inadequate, other irregularities or unfairness must exist. However, considerable authority exists to support setting aside a sale when, coupled with an inadequate sale price, there is any other reason warranting equitable relief. Nelson & Whitman, Real Estate Finance Law, supra.

b. Hostility or Indifference to Rights of Debtor.

In Dingus, supra, at 289, it is stated:

In an action to set aside a foreclosure sale under a deed of trust, evidence showing that the trustee was hostile and wholly indifferent to any right of the mortgagor warrants setting aside the sale. Lunsford v. Davis, 254 S.W. 878 (Mo. 1923).

CF. Cox v. Helenius, supra.

c. Other Trustee Misconduct

Other trustee misconduct that would give rise to grounds for setting aside a trustees sale could include “chilled bidding” where the trustee acts in a manner that discourages other parties from bidding on the property#. Actions by the trustee which lull the debtor into inaction may also give rise to grounds for avoiding the sale#. Particular note should also be made of the discussion in Cox v. Helenius, supra, at p.390 in which trustees who serve a dual role as trustee and attorney for the beneficiary are directed to transfer one role to another person where an actual conflict of interest arises.

2. Absence of Other Foreclosure Requisites

RCW 61.24.030 sets forth the requisites to non-judicial foreclosure. Failure to meet these requisites may render the trustee’s sale void. In Cox v. Helenius, 103 Wn.2d 383, 693 P.2d 683 (1985), the court concluded that a trustee’s sale was void under circumstances where the borrower had filed an action contesting the obligation and that action was pending at the time of the trustee’s sale. The action was filed after service of the notice of default but before service of the notice of foreclosure and trustee’s sale.

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# Nelson & Whitman, supra, Section 7.21. Dingus, supra, at p. 274; see also Biddle v. National Old Line Insurance Co., 513 S.W.2d 135 (Tex.Civ.App. 1974).

# Dingus, supra, at pp. 272-73; Cox v. Helenius, supra, at p. 389.

The decision in Cox was based on language in the Deed of Trust Act that made it a requisite to foreclosure that “no action is pending on an obligation secured by the deed of trust.” That part of the Cox decision was legislative overruled by Chapter 193, Law of 1985, Reg. Sess., which amended RCW 61.24.030(4) to read as follows:

That no action commenced by the beneficiary of the deed of trust is now pending to seek satisfaction of an obligation secured by the deed of trust in any court by reason of the grantor’s default on the obligation secured;

As a result of the amendment, pendency of an action on the obligation brought by the grantor does not render a subsequent trustee’s sale void. Only pending actions commenced by the beneficiary to seek satisfaction of the obligation secured by the deed of trust operate as a bar to nonjudicial foreclosure. The trustee must be properly appointed and be appointed before the trustee has authority to act. When an eager trustee “jumps the gun” the actions are equally void.

F. ADDITIONAL STATUTORY REMEDIES

1. Confirmation of Sale Price.

Many states (but not Washington) require confirmation that the nonjudicial sale resulted in a fair value to the debtor. Below is listed the states that have adopted fair market value statutes#. Fair market value statutes are usually used to limit deficiency judgments to the difference between the fair market value and the debt. Failure to confirm the sale within the statutory period is usually a bar to a deficiency. For example, in Georgia the court must be petitioned for a confirmation of the sale if a deficiency judgment is sought.

2. Redemption in Nonjudicial Foreclosures.

Approximately one-half of the states allow for redemption after foreclosure, although not Washington. Some states allow redemption after a nonjudicial sale. See Minnesota Statutes Annotated § 580 et seq. Generally, the grantor can remain in possession during the redemption period, rent the property (retaining the rents) and/or sell the property (or sell the redemption rights).

G. RAISING DEFENSES IN THE UNLAWFUL DETAINER (EVICTION) ACTION

________________________________

# Arizona: Ariz. Rev. Stat. Ann. §33-814(A) (1989).
California: Cal. Civ. Code §580a (1989); Id. §726 (1989); Kirkpatrick v. Stelling, 36 Cal. App.2d 658, 98
P.2d 566, appeal dismissed, 311 U.S. 607 (1940); Risenfeld, California Legislation Curbing Deficiency
Judgments, 48 Calif. L. rev. 705 (1960). See infra, California jurisdictional summary in Part 1.
Georgia: Ga. Code Ann. §§44-14-161, -162 (1989).
Idaho: Idaho Code §§6-108, 45-1512 (1988).
Michigan: Mich. Comp. Laws Ann. §§600.3170, .3280 (1989).
Nebraska: Neb. Rev. Stat. §76-1013 (1989).
Nevada: Nev. Rev. Stat. §40.457 (1988).
New Jersey: N.J. Stat. Ann. §2A:50-3 (1989).
New York: N.Y. Real Prop. Acts Law §1371 (McKinney 1979 and Supp. 1990).
North Carolina: N.C. Gen. Stat. §45-21.36 (1988).
North Dakota: N.D. Cent. Code §32-19-06 (Supp. 1989).
Oklahoma: Okla. Stat. tit. 12, §686 (1990).
Pennsylvania: Pa. Stat. Ann. tit. 12 §§2621.1, .6 (Purdon 1967).
South Dakota: S.D. Comp. Laws Ann. §§21-47-16, -48-14 (1989).
Utah: Utah Code Ann. §57-1-32 (1989).
Washington: Wash. Rev. Code Ann. §61.12.060 (1989).
Wisconsin: Wis. Stat. §846.165 (1988).

In Washington, RCW 61.24.060 specifies that the purchaser at a trustee’s sale is entitled to possession of the property on the 20th day following the sale. If the grantor or person claiming through the grantor refuses to vacate the property, the purchaser is entitled to bring an action to recover possession of the property pursuant to the unlawful detainer statute, RCW 59.12. Ordinarily, parties in possession will not be allowed to raise some defenses in the unlawful detainer action that could have been raised prior to the trustee’s sale#. In most states defenses in an eviction action are severely limited. Despite these early cases restricting defenses in unlawful detainer, e.g. Peoples National Bank v. Ostander, 6 Wn. App. 28 (1971), a more recent case, Cox v. Helenius, 103 Wash. 2d 208 (1985), allowed defenses to be raised that the sale was void because of defects in the foreclosure process itself. In fact, Cox v. Helenius was initially a unlawful detainer action in the King County Superior Court. In Savings Bank of Puget Sound v. Mink, 49 Wn. App. 204 (1987), Division One of the Court of Appeals, held that a number of defenses raised by the appellant (Truth-in-Lending violations, infliction of emotional distress, defamation, slander, etc.) were not properly assertable in an unlawful detainer action but ruled that:

However, in Cox v. Helenius, supra, the Supreme Court recognized that there may be circumstances surrounding the foreclosure process that will void the sale and thus destroy any right to possession in the purchaser at the sale. In Cox, the Court recognized two bases for post sale relief: defects in the foreclosure process itself, i.e., failure to observe the statutory prescriptions and the existence of an actual conflict of interest on the part of the trustee…

_________________________________

# People’s National Bank v. Ostrander, 6 Wn. App. 28, 491 P.2d 1058 (1970). See, however, Crummer v. Whitehead, 230 Cal. App. 2d 264 (1964) contra declined to follow by Eardley v. Greenberg, 160 Az.518, 774 P.2d 822 (Az.App. Div. 1 1989); MCA, Inc., v. Universal Diversified Enterprises Corp., 27 Cal. App. 3d 170 (1972). contra declined to follow by Eardley v. Greenberg, 160 Az.518, 774 P.2d 822 (Az.App. Div. 1 1989) But in a bankruptcy proceeding, defenses may be raised after the sale if the debtor is in possession.

B. The Deed of Trust Act must be construed strictly against lenders and in favor of borrowers.

Washington law is similarly clear that the Deed of Trust Act, being non-judicial in nature and without the scrutiny by courts until the unlawful detainer stage, is strictly construed against lenders and in favor of borrowers. Queen City Savings and Loan v. Mannhalt, 111

In order to avoid the jurisdictional and other problems that arise when trying to litigate claims in the unlawful detainer action, it is recommended that a separate action be filed to set aside the trustee’s sale and that the two actions be consolidated.

H. DAMAGES FOR WRONGFUL FORECLOSURE

There is a damage claim for the tort of wrongful foreclosure. The claim may also exist as a breach of contract claim. See, Theis v. Federal Finance Co., 4 Wn. App. 146 (1971); Cox v. Helenius, supra.

III. DEFENDING JUDICIAL FORECLOSURES

A. INTRODUCTION

The same range of defenses is generally available to the borrower in both nonjudicial and judicial foreclosures. Defenses may include fraud or misrepresentation, violations of Truth-in-Lending, violations of usury statutes, violations of other consumer protection acts, or failure to comply with applicable regulations when the government is the lender, insurer, or guarantor. Other defenses, however, are unique to judicial foreclosures and must be raised affirmatively. Most rights are set forth in statutes and they must be asserted in compliance with the particular requirements of the law. The judicial foreclosure statutes are set forth below#.

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# Alabama: Ala. Code §§6-9-140 to 150; 164; 35-10-2 to 35-10-12; (1977).
Alaska: Alaska Stat. §§90.45.170 to .220 (1991).
Arizona: Ariz. Rev. Stat. Ann. §§33-721 to 33-728 (1991).
Arkansas: Ark. Code Ann. §§18-49-103 to 106 (1987).
California: Cal. Civ. proc. §§725a to 730.5 (West 1991).
Colorado: Colo. Rev. Stat. Ann. §§38-38-101 to 38-38-111 (West 1991).
Connecticut: Conn. Gen. Stat. Ann. §§49-24 to 49-31 (West 1991).
Delaware: Del. Code Ann. tit. 10 §§5061 to 5067 (1991).
D.C.: D.C. Code Ann. §45-716 (1981).
Florida: Fla. Stat. Ann. §702.01 (West 1992).
Georgia: Ga. Code Ann. §§9-13-140; 44-14-48 to 44-14-49; 44-14-184; 187; 189 (1991).
Hawaii: Haw. Rev. Stat. §§667-1 to 667-7 (1991)
Idaho: Idaho Code §§6-101 to 6-103; 45-1502 to 45-1503 (1991).
Illinois: Ill. Ann. Stat. Ch. 10, para. 15-1404; 15-1501 to 15-1512 (Smith-Hurd 1987).
Indiana: Ind. Code Ann. §32-8-11-3 (Burns 1980)
Iowa: Iowa Code Ann. §654.18 (West 1992).
Kansas: Kan. Stat. Ann. §60-2410 (1990).
Kentucky: Ky. Rev. Stat. Ann. §§381.190; 426.525 (Michie 1991).
Louisiana: La. Code Civ. Proc. Ann. art. 2631 (West 1992).
Maine: Me. Rev. Stat. Ann. tit. 14, §§6321 to 6325 (West 1991).
Maryland: Md. Real Prop. Code Ann. §7-202 (1988).
Massachusetts: Mass. Gen. Laws Ann. ch. 244, §1 (West 1992).
Michigan: Mich. Comp. Laws Ann. §§600.3101 to 600.3130 (West 1992).
Minnesota: Minn. Stat. Ann. §§581.01 to 581.12 (1992).
Mississippi: Miss. Code Ann. §§89-1-53; 89-1-55 (1972).
Missouri: Mo. Ann. Stat. §§443.190 (Vernon 1992).
Montana: Mont. Code Ann. §§71-1-222; 232; 311; 25-13-802 (1991).
Nebraska: Neb. Rev. Stat. §§25-2137 to 25-2147 (1991).
Nevada: Nev. Rev. Ann. Stat. §§40.430; 40.435 (Michie 1991).
New Hampshire: N.H. Rev. Stat. Ann. §§479:19 to 479:27 (1991).
New Jersey: N.J. Stat. Ann. §2A:50-2 (West 1991).
New Mexico: N.M. Stat. Ann. §§39-5-1 to 39-5-23; 48-7-7 (1991).

New York: N.Y. Real Prop. Acts Law §§1321; 1325 to 1355 (McKinney 1992).
North Carolina: N.C. Gen. Stat. §§45-21.16; 45-21.17; 45-38 (1991).
North Dakota: N.D. Cent. Code §32-19-01 to 32-19-40 (1992).
Ohio: Ohio Rev. Code Ann. §2323.07 (Anderson 1984).
Oklahoma: Okla. Stat. Ann. tit. 12, §686 (West 1992).
Oregon: Or. Rev. Stat. §§88.010 et seq. (1989).
Pennsylvania: Pa. Stat. Ann. tit. 21, §§274; 715; Pa. Rules Civ. Proc. Rules 1141 to 1150; 3180 to 3183;
3232; 3244; 3256; 3257.
Rhode Island: R.I. Gen. Laws §34-27-1 (1984).
South Carolina: S.C. Code Ann. §§15-7-10; 29-3-650 (Law Co-op 1990).
South Dakota: S.D. Codified Laws Ann. §§21-47-1 to 25; 21-48A-4 (1991).
Tennessee: Tenn. Code Ann. §21-1-803 (1991).
Texas: Tex. Prop. Code Ann. §§51-002; 51.004; 51.005 (West 1992).
Utah: Utah Code Ann. §§78-37-1 to 78-37-9 (1986).
Vermont: Vt. Stat. Ann. tit. 12, §4528 (1991).
Virgin Islands: V.I. Code Ann. tit. 28, §531 to 535 (1991).
Virginia: Va. Code Ann. §§55-59.4; 55-61 (Michie 1981).
Washington: Wash. Rev. Code Ann. §§61.12.040; 61.12.060 (West 1992).
West Virginia: W. Va. Code §§55-12-1 to 55-12-8 (1991).
Wisconsin: Wis. Stat. Ann. §§846.01 to 846.25 (West 1991 (Repealed).
Wyoming: Wyo. Stat. §§1-18-101 to 1-18-112 (199).

B. HOMESTEAD RIGHTS

If the plaintiff’s complaint seeks possession of the property at the sheriff’s sale and the homeowner wishes to remain on the premises during the redemption period, then the homeowner should plead the existence of homestead rights in the answer so as not to waive them. State, ex rel., O’Brien v. Superior Court, 173 Wash. 679, 24 P.2d 117 (1933); State, ex rel., White v. Douglas, 6 Wn.2d 356, 107 P.2d 593 (1940).

C. UPSET PRICE

Some states authorize the court to establish an upset price (or minimum bid amount) in a foreclosure sale. In Washington, RCW 61.12.060 authorizes the court where a deficiency is sought, in ordering a sheriff’s sale, to take judicial notice of economic conditions and, after a proper hearing, fix a minimum or upset price for which the mortgaged premises must be sold before the sale will be confirmed. If a depressed real estate market justifies seeking an upset price, then the mortgagor should request in the answer that one be set. See, McClure v. Delguzzi, 53 Wn. App. 404 (1989). Some states give this power to the courts with any sale without reference to any other valuation method. See e.g. Kan. Stat. §60-2415(b) (1988); Mich. Comp. Laws Ann. §600.3155 (1919). The court has great discretion in arriving at and setting an upset price if the statute fails to specify the method to be used in calculating the price. There is always the danger that in the absence of statutory standards, the power to set the upset price will be abused#.

D. DEFICIENCY JUDGMENTS

A deficiency judgment results when the amount for which the property is sold at the sheriff’s sale is less than the amount of the judgment entered in the foreclosure action. A deficiency judgment in connection with a foreclosure is enforceable like any other money judgment. If the mortgage or other instrument contains an express agreement for the payment of money, then the lender may seek a deficiency judgment. See RCW 61.12.070. In Thompson v. Smith, 58 Wn. App. 361 (1990), Division I, held the acceptance of a deed in lieu of foreclosure triggers the anti-deficiency provisions of the Deed of Trust Act, 61.24.100. The procedural requirements for obtaining a deficiency judgment vary, but must be strictly adhered to or the right will be lost. In general, an action must be brought within a statutorily set amount of time following the foreclosure sale. For example, California Civ. Proc. Code § 726 (Supp. 1984) (three months); N.Y. Real Prop. Acts. Law § 1371 (2) (McKinney 1979) (ninety days); and Pennsylvania Stat. Ann. tit. 12, section 2621.7 (1967) (six months). Many states also have time limits for the completion of the execution of a deficiency. Maryland Rules, Rule W75 (b)(3) (1984) (three years); and Ohio Rev. Code Ann. § 2329.08 (Anderson 1981) (two years on land with dwelling for two families or less or used as a farm dwelling). Some states have longer redemption periods when a deficiency is sought. e.g. Wisconsin (6-12 months); Washington (8-12 months).

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# See Michigan Trust Co. v. Dutmers, 265 Mich. 651, 252 N.W. 478 (1933).

E. REDEMPTION RIGHTS

Approximately one-half of the states have statutes that give a borrower the right to redeem the property after the foreclosure sale. This right has specific statutory time limits. The time period for redemption varies from thirty days to three years after the foreclosure sale. Strict compliance with the statutory requirements is mandatory.

Under Washington law, if the lender seeks a deficiency judgment or if the mortgage does not contain a clause that the property is not for agricultural purposes, then the redemption period is one year from the date of the sheriff’s sale. See RCW 6.23.020.

If the lender does not seek a deficiency judgment and the mortgage contains a clause that the property is not being used for agricultural purposes, than the redemption period is eight months. Id.

There is no statutory redemption period if there is a structure on the land and the court finds that the property has been abandoned for six months prior to the decree of foreclosure. See RCW 61.12.093. This section is not applicable to property that is used primarily for agricultural purposes. RCW 61.12.095.

The purchaser at the sheriff’s sale, or the purchaser’s assignee, must send notice to the judgment debtor every two months that the redemption period is expiring. Failure to give any of the notices in the manner and containing the information required by statute will operate to extend the redemption period. RCW 6.23.080.

Any party seeking to redeem must give the sheriff at least five days written notice of the intention to apply to the sheriff for that purpose. RCW 6.23.080(1). The amount necessary to redeem is the amount of the bid at the sheriff’s sale, interest thereon at the rate provided in the judgment to the time of redemption, any assessment or taxes which the purchaser has paid after circumstances, other sums that were paid on prior liens or obligations. RCW 6.23.020.

Redemption rights are freely alienable and a property owner can sell the homestead during the redemption period free of judgment liens. Great Northwest Federal Savings and Loan Association v. T.B. and R.F. Jones, Inc., 23 Wn. App. 55, 596 P.2d 1059 (1979). This is an important right and is often overlooked. For example, in VA loans the sale price is very low because the VA deducts its anticipated costs of holding and resale. Therefore, the property can be redeemed for that amount. There, lenders routinely advise debtors to move out at the beginning of the period, which they do not legally have to do.

The debtor can sometimes rent the property and the rents retained during the redemption period.

F. POSSESSION AFTER SALE

If the homeowner exercises his redemption rights and there is a purchaser in possession, then the homeowner can apply for a writ of assistance to secure possession of the property anytime before the expiration of the redemption period. If the homeowner has no right to claim a homestead or is not occupying the property as a homestead during redemption period, then the lender can apply for a writ of assistance at the time of the foreclosure decree to obtain possession of the property. A writ of assistance is similar to a writ of restitution and is executed by the sheriff. The purchaser at the sheriff’s sale normally has no right to possession until after receipt of a sheriff’s deed#.

G. POST FORECLOSURE RELIEF

A foreclosure can be vacated under rules allowing vacating judgments, e.g. F.R.Civ.P 60(b); See also Godsden & Farba, Under What Circumstances Can a Foreclosure Sale be Set Aside Under New York Law, New York State Bar Journal (May 1993).

IV. MISCELLANEOUS ISSUES

A. BANKRUPTCY

Bankruptcy has a significant impact on real estate foreclosures and is beyond the scope of this outline. Under section 362 (a) of the Bankruptcy Code, filing any of the three types of bankruptcy stays all foreclosure proceedings. See 11 U.S.C.A. § 362 (a)(4); Murphy, The Automatic Stay in Bankruptcy, 34 Clev.St.L.Rev. 597 (1986). A stay has been held to apply to a possessory interest after foreclosure to allow a challenge to the validity of the foreclosure in an adversary action in bankruptcy court. In re Campos, No. 93-04719 (W.D. WN-B.Ct, Order of July 9, 1993). The stay applies to both judicial and nonjudicial foreclosures and it also applies whether or not the foreclosure was begun before the bankruptcy. See 11 U.S.C.A. § 362 (a). The only notable exception to the automatic stay is for foreclosures brought by the Secretary of HUD on federally insured mortgages for real estate involving five or more units. See 11 U.S.C.A. § 362 (b)(8).

A trustee in a bankruptcy may also undo a foreclosure as a fraudulent transfer if a creditor gets a windfall. See II U.S.C. §547 and §548, within 90 days or within one year if an “insider” forecloses#.

A portion of the equity under state or federal law may be protected from creditors, although not from secured creditors.

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# Norlin v. Montgomery, 59 Wn.2d 268, 357 P.2d 621 (1961). The mortgagee’s right to possession of the property is not lost through default or abandonment. overruled on other grounds. Howard v. Edgren, 62 Wn.2d 884, 385 P.2d 41 (1963).

B. WORKOUTS (DEED IN LIEU)

A deed is sometimes given by a mortgagor in lieu of foreclosure and in satisfaction of a mortgage debt. Such a workout “is subject to close scrutiny in an effort to determine whether it was voluntarily entered into on the part of the mortgagor under conditions free of undue influence, oppression, unfairness or unconscientious advantage. Further the burden of proving the fairness rests with the mortgagee.” Robar v. Ellingson, 301 N.W.2d 653, 657-658 (N.D.1981) (insufficient threshold evidence of oppression or unfairness to trigger mortgagee’s burden of proof). Courts also tend to find the deed in lieu of foreclosure to be another mortgage transaction in the form of an absolute deed. Peugh v. Davis, 96 U.S. (6 Otto) 332, 24 L.Ed. 775 (1877). See also, Noelker v. Wehmeyer, 392 S.W.2d 409 (Mo.App.1965). When a mortgagee takes a deed in lieu there is the possibility that the conveyance will be avoided under bankruptcy laws. It should be noted that if other liens have been created against a property after the time of the original mortgage, the deed in lieu will not cut off those liens. See Note, 31 Mo.L.Rev. 312, 314 (1966). A deed in lieu should contain a comprehensive agreement regarding any deficiency claims, etc.

________________________

# See Durrett v. Washington National Ins., 621 F.2d 201 (5th Cir. 1980); cf. In re Madrid, 725 F.2d 1197 (9th Cir. 1984). Compare state fraudulent conveyances statutes, e.g, RCW 19.40.031.

C. LENDER LIABILITY

It is possible to use theories of lender liability to assist in successfully negotiating a workout, or an avoidance of foreclosure. This principally occurs in commercial foreclosures but there are some strategies that apply to the residential setting. This may involve persuading the lender that failing to reach a workout agreement may result in a claim against the lender, absolving the borrower from liability on the loan and/or granting an affirmative judgment against the lender. Some of the useful theories of lender liability are breach of agreement to lend, breach of loan agreement, failure to renew term note/wrongful termination, promissory estoppel, lender interference, and negligent loan management. Some of the common law defenses for a borrower are fraud, duress, usury and negligence. Further, because banks are so closely regulated, a borrower should also explore statutory violations. For a detailed treatment of workouts, see Dunaway, supra, (Vol. 1, Chapter 4B)#.

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# See also, Penthouse International v. Dominion Fed. S&L, 665 F. Supp. 301 (S.D. N.Y. 1987, rev. 855 F.2d 963 (2nd Cir. 1988); Joques v. First National, 515 A.2d 756 (Md. 1976); KMC v. Irving Trust, 757 F.2d 752 (6th Cir. 1985); Douglas-Hamilton, Creditor Libilities Resulting From Improper Interference with Financially Troubled Debtor, 31 Bus. Law J. 343 (1975).

D. MOBILE HOME FORECLOSURES

Generally, mobile homes are repossessed under Article 9-503 of the Uniform Commercial Code, and are beyond the scope of this outline. Many states limit deficiencies in purchase money security agreements and/or allow reinstatement. There are many abuses in the sales of mobile homes and the various consumer protection laws (and usury laws) provide a fertile source of potential defenses. See generally, Unfair and Deceptive Practices, National Consumer Law Center (2nd ed.), paragraph 5.4.8.

E. TAX CONSEQUENCES OF FORECLOSURE

Although beyond the scope of this outline, there are tax consequences when property is foreclosed, particularly in commercial transactions.

First, a foreclosure or deed in lieu of foreclosure is treated as a sale or exchange. Treas. Rep. 1-001-2; Rev. Ruling 73-36, 1973-1 CB 372. The amount realized (gained) is the greater of the sales proceeds or the debt satisfied. Parker v. Delaney, 186 F.2d 455 (1st Cir. 1950). When debt is cancelled (such as by an anti-deficiency statute), a gain may be generated. IRS Code §61(a).

Second, when home equity debt plus purchase debts exceeds the value of the property, a taxable gain can be generated. Finally, if the debtor is “insolvent” when the foreclosure occurs, §108(a)(1)(A) of the IRS Code excludes income (gain) to the extent the debtor is insolvent. This is complicated and a tax expert should be consulted to analyze any potential tax bite upon foreclosure. See generally, Dunaway, supra, for a detailed analysis of the tax consequences of foreclosure.

V. THE GOVERNMENT AS INSURER, GUARANTOR OR LENDER

A. INTRODUCTION

There are a variety of federal home ownership programs that may provide special protections for homeowners who are faced with the prospect of foreclosure. These protections generally apply regardless of whether the security divide used is a mortgage or deed of trust. The programs range from home loans insured by the Department of Housing and Urban Development (HUD) or guaranteed by the Veteran’s Administration (VA) to programs such as the Farmer’s Home Administration (FmHA) home ownership program where the government acts as a direct lender. The procedures which must be followed by loan servicers and applicable governmental agencies are described below. Also, Fannie Mae published in 1997 a Foreclosure Manual for loan services, which outlines various workouts and other loss mitigation procedures.

When the government controls the loan (or the lender) its actions are subject to the protection of the due process provision of the Fifth Amendment to the U.S. Constitution#. This calls into question the use of nonjudicial foreclosure as there is no opportunity to be heard and notice is usually deficient or, at best, minimal.

B. HUD WORKOUT OPTIONS

1. Applicability

Homeowners who have a HUD insured mortgage or deed of trust may be eligible for relief through the HUD foreclosure prevention program. HUD regulations also require that lenders meet certain servicing responsibilities before proceeding with foreclosure. Regulations for loss mitigation are found at 24 C.F.R. Sec. 203.605.

2. Procedure when the Homeowner is in Default

a. Delinquency Required for Foreclosure.

The servicer shall not turn the action over for foreclosure until at least three full monthly payments are unpaid after application of any partial payments. 24 C.F.R. Sec. 203. The servicer is required to send a HUD brochure on avoiding foreclosure to the borrower informing them of their right to seek various alternatives to foreclosure.

The servicer must allow reinstatement even after foreclosure has been started if the homeowner tenders all amounts to bring the account current, including costs and attorney fees. 24 C.F.R. Sec. 203.

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# See Vail v. Brown, 946 F.2d 589 (8th Cir. 1991); Johnson v. U.S. Dept. of Agriculture, 734 F.2d 774 (11th Cir. 1984); United States v. Murdoch, 627 F. Supp. 272 (N.D. Ind. 1985); Boley v. Brown, 10 F.3d 218 (4th Cir. 1993).

b. Forbearance Relief.

The homeowner may be eligible for special forbearance relief if it is found that the default was due to circumstances beyond the homeowners’ control. 24 C.F.R. Sec. 203. The homeowner and the lender are authorized to enter into a forbearance agreement providing for:
i. Increase, reduction, or suspension of regular payments for a specified period;

ii. Resumption of regular payments after expiration of the forbearance period;

iii. Arrangements for payment of the delinquent amount before the maturity date of the mortgage or at a subsequent date.

Suspension or reduction or payments shall not exceed 18 months under these special forbearance relief provisions.

c. Recasting of Mortgage.

HUD has the authority to approve a recasting agreement to extend the term of the mortgage and reduce the monthly payments. 24 C.F.R. Sec. 203.

HUD’s actions may be declared unlawful and set aside if the court finds it to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. See Federal National Mortgage Association v. Rathgens, 595 F. Supp. 552 (S.D. Ohio 1984); Butler v. Secretary of Housing and Urban Development, 595 F. Supp. 1041 (E.D. Pa. 1984). See, generally, Ferrell v. Pierce, 560 F. Supp. 1344 (N.D. Ill. 1983).

In Brown v. Kemp, 714 F. Supp. 445 (W.D. Wash. 1989) the court found HUD’s decision for an assignment program application to be informal agency action and thus reviewable under the “arbitrary” and “capricious” standard.
Failure to follow servicing requirements or comply with the HUD assignment regulations or handbook provisions may also constitute an equitable defense to foreclosure#.

C. THE VA HOME LOAN PROGRAM

1. Applicability

Homeowners who have a VA guaranteed mortgage or deed of trust may be eligible for relief through a VA recommended forbearance program or “refunding” of the loan. Regulations promulgated at 38 C.F.R. Sec. 36.4300, et seq., and VA servicing handbooks establish a policy of forbearance when a loan is in default. The VA is reluctant to enforce these regulations against lenders.

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# See, Bankers Life Company v. Denton, 120 Ill. App. 3d 676, 458 N.E.2d 203 (1983); Brown v. Lynn, 385 F. Supp. 986 (N.D. Ill. 1974); GNMA v. Screen, 379 N.Y.S.2d 327 (1976); Cross v. FNMA, 359 So.2d 464 (1978); FNMA v. Ricks, 372 N.Y.S.2d 485 (1975); contra, Robert v. Cameron Brown Co., 556 F.2d 356 (5th Cir. 1977); Hernandez v. Prudential Mortgage Corporation, 553 F.2d 241 (1st Cir. 1977).

2. Forbearance Relief

Lenders are officially encouraged to grant forbearance relief for mortgagors who default on their loans due to circumstances beyond their control. Lender’s Handbook, VA Pamphlet No. 26-7 (Revised) and VA Manual 26-3. These rights should be pursued with the lender immediately.

3. Refunding Loans

The Veteran’s Administration is authorized to “refund” loans when borrowers meet certain criteria. Refunding the loan is when the VA pays the lender in full and takes an assignment of the loan and security in cases where the loan is in default. The VA then owns the loan and the veteran makes payments to the VA directly. Although 38 C.F.R. Sec. 36.4318 authorize refunding, the regulations are much more vague than those promulgated in connection with the HUD assignment program.

4. Judicial Review

The VA decision to deny assignment of a VA loan is committed to agency discretion within the meaning of the federal Administrative Procedures Act, 5 U.S.C. Sec. 701(a)(2), and is not reviewable. Rank v. Nimmo, 677 F.2d 692 (9th Cir. 1982).

The courts have ruled that a borrower has no express or implied right of action in federal court to enforce duties, which VA or lenders might have under VA publications with respect to forbearance assistance. See, Rank v. Nimmo, supra; Gatter v. Nimmo, 672 P.2d 343 (3rd Cir. 1982); Simpson v. Clelend, 640 F.2d 1354 (D.C. Cir. 1981). But, see, Union National Bank v. Cobbs, 567 A.2d 719 (1989) (failure to follow VA Handbook an equitable defense).

Failure to follow VA publications, however, may be an equitable defense to foreclosure under state law. See, Simpson v. Cleland, supra.

5. Waiver of Debt/Release of Liability

Federal statutes, VA regulations and guidelines require the VA to waive a deficiency (or indemnity) debt, after a foreclosure, when equity and good conscience require it. 38 C.F.R. §1.965(a)(3). The VA is reluctant to follow its own regulations and must be pressed. The Court of Veterans Appeals (CVA) reverses over 50% of denial of waivers – an astonishing measure of the VA’s failure to follow clear federal law! See The Veterans Advocate, Vol. 5, No. 10, P. 93 (June 1994). The VA urged its regional offices to avoid CVA rulings until forced to retract this directive. See The Veterans Advocate, supra. The VA also ignores the six-year statute of limitations when demanding payment. 28 U.S.C. 2415.

Secondly, the VA can determine that the claimed debt is invalid, such as when the veteran is eligible for a retroactive release of liability. This occurs when the VA would have released the veterans when the property was sold to a qualifying purchaser who assumes the debt. 38 U.S.C. 3713(b); Travelstead v. Derwinski, 978 F.2d 1244 (Fed. Cir. 1992).

The VA has the burden to determine whether the veteran should be released.

6. Deficiency Judgments and VA Loans

It is the policy of VA to order an appraisal prior to a judicial or nonjudicial foreclosure sale and to instruct the lender to bid the amount of the appraisal at the sale. This “appraisal” is always below fair market value and includes the VA’s anticipated costs of holding and liquidating the property. 38 U.S.C. 3732(c); 38 C.F.R. §36.4320. Ordinarily, on pre-1989 laws, VA will not waive its right to seek a deficiency judgment in a judicial foreclosure and will reserve its right to seek a deficiency against a borrower, even in the case of a nonjudicial foreclosure of a deed of trust, notwithstanding the anti-deficiency language of RCW 61.24.100. On loans made after 1989 changes in the VA program, deficiencies are not sought.

Although, United States v. Shimer, 367 U.S. 374 (1960) appears to authorize this VA deficiency policy, the Washington non-judicial deed of trust foreclosure procedure which retains judicial foreclosure and preservation of the right to seek a deficiency judgment as an option, seems to make United States v. Shimer, distinguishable.

In United States v. Vallejo, 660 F. Supp. 535 (1987), the court held that the VA must follow Washington foreclosure law, including the anti-deficiency provisions of the Deed of Trust Act as the “federal common law”. This ruling was subsequently followed in a class action, Whitehead v. Derwinski, 904 F.2d 1362 (9th Cir. 1990), wherein the VA has been permanently enjoined from collecting $63 million in claims and ordered to repay millions in illegally collected deficiencies. This issue of the application of various state laws as to federally insured loans is not clear, as the Ninth Circuit overruled Whitehead in Carter v. Derwinski, 987 F.2d 611 (9th Cir. – en banc – 1993). Subsequent decisions still create doubt as to whether United States v. Shimer, supra, is still good law#.

_________________________

# See, United States v. Yazell, 382 U.S. 341 (1966); United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979); United States v. Ellis. 714 F.2d 953 (9th Cir. 1983); United States v. Haddon Haciendas Co., 541 F.2d 777 (9th Cir. 1976).

At the very least, if the lender is instructed by the VA to preserve the right to seek a deficiency against the borrower, then the lender should be required to foreclose the deed of trust judicially as a mortgage.

D. RURAL HOUSING SECTION 502 LOANS

1. Applicability

The Rural Housing Service (RHS) formerly, the Farmer’s Home Administration, is authorized to grant interest credit and provide moratorium relief for homeowners who fall behind on their loan payments due to circumstances beyond their control. Regulations for moratorium relief and interest credit are found at 7 C.F.R. Sec. 3550 et seq and must be complied with prior to foreclosure. United States v. Rodriguez, 453 F. Supp. 21 (E.D. Wn. 1978). See, 42 U.S.C. §1472. All servicing of RHS loans is handled at the Centralized Servicing Center in St. Louis, MO (phone: 1-800-793-8861).

2. Interest Credit

If a homeowner falls behind on his RHS loan because of circumstances beyond his or her control, then RHS has the authority to accept principal only and waive the interest payments. Although RHS is supposed to use this remedy before considering moratorium relief, it rarely does.

3. Moratorium Relief

If a homeowner falls behind in loan payments because of circumstances beyond his or her control, RHS may suspend payments or reduce payments for six months. Moratorium relief may be extended for additional six-month segments up to a total of three years#.

Once a homeowner has been granted moratorium relief, RHS cannot grant it again for five years. If a homeowner cannot resume payments in three years from when moratorium relief began, then it will begin foreclosure proceedings.

After moratorium relief has been extended, the homeowner can make additional partial payments to catch up the delinquent amount or, the loan can be reamortized. RHS will restructure the loan, 7 U.S.C. 2001.

4. Waiver of Redemption and Homestead Rights

Form mortgages used by RHS purported to waive the homeowner’s redemption rights and homestead rights in the event of foreclosure. It is questionable whether such a waiver is enforceable#.

____________________________

# See generally, Note, Agricultural Law: FmHA Farm Foreclosures, An Analysis of Deferral Relief, 23 Washburn L.J. 287 (Winter 1984); Newborne, Defenses to a FmHA Foreclosure, 15 NYU Review of Law and Social Change, 313 (1987).

5. Homestead Protection
See, 7 U.S.C. 2000.
6. Lease/Buy-Back
See, 7 U.S.C. 1985 (e).

VI. RESOURCES

The following treatises are excellent sources of basic information about all aspects of the foreclosure process. Dunaway, The Law of Distressed Property (4 volumes – Clark Boardman Co. 1994 and suppls.; Nelson & Whitman, Real Estate Finance Law (West 3rd Ed. 1994); Bernhardt, California Mortgages and Deed of Trust Practice, (3rd ed. 2000 University of Calif.), Repossessions and Foreclosures (4th ed. 2000) National Consumer Law Center. See also, Fuchs, Defending Non-Judicial Residential Foreclosures, Texas Bar J (November 1984).

____________________________

# See, United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979); United States v. Haddon Haciendas, 541 F.2d 777 (9th Cir. 1976); United States v. MacKenzie, 510 F.2d 39 (9th Cir. 1975); United States v. Stadium Apts., Inc., 425 F.2d 358 (9th Cir.), (1970), cert. den. 400 U.S. 926, 91 S. Ct. 187 (1970); Phillips v. Blaser, 13 Wn.2d 439, 125 P.2d 291 (1942).

How Homeowners In Judicial States Can Save Their Homes

10 Saturday May 2014

Posted by BNG in Federal Court, Judicial States, Litigation Strategies, Pro Se Litigation, State Court, Your Legal Rights

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This Post details what home owners in Judicial States Needs to Know in Order to Effectively Defend their Homes from Foreclosure.

JUDCIAL STATE LIST: CONNECTICUT (CHECK YOUR NOTE AND MORTGAGE REQUIRES 2 WITNESSES ASIDE FROM NOTARY/LAWYER) DELWARE-FLORIDA- ILLINOIS – INDIANA-KANSAS-KENTUCKY-LOUISIANA-MAINE-MARYLAND-MASSACHUSETTS-NEBRASKA-NEW JERSEY- NEW MEXICO-NEW YORK-NORTH DAKOTA-OHIO-PENNSYLVANIA-SOUTH CAROLINA-VERMONT

#1 HOMEOWNER SERVED WITH COMPLAINT BY MAIL , CERTIFIED AND THEN SHERIFF OR PROCESS SERVER. IF A RENTAL PROPERTY TENANT WILL RECEIVE NOTICE BEFORE HOMEOWNER.

COMPLAINT WILL STATE WHO PLAINTIFF IS WHAT THE DEBT IS AND WHY THE DEFAULT SHOULD BE ALLOW THE LENDER TO FORECLOSE AND TAKE THE PROPERTY. ALSO NOTICE WILL BE POSTED IN LOCAL PAPER (REQUIRED) USUALLY IT’S A TWO COUNT COMPLAINT CLAIMING THEY HAVE THE RIGHT TO FORECLOSE AND ARE THE OWNER OF THE MORTGAGE AND NOTE AND OR THE NOTE IS LOST AND OR HAS BEEN DESTROYED.

STEP ONE: MAKE SURE TO CHECK AND SEE IF THE COMPLAINT IS VERIFIED OR NOT. (MEANING THE COMPLAINT CONTAINS A STATEMENT UNDER PENALTY OF PERJURY THAT THE FACTS ARE TRUE AND CORRECT. IF IT DOES NOT THEN ITS NON VERIFIED. FEBRUARY OF 2013 FLORIDA SUPREME COURT RULES THAT ALL FORECLOSURE COMPLAINTS MUST BE VERIFIED. EASY DISMISSAL IF ITS NOT.. (VIDEO COMING SOON TO SHOW EXAMPLE OF ALLEGED VERIFIED COMPLAINT AND UNVERIFIED ORDER TUTORIAL EXAMPLE. )

STEP TWO:

CHECK YOUR MORTGAGE DOCS FOR MERS. (VIDEO TUTORIAL COMING SOON) LOOK FOR MIN# USUALLY ON FIRST PAGE TOP OR BOTTOM OF MORTGAGE.

IF IN FACT IT’S A MERS MORTAGE GO TO THEIR SITE AND SEE IF WHO YOU HAVE BEEN PAYING MATCHES THE PLAINTIFF SUING YOU. SEND MERS MILESTONES DOCUMENT IN DOC FILES TO MERS. SOMETIMES NO MIN# WILL BE SHOWN OR MENTION OF MERS SO GO TO MERS SITE AND RUN PROPERTY ADDRESS ALSO RUN NAME AND SOCIAL RUN EACH WAY IT GIVES YOU AS OPTIONS.. YOU WILL BE SURPRISED OFTEN YOU WILL FIND YOUR LOAN THERE EVEN WHEN NOT SHOWING AS MERS ON LOAN DOCS. http://WWW.MERs-servicerid.org

Most of the time Mers will NOT answer this will only help you moving forward.

Remember you are your own Private Investigator so take notes and leave no rock unturned! If No response from Mers send a second request! This will build your case! Keep in mind whether or not you have been served start this process of building your case now! Do NOT wait til you are served.

IMPORTANT! While you are doing these steps you should be challengeing your Lender/Servicer through the credit bureaus as well as keepsing track of all phone calls, log date time etc.. and keep track of all paperwork! Including monthly statements and offers from lender/servicer.

Step Three

By now you should have completed the above steps ( do not skip anything)

As this will help you to build your offense. Credit bureaus is KEY remember FDCPA rules can help you to win against your lender.

QWR is an important tool in your offense use it and use It wisely!

Under the “Real Estate Settlement Procedures Act” Section 6, it specifies safeguards for consumers of loan servicers. Section 6 describes the QWR. It establishes a legally mandated communication protocol between you and your lender. The Loan servicer cannot ignore your request. If it is written and you have proof that you submitted it to them, the law requires that the loan servicer responds to these inquiries within 20 days and tell you that they received it, if that is all they can tell you. Within 60 ays they need to give a full explanation and answer all questions. If they fail to respond document it!!

You need to use QWR for formal requests of information that cannot be made by phone with customer service reps. Examples as follows:

Learn who actually owns your loan: More than likely the company your are sending your mortgage payments to is just a servicer.
Don’t forget to do MERS milestones request!
Ask for a Copy of your promissory NOTE and mortgage along with all transfers. Aka assignments.
Ask for your payment history
Request a detailed explanation of fees and special charges. You want an itemization and justification of all the fees. Most time lenders will back down as they know the charges are bogus.
Most loans have TILA and RESPA violations
Request special handling of reports – ask for a report on who they are reporting regarding missed payment and argue they should NOT be reporting.
If you get back a lame answer form the loan Servicer on your QWR, Immediately follow it “The answer your provided was incomplete and inconclusive etc.. “ This carries legal consequences to the servicer that could pay you very well!
Remember the Mortgage Servicer MUST acknowledge receipt of the QWR within 20 days and respond to complaint within 60 days. They cannot igonore this written request! Non-compliance with the Act leave the lender open to private law suits for 3 years after its inability to respond to QWR.
Section 20 of Mortgage.. read it learn it!! “SALE OF NOTE;CHANGE OF LOAN SERVICER; NOTICE OF GRIEVANCE” this clause specifally states “The NOTE or partial interest of the NOTE (together with this Security Instrument) can be sold one or more times without PRIOR notice” Meaning the lender by law must have notified you and any successor servicers orlender must have must also notify you whenever the loan has been sold or transferred! Without prior NOTICE is not to be interpreted as NO NOTICE. (Section 20 Tutorial example video coming)

This means the lender MUST notice you with a letter with new owners name and information. You must also receive a hello letter from the new servicer. Failure to do this is failure of a Condition Precedent, meaning a contractual obligation the lender or servicer must accomplish prior to foreclosing. It’s a great defense and I will give you more details later!

The Strategy is to Hit them from all sides NOT just one.. dispute with credit bureaus, MERS (if applicable) and the servicer. You have to think like ninja and leave no way out for the lender.. hit them quick fast and hard!

STEP FOUR:

YOU HAVE BEEN SERVED

IF YOU DO NOTHING YOUR HOME CAN GO TO SALE IN AS LITTLE AS 20 DAYS AFTER YOU ARE SERVED. USUALLY 30 DAYS LATER
IF YOU FOLLOW THE INSTRUCTIONS BEING GIVEN , THE BANK MAY BE UNABLE TO SET THE SALE FOR A VERY LONG TIME
MORTGAGE COMPANY MAY NEVER BE ABLE TO SET A FORECLOSURE SALE, BECAUSE THE REALITY IS FORECLOSURE CASES ARE VERY DIFFICULT EVEN FOR LENDERS TO WIN IF YOU TAKE THE PROPER STEPS AND OFTEN THE COURTS WILL FORCE TH LENDER TO MODIFY YOUR LOAN.
USING THIS SYSTEM THE LENDERS WILL HAVE A VERY DIFFICULT TIME WINNING THEIR CASE IF THEY CAN AT ALL.
BY FILING A COUNTERSUIT, THE LENDER CANNOT PROCEED WITH FORECLOSURE UNTIL YOUR SUIT IS SETTLED.
KEEP AN EYE ON ACTION AGAINST YOUR PROPERTY AT THE COUNTY LEVEL MOST OFTEN YOU CAN VEIW EVERYTHING ONLINE.. REMEMBER THE BANKS ARE SLIPPERTY AND THEY WILL FABRICATE SO KEEP AN EYE ON THEIR FILINGS AND MAKE SURE YOU ARE RECEIVING NOTICE AND SERVICE. IF NOT YOU BETTER BE TAKING ACTION.
OFTEN HOMEONWERS ARE NEVER PROPERTY SERVICED AND THEN THE CLERK DEFAULTS THE HOMEONWER ASSUMING PROPER SERVICE AND NOTIFICATION HAS BEEN GIVEN
IF YOU HAVE BEEN SERVED MAKE SURE ON THE 20^TH DAY YOU FILE MOTION FOR ENLARGMENT OF TIME, MOTION TO DISMISS THE COMPLAINT (MEAN WHILE GATHER YOUR INFO FROM MERS IF APPLICABLE CREDIT BUREAUS AND SERVICER/LEDER. ALONG WITH MOTION YOU MUST FILE A NOTICE OF DISPUTE
MOST FORECLOSURES THE PLANTIFF SUING IS NOT THE ENTITY YOU ARE PAYING. NOW START SETTING THEM UP FOR OTHER VIOLATIONS AND BUILDING A STRONG FOUNDATION AND OFFENSIVE STRATEGY.
MOST INFO YOU WILL GATHER WILL CONFLICT AND THAT WHAT YOU WANT! AGAIN KEEP GREAT RECORDS.. THIS IS KEY
MOST COURTS ARE SO INUNDATED THAT JUST FILING A MOTION CAN PROLONG YOUR CASE 6 MONTHS OR MORE DEPENDING ON YOUR COURT. USE THIS TIME WISELY TO BUILD YOUR CASE AND GATHER YOUR INFORMATION.
YOU WANT TO DELAY ANSWERING THE COMPLAINT FOR AS LONG AS YOU CAN. WHEN YOU FINALLY ANSWER THE COMPLAINT YOU WANT TO HIT THEM WITH A COUNTER SUIT THE WILL STOP THEM DEAD IN THEIR TRACKS.

ROCKET DOCKET – FLORIDA SPECIFIC

Foreclosure Rocket Dockets are Unconstitutional. Most of the arguments are made within the transcript below, but THEE MOST important requirement is that the elected judges, who are theoretically accountable to the electorate, be the ones making the hard decisions to foreclose. Accountability is an important element missing in the current regime.

We must assert our rights or they will be forever waived. If we do NOT object in court to lack of due process , jurisdiction, and the right to be heard in a meaningful way, the de facto court system will do whatever it pleases!

EVERY JUDGES FIRST DUTY BEFORE ASSUMING OFFICE IS TO SWEAR AN OATH TO UPHOLD AND PROTECT THE CONSTITUTION AND THEIR STATE CONSTITUION.

TWO THINGS:

1. Get a certified copy from the Secretary of State to match the oath taken with the prescribed Civil Procedures for the state in question. If it does not match, and the prescribed oath clearly states WHICH oat a judge to be must take, then the requirement has NOT been met and the judge is acting in a purely de facto capacity the MUST be challenged BEFORE proceeding in court.
2. Submit the certified copy of the oath of office as evidence into the record, showing the judge that his or her sworn obligation, and again demand due process rights.

File your motion and get a hearing! As far as can be seen these retired judges being brought in to do foreclosures are NOT judges anymore! The key word retired means they are NO longer judges! If they refuse to remove the case you can personally sue the judges, many are in the process of doing this already!

What Homeowners Needs to Know About Summary Judgment Motions

06 Tuesday May 2014

Posted by BNG in Appeal, Federal Court, Foreclosure Defense, Judicial States, Litigation Strategies, Non-Judicial States, Pleadings, Pro Se Litigation, Your Legal Rights

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Many times pretender lenders rush to the court towards the beginning of a litigation to furnish worthless pieces of papers with a dubious affidavit in hopes of convincing the court that they have everything necessary to lay claim on a Homeowner’s property.

If you find yourself in a lawsuit from your lender, you could be served with a motion for summary judgment, which is a request to end a case without a trial. A motion for summary judgment filed by an opposing party claims that you cannot prevail in the case because there is no legal dispute or your claim is without merit or a defense. Failure to respond to a motion for summary judgment can result in your case being dismissed or a judgment being rendered against you.

What Does a Motion for Summary Judgment do?

A motion for summary judgment asks the court to dispose of all or some of the issues related to your case. A motion that disposes of all issues is called a final summary judgment. A motion that only disposes of some issues is called a motion for partial summary judgment. A motion for partial summary judgment can eliminate, or narrow, the issues that are not in dispute. The case continues only on the remaining disputed issues.

What Documents are Required to File a Motion for Summary Judgment?

Generally, a motion for summary judgment should include supporting documents from the case such as declarations, affidavits, depositions, admissions, answers to interrogatories, along with a statement of facts in support of the motion. Filing a motion also requires a supporting memorandum of points and authorities, which are the legal support for the motion such as cases or statutes. The other side must receive a copy of the motion and notice of the day the hearing is to be held on the motion. The exact format and timing of summary judgment motions are determined by your state’s rules of civil procedure.

Filing an Opposition to a Motion for Summary Judgment

If a motion for summary judgment is filed against you, you must file an opposition to the motion for summary judgment showing that there are issues of fact in dispute. A response must be in writing and include the same supporting documents as a motion for summary judgment. The opposition to the motion for summary judgment should also include a statement of facts showing the dispute and supporting documents.

Your response should include a supporting memorandum of points and authorities. Prior to filing your response, consult Pleadings and Practice for the appropriate format and Points and Authorities for case law supporting your position. When you file your motion or opposition to the motion for summary judgment with the court, you will need to include a proof of service verifying the date your documents were mailed to the opposing party or their attorney.

Other Requirements for Filing a Motion for Summary Judgment or Response

Whether you are filing a motion or response, you will need to look in Pleading and Practice at the law library for the appropriate format for your motion or response. You will also need to consult Points and Authorities to find case law supporting your position. Because of the overlap in local rules and state law, it would be advisable to have an attorney prepare and file the motion for summary judgment or the opposition to the motion for summary judgment. They can make sure that your evidence and arguments are properly presented to the court.

What Happens after the Court Receives the Motion for Summary Judgment and Response?

After the court receives the original motion for summary judgment and your response, the court will review the motions and allow both sides to argue their positions. Most rules of civil procedure will not allow live testimony at a summary judgment hearing. If there are any issues in dispute, the motion for summary judgment will be denied. Failure to comply with any rules of procedures can also result in a denial of a motion or a response. If a motion for final summary judgment is granted, the decision can be appealed. If a motion for partial summary judgment is granted, you will have to wait until the lawsuit is finished to appeal the court’s decision.

Getting Further Help With Summary Judgment

If a motion for final summary judgment is granted, the decision can be appealed. If a motion for partial summary judgment is granted, you will have to wait until the lawsuit is finished to appeal the court’s decision. In either case, Homeowners should learn what procedures and timelines apply in your motion for summary judgment case to perfect your right to appeal an adverse decision.

What HomeOwners Needs To Know for (Pro Se) Self Representation

06 Tuesday May 2014

Posted by BNG in Federal Court, Foreclosure Defense, Judicial States, Litigation Strategies, Non-Judicial States, Pro Se Litigation, State Court, Your Legal Rights

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Many struggling homeowners whose mortgage is under the water, also find themselves in double dilemma due to high cost of legal representation.

The Banks that caused the mortgage breakdown problems also have all the money in the world to higher costly Attorneys to help them intimidate homeowners in order to cover their fraudulent activities and steal your homes right under your nose. However, it takes a willing and courageous mind to stand firm and fight the lenders to the finish. Why do you need to fight this good fight? because your survival and your future especially (the equity in your home) is at stake. Don’t let criminals steal them away from you.

The court system can be confusing and it is a good idea to get a lawyer if you can afford one. The law, the proofs necessary to present your case, and the procedural rules governing cases in the Law Division, Civil Part are complex. Since valuable claims or potentially heavy judgments may be at stake, most litigants appearing in the Law Division, Civil Part usually
have a lawyer, but some don’t due to the ridiculous amounts of legal fees Attorneys charges for representation.

For Homeowners who could not afford an Attorney, what you need is courage and strength like a LION! to successfully fight and win your case. While it may appear stressful when you don’t know how to begin the fight, once you learn how the court system works and the procedures and follow the rules and instructions, you will successfully challenge and win your foreclosure case. You need to pursue the Banks from the point of strength , not from weakness. Once you show them that you know what they know and will fight them with everything you got, just watch and see them slightly backing away and looking for opportunities to settle your case and modify your loan which they had refused to do for months.

If you are being sued by the Bank, and you have no knowledge at all about the legal procedures, you might want to contact your insurance company to see if it might provide a lawyer for you. Most likely, your opponent will be represented by a lawyer. For a start, you may contact the legal services program in your county to see if you qualify for free legal services. Their telephone number can be found in your local
yellow pages under “Legal Aid” or “Legal Services”.

If you do not qualify for free legal services and need help in locating an attorney, you can contact the bar association in your county. That number can also be found in your local yellow pages. Most county bar associations have a Lawyer Referral Service. The County Bar Lawyer Referral Service can supply you with the names of attorneys in your area willing to handle your particular type of case and will sometimes consult with you at a reduced fee.

There are also a variety of organizations of minority lawyers throughout any given State, as well as organizations of lawyers who handle specialized types of cases. Ask your county court staff for a list of lawyer referral services that include these organizations. Bear in mind that it is not always easy to obtain a free lawyer as the profession of law is a complex one.

It is recommended that you make every effort to obtain the assistance of a lawyer, at lease for some form of guidance if you don’t know how the legal procedures works, but if you are a Homeowner who cannot afford a lawyer, and cannot afford to lose your home, (THEN WHAT YOU NEED IS COURAGE AND STRENGTH), even if you don’t have prior experience in legal procedure. The Pro se package at http://www.fightforeclosure.net has numerous step by step guides how the legal system works and if your are willing to follow simple instructions, you can successfully challenge and defend your home without a lawyer.

If you decide to proceed without an attorney, these materials explain the procedures that must be followed to have your papers properly filed and considered by the court. These materials do not provide information on the law governing your claims or defenses; information on how to conduct pretrial discovery; information on alternative dispute resolution procedures, such as arbitration or mediation, that may be available or required in your case; information on the kinds of evidence you
need to prove your claims or defenses at trial; or information on other procedural and evidentiary rules governing civil law suits. These types of information as well as pleadings for effective challenge of your foreclosure case can be found in our foreclosure defense package which can be found http://www.fightforeclosure.net

For Homeowners who represents themselves, there are few things you need to bear in mind.

WHAT YOU SHOULD EXPECT IF YOU REPRESENT YOURSELF

While you have the right to represent yourself in court, you should not expect special treatment, help, or attention from the court. The following
is a list of some things the court staff can and cannot do for you. Please read it carefully before asking the court staff for help.

The following is what you need to know about how the court works.

WHAT COURT STAFF CAN DO!
— Court Staff can tell you what the requirements are to have your case considered by the court. — We can give you some information from
your case file.
— Court Staff can provide you with samples of court forms that are available.
— Court Staff can provide you with guidance on how
to fill out forms.
— Court Staff can usually answer questions about court deadlines.

WHAT COURT STAFF CANNOT DO!

— Court Staff cannot give you legal advice. Only your lawyer can give you legal advice.
— Court Staff cannot tell you whether or not you should bring your case to court.
— Court Staff cannot give you an opinion about what will happen if you bring your case to court.
— Court Staff cannot recommend a lawyer, but can provide you with the telephone number of a local lawyer referral service.

— Court Staff cannot talk to the judge for you about what will happen in your case.
— Court Staff cannot let you talk to the judge outside of court.
— Court Staff cannot change an order issued by a judge.

RECOMMENDATIONS:

KEEP COPIES OF ALL PAPERS!
Make and keep copies of all completed forms and documents related to your case.

DEFINITIONS OF SOME OF THE WORDS USED IN THE COURT.

Pro Se: Pro se means by oneself. A pro se litigant represents him or herself in court without the aid of counsel.

Brief: A brief is a written argument submitted to the court in which you present the facts and the history of your case and the legal argument supporting the request you have made to the court in your motion.

Calendar Motion: A calendar motion asks the court for a ruling related to the scheduling or timing of your case, such as a motion for more time to file papers. Before filing a calendar motion, the moving party must try to resolve the matter with the other party(ies) in the case.

Certification: A certification is a written statement you make when you file your papers with the court in which you state that all the information contained in the papers is true to the best of your knowledge.

Discovery Motion: A discovery motion asks the court for a ruling on some phase of the discovery process such as a motion for more specific answers to interrogatories, a motion to compel depositions. Before filing a discovery motion, the moving party must try to resolve the matter with the other party in the case.

Docket Number: The docket number is the number the court assigns to your case so that it may be identified and located easily. Once you have a docket number, you must include it on all your communications with the court.

Motion: A motion is an application to the court for a specific order or ruling to be made in favor of the person making the motion (the movant).
Motion Day: Courts hear motions on specified days in some jurisdiction, it is usually on (Tues or Fridays) on the court calendar called motion days. While in other Jurisdiction, the motion days can fall on any day, so please check your local jurisdiction when filing your motions. A schedule of the court’s motion days can be obtained from the court staff or on Internet at the Judiciary’s website.

Movant or Moving Party: The movant or moving party is the person who is bringing the motion.

Notice of Motion: A notice of motion is the form used to inform the court and all opposing parties that the moving party is seeking a specific ruling or order from the court.

Oral Argument: Oral argument refers to the appearance in court by the parties to present their positions to the judge in person. Either side may request oral argument, but the decision on whether there will be oral argument is up to the judge. If oral argument is not requested by either of the parties or the judge, the motion will be decided “on the papers.”

Proof of Mailing: Proof of mailing is the form in which you provide the dates and the method you used to give the other parties copies of the papers that you filed in court.

Proposed Form of Order: A proposed order is a form that the judge can use to either grant or deny the relief sought in the motion. Every motion must be accompanied by a proposed form of order.

Return date: The return date is the date on which the court will consider the motion. If you request oral argument, you must appear before the judge. If no oral argument is requested, the matter will be decided “on the papers.” That is, the judge will decide the motion on what has been submitted in the moving papers and in the opposition papers, without having anyone appear in court.

Summary Judgment: A motion for summary judgment asks the court to resolve the case in the moving party’s favor without a trial because there is no dispute over the facts of the case and the law supports the moving party’s position.

Response in Opposition Motion: This is type of Motion an opposing litigant needs to file in response to the motion for summary judgment. The purpose of filing this response is to tell the court that there are “genuine issues of material fact”, in dispute which requires that the opponent’s motion for summary judgment should not be granted as a matter of law.

In certain Jurisdiction, the opposition motion can be called by certain names, but Pro se litigants should ensure that the caption motion they are filing indicates either the phrase “response in opposition to Motion to Summary Judgment” or “Objection to Motion to Summary Judgment”, this is to ensure that the Court understands that you are opposing such Motion otherwise, it might be granted by default without an opposition in place, which will automatically end your case unless you appeals that final judgment.

STEPS TO TAKE TO RESPOND TO A MOTION

STEP 1: COMPLETE THE CERTIFICATION IN OPPOSITION TO MOTION AND CERTIFICATION OF SERVICE. In some jurisdictions, it is called (FORM A).

The Certification in Opposition to Motion tells the court the reasons why you object of the ruling requested by your adversary and why the court should deny the request. Fill in the required information.

You must indicate whether you want to waive oral argument and let the judge decide the motion on the papers or not. If you request oral
argument you must tell the court why you think it is necessary. Note: The judge makes the decision on whether there should be oral argument. The judge may request it even if neither party asked for it. Similarly, the
judge may deny the request for oral argument. The Certification of Service tells the court the date on which you mailed the copies of your response to your adversary.

STEP 2: PREPARE YOUR RESPONSE FOR MAILING.
Checklist: You will need the following items:
___ The original of your Certification in
Opposition to Motion for filing in court. If you want the court to return a copy stamped “filed,” you should include a copy and a stamped self-
addressed envelope or take a copy with you to the Clerk of Courts when you are filing it to have the second copy stamped.
___ One copy of the Certification for each party to the lawsuit.

STEP 3: MAIL THE CERTIFICATION IN OPPOSITION TO MOTION TO YOUR ADVERSARY AND ANY OTHER PARTY TO THE LAWSUIT.

Check with your local rules to ensure what the time of service is. In some jurisdictions, you must serve your adversary no later than 8 days before the specified return date of the notice of motion (10 days if it is opposition to a motion for summary judgment). IT IS IMPORTANT THOUGH TO CHECK TO ENSURE WHAT YOUR LOCAL RULES INDICATES AS TO HOW MANY DAYS YOU HAVE FOR SERVICE.

While some court rules do not require you to send your papers by certified mail, it is suggested that you send your certification by regular and certified mail, return receipt requested. You will then have the green card when it is returned to you as proof of service.

STEP 4: MAIL OR DELIVER THE CERTIFICATION TO THE COURT. You may deliver your papers to the court in person or you may mail them. The court address is usually available on line at their website.
If you mail the papers, we recommend that you use certified mail, return receipt requested.

Mail or deliver to the court the original of the Certification. If you want the court to return a copy marked “filed” to you, include a copy of the certification along with a self-addressed, stamped envelope. Remember to sign everything you file with the court with Original “Ink Pen” impression before filing. (Photocopies are usually not accepted for filing unless, you sign it again in front of the clerk with “ink pen” impression).

How Homeowners Can Identify the Right Parties to Their Mortgage

30 Wednesday Apr 2014

Posted by BNG in Banks and Lenders, Federal Court, Foreclosure Defense, Judicial States, Loan Modification, Mortgage Laws, Non-Judicial States, RESPA, Your Legal Rights

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I. Finding the Right Party

A. Send a “Request for Information” under RESPA

The party most often known to your client is the servicer of the mortgage. This is the party that deals most regularly with the client, by requesting and accepting payments and providing mortgage and escrow statements. As agent for the mortgage owner, the servicer is also the party that should have accurate information about the entity that owns and holds the mortgage. Several federal statutes require the servicer to identify the mortgage owner if a proper request is made.

Sending a “qualified written request” under the Real Estate Settlement Procedures Act (RESPA) has been one method used to compel disclosure of this information from a servicer. The problem with this approach, however, has been that RESPA gave servicers almost three months to comply — the servicer had 20 business days to acknowledge receipt of the request, and 60 business days to provide the information. RESPA regulations that go into effect on January 10, 2014, create a new procedure for information requests and significantly reduce the response period to 10 business days for a request for the mortgage owner.

A written inquiry that seeks information with respect to the borrower’s mortgage loan will now be referred to as “request for information,” rather than a qualified written request. For most requests for information that do not seek information about the mortgage owner, a servicer will need to acknowledge the request within 5 business days of receipt, and respond within 30 business days of receipt. If the borrower or borrower’s agent sends a written request seeking the identity, address or other relevant contact information for the owner or assignee of a mortgage loan, the servicer must respond within 10 business days. Moreover, a servicer is not permitted to extend the time period for responding to such a request by an additional 15 days, as can be done for other requests for information.

The Commentary to Regulation X instructs that a servicer complies with a request for the owner or assignee of a mortgage loan by identifying the person on whose behalf the servicer receives payments from the borrower. To assist in compliance, the CFPB Commentary provides the following examples:

1) A servicer services a mortgage loan that is owned by the servicer or its affiliate in portfolio. The servicer therefore receives the borrower’s payments on behalf of itself or its affiliate. A servicer complies by responding to a borrower’s request with the name, address, and appropriate contact information for the servicer or the affiliate, as applicable;

2) A servicer services a mortgage loan that has been securitized. In general, a special purpose vehicle such as a trust is the owner or assignee of a mortgage loan in a securitization transaction, and the servicer receives the borrower’s payments on behalf of the trust. If a securitization transaction is structured such that a trust is the owner or assignee of a mortgage loan and the trust is administered by an appointed trustee, a servicer complies with a borrower’s request by providing the name of the trust and the name, address, and appropriate contact information for the trustee. If a mortgage loan is owned by “Mortgage Loan Trust, Series ABC-1,” for which “XYZ Trust Company” is the trustee, the servicer should respond by identifying the owner as “Mortgage Loan Trust, Series ABC-1,” and providing the name, address, and appropriate contact information for “XYZ Trust Company” as the trustee.

With respect to investors or guarantors, such as Fannie Mae, Freddie Mac and Ginnie Mae, the Commentary further notes that although these entities might be exposed to some risk related to mortgage loans held in a trust, either in connection with their role as an investor in securities issued by the trust or as guarantor to the trust, they are not the owners or assignees of the mortgage loans solely as a result of their roles as investors or guarantors. Rather than name Fannie Mae as the owner or assignee of a mortgage held in a securitized trust in which Fannie Mae is a guarantor but does not serve as the trustee for the trust, the Commentary would therefore suggest that the servicer should identify the trustee of the trust as the owner or assignee of the mortgage.

However, the Commentary also recognizes that a party such as a guarantor may in certain circumstances assume multiple roles for a securitization transaction. For example, a mortgage loan subject to a request may be held in a trust as part of a securitization transaction in which Fannie Mae serves as trustee, master servicer, and guarantor. Because Fannie Mae is the trustee of the trust that owns the mortgage loan, a servicer complies with the regulation in responding to a borrower’s request by providing the name of the trust, and the name, address, and appropriate contact information for Fannie Mae as the trustee.

A servicer that fails to comply with a request for information is subject to a cause of action for recovery of the borrower’s actual damages, costs and attorney’s fees, as well as statutory damages up to $2,000 in the case of a pattern and practice of noncompliance.

B. Send a TILA § 1641(f)(2) Request to the Servicer

Similar to RESPA, the Truth in Lending Act contains a provision that requires the loan servicer to tell the borrower who is the actual holder of the mortgage. Upon written request from the borrower, the servicer must state the name, address, and telephone number of the owner of the obligation or the master servicer of the obligation.

One problem with enforcement of this provision had been the lack of a clear remedy. However, a 2009 amendment to TILA explicitly provides that violations of this disclosure requirement may be remedied by TILA’s private right of action found in section 1640(a), which includes recovery of actual damages, statutory damages, costs and attorney fees. Still, because section 1640(a) refers to “any creditor who fails to comply,” some courts have held that there is no remedy against a servicer who fails to comply if the servicer is neither the original creditor nor an assignee. Arguments supporting the view that servicers are liable in this situation are set out in § 11.6.9.4 of NCLC’s Truth in Lending (8th ed. and Supp.).

Another problem with the TILA provision is that it does not specify how long the servicer has to respond to the request. To be consistent with the virtually identical requirement under RESPA, courts may conclude that a reasonable response time should not exceed 10 business days after receipt.

C. Review Transfer of Ownership Notices

TILA also requires that whenever ownership of a mortgage loan securing a consumer’s principal dwelling is transferred, the creditor that is the new owner or assignee must notify the borrower in writing, within 30 days after the loan is sold or assigned, of the following information:

the new creditor’s name, address, and telephone number;
the date of transfer;
location where the transfer of ownership is recorded;
the name, address, and telephone number for the agent or other party having authority to receive a rescission notice and resolve issues concerning loan payments; and
any other relevant information regarding the new owner.

This law applies to any transfers made after May 20, 2009. Attorneys should ask their clients for copies of any transfer ownership notices they have received under this law. Assuming that there has been compliance with the statute and the client has kept the notices, the attorney may be able to piece together a chain of title as to ownership of the mortgage loan (for transfers after May 20, 2009) and determine the current owner of the mortgage. Failure to comply with the disclosure requirement gives rise to a private right of action against the creditor/new owner that failed to notify the borrower.

D. Check Fannie & Freddie’s Web Portals

Both Fannie Mae and Freddie Mac have implemented procedures to help borrowers to determine if Fannie Mae or Freddie Mac owns their loan. Borrowers and advocates can either call a toll-free number or enter a street address, unit, city, state, and ZIP code for the property location on a website set up to provide the ownership information. The website information, however, may in some cases refer to Fannie Mae or Freddie Mac as “owners” when in fact their participation may have been as the party that had initially purchased the loans on the secondary market and later arranged for their securitization and transfer to a trust entity which ultimately holds the loan.

E. Check the Local Registry of Deeds

Checking the local registry where deeds and assignments are recorded is another way to identify the actual owner. However, attorneys should not rely solely on the registry of deeds to identify the current holder of the obligation, as many assignments are not recorded. In fact, if the Mortgage Electronic Registration System (MERS) is named as the mortgagee, typically as “nominee” for the lender and its assigns, then assignments of the mortgage will not be recorded in the local registry of deeds. A call to MERS will not be helpful as MERS will only disclose the name of the servicer and not the owner. In addition, some assignments may be solely for the administrative convenience of the servicer, in which case the servicer is the owner of the mortgage loan.

II. Sample Request for Identity of Mortgage Owner under RESPA

[attorney letterhead]

[date]

[name of servicer]

[address]

Attn: Borrower Inquiry Department

Re: [name of debtors, address, account number]

Dear Sir or Madam:

Please be advised that I represent [debtors] with respect to the mortgage loan you are servicing on the property located at [address]. My clients have authorized me to send this request on their behalf (see Authorization below). As servicer of my client’s mortgage loan, please treat this as a “request for information” pursuant to the Real Estate Settlement Procedures Act, subject to the response period set out in Regulation X, 12 C.F.R.§ 1024.36(d)(2)((i)(A).

Please provide the following information:

The name of the owner or assignee of my clients’ mortgage loan;

The address and telephone number for the owner or assignee of my clients’ mortgage loan;

The name, position and address of an officer of the entity that is the owner or assignee of my clients’ mortgage loan; and

Any other relevant contact information for the owner or assignee of my clients’ mortgage loan.

Thank you for taking the time to respond to this request.

Very truly yours,

_____________________

[attorney]

III. Authorization of Release Information

To: [servicer]

Re: Borrowers: [name of debtors]

Account No: [account no.]

Property Address: [address]

We are represented by the law office of [name of firm] and attorney [name of attorney] concerning the mortgage on our home located at [address]. We hereby authorize you to release any and all information concerning our mortgage loan account to the law office of [name of firm] and attorney [name of attorney] at their request. We also authorize you to discuss our case with the law office of [name of firm] and attorney [name of attorney].

Thank you for your cooperation.

Very truly yours,

_____________________

[debtor 1]

_______________________

[debtor 2]

Summaries of Recent Cases

Published State Cases

Servicer Estopped from Asserting the Statute of Frauds as a Defense to Contract Claim Based on Permanent Mod; Wrongful Foreclosure & Tender

Chavez v. Indymac Mortg. Servs., __ Cal. App. 4th __, 2013 WL 5273741 (Sept. 19, 2013): This case involves the relationship between two principles, the statute of frauds and the doctrine of estoppel. The statute of frauds requires certain types of contracts (and agreements modifying existing contracts) to be memorialized in writing, and invalidates contracts not meeting this standard. Agreements pertaining to the sale of real property are covered by the statute of frauds. A statute of frauds defense, however, is not allowed to fraudulently void a contract. In those cases, “[the doctrine of] equitable estoppel may preclude the use of a statute of frauds defense.” To estop a statute of frauds defense, a plaintiff must show, in part, that the defendant intended (or led the plaintiff to believe they intended) the plaintiff to act upon defendant’s conduct, and that plaintiff did so, to their detriment. Here, the trial court sustained servicer’s demurrer because borrower had not specifically “plead around the statute of frauds” in her complaint. The Court of Appeal disagreed. Both the language of the TPP and the Modification Agreement, combined with the facts alleged in the complaint, preclude a statute of frauds defense. The modification agreement’s language, which was “ambiguous at best and illusory at worse,” promised to “automatically” modify borrower’s loan if she agreed to its terms, fully performed under the TPP, and if her representations continued to be true, but at the same time predicated contract formation on servicer’s execution and return of the Modification Agreement to the borrower. “Under [servicer’s] proposed reading of the Modification Agreement, [borrower] could do everything required of her to be entitled to a permanent modification, but [servicer] could avoid the contact by refusing to send [her] a signed copy of the Modification Agreement for any reason whatsoever.” Despite this language, servicer “objectively intended” to modify borrower’s loan: not only did servicer respond to borrower’s successful TPP completion by sending her the Modification Agreement, but it then accepted borrower’s continued payments. This conduct and the conflicting contractual language in the TPP and Modification Agreement show servicer’s “intent” that borrower act upon this conduct. Borrower detrimentally relied on servicer’s conduct by signing the Modification Agreement, which obligated her to pay additional fees and costs she would otherwise not have paid. Servicer’s statute of frauds defense failed and the demurrer to her breach of contract claim was overturned.

After finding the Modification Agreement enforceable, the court also overturned the demurrer of borrower’s wrongful foreclosure claim, based on a breach of the Modification Agreement. The court did not require tender here, where the servicer “lacked a contractual basis to exercise the power of sale,” which would void the foreclosure. Borrower’s additional claims, that servicer did not provide proper pre-foreclosure notice, would make the foreclosure sale voidable, not void. Under this notice claim alone, borrower would have to tender the amount due, but because her case is partly based on her breach of contract claim, tender is not required.

CC § 2923.5 Pleading Specificity; Damage Causation for Promissory Fraud Claim; Statute of Frauds Applies to Modifications

Rossberg v. Bank of Am., N.A., __ Cal. App. 4th __, 2013 WL 5366377 (Aug. 27, 2013): CC § 2923.5 prevents servicers from filing a notice of default until 30 days after contacting (or diligently attempting to contact) a borrower to discuss foreclosure alternatives. In other words, the servicer must make contact more than 30 days before initiating a foreclosure. Failing to contact or attempting to contact the borrower within the 30 days immediately preceding an NOD does not violate the statute. Here, borrowers alleged their servicer failed to personally meet with them or call them to discuss foreclosure alternatives “in the 30-days leading up to [the NOD].” This insufficient pleading, coupled with the multiple servicer-borrower contacts made before the 30-day window, led the court to affirm the demurrer to borrower’s § 2923.5 claim.

Promissory fraud includes the elements of fraud, but couches them within a promissory estoppel-like structure: 1) a promise made; 2) the intent not to perform at the time of the promise; 3) intent to deceive; 4) reasonable reliance; 5) nonperformance; and 6) damages caused by the reliance and nonperformance. Importantly, a borrower must demonstrate “how the actions he or she took in reliance on the defendant’s misrepresentations caused the alleged damages.” If the borrower would have been harmed even without the promise, reliance, and nonperformance, “causation cannot be alleged and a fraud cause of action cannot be sustained.” Here, borrowers alleged reliance on Bank of America’s promises to modify their loan by providing financial documents, disclosing confidential information, and by continuing to make loan payments. These actions, borrowers alleged, led to their inability to obtain a “replacement loan.” First, borrowers make no causal connection between providing personal information and harm. Second, continuing to make loan payments on a debt owed allowed borrowers to remain in their home and is not causally linked to any damages. Borrowers also fail to show sufficient equity to obtain a replacement loan. Finally, borrowers did not allege that their detrimental reliance led to their default, the real harm. The court affirmed the demurrer to the fraud claim.

The statute of frauds requires certain types of contracts to be memorialized in writing, including contracts involving real property. Additionally, a contract to modify a contract subject to the statute of frauds is also within the statute of frauds. Here, borrowers alleged BoA orally promised to modify their promissory note and deed of trust— contracts that fall within the statute of frauds. Following, any modification to those instruments also falls within the statute of frauds and had to be written to be enforceable. Even though BoA’s communications were about modifying borrower’s loan, and not purchasing real property, it still fell within the statute of frauds because it would modify the contract that did convey real property. Since all BoA’s representations were oral, there was no enforceable contract and no viable contract claims

“Dual Tracking” as Basis for an “Unfair” UCL Claim; Duty of Care

Aspiras v. Wells Fargo Bank, N.A., __ Cal. App. 4th __, 2013 WL 5229769 (Aug. 21, 2013): To bring a UCL claim under the “unfair” prong, borrowers may identify a practice that violates legislatively stated public policy, even if that activity is not technically prohibited by statute. Here, borrowers based their UCL claim on the “unfair” practice of dual tracking, relying on Jolley v. Chase Home Fin., LLC, 213 Cal. App. 4th 872 (2013) (“[W]hile dual tracking may not have been forbidden by statute at the time, the new legislation and its legislative history may still contribute to its being considered ‘unfair’ for purposes of the UCL.”). This court of appeal both distinguished Jolley and declined to follow its “dicta.”

First, the court did not find dual tracking in this case. Before the foreclosure sale, Wells Fargo denied borrowers’ modification application. In a subsequent communication, borrowers were told their modification was still “under review” (though borrowers inadequately pled the specifics of this communication). Here, the court zeroed in on a footnote from Jolley quoting from the California Senate floor analysis of AB 278, which ultimately prohibited dual tracking: “‘[B]orrowers can find their loss-mitigation options curtailed because of dual-track processes that result in foreclosures even when a borrower has been approved for a loan modification.’” (emphasis original to Aspiras). Dual tracking is commonly known as the practice of negotiating a loan modification while simultaneously foreclosing, and the Jolley court used this general conception of dual tracking to find a duty of care. See Jolley, 213 Cal. App. 4th at 905-06. This court seems to regard an approved modification, as opposed to a modification “under review,” as the sole basis for a UCL dual tracking based claim. Since borrowers were never approved for a loan modification in this case, the court reasoned that dual tracking never took place.

The court also disagrees with the Jolley court’s interpretation of “unfair” prong of the UCL. “[I]t is not sufficient to merely allege the [unfair] act violates public policy or is immoral, unethical, oppressive or unscrupulous. . . . [T]o establish a practices is ‘unfair,’ a plaintiff must prove the defendant’s ‘conduct is tethered to an [ ] underlying constitutional, statutory or regulatory provision.’” This court found, unlike Jolley, that dual tracking occurring before HBOR became effective (2013) did not offend any public policy underlying a constitutional, statutory, or regulatory provision.

Finally, this court declined to follow Jolley dicta finding a duty of care arising from modification negotiations. This court followed several federal district courts finding that “‘offering loan modifications is sufficiently entwined with money lending so as to be considered within the scope of typical money lending activities.’” This court opined that finding a duty of care arising from modifications would disincentivize servicers from modifying loans because they could be held liable afterwards. The court attributed much of its disagreement with Jolley to the construction loan at the center of that case. With construction loans, “the relationship between the lender and the borrower . . . is ‘ongoing’ with contractual disbursements made throughout the construction period.” The Jolley court found a duty of care arising from this situation, and then “expanded its analysis beyond lenders involved in construction loans” to more conventional lender-borrower relationships. This court declined to follow that interpretation.

Disputing Title in an Unlawful Detainer: Consolidation

Martin-Bragg v. Moore, 219 Cal. App. 4th 367 (2013): “Routine” unlawful detainers are summary proceedings, meant to resolve quickly and determine possession only. Title, however, can complicate a UD and render it irresolvable as a summary proceeding. Outside of the landlord-tenant context, UD defendants can make title an issue by asserting rightful title as an affirmative defense. In that case, “the trial court has the power to consolidate [the UD] proceeding with a simultaneously pending action in which title to the property is in issue.” Alternatively, the UD court may stay the UD until the other action resolves title. The court may not, however, decide title as part of the UD by affording it full adversarial treatment, as this would impermissibly turn a summary proceeding into a complex trial. Similarly, a court cannot resolve title as part of a UD summary proceeding, as it did here. This unfairly infringes on a defendant’s due process and right to a full, adversarial trial on the title issue (which can include discovery). Once title is put at issue, a defendant’s due process rights are given priority over a plaintiff’s right to a summary proceeding to decide possession. Not only did this court improperly attempt a summary resolution to the title issue as part of the UD case, but it did so in full recognition of the extremely complex nature of this particular title claim and in the face of defendant’s repeated requests for consolidation. This was an abuse of discretion that prejudiced defendant’s case and the court of appeal accordingly reversed.

Unpublished & Trial Court Decisions

CC § 1367.4(b): HOA Must Accept Partial Payments on Delinquent Assessments

Huntington Cont’l Town House Ass’n, Inc. v. Miner, No. 2013-00623099 (Cal. Super. Ct. App. Div. Sept. 26, 2013): The Davis-Sterling Act governs HOA-initiated judicial foreclosures on assessment liens. Specifically, CC § 1367.4 regulates how HOAs may collect delinquent assessment fees less than $1,800 (any legal manner apart from foreclosure) and more than $1,800 (foreclosure, subject to conditions). Here, the homeowners attempted to pay $3,500 to the HOA during foreclosure litigation. This payment more than covered homeowner’s delinquent assessment, but was below the “total” amount owed, which included the assessment, late fees, interest, and attorney’s fees. The HOA refused to accept this “partial payment” and the trial court allowed foreclosure. The appellate division reversed because the plain language of § 1367.4(b) “allows for partial payments and delineates to what debts, and in which order, payments are to be applied.” The HOA should have accepted the payment, which would have brought homeowners current and tolled the 12-month clock that allows HOAs to proceed with foreclosures under § 1367.4.

Dual Tracking Preliminary Injunction: “Pending” vs. “Under Review”

Pearson v. Green Tree Servicing, LLC, No. C-13-01822 (Cal. Super. Ct. Contra Costa Co. Sept. 13, 2013): CC § 2923.6 prevents servicers from foreclosing while a first lien loan modification is “pending.” Here, borrowers submitted their application in January, a servicer representative confirmed it was the correct type of application to qualify borrowers for a modification, and without making a decision, servicer recorded the NOD in May. Whether or not the application was literally “under review” by the servicer when they recorded the NOD does not affect whether they violated § 2923.6. To resolve a “pending” application under the statute, a servicer must give a written determination to the borrower. Only then can they move forward with foreclosure. Servicer also argued that borrower had not demonstrated a “material change in financial circumstances” that would qualify her for a modification review. CC § 2923.6(g) only requires borrowers submitting a second (or subsequent) modification application to demonstrate a change in finances. Here, borrower’s application was her first attempt to modify her loan. An earlier telephone call with a servicer representative does not constitute a “submission” of an application, as servicer argued. Because borrower has shown she is likely to prevail on the merits of her dual tracking claim, the court granted the preliminary injunction, declining tender and setting a one-time bond of $1,000, plus borrower’s original monthly loan payments.

Motion to Compel Discovery in Wrongful Foreclosure Fraud Claim

Pooni v. Wells Fargo Home Mortg., No. 34-2010-00087434-CU-OR-GDS (Cal. Super. Ct. Sacramento Co. Sept. 12, 2013): Discovery requests must be “reasonably calculated to lead to the discovery of admissible evidence.” Here, borrowers sent Wells Fargo interrogatories asking: 1) “DESCRIBE all policies, which YOUR underwriter uses in modifying a loan;” and 2) “DESCRIBE all criterion YOU use to determine if YOU are going to modify a loan.” (emphasis original). Wells Fargo objected to these questions because they sought “confidential information, trade secrets and proprietary business information” and because Wells Fargo’s internal decision making was irrelevant. The only issue being litigated, Wells claimed, was what Wells communicated to the borrowers regarding their modification. The court disagreed, ordering Wells Fargo to answer the interrogatories. To prevail on their fraud claim, borrowers must show that Wells orally represented that they would qualify for a modification, and that 1) Wells mishandled their application, or 2) they did not qualify under Wells’ policies. Under either scenario, Wells Fargo’s internal modification policies are relevant to borrower’s fraud claim and the interrogatories are therefore reasonably calculated to lead to the discovery of admissible evidence bearing directly on that claim. Further, Wells Fargo provided no evidence that the information sought was a trade secret, and borrowers have agreed to a protective order.

Subsequent Servicer-Lender’s Assumed Liability for Original Lender’s Loan Origination Activities

Sundquist v. Bank of Am., N.A., 2013 WL 4773000 (Cal. Ct. App. Sept. 5, 2013): “[T]ort liability of one corporation can be ‘assumed voluntarily by the contract’ by another corporation.” Here, borrowers seek to hold BoA liable for the actions of Mission Hills, borrowers’ original lender. BoA purchased the loan from Mission Hills sometime after loan origination and borrowers assert that through this purchase agreement, BoA assumed all of Mission Hills’ tort liabilities. The trial court disagreed, finding no factual or legal basis for assumed liability. The court of appeal reversed, liberally construing the complaint to adequately allege BoA’s assumption of liability by its purchase of the subject loan from Mission Hills. BoA argued that the assignment from MERS to BAC Home Loans contains no language that would give rise to assumed liability. This agreement, however, may have nothing to do with an agreement assigning the loan itself from Mission Hills to BoA. “[I]t is entirely possible that Mission Hills sold the loan to Bank of America by means of some other agreement, and even after that transfer MERS continued to act as ‘nominee’ –now on behalf of Bank of America instead of Mission Hills—until . . . MERS assigned its interest in the deed of trust the note to BAC.” The court instructed the trial court to vacate its order and to overrule the demurrer with respect to the deceit, breach of fiduciary duty, and aiding and abetting a breach of fiduciary duty causes of action, all of which were pled against BoA, as well as Mission Hills. The court affirmed the sustaining of the demurrers on borrowers’ other causes of action (promissory estoppel, civil conspiracy, negligence, and wrongful foreclosure).

Motion to Compel Responses to Requests for Production & Interrogatories; Sanctions

Becker v. Wells Fargo Bank, N.A., No. 56-2012-00422894-CU-BT-VTA (Cal. Super Ct. Aug. 23, 2013): The court agreed with borrower that Wells Fargo must provide responses to the following requests for production of all documents regarding: 1) all communications with borrowers; 2) the servicing of the loan; 3) credit applied against the balance due on the loan; 4) the disposition of payments made in connection with the loan; and 5) regarding the treatment of taxes applied to the loan. Additionally, the court compelled Wells Fargo to answer interrogatories involving the documents reviewed, employees who worked on the loan, the specific documents requested and submitted for a loan modification, the exact amount owed by borrowers, and an itemized statement for every charge during the life of the loan. The court described Wells Fargo as “a sophisticated company, [capable of] tracking . . . who contacts the borrowers,” and noted that borrower’s request to know all parties who received fees or proceeds from the loan was reasonably related to produce evidence of who had a stake in the loan’s modification. The court sanctioned Wells Fargo $1,500 for its failure to answer borrower’s discovery requests.

Fraud and UCL Claims Based on Dual Tracking: Bank’s Failed Motion for Summary Judgment and Settlement

Rigali v. OneWest Bank, No. CV10-0083 (Cal. Super. Ct. San Luis Obispo Co. Feb. 14, 2013):[20] For a fraud claim to reach a jury, a borrower must show “the existence of some evidence” of: 1) false representation; 2) defendant’s knowledge of falsity; 3) defendant’s intention to deceive borrowers; 4) borrower’s justifiable reliance on the representation; 5) causal damages. Here, borrowers could not produce a “smoking gun” – an exact moment where OneWest misrepresented facts with a clear fraudulent intent—but taken as a whole, borrowers’ facts are enough to let a jury decide if OneWest’s string of (mis)communications with borrowers constituted fraud. Borrowers have produced some evidence that OneWest never intended to modify their loan: OneWest assigned of the DOT to U.S. Bank while they were sending borrowers multiple loan modification proposals; OneWest accepted borrower’s modification payment, and then assigned the loan to U.S. Bank; OneWest waited to refund the modification payment until after U.S. Bank completed the foreclosure sale. While this action stems from events occurring before dual tracking was prohibited by statute, “[d]istilled to its very essence, Plaintiffs are claiming that they were ‘given the runaround’ and then ‘double-crossed’ by OneWest” in a manner identical to dual tracking. Relying on West and Jolley, this court determined that summary judgment was inappropriate.

As to damages, the court pointed to borrowers’ assertions that OneWest convinced them their modification would be approved, delaying borrowers’ decision to hire an attorney and to sue to prevent the foreclosure. Also, had borrowers known the sale was proceeding (defective notice is part of their fraud claim), they allege they would have accessed various family funds to save their home. These damages constitute a viable fraud claim that survives summary judgment.

Tender is not required to state a claim for wrongful foreclosure if doing so would be inequitable. In their tender analysis, this court assumed that borrowers would eventually prevail on the fraud claim, and found it would then be “inequitable to require tender of the full amount due under the note.”

Federal Cases

Servicer’s Failure to Endorse Insurance Carrier’s Reimbursement Check May Constitute Breach of Contract

Gardocki v. JP Morgan Chase Bank, N.A., __ F. App’x __, 2013 WL 4029214 (5th Cir. Aug. 8, 2013): In this action to nullify a completed foreclosure sale, the servicer and holder of the loan, JP Morgan, failed to endorse an insurance reimbursement check for storm damage repairs, as required by borrower’s insurance carrier. Under the terms of the mortgage agreement, JP was entitled to inspect the repairs before endorsing a reimbursement check. Borrower claims JP Morgan neither inspected the home nor endorsed the check, as requested. Borrower had made repairs with his own funds, so JP Morgan’s refusal to sign-off on the reimbursement left borrower with insufficient funds to pay his mortgage. After borrower’s default, JP Morgan foreclosed and sold the home. The district court dismissed all of borrower’s claims without explanation. The Fifth Circuit, however, reversed and remanded the case, finding borrower’s arguments to be questions of fact. If the facts in the complaint are true, JP Morgan breached the mortgage agreement for failing to endorse the insurance check, and that the breach could have caused the default, resulting in a wrongful foreclosure.

Discovery Dispute: Bank’s Motion to Strike Expert Disclosure of Handwriting Witness, Borrower’s Motion to Compel Interrogatory Responses

Becker v. Wells Fargo Bank, N.A., Inc., 2013 WL 5406894 (E.D. Cal. Sept. 25, 2013): Borrower seeks to introduce testimony of an expert witness to determine whether borrowers’ loan documents were “robo-signed.” Defendant objected because borrower’s robo-signing related claims involving forged documents were dismissed. Borrower claimed robo-signing was still pertinent to his negligence, emotional distress and UCL claims. The court denied defendant’s motion to strike the disclosure of the witness: defendant had neither alleged a “live” discovery issue, nor had it determined the expert would absolutely not provide relevant testimony.

Borrower brought a motion to compel responses to many interrogatory requests. Most notable was his request that Wells Fargo and Wachovia explain how they became the owners/holders of the borrower’s loan. The court declined to compel a response because defendant’s explanation of corporate succession was sufficient. Borrower also asked defendants to identify how many of their trial modifications eventually became permanent. The court agreed with borrower that “the number of times defendant has permitted a trial modification to transform into a permanent modification has at least some degree of relevance to the fraud and unfair business practices claims.” Parties were ordered to meet and confer to determine that the borrower only wants the number of permanent modifications offered, not details about individual cases.

Loan Owner in Bankruptcy May Sell Loan “In the Ordinary Course of Business” without Bankruptcy Court Approval

Miller v. Carrington Mortg. Servs., 2013 WL 5291939 (N.D. Cal. Sept. 19, 2013): Bankruptcy trustees “may enter into transactions, including the sale or lease of property . . . in the ordinary course of business, without a hearing.” Previously, this court granted a very limited summary judgment motion in favor of borrower, determining “that there is no genuine dispute that the loan at issue was transferred by [loan holder] while it was in bankruptcy (as [borrower] contends) and not before (as Defendants contend).” Now, the court addresses whether the loan holder – while in bankruptcy – could have sold borrower’s loan to a second entity without the bankruptcy court’s explicit approval. In selling either borrower’s loan by itself, or as part of a securitization with other loans, the owner of the loan did not violate bankruptcy law because the sale was in its “ordinary course of business.” The assignment of the loan from the original lender (in bankruptcy) to Wells Fargo was valid, and the eventual foreclosure proper. All borrower’s claims were dismissed.

Glaski-type Claim Fails Because Borrower Could Not Show Defect in Foreclosure Process was Prejudicial

Dick v. Am. Home Mortg. Servicing, Inc., 2013 WL 5299180 (E.D. Cal. Sept. 18, 2013): To state a valid wrongful foreclosure claim, a borrower must show that the problems in the foreclosure process that made it “wrongful” prejudiced borrower in some way, specifically, in their ability to pay their mortgage. Fontenot v. Wells Fargo Bank, N.A., 198 Cal. App. 4th 256, 272 (2011). California courts have failed to find prejudice if a defaulting borrower cannot show that the improper foreclosure procedure (like an invalid assignment) “interfered with the borrower’s ability to pay or that the original lender would not have foreclosed under the circumstances.” If the proper party could have foreclosed, in other words, the borrower cannot sue the improper party who actually foreclosed. This court acknowledged borrower’s possible standing under Glaski v. Bank of America, 218 Cal. App. 4th 1079 (2013) to bring a wrongful foreclosure claim based on an improper assignment of a loan to a trust after the trusts’ closing date, but declines to determine that question because the wrongful foreclosure claim was dismissed on Fontenot grounds.

HOLA Applies to a National Bank, Preempts HBOR

Marquez v. Wells Fargo Bank, N.A., 2013 WL 5141689 (N.D. Cal. Sept. 13, 2013): California federal district courts have adopted several different analyses to determine whether national banks, like Wells Fargo, can invoke HOLA preemption despite HOLA’s application to federal savings associations (FSA). The court acknowledged this split in authority: a majority of courts have applied HOLA preemption to national banks if the loan originated with a federal savings association, while a minority have analyzed what conduct is being litigated—if committed by the FSA, then HOLA is applicable, but if committed by a national bank, HOLA is inapplicable. This court sided with the majority, reasoning that borrowers originally contracted with an FSA and agreed to be bound by the terms of the DOT, which include regulation by HOLA and the OTS.

After establishing HOLA as the appropriate preemption analysis, the court determined that each of borrower’s claims, including four HBOR claims, are preempted by HOLA. State laws regulating or affecting the “processing, origination, servicing, sale or purchase of . . . mortgages” are expressly preempted by HOLA. CC § 2923.55, which prevents servicers from taking foreclosure actions until contacting, or attempting to contact, a borrower to discuss foreclosure alternatives, “fall squarely” within HOLA express preemption. Dual tracking, prohibited by CC § 2923.6, also falls under “processing” mortgages, as does the requirement that servicers provide a single point of contact to borrowers seeking loan modifications (CC § 2923.7). Finally, requiring servicers to verify foreclosure documents before recording them is also preempted, as it also relates to “processing” and “servicing” of a loan. The court dismissed all of borrower’s claims.

Dual Tracking: “Complete” Application & A Private Right of Action under CC § 2924.12

Massett v. Bank of Am., N.A., 2013 WL 4833471 (C.D. Cal. Sept. 10, 2013): To receive a TRO based on a dual tracking claim, a borrower must demonstrate: 1) they submitted a “complete” application and 2) the application is still pending, but the servicer has initiated or continued foreclosure proceedings. Here, to prove they were likely to succeed on the merits on both the “complete” and pending elements, borrowers submitted two emails from a servicer representative, the first acknowledging receipt of their application and noting, “[w]e do not need any further documentation at this point in time.” The second, dated just 13 days before the TRO hearing and 15 before the scheduled sale stated: “The account is currently still in review.” These emails provided sufficient evidence that borrower’s application was complete, still pending, and that they were likely to prevail on a CC § 2923.6 claim. The court found a possible foreclosure sale to constitute “irreparable harm,” not based on the usual loss-of-home argument, but based on HBOR’s statutory scheme. CC § 2924.12 “only authorizes relief ‘[i]f a trustee’s deed upon sale has not been recorded.’ If the scheduled sale goes forward, then, plaintiffs will have no means of contesting Nationstar’s alleged dual-tracking.” Compared to the type of harm likely to be experienced by the borrowers, the TRO will only delay Nationstar’s ability to foreclose, should they deny borrower’s modification application. The balance then, tips in borrowers’ favor. Lastly, the court cited Jolley v. Chase Home Finance, LLC, 213 Cal. App. 4th 872, 904 (2013) in finding a public interest in prohibiting dual tracking. The court granted borrowers a TRO to postpone the foreclosure sale.

Borrower’s “Counter Offer” to a Loan Modification Can Extinguish a Dual Tracking Claim

Young v. Deutsche Bank Nat’l Tr. Co., 2013 WL 4853701 (E.D. Cal. Sept. 10, 2013): HBOR prevents servicers from foreclosing while a first lien loan modification is pending. If a servicer offers a loan modification, a borrower has 14 days in which to accept. If they do not, the servicer can proceed with the foreclosure. CC § 2923.6(c)(2). Here, borrower responded to a loan modification offer, within 14 days, but did so with a “counter offer,” not an acceptance. Servicer did not respond to the counter offer and proceeded with the foreclosure after several months. The court found no dual tracking since borrowers failed to comply with the statute. Borrowers argued their counter offer responded to what they believed to be a modification offered related to the present litigation and settlement communications. Since settlement negotiations cannot be admitted as evidence, borrowers argued, their counter offer should not be considered by the court. Nothing, however, was offered in exchange for accepting the modification (like dismissing the action, for example), so the court did not find this argument persuasive. Additionally, borrowers’ claim that the modification offer was unreasonable and/or not in good faith also failed. Nothing in HBOR requires servicers to provide modifications, or instructs them on the quality of those modifications. The court denied the TRO.

Borrower’s Motion to Strike Bank’s Affirmative Defenses

Burton v. Nationstar Mortg., LLC, 2013 WL 4736838 (E.D. Cal. Sept. 3, 2013): Defendants must “affirmatively state any avoidance or affirmative defense[s]” when responding to a complaint. Fed.R. Civ. Proc. 8(c)(1). Affirmative defenses will be stricken, though, if legally or factually deficient. A legally insufficient affirmative defense will fail under any set of facts stated by defendant. A factually insufficient affirmative defense fails to give the plaintiff fair notice, i.e., state the “nature and grounds” for the defense. If the defense simply states a legal conclusion, without linking it to the facts of the case, it does not provide fair notice. Under each rubric, defendants bear the burden of proof. Here, borrower moved to strike all 20 of Nationstar’s affirmative defenses to his breach of contract and fraud claims as both legally and factually insufficient. The court agreed that 13 affirmative defenses were “bare bones” conclusions of law, devoid of facts, and ordered them stricken with leave to amend. Borrowers’ legally insufficient challenge to Nationstar’s statute of limitations and lack-of-tender defenses failed. Moving to strike a SOL defense “seeks resolution of legal and factual issues not available at this pleading stage.” If Nationstar amends their SOL defense to overcome its factual insufficiencies, it will remain as both legally and factually well-pled. Nationstar’s defense related to tender also remains, as borrower’s use of a tender exception (that the sale would be void, not merely voidable), is premature at this stage.

Rescinded NOD Moots CC §§ 2923.5 & 2924 Claims; Fraud-Based Detrimental Reliance & Damages

Tamburri v. Suntrust Mortg., Inc., 2013 WL 4528447 (N.D. Cal. Aug. 26, 2013): Before recording an NOD, servicers must contact, or attempt to contact, borrowers to discuss foreclosure alternatives. CC § 2923.5. Under the previous version of this statute, and the operative one in this case, the sole remedy was postponing the sale. There was no remedy after a sale occurred. (Under HBOR, economic damages are available under CC § 2924.12 & 2924.19.) In this case, defendants rescinded the NOD and there is no pending foreclosure sale. The court granted summary judgment to defendants because borrower’s § 2923.5 claim was mooted by the NOD rescission.

Wrongful foreclosure claims are based on: 1) an illegal, fraudulent, or willfully oppressive foreclosure; 2) prejudicing the borrower; 3) who tendered the amount due under the loan. Here, the court granted summary judgment to defendants because the rescinded NOD negated the first two elements. Additionally, California courts have found no “preemptive right of action to determine standing to foreclose.”

To allege fraud, a borrower must establish (along with servicer’s fraudulent conduct) detrimental reliance and damages. Here, borrower alleged she “would have behaved differently,” had her servicer not “misrepresented the identity of the owner of [the] loan,” allowing it to profit from a foreclosure, rather than modify the loan. “[B]ehaving differently, by itself, does not establish a claim for fraud. Plaintiff must have relied to her detriment in order to state a claim for fraud.” (emphasis original). Borrower could not demonstrate damages either; she was in default, knew her servicer, attempted to work with them to modify her loan, and was unsuccessful. Knowing who owned the loan would not have changed borrower’s situation. The court accordingly granted summary judgment to defendants on borrower’s fraud claim.

Servicer Wrongfully Foreclosed After Borrower Tendered the Amount Due on the NOD; Damages Assessed According to Loss of Home Equity

In re Takowsky, 2013 WL 5183867 (Bankr. C.D. Cal. Mar. 20, 2013); 2013 WL 5229748 (Bankr. C.D. Cal. July 22, 2013): Notices of default must specify the “nature of each breach actually known to the [loan] beneficiary,” including a statement of how much the borrower is in default. Whatever the actual default amount, the amount listed on the NOD controls. Here, the NOD stated that borrower had breached the second deed of trust, and listed amounts due accordingly. It made no mention of senior liens. Borrower paid her servicer the amount due on the NOD. “In doing so, Plaintiff cured the only default explicitly listed in the NOD,” and by accepting that payment, servicer was prevented from foreclosing. Borrower’s actual default on the senior lien is not relevant because that default was not listed on the NOD. Servicer’s subsequent foreclosure was wrongful because servicer had no power of sale under the NOD. Further, borrower made servicer aware of its confusing misstatements regarding the amount required to prevent foreclosure, so servicer either knew, or should have known, that borrower believed she only had to cure the default on the second lien to prevent foreclosure.

To determine damages, the bankruptcy court assessed borrower’s loss of home equity resulting from the wrongful foreclosure. Equity was calculated by taking the total value of the home and subtracting what borrower owed. The parties contested the property valuation, but the court accepted borrower’s estimation, based on expert testimony and appraisal. Borrower had significant home equity pre-foreclosure, so her damages were substantial (over $450,000). The court denied borrower’s request for damages to compensate her for moving and storage costs. She would have had to sell her home, or lost it to foreclosure eventually, the court reasoned, incurring those costs in due course. The court also denied damages related to emotional distress, pointing again to her likely property loss even without this foreclosure, her pre-existing bankruptcy proceedings, and her choice to remain in the home until the sheriff came to evict her, rather than leaving voluntarily before that stage.

Out of State Cases

HAMP Guidelines Provide Benchmark for “Good Faith” Standards in Foreclosure Settlement Conferences

U.S. Bank, N.A. v. Rodriguez, __ N.Y.S.2d __, 2013 WL 4779543 (Sup. Ct. Sept. 5, 2013): Parties involved in residential foreclosures in New York state must undergo settlement conferences where both servicer and borrower must “negotiate in good faith” to reach a resolution, which includes a loan modification if possible. If the servicer evaluates borrower for a HAMP modification, the un-modified monthly payment must be greater than 31% of the borrower’s monthly gross income for the borrower to qualify. Here, servicer denied borrower a HAMP modification on two grounds. First, borrower’s mortgage payments fell below 31% of their gross monthly income. Borrowers pointed out (on multiple occasions) servicer’s incorrect principal and interest figures which set the mortgage payment too low. Second, the principal and interest could not be reduced by 10% or more, as required in a HAMP Tier 2 analysis. Borrowers objected to the use of a Tier 2 standard when they should have first been evaluated under Tier 1, according to HAMP guidelines. Servicer refused to comply with either request—for using the correct inputs or for evaluating under Tier 1 before Tier 2. The court found this conduct violated the duty to negotiate in good faith under New York law governing foreclosure settlement conferences. As a gauge for evaluating “good faith” conduct, the court used the HAMP guidelines themselves as “an appropriate benchmark [that] would enable the bank to abide by both state and federal regulations.” Since this servicer chose not to abide by the guidelines in evaluating borrower’s financial information, they did not make a “good faith” effort to negotiate. The court made clear that making a good faith effort will not, necessarily, result in a loan modification. The court ordered servicer to give borrower a “final detailed determination on his loan modification application, after review of all possible HAMP options,” and stopped interest accrual on borrower’s loan from the date servicer formally denied a modification.

Servicers Cannot Use “Investor Restrictions” as Excuse Not to Negotiate Settlement Conferences in Good Faith

Deutsche Bank Nat’l Tr. Co. v. Izraelov, 2013 WL 4799151 (N.Y. Sup. Ct. Sept. 10, 2013): Parties involved in residential foreclosures in New York state must undergo settlement conferences where both servicer and borrower must “negotiate in good faith” to reach a resolution, which includes a loan modification if possible. Servicers who refuse to modify a loan because of an investor restriction “must provide the court or referee with suitable documentary evidence of the obstacle, and the court or referee may appropriately direct its production.” Further, if an investor restriction does exist, the servicer must make a good faith effort to convince the investor to waive the restriction for the borrowers in question, and to produce documentary evidence of this effort.

Here, after servicer (HSBC) refused to consider borrowers for a HAMP modification, the referee required documentation of an investor restriction. HSBC produced a one-page document, an agreement between them and another HSBC entity, stating that they are not allowed to participate in HAMP modifications without “express permission.” Deutsche Bank was not mentioned. The referee also required evidence of HSBC’s good faith effort to obtain an investor waiver. Specifically, she required the documentation outlined by HAMP’s guidance on “good faith” efforts (See HAMP, “Q2301.”). The reviewing court agreed this was a reasonable request and that HAMP “good faith” standards are an acceptable gauge to judge a servicer’s conduct, “whether or not the loan qualifies for HAMP.” In this case, the court assumed HSBC made a good faith effort to obtain a waiver. But, after it received a waiver, it refused to consider borrower for a modification. This violated the “good faith” requirement for mandated settlement conferences under New York law. The court ordered the servicer(s) to request documentation from borrowers and to consider them, at least, for a HAMP modification. It also ordered that borrowers are not responsible for interest on their loan accruing from the date HSBC announced it could not offer any modification to borrowers (totaling over three years’ worth of interest).

Recent Regulatory Updates

FHA Mortgagee Letter 2013-32 (Sept. 20, 2013, must be adopted by Dec. 1, 2013)

Active Bankruptcies & Bankruptcy Discharge

Borrowers in active chapter 7 and 13 bankruptcies are FHA Loss Mitigation Option eligible, if otherwise compliant with bankruptcy law and orders from their particular bankruptcy court.

Borrowers who received chapter 7 bankruptcy discharge but did not reaffirm the FHA-insured mortgage debt are still eligible for Loss Mitigation Options.

Treatment of “Continuous” and “Unearned” Income

“Continuous income” includes income received by the borrower, “that is reasonably likely to continue” from the date of modification evaluation through the next year. To determine continuous income, servicers must evaluate the borrower’s sources of net and gross income and expenses, and input those numbers to determine if borrower has the income necessary to qualify for a loss mitigation program. Continuous income may include employment income, but it also can encompass “unearned income,” like social security, VA benefits, child support, survivor benefits, and pensions.

Capitalization & Arrears

Loan Modifications and FHA-HAMP Partial Claims can include arrearages of unpaid interest, escrow fees, and foreclosure attorney fees. “Outstanding arrearages capitalized into modifications are not subject to the statutory limit [30% of the unpaid principle balance at default] on Partial Claims. However, arrearages and related foreclosure costs included in Partial Claims are subject to statutory limit . . . .”

Fannie Mae Announcements SVC-2013-18 & SVC-2013-19 (Sept. 18, 2013)

Announcement SVC-2013-18: Extension of Programs & New NPV Test

Fannie Mae’s HAMP and Second-Lien Modification Programs have been extended. All HAMP-eligible borrowers must be in a Trial Period Plan by March 1, 2016. All HAMP or Second-Lien Modification Program participants must have permanent modifications by September 1, 2016.

Beginning January 1, 2014, loans evaluated for Fannie Mae HAMP will only be eligible “if the value of the ‘modification’ scenario equals or exceeds the value of the ‘no-modification’ scenario.” A negative NPV result can no longer qualify a loan for HAMP “if the value of the ‘modification scenario is below the value of the ‘no-modification’ scenario.” Even if this is the case, though, the servicer must then evaluate the borrower for other foreclosure alternatives within the Fannie Mae guidelines, before foreclosing.

Announcement SVC-2013-19

Establishes processes servicers must follow in eliminating and rescinding foreclosure sales.

Freddie Mac Single-Family Seller/Servicer Guide Bulletin 2013-17 (Sept. 16. 2013)

Streamlined Modification program is extended to include all loans entering into a Streamlined Modification TPP by December 1, 2015. Freddie Mac HAMP program is extended to include all borrowers entering into a TPP by March 1, 2016 and a permanent modification by September 1, 2016.

All loans evaluated for HAMP on or after January 1, 2014, will only be eligible if they have a positive NPV result (an NPV of $0 or greater). Servicers must consider borrowers with a negative NPV result for other foreclosure alternatives.

MHA Update, Supplemental Directive 13-07: HAMP Handbook Version 4.3 (Sept. 16, 2013)

The new HAMP Handbook includes and supersedes Supplemental Directives 13-01 through 13-06, and includes revisions to v.4.2.

What Homeowners Needs to Know About Chapter 13 Bankruptcy

02 Wednesday Apr 2014

Posted by BNG in Bankruptcy, Federal Court, Foreclosure Defense, Judicial States, Non-Judicial States, Pro Se Litigation

≈ 1 Comment

In chapter 13 Bankruptcy, homeowners can use the Bankruptcy proceeding known as “Adversarial Proceeding” to challenge the lender’s authority to enforce or collect the mortgage payments. In most cases, the mortgage loan have been securitized and the assignments were not done in accordance of the law. That is when the Bankruptcy laws that in place in Chapter 13 is designed to protect the homeowners. However, due to numerous changes in the Bankruptcy laws, not all homeowner could meet the “means test” required to retain their homes under Chapter 13 which could lead to a conversion to chapter 7 for liquidation of assets to pay creditors. When homeowners with income could show that they could pay certain bills even if they did not have enough to pay all, the Bankruptcy laws were there to protect the homeowner. Once the Chapter 13 is filed, then the homeowner could use “Bankruptcy Adversarial proceeding” to challenge the Lenders’ authority to collect the debt. When the lenders fails to prove their standing in the mortgage loan transaction, their rights to collect payments from the borrowers were therefore not met and the Bankruptcy judges usually sanctions them for that and in certain cases may outright dismiss their cases which could result to the homeowner owning the property free and clear.

Homeowners should have know that using the Bankruptcy option to save their homes also means that they may give up their rights to sue in the State or Federal Jurisdiction to collect damages for the violations and wrongs done in their mortgage loan transaction as damages are not awarded in the Bankruptcy courts. Reasons being that “you can not sues the same defendants in different jurisdictions using the same set of facts” The keyword here is (“The same set of facts”). So whatever the allegations you are going to make to save your home for mortgage law violations to collect damages in State or Federal courts are most likely the same allegations you will make in the adversarial proceedings in the Bankruptcy court. Therefore, the lenders well paid Attorneys will most likely challenge those sets of facts in their motion to dismiss on the new jurisdiction you filed. That is why Bankruptcy is usually reserved as the last option to “save the home” but without monetary damages, so smart homeowners seeking to collect monetary damages in the State or Federal court as well as saving the home usually start on those courts. However, the problem is that waiting for a few years before proceeding with Bankruptcy chapter 13 to save the home means that the homeowner should be able to make both the payment of the current mortgage, as well as the portion needed to bring the past due payments current. For Example if a homeowner missed 3 years of payment on a $2500/mth mortgage. The homeowner would have owed $90,000 ($2500×36), in the past due payments, then when in Chapter 13 Bankruptcy, the homeowner will then take the “means test” in order to be able to meet both $2500/month payment plus additional ($1500/month payments ($90,000 divided by 60 months), plus other payments needed to pay other secured and unsecured creditors such as car loans, student loans, back taxes and credit cards etc. The Bankruptcy trustee administrative fees that will also be included in the plan for that 5 years of your plan will amount to approximately $27000. Homeowner also must be current in all taxes meaning that all taxes must have been filed in order to determine if you owe extra taxes than needed to be included in your chapter 13 plan. The last 4 years is mandatory before the judge will approve the plan. You may also request an extension for 120 days in order to file those taxes.
It is important however to note that there are more favorable laws in the Bankruptcy jurisdiction than in the Federal and State jurisdiction and homeowners needs to be aware of that. Bankruptcy Judges are now becoming lenient towards homeowners in default and in order to help keep homeowners in their homes, many BK judges have forced the lenders to modify the loans they had refused to modify for years. (Bankruptcy judges looks at the case as “Borrowers that recognize their delinquency and needed to reorganize their debt and pay those debt only to Bona Fide Creditors”.), some state courts depending on where you are located has similar views. However, Federal courts only address federal questions and in most cases approach the case with a view that a (“Borrower defaulted on a mortgage or failed to pay his/her mortgage, but rather wish to seek for a free home using mortgage law violations in the federal jurisdiction). There is a big difference between these views that is why most federal judges frown on home owners unless you can proof that you know “exactly what you are doing” then it raises their curiosity towards your case as a pro-se litigant, but you must have the rights allegations in your complaint to succeed or you have a better chance having your case thrown out.
Chapter 13 bankruptcy divides debts into several categories. How much you must pay on each type of debt differs. General unsecured claims in Chapter 13 Bankruptcy are those debts that are not secured (examples of secured debts include mortgages and car loans) and not deemed as “priority” by bankruptcy law (examples of priority debts include child support and certain incomes tax debts).

For the most part, you must pay 100% of your secured and priority debts (there are some exceptions). This is not the case with nonpriority, unsecured debts. How much you must pay to your general unsecured creditors in Chapter 13 bankruptcy depends on several factors.
• Disposable income. You must devote all of your disposable income to your plan — so what your unsecured creditors get depends on how much money you have left over each month after paying expenses, secured debts, and priority claims.
• Best interest of the creditors. In addition, at a minimum, your unsecured creditors must get what they would have received had you filed for Chapter 7 bankruptcy.
Disposable Income – How Much You Can Afford?
In Chapter 13 bankruptcy, you must devote all of your “disposable income” to repayment of your debts over the life of your Chapter 13 plan. Disposable income is what you have left over at the end of every month after you pay your reasonable and necessary living expenses. Your disposable income first goes to your secured and priority creditors, and the remainder is split among your unsecured creditors.
The court determines your disposable income first by reviewing your means test, then by reviewing your income and expense schedules.
What is the means test? When you file for Chapter 13 bankruptcy, you fill out a “means test” form, which calculates your income based on the six-month period prior to the month you filed bankruptcy. The test compares your average income to the median income of others in your county or state of the same household size.
If your income is higher than the median. If your income is higher than the median, you must complete the entire means test, taking deductions for certain expenses, including secured debt payments such as car payments and mortgages. The result will show a monthly figure which, multiplied by 60, will decide how much your unsecured creditors will receive over the life of your case.
If your income is lower than the median income. If your income is lower than the median, you do not have to complete the rest of the means test, and your disposable income is based on your income and expense schedules. When you file Chapter 13, you will also file a Schedule I, which lists your actual monthly income from all sources, and a Schedule J, which lists your actual monthly expenses. Reasonable and necessary living expenses include items such as rent, groceries, utilities, cable, pet care, gas, and insurance. The difference between your income on Schedule I and your expenses on Schedule J will be your Chapter 13 plan payment. Your unsecured creditors will receive whatever percentage that income yields after other secured and priority creditors are paid.
Best Interest of Creditors: The Hypothetical Chapter 7
The “best interest of creditors” test calculates the minimum amount you must pay to your nonpriority unsecured creditors through your Chapter 13 plan. If you can’t repay this minimum amount, the court will not confirm your Chapter 13 plan (which means you can’t proceed with your case).
The best interest of creditors test figures out how much your creditors with nonpriority, unsecured claims would have received had you filed for Chapter 7 bankruptcy. You must repay these creditors at least this much in your Chapter 13 bankruptcy. The idea is that creditors should not be disadvantaged just because you filed for Chapter 13 rather than Chapter 7 bankruptcy.
How much your unsecured creditors get in Chapter 7.

A Chapter 7 bankruptcy is a liquidation; if you have any property in a Chapter 7 case that you cannot exempt, the Chapter 7 trustee can sell the property and pay your creditors with the money. However, bankruptcy law allows Chapter 7 debtors to protect some of their property through exemptions. Exemptions allow you to keep certain property up to a certain value. If you have property that the bankruptcy exemptions don’t protect (called nonexempt property), the value of this property goes to the bankruptcy estate and will be distributed to your unsecured creditors.

The minimum amount your unsecured creditors get in Chapter 13. The Chapter 13 trustee will look at what your unsecured creditors would have received in Chapter 7, and then make sure those creditors get at least this much through your Chapter 13 plan.

Example. Say you own a car worth $10,000 and you can only exempt $3,450. The nonexempt value is $6,550. If you had filed Chapter 7, hypothetically the trustee would have sold your car, paid you your exemption, and paid the remaining $6,550 to your general unsecured creditors pro rata. That means that in your Chapter 13 case, your general unsecured creditors must receive, as a group, at least $6,550. Each creditor will receive a percentage of that amount, depending on the amount of its claim.

How Much Do You Have to Pay Nonpriority Unsecured Creditors?
When completing the Chapter 13 means test, you must provide your average monthly income for the six-month period prior to filing for bankruptcy. You then compare your average income against the median state income for a household of the same size. How much you must pay nonpriority unsecured creditors depends on whether your income is above or below the state median.
If You Have Below Median Income
If your income is below the state median, you are not required to complete the entire means test form. As a result, a monthly disposable income figure is not calculated. Essentially, if you are below median, the court assumes that you have no disposable income and your plan payment is primarily based on your budget. This means that the bankruptcy court will usually approve your Chapter 13 plan even if you are paying little or nothing to your nonpriority unsecured creditors. In addition, your plan can be only three years long instead of five.
Example. Brian is single and makes $35,000 a year. The median income for a single person household is $45,000 in his state. Since Brian’s income is below median, he does not have to complete the entire means test form and may end up paying nothing to nonpriority unsecured creditors.
If Your Income Is Above the State Median
You must complete the entire means test form if your income is above the state median. To calculate your monthly disposable income, the means test uses national and local standards for most living expenses. However, you are also allowed to deduct your actual expenses for certain items such as your mortgage, taxes, and health insurance. If you have a positive monthly disposable income figure, you multiply it by 60 to figure out how much you must pay nonpriority unsecured creditors in your plan. This is because above median debtors are required to be in a five-year bankruptcy plan.
Example. Emily and Brad are married and have a combined annual income of $90,000. Their state has a median income of $60,000 for a household of two. After completing the means test, their monthly disposable income is determined to be $500. Since they have to be in a five year (60 month) bankruptcy plan, they would have to pay nonpriority unsecured creditors at least $30,000 ($500 multiplied by 60) over the course of their Chapter 13.
If you find yourself in an unfortunate situation of losing or about to your home to wrongful fraudulent foreclosure, and need a complete package that will help you challenge these fraudsters and save your home from foreclosure visit: http://www.fightforeclosure.net

How Homeowners Can Effectively Use TROs to Save Their Home from Foreclosure

20 Monday Jan 2014

Posted by BNG in Appeal, Federal Court, Foreclosure Defense, Judicial States, Litigation Strategies, Non-Judicial States, Pleadings, Pro Se Litigation, Trial Strategies, Your Legal Rights

≈ 1 Comment

How hard it is to fight a foreclosure depends to a great extent on where you live. If your state requires the foreclosing party to sue you (this is called judicial foreclosure), then it’s easier (and less expensive) to jump into the existing lawsuit. If, in your state, foreclosures proceed without court supervision (nonjudicial foreclosure), then you’ll have to bring your own lawsuit—a more worky and costly process.

Because nonjudicial foreclosures proceed outside of court, you’ll have to file a lawsuit to get a judge’s attention. And you’ll have the burden of proof because you want the judge to stop a proceeding—the foreclosure—that is already authorized by the mortgage.

Fightforeclosure will provide extremely helpful guidance if you choose to do this yourself, or you may hire a lawyer if you wish at a more costly price. Unfortunately, litigation in which an attorney’s services are used is always expensive when you have the burden of proof. So unless the lawyer thinks you have a very good case, you may not want to bother with a lawsuit. If the only basis for your challenge is that the foreclosing party made a technical procedural violation, you’ll probably gain only a few weeks of delay even if you win, but if you follow the well crafted causes of auction in fight Foreclosure defense package, you have a better chance of stopping foreclosure in its tracks.

To get your day in court to challenge a nonjudicial foreclosure, you must sue the lender and the foreclosing agent (typically, the trustee). In the lawsuit, you ask the court to enjoin (stop) the foreclosure proceedings until a judge can hear your reasons as to why the foreclosure shouldn’t proceed.

In this kind of lawsuit, you typically ask the court for three things, in this order:

a temporary restraining order
a preliminary injunction, and
a permanent injunction.

Your application for a temporary restraining order (TRO) must convince the judge that you will suffer “irreparable injury” if the judge doesn’t stop the foreclosure immediately. Because you will lose your home if the foreclosure is allowed to proceed, most courts accept that a foreclosure causes irreparable injury.

TROs are typically granted without a formal notice or hearing, which means the foreclosing party may have only a day or two of notice in which to prepare a response. If no response is filed, the judge may well grant the TRO, but require you to post a bond to protect the foreclosing party from economic harm in case you lose. A bond can be costly, assuming you can get one at all. You might be able to get the bond requirement waived if your income is low enough.

Getting the Bond Requirement Waived

The court may grant a waiver if:

* the delay required by the lawsuit will not cause unreasonable harm to the lender

* the validity of your mortgage is in question (for example, the deed was not properly acknowledged or recorded), or

* the lender’s interest in pushing ahead with the foreclosure can be protected by some other method, such are requiring you to make reasonable monthly payments during the course of the lawsuit.

The TRO will typically last until the date set for a hearing on whether the court should issue a preliminary injunction—which would stop the foreclosure pending a full trial on the matter. A hearing on the preliminary injunction is typically held between ten days and two weeks after the TRO is issued.

At the preliminary injunction hearing, the court will review each party’s paperwork—essentially the same paperwork submitted in a judicial foreclosure hearing, described earlier. At this hearing, the court must decide whether or not:

* you are likely to prevail at a trial, and

* the injury that you would suffer from the foreclosure outweighs the injury that the foreclosing party is suffering by not getting paid (called balancing the equities).

If the judge decides these issues in favor of the foreclosing party, the TRO will end, and your lawsuit will be dismissed.

But if the judge decides these issues in your favor, then the judge will issue a preliminary injunction. The preliminary injunction may order the foreclosing party to take corrective action—for example, by issuing a new pay-off statement and giving you a chance to reinstate the mortgage. Or it may simply keep the TRO in effect.

Because it often takes a year or two to bring a case to trial on a permanent injunction, getting a preliminary injunction is pretty much equivalent to a victory for you. Typically, the foreclosing party will either attempt to reach a settlement with you, drop the current foreclosure and begin from scratch, or meet any conditions laid down by the court and then go back into court asking that the injunction be lifted.

The burden is on you to prove that the foreclosing party didn’t comply with state laws or the terms of the deed of trust. You meet this burden with the documents you file—typically, declarations or affidavits from you and various witnesses that establish the facts you believe entitle you to stop the foreclosure. For example, if you contest the accuracy or legality of the fees the foreclosing party required you to pay to reinstate the mortgage, you would attach a sworn statement to your application for a TRO or preliminary injunction, setting out the facts as you know them.

If the foreclosing party produces documents that contradict yours, then you will need to convince the judge at the preliminary injunction stage that you deserve to have the foreclosure put on hold until you can produce your full case at trial. Because most preliminary injunction hearings don’t involve live witnesses, your paperwork may have to carry the day.

Consider Recording a Lis Pendens

Instead of seeking a TRO or preliminary injunction to delay the foreclosure sale until you can have a hearing, consider recording a “lis pendens” and filing a regular civil complaint attacking the foreclosure. A lis pendens is a simple document providing notice to the world that title to the property is a subject of litigation. As long as it is on record, any sale of the property can be undone if your lawsuit succeeds, because the buyer had notice of the controversy. Also, no title company will insure title to property subject to a lis pendens.

Due Process Suffers in Nonjudicial Foreclosures

When attempting to foreclose on your house, the lender must comply not just with your state’s laws and the terms of your deed of trust. It must also comply with the due process requirements of the United States Constitution.

In the foreclosure context, this means:

* You must receive adequate notice of the proceedings that may cause you to lose your house;

* You must have an opportunity to question the legality of the foreclosure proceedings before a neutral magistrate.

By agreeing to a nonjudicial foreclosure (as a practical matter, you have no choice) when you get a loan, you give up a fundamental due process right: the right to an evaluation of the foreclosure’s legality by a neutral magistrate before a foreclosure sale. To challenge a nonjudicial foreclosure in court and come out successful, you almost certainly will needs a well crafted package like Fightforeclosure.net package. Because people facing foreclosure are almost always strapped for cash, lawyers are often unaffordable. For that reason, for many people, the ability to file an action in court challenging a foreclosure is only theoretical. Is the entire nonjudicial foreclosure scheme even constitutional? I don’t think it is, but the courts say otherwise.

What Homeowners Must Know About Appealability and Reviewability of Court Orders and Judgments

16 Thursday Jan 2014

Posted by BNG in Appeal, Case Laws, Case Study, Federal Court, Foreclosure Defense, Judicial States, Legal Research, Litigation Strategies, Non-Judicial States, Pro Se Litigation, State Court, Your Legal Rights

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This Post is to guide Homeowners in deciding whether to appeal their cases to the higher courts upon judgment or order.
A. Definitions

The concepts of appealability and reviewability are constitutional limitations on the Court’s power to hear cases. More precisely, appealability rules act to limit the kinds of cases which may be heard by the Court of Appeals. Reviewability rules, on the other hand, limit the issues which the Court may determine once the case is before the Court. Article VI, § 3(b) of the State Constitution prescribes what kinds of orders are appealable to the Court, and article VI, § 3(a) states that in most cases “the jurisdiction of the Court of Appeals shall be limited to the review of questions of law.”

B. Appealability

In addition to the jurisdictional requirements discussed above for appeals as of right and motions for leave to appeal, certain other appealability requirements must be met.

1. Appropriate Court

Action must originate in an appropriate court. For example, the Court lacks jurisdiction to entertain a motion for leave to appeal from an order of the Appellate Division where the appeal to that court was from a judgment or order entered in an appeal from a third court (Matter of Thenebe v Ansonia Assocs., 89 NY2d 858). This jurisdictional problem will arise when an action originates in a court other than Supreme Court, County Court, Surrogate’s Court, Family Court, Court of Claims or an administrative agency or an arbitration. The motion will be dismissed regardless of whether the Appellate Division order is final.

Note: The Court does not have jurisdiction to entertain a motion for leave to appeal from a determination of a court other than the Appellate Division, except in the circumstances specified in CPLR 5602(a)(1)(ii). Regarding appeals as of right, see CPLR 5601.

2. Aggrievement

a. CPLR 5511 states that only an aggrieved party may appeal (see, Hecht v City of New York, 60 NY2d 57, 61). A party may appeal if the order appealed from does not grant complete relief to it. A party which is granted complete relief but is dissatisfied with the court’s reasoning is not aggrieved within the meaning of CPLR 5511 (see, Matter of Sun Co. v City of Syracuse Indus. Dev. Agency, 86 NY2d 776; Parochial Bus Sys. v Board of Educ., 60 NY2d 539, 545).

b. No appeal lies from an Appellate Division order dismissing an appeal from a determination entered upon a default judgment (CPLR 5511; Matter of Lizette Patricia C., 98 NY2d 688).

c. Where the Appellate Division reverses a trial court’s judgment and orders a new trial limited to the issue of damages unless plaintiff stipulates to a reduction of damages, and plaintiff so stipulates, plaintiff is not aggrieved by the Appellate Division order (see, Whitfield v City of New York, 90 NY2d 777, 780 n *; see also, Smith v Hooker Chem. & Plastics Corp., cross mot for lv dismissed 69 NY2d 1029). Similarly, where the Appellate Division reverses and grants a new trial on the issue of damages unless defendant stipulates to an increase in damages and defendant stipulates, defendant’s attempt to appeal to the Court and to argue liability issues will be dismissed for lack of aggrievement (see, Whitfield, supra; see also, Sharrow v Dick Corp., mot to dismiss appeal granted 84 NY2d 976). Note that a party who, as a result of a conditional order, stipulates at the trial or appellate court to a different amount of damages in lieu of a new trial on a cause of action forgoes review of other issues raised by that order, including those pertaining to any other cause of action and, therefore, is not a party aggrieved (see, Batavia Turf Farms v County of Genesee, lv dismissed 91 NY2d 906). Only the non-stipulating party may appeal or move for leave to appeal (Whitfield, supra).

3. Finality — covered in detail in Section VI of this outline.

4. Miscellaneous Appealability Problems

a. Dual Review — Where the same party both appeals to the Appellate Division and appeals to the Court of Appeals, the appeal to the Court will be conditionally dismissed. Where the same party both appeals to the Appellate Division and moves for leave to appeal to the Court of Appeals, the motion will be dismissed outright. Dual review is generally not permitted (Parker v Rogerson, 35 NY2d 751, 753; see also, CBS Inc. v Ziff Davis Pub., lv dismissed 73 NY2d 807). However, where different parties pursue different avenues of appeal or motion before the Court will be permitted to continue (Defler Corp. v Kleeman, 18 NY2d 797).

b. Appealable paper — An appeal will be dismissed where the improper paper is sought to be appealed.

i. No order or judgment — Where appellant/movant seeks to appeal from something other than an order or judgment, the appeal/motion will be dismissed (Matter of Sims v Coughlin, appeal dismissed 86 NY2d 776 [decision]; Matter of Abdurrahman v Berry, lv dismissed 73 NY2d 806 [letter]).

ii. Subsequent Supreme Court order or judgment — CPLR 5611 reads in part “If the Appellate Division disposes of all the issues in the action its order shall be considered a final one, and a subsequent appeal may be taken only from that order and not from any judgment or order entered pursuant to it” (see, American Acquisition Co. v Kodak Electronic Printing Sys., 87 NY2d 1049).

iii. Order of individual Appellate Division Justice — No appeal lies from an order of an individual Justice of the Appellate Division (People ex rel. Mahler v Jablonsky, appeal dismissed 82 NY2d 919).

iv. The finality of an Appellate Division order dismissing an appeal to that court is determined by an examination of the finality of the underlying order (Langeloth Found. v Dickerson Pond Assocs., lv dismissed 74 NY2d 841).

v. No civil motion for leave to appeal or appeal as of right lies directly from the order of the Appellate Term of Supreme Court (Williamson v Housing Preservation and Dev. of City of New York, lv dismissed 82 NY2d 919).

c. Dismissal of Prior Appeal for Failure To Prosecute — A prior dismissal of an appeal for failure to prosecute is a determination on the merits and acts as a bar to a subsequent appeal raising the issues that could have been raised on the prior appeal (see, Bray v Cox, 38 NY2d 350). Thus, the subsequent motion/appeal may be dismissed (see, id.; compare Rubeo v National Grange Mut. Ins. Co., 93 NY2d 750; Faricelli v TSS Seedman’s, 94 NY2d 772 [Appellate Division has discretion to entertain appeal notwithstanding dismissal of prior appeal for failure to prosecute]).

d. Criminal Appeals — Appeals in criminal cases must be taken pursuant to the Criminal Procedure Law, not CPLR 5601 or 5602 (Matter of Newsday, Inc. 3 NY3d 651 [newspaper’s motion to intervene and obtain access to record in criminal case]; People v Blake, appeal dismissed 73 NY2d 985 [CPL 450.15, 460.15 application]; People v Dare, appeal dismissed 74 NY2d 707 [application for writ of error coram nobis]).

e. Corporation Appearance — CPLR 321(a) dictates that a motion or appeal by a corporate party must be filed by an attorney.

f. Mootness — Where the issues presented are no longer determinative of a live controversy, the Court will not entertain an appeal or motion for leave to appeal. The Court cannot entertain the motion or appeal because it cannot give advisory opinions (see, Matter of Hearst Corp. v Clyne, 50 NY2d 707, 713-714). However, the Court may entertain an appeal or motion when each of the three prongs of the mootness exception is satisfied: “(1) a likelihood of repetition * * *; (2) a phenomenon typically evading review; and (3) a showing of significant or important questions not previously passed on, i.e. substantial and novel issues” (id. at 714-715).

C. Reviewability

Once it is determined that an order is appealable, a litigant must consider which issues and orders that arose in the litigation are reviewable by the Court of Appeals.

1. Preservation — Issues Reviewable

a. The Court of Appeals’ power to review lower court rulings made on motions, applications and points of evidence is, in part, limited by statutes and case law requiring that appropriate objections be registered below as a prerequisite to appellate review (see, CPLR 4017, 4110-b and 5501[a][3] and [4]). The Court will, on its own, determine whether an issue has properly been preserved below, whether or not the parties raise the question of preservation (see, Halloran v Virginia Chems., 41 NY2d 386, 393). Counsel bears the responsibility of showing the Court where each issue raised has been preserved in the record.

b. Differences in Appellate Division and Court of Appeals review

The Appellate Division may reach questions of trial error, even if unpreserved, in an exercise of its “interest of justice” jurisdiction (see, Martin v City of Cohoes, 37 NY2d 162, rearg denied 37 NY2d 817, on remand 50 AD2d 1035, appeal dismissed 39 NY2d 740, lv denied 39 NY2d 910). The Court of Appeals, on the other hand, generally may only review questions of law and, therefore, may not review unpreserved error even if the Appellate Division has chosen to do so (see, Brown v City of New York, 60 NY2d 893, 894).

c. Preservation of legal issues and theories

i. As a general matter, appellate courts are reluctant to review legal arguments raised for the first time on appeal. Several policy reasons underlie this rule, such as avoiding unfairness to the other party, giving deference to the lower courts and encouraging the proper administration of justice by demanding an end to litigation and requiring the parties and trial courts to focus the issues before they reach the Court of Appeals (Bingham v New York City Trans. Auth., 99 NY2d 355, 359 [2003]).

Under appropriate circumstances, however, the Court of Appeals may entertain new legal arguments and theories raised on appeal. Those very limited circumstances include: (1) new arguments based on a change in statutory law while the appeal is pending (see, Post v 120 East End Ave. Corp., 62 NY2d 19, 28-29); (2) where the new argument could not have been obviated or cured by factual showings or legal countersteps had the arguments been tendered below (People ex rel. Roides v Smith, 67 NY2d 899, 901); (3) questions of pure statutory interpretation (Matter of Richardson v Fiedler Roofing, 67 NY2d 246, 250). These “exceptions” are narrowly construed.

ii. The general rule requires that constitutional questions be raised at the first available opportunity as a prerequisite to review in the Court of Appeals (see, e.g., Matter of Barbara C., 64 NY2d 866, 868). There is some indication that the Court may make an exception to this doctrine and examine a constitutional issue raised for the first time in the Court of Appeals if the issue implicates grave public policy concerns (see, Park of Edgewater v Joy, 50 NY2d 946, 949, citing Massachusetts Natl. Bank v Shinn, 163 NY 360, 363).

d. Preservation in the administrative agency context

The Court’s reluctance to review new legal arguments is equally applicable in the administrative agency context for policy reasons similar to those discussed above. Thus, arguments which were not raised by a party at the administrative level are considered unpreserved and not reviewable by the Court of Appeals, subject to very limited exceptions (see, Matter of Crowley v O’Keefe, mot to dismiss appeal granted 74 NY2d 780; Matter of Samuels v Kelly, lv denied 73 NY2d 707).

2. CPLR 5501(a) — Review of Prior Nonfinal Orders and Determinations

a. CPLR 5501(a) provides that an appeal from a final judgment brings up for review, among other things:

i. any nonfinal judgment or order which necessarily affects the final judgment, including any which was adverse to the respondent on appeal from the final judgment and which, if reversed, would entitle the respondent to prevail in whole or in part on that appeal (CPLR 5501[a][1]),

ii. any order denying a new trial or hearing which was not previously reviewed by the court to which the appeal was taken (CPLR 5501[a][2]), and

iii. any ruling to which the appellant objected or had no opportunity to object or which was a refusal or failure to act as requested by the appellant, any charge to the jury, or failure to charge as requested by the appellant, to which the appellant objected (CPLR 5501[a][3]).

b. Note that CPLR 5501(a)(1), which applies to prior nonfinal orders and judgments, contains the “necessarily affects” requirement. CPLR 5501(a)(3), which applies to trial rulings, however, does not.

c. For an in-depth discussion of the “necessarily affects” requirement, see Section VII of this outline.

3. Scope of Review

Once it is determined which orders, determinations, and issues are reviewable, the scope of the Court’s review must be considered.

a. Limited to questions of law

As noted earlier, the State Constitution limits the Court’s review powers to questions of law. Questions of fact are not reviewable except in:

i. death penalty cases (CPL 470.30[1]);

ii. Commission on Judicial Conduct matters (see, e.g., Matter of Edwards, 67 NY2d 153);

iii. cases where the Appellate Division reverses or modifies and finds new facts, in which case the Court’s review power is limited as discussed further below (CPLR 5501[b]); and

iv. defamation cases involving a public figure defendant — where the issue concerns whether plaintiff has proven the essential element of actual malice, the Court has a constitutional duty to review the evidence and to “exercise independent judgment to determine whether the record establishes actual malice with convincing clarity” (Prozeralik v Capital Cities Communications, 82 NY2d 466, 474-475, quoting Harte-Hanks Communications v Connaughton, 491 US 657, 659).

b. Questions that are never reviewable

i. An Appellate Division determination whether the trial judge correctly decided a CPLR 4404(a) motion to set aside the verdict as “contrary to the weight of the evidence” is not reviewable (Levo v Greenwald, 66 NY2d 962; Gutin v Frank Mascali & Sons, Inc., 11 NY2d 97, 98-99 [emphasis added]).

However, where a jury verdict has been set aside on the ground that, as a matter of law, the verdict is not supported by sufficient evidence, that determination is reviewable. The relevant inquiry is whether there is any “valid line of reasoning and permissible inferences which could possibly lead rational [people] to the conclusion reached by the jury on the basis of the evidence presented at trial” (Cohen v Hallmark Cards, 45 NY2d 493, 499). Where it is not clear from the Appellate Division writing whether the Appellate Division has set aside a verdict on sufficiency of evidence or weight of evidence grounds in a jury tried case, examine the court’s corrective action. New trial ordered — weight; dismissal of complaint — sufficiency (see, id. at 498). The foregoing analysis cannot be used in bench trial cases because the Appellate Division can render judgment for the appealing party as a matter of fact without the need for a new trial. When, in a jury case, the Appellate Division reverses a judgment entered on a plaintiff’s verdict, on both sufficiency and weight of the evidence grounds, the Court can review whether the legal sufficiency ruling was correct. If the Court disagrees with the Appellate Division and concludes that the verdict is supported by legally sufficient evidence, the Court cannot reinstate the judgment entered on the verdict; instead, it must order a new trial because it cannot disturb the Appellate Division’s weight of evidence determination (Sage v Fairchild-Swearingen, 70 NY2d 579, 588).

ii. A determination of excessiveness (or inadequacy) of the jury’s verdict (Rios v Smith, 97 NY2d 647, 654; Woska v Murray, 57 NY2d 928; Zipprich v Smith Trucking Co., 2 NY2d 177, 188).

iii. An Appellate Division determination to reverse a judgment in a civil action on the basis of unpreserved legal error (Brown v City of New York, 60 NY2d 893). The Court of Appeals has no power to review either the unpreserved error or the Appellate Division’s exercise of discretion in reaching the issue (see, Elezaj v Carlin Constr. Co., 89 NY2d 992, 994).

c. Limited Review

i. Findings of fact that are affirmed by the Appellate Division are only reviewable to determine if there is evidence in the record to support them (Cannon v Putnam, 76 NY2d 644, 651; Morgan Servs. v Lavan Corp., 59 NY2d 796, 797).

ii. In situations where the Appellate Division reverses or modifies and expressly or impliedly finds new facts, the Court of Appeals can determine which of the findings more nearly comports with the weight of the evidence (CPLR 5501[b]; Matter of Y.K., 87 NY2d 430, 432; Loughry v Lincoln First Bank, N.A., 67 NY2d 369, 380).

iii. Provided the lower courts had the power to exercise discretion (Brady v Ottaway Newspapers, 63 NY2d 1031), the Court of Appeals will not interfere with the exercise of that discretion absent an abuse (Herrick v Second Cuthouse, 64 NY2d 692). However, an issue of law will be presented where the Appellate Division in exercising its discretion expressly fails to take into account all the various factors that are properly entitled to consideration (Varkonyi v Varig, 22 NY2d 333, 337). In such cases, the Court can set out the proper factors and, if judgment cannot be rendered as a matter of law, remit the case to the Appellate Division to exercise its own discretion on the basis of all the relevant factors (id. at 338).

Consider these facts: The federal district court grants the defendant’s motion to dismiss and states that the court may amend its order with a more specific statement of grounds for its decision.
However, the court never amends its order. Is the order appealable?
No, answered the 9th U.S. Circuit Court of Appeals in National Distribution Agency v. Nationwide Mutual Insurance Company, 117 F.3d 432 (9th Cir. 1997). The court said: “A district court ruling is not final if the court reserves the option of further modifying its ruling.” Therefore, the plaintiff’s appeal is dismissed.

This is a specific application of the general rule that to invoke federal-appellate jurisdiction, the appellant must timely appeal from an appealable judgment. Price v. Seydel, 961 F.2d 1470, 1473 (9th Cir. 1992). Stating that rule is simple. Applying it, however, presents formidable challenges for the appellate practitioner. Virtually every aspect of the rule is subject to interpretation and debate, and there is little leeway for error. Had the plaintiff in National not appealed, and the order later was deemed a final judgment, the plaintiff’s opportunity for appellate review would have been lost.

In determining whether a judgment or an order is appealable, the practitioner should consider
the following issues:

Is the challenged judgment or order appealable by statute?
Federal appeals courts (other than the Federal Circuit, which has unique jurisdiction) have jurisdiction of appeals from “all final decisions of the district courts.” 28 U.S.C. Section 1291. In addition, they have
jurisdiction over appeals from specified interlocutory orders in injunction, receivership and admiralty cases. 28 U.S.C. Section 1292(a). Appellate courts also have discretion to hear appeals from interlocutory orders when the district court determines, in its discretion, that the order involves a controlling question of law and immediate appeal may materially advance the ultimate termination of the litigation. 28 U.S.C. Section 1292(b).

When a case involves more than one claim or multiple parties, the district court also has the option of entering judgment on all or some of the claims or parties. That judgment is immediately appealable if the district court expressly determines there is no just reason for delay. Fed. R. Civ. P. 54(b).

If the appeal is from a judgment, is the judgment final?
For a judgment to be final — absent any of the exceptions noted above — it must end the litigation on the merits for all claims and all parties.
FirsTier Mortg. Co. v. Investors Mortg. Ins. Co., 498 U.S. 269, 273-74
(1991). For example, a judgment is not final if the court has yet to resolve a claim for prejudgment interest. Pace Communications Inc. v. Moonlight Design Inc., 31 F.3d 587, 591 (7th Cir. 1994). On the other hand, a judgment is final even though the court has not yet determined costs. Budinich v. Becton Dickinson & Co., 486 U.S. 196, 202 (1988).

Moreover, the court’s ruling itself is not an appealable final judgment. The clerk is supposed to enter judgment as a separate document. Fed. R. Civ. P. 58. The mere fact that the court added a seemingly final and dispositive phrase such as “judgment accordingly” to its findings of fact and conclusions of law does not make the order a final judgment.

Whether a ruling is final depends ultimately on its substance. Thus, a ruling entitled a “judgment” may not be final for purposes of appeal where further issues remain to be resolved. Zucker v. Maxicare Health Plans Inc., 14 F.3d 477, 483 (9th Cir. 1994). But a ruling entitled an
“order” may be a final judgment for purposes of appeal where there is no substantive issue left for the court to resolve. United States v. Lee, 786 F.2d 951, 955-56 (9th Cir. 1986).

Although the appeals courts will apply a common-sense interpretation to the finality requirement, Sutton v. Earles, 26 F.3d 903, 906 n.1 (9th Cir. 1994), the parties cannot stipulate to appellate jurisdiction where there is none, Dannenberg v. Software Toolworks Inc., 16 F.3d 1073, 1076-78 (9th Cir. 1994), nor can they create appellate jurisdiction by dismissing unresolved claims and reserving the option of litigating them at some future time, Cheng v. Commissioner, 878 F.2d 306, 310 (9th Cir. 1989)

The finality requirement has only rare exception, usually involving cases in the “‘twilight zone’ of finality.” Gillespie v. United States Steel Corp.
, 319 U.S. 148, 152-54 (1964). In extraordinary circumstances, a federal appeals court will consider an appeal from a seemingly nonappealable ruling where the ruling is “marginally final,” involves an issue of “national significance” and has been “fully briefed and argued.” Service Employees Int’l Union, Local 102 v. County of San Diego, 60 F.3d 1346, 1350 (9th Cir. 1995)

Is the appeal timely?
If notice of appeal is filed either too early or too late, and no
exception applies, the appeal is invalid and cannot be heard. Generally, the prescribed time within which to file notice of appeal is 30 days after entry of the judgment or other appealable order. If the United States or one of its officers or agencies is a party, the prescribed time is 60 days. Fed. R. App. P. 4(a)(1).

Time to appeal is extended to accommodate certain post-judgment proceedings that may affect the judgment. If any party timely files one of several specified post-judgment motions, including a motion for new trial or for judgment as a matter of law, the time for all parties to appeal begins to run from the entry of the order disposing of the post-trial motion. Fed. R. App. P. 4(a)(4). The district court may deem a motion for attorney fees to be in the nature of a motion to amend the judgment and
thus extend the time for appeal. Fed. R. Civ. P. 38. If the post-judgment motion is not timely, the time to appeal is not extended. Cel-A-Pak v. California Agric. Labor Relations Bd., 680 F.2d 664, 666 (9th Cir. 1982).

An appeal filed while one of the specified post-judgment motions is pending is held until the motion is decided; then the appeal becomes effective. Leader Nat’l Ins. Co. v. Industrial Indem.
Ins. Co., 19 F.3d 444, 445 (9th Cir. 1994). When it becomes effective, that appeal still applies only to the original judgment; if the appellant intends to challenge the ruling on the postjudgment motion or any modifications to the judgment, the existing notice of appeal must be amended. Fed. R. App. P. 4(a)(4).

There is some leeway on either side of the prescribed time period for appeal. A notice of appeal is treated as filed on the date of entry, if it’s filed before entry of the appealable order or judgment but after the district court-announced decision. Fed. R. App. P. 4(a)(2). This is a relatively recent liberalization in federal appellate procedure. Previously, a premature appeal was invalid and a new notice of appeal had to be filed at the appropriate time. Schroeder v. McDonald, 55 F.3d 454, 458-60 (9th Cir. 1993). However, even under the present rule, a notice of appeal remains invalid if it’s filed before the court announces the decision that will ripen into an appealable judgment. Kennedy v. Applause Inc., 90 F.3d 1477, 1482 (9th Cir. 1996).

On a motion filed within 30 days after the filing deadline, and on a showing of excusable neglect or good cause, the district court may extend the time for filing a notice of appeal up to 30 days or 10
days from the order’s entry date, whichever occurs later. Fed. R. App. P. 4(a)(5).

The courts abide by strict standards for excusable neglect in failing to file a timely notice of appeal. Oregon v. Champion Int’l Corp., 680 F.2d 1300, 1301 (9th Cir. 1982). An extension to appeal will be granted only in “extraordinary circumstances.” National Industries Inc. v. Republic
Nat’l Life Ins. Co., 677 F.2d 1258, 1264 (9th Cir. 1982). One such circumstance is provided by express rule. The court may reopen the appeal time for 14 days if the aggrieved party files a motion within 180 days of the judgment’s entry or within seven days of receiving notice of the judgment’s entry, whichever is earlier – and if the district court finds that the party didn’t receive notice of the judgment’s entry within 21 days, and no party would be prejudiced. Fed. R. App. P. 4(a)(6)

Yet another wrinkle in the rules for timely filing of federal appeals is that the time begins to run only upon entry of judgment. Fuller v. M.G. Jewelry
, 950 F.2d 1437, 1441 n.4 (9th Cir. 1991). Nevertheless, absent objection, the court can consider an appeal from a judgment that has been
rendered but not entered. Allah v. Superior Court of California, 871 F.2d 887, 890 n.1 (9th Cir. 1989). The appellate court will not engage in the “pointless exercise of dismissing the appeal and waiting for the district court to enter a separate judgment.” Vernon v. Heckler , 811 F.2d 1274, 1276-77 (9th Cir. 1987).

As National demonstrates, despite potential loopholes in the rules of appealability, the practitioner cannot count on extraordinary exceptions or discretionary relief to salvage an unauthorized or untimely appeal. To ensure a timely and valid appeal in federal court, the practitioner must carefully monitor the district court’s actions, diligently follow the rules, and count the days precisely.

A fundamental rule of appellate law is that an appeal only lies from an order or judgment that is appealable. An appellate court does not have jurisdiction to hear the case unless there is an appealable order or judgment.
The following is an overview of appeal-able orders and judgments under California law. Note that judgments and orders issued in federal courts are subject to different rules.

Right to Appeal is Statutory
The right to appeal in California is wholly statutory.
Thus, no appeal may be taken unless there is a statute that expressly allows the appeal. Most of the appeal-able orders and judgments are listed in Code of Civil Procedure §904.1. Some orders are made
appealable by other statutes as well.

The most common type of appealable order is a judgment.
See Code Civ. Proc. §904.1(a)(1). Judgments are generally appealable, except for most interlocutory judgments, judgments of contempt
(they may be reviewed by writ), and judgments in limited civil cases
(appeal is to the superior court).

One Final Judgment Rule

Under the “one final judgment” rule, an appeal from a judgment
can only be from a single, final judgment in the action. The rule is codified in Code of Civil Procedure section 904.1(a), which authorizes an appeal “[f]rom a judgment, except … an interlocutory judgment.” The California Supreme Court has held that this means that the appeal must be “from a judgment that is not intermediate or nonfinal but is the one final
judgment.” Morehart v. County of Santa Barbara, 7 Cal.4th 725, 741 (1994). “Judgments that leave nothing to be decided between one or more parties and their adversaries, or that can be amended to encompass all controverted issues, have the finality required by section 904.1, subdivision (a).” Id. Conversely, a “judgment that disposes of fewer than all of the causes of action framed by the pleadings, however, is necessarily „interlocutory‟ … and not yet final, as to any parties be
tween whom another cause of action remains pending.” Id.

The reason for this rule is to avoid multiple appeals in the same case, which places a huge burden on the courts and the parties.
See id. at 741 n.9. Moreover, if the parties have to wait until a
final judgment is entered, “the trial court may completely obviate an appeal by altering the rulings from which an appeal would otherwise have been taken.” Id. It also gives the appellate court a more comprehensive record. Id

To determine if a judgment is final, courts look to the substance and effect, rather than the form or title. The judgment is considered
final when it ends the litigation between the parties on the merits of the case, and nothing is left to be done other than to enforce the judgment.
See San Joaquin County Dept. of Child Services v. Winn, 163 Cal.App.4th 296, 300 (2008). If the judgment contemplates any future judicial action
— other than simple enforcement of the judgment — essential to determining the rights or responsibilities of the parties, the judgment is not final.

Once a final judgment is entered, the appellate court may generally review any order or ruling made in the proceeding leading up to that final, appealable judgment. See Code Civ. Proc. §906.

Judgments Where There Are Multiple Parties

A judgment is immediately appealable if it terminates the litigation with respect to one or more parties. So, if a plaintiff sues several defendants, and the court dismisses the lawsuit against one of the defendants, the
judgment is final as to that defendant, and plaintiff may appeal the
judgment without waiting for the rest of the case to be resolved.
See Nguyen v. Calhoun, 105 Cal.App.4th 428, 437 (2003). Likewise, if there are multiple plaintiffs, and judgment is entered against some of the plaintiffs but not against others, the plaintiffs against whom judgment was entered may immediately appeal. See Panicov. Truck Ins. Exchange, 90 Cal.App.4th 1294, 1300-1301 (2001). With respect to defendants, there is an exception where the liability of one defendant is intertwined with and dependent on the liability of other defendants and their liability
has not yet been established. See Entertainment, Inc. v. Arthur J. Gallagher & Co., 125 Cal.App.4th 1022 (2005)(liability of insurance agency and insurance company in duty to defend and bad faith action were intertwined, and therefore appeal of dismissal of insurance agency was
premature)

Note that if you file an appeal with respect to one party, but there are claims against other parties remaining in the trial court, it might be prudent to ask the trial court to stay the action until the appeal has been decided.

Other Appealable Orders

Some other types of orders are made appealable by statute. For example, orders made after a final judgment are appealable. Code Civ. Proc. §904.1(a)(2). Other types of appealable orders listed in Code of Civil Procedure section 904.1 include: orders granting a motion to quash service of a summons or granting a motion to stay an action on the
grounds of an inconvenient forum; orders granting a new trial or denying a motion for judgment notwithstanding the verdict; orders granting, discharging or refusing to discharge an attachment; orders granting or dissolving an injunction; orders appointing a receiver; certain orders in partition actions; certain orders issued under the Family and Probate Code; orders directing the payment of sanctions over $5,000; an orders granting or denying a special motion to strike in anti-SLAPP cases.
Certain orders related to arbitration proceedings are also made appealable under Code of Civil Procedure section 1294

Non-Appealable Orders

Any judgment or order that is not expressly appealable by statute is non
– appealable. Many orders that fall into this category. Some of the more common types include: orders overruling a demurrer; orders sustaining a demurrer (an appeal lies from the judgment dismissing the complaint with prejudice); discovery orders; orders denying a motion for a new trial; orders granting a mistrial due to a hung jury; orders directing a verdict (an appeal lies from the judgment issued); orders granting or denying a motion for summary judgment (a judgment following the order granting summary judgment is appealable); tentative decisions; and statements of decision.

Keep in mind that it is the substance and effect, not the form, that governs whether an order is appealable. For example, if a court sustains a demurrer and in the same document dismisses the complaint with prejudice, then that document likely would be considered a final judgment.
But if the court sustains the demurrer without dismissing the complaint,
the order sustaining the demurrer is not appealable.
See City of Morgan Hill v. Bay Area Quality Management Dist., 118 Cal.App.4th 861, 867 n. 3 (2004).

Finally, remember that interlocutory orders may be reviewed after a final
judgment has been entered, so long as the appealing party has preserved his or her arguments on appeal by raising those arguments in the trial court.

Conclusion
Before filing an appeal, a litigant must ensure that the order or judgment he or she wishes to challenge is appealable, or risk dismissal of the appeal. Determining whether an order is appealable is also important
to identify when the time to appeal will expire.

Respondents should also evaluate whether the order being appealed is appealable, and if not, should immediately file a motion to dismiss the appeal. Taking these simple steps at the outset of an appeal can save a party significant time and money in the long run

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