What Homeowners in “Pro Se” Foreclosure Litigation Needs to Know About Perjury.

02 Monday Jun 2014

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

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In foreclosure defense litigation across the Country, many large financial institutions and their well paid Attorneys routinely commits crime of perjury on a daily basis. Some of the way these entities perpetrate this crime, is by furnishing witnesses who made false statements under oath; or filling false affidavits and furnishing worthless pieces of forged documents in the forms of exhibits bearing false impressions; and of course, (getting Away with it), in their fraudulent attempts to illegally foreclose on properties they do not own.

In its most simple form, perjury is lying under oath. The crime of perjury is the willful swearing, either spoken or in writing, to tell the truth and then giving false information.

Perjury can occur even if the person has not been sworn to tell the truth, such as in a courtroom. Merely signing a document under penalty of perjury that contains false statements can be a crime. Signing an income tax return that contains false information is an act of perjury, for example.

In most jurisdictions, the false information has to be material to the issue or affect the outcome for perjury to be a chargeable crime. If the false statement directly affects the results of the case or causes a unjust decision to be made, the person can be charged with perjury.

Because the crime of perjury can cause a miscarriage of justice to occur, it is considered a very serious crime. Under U.S. federal law, for example, perjury is a felony punishable by up to five years in prison.

“I swear to tell the truth, the whole truth, and nothing but the truth” – a mantra recited dozens of times a week in TV shows and movies. It’s so familiar that its significance can be overlooked. But, when sworn in a court or other official proceeding, it makes everything said afterward either the truth or perjury.

Perjury, the crime of lying under oath, is a serious offense because it can derail the basic goal of the justice system—discovering the truth. Even the famous and the powerful have faced the consequences of perjury, which include prosecution (Barry Bonds), prison (Marion Jones), and impeachment (Bill Clinton).

Historically, perjury was defined as lying while testifying in court. The law now defines the crime to cover not just trials but also many other proceedings, including grand juries, family law court, bail hearings, Congressional committee hearings, and depositions in civil lawsuits. Sworn statements made to governmental agencies such as the Social Security Administration or in financial affidavits (such as loan applications) are also covered.

It’s also a criminal offense to cause another to commit perjury, called suborning perjury.

What Is Perjury?

A witness under oath commits perjury by making a statement in a court or other proceeding that the witness knows is not true. The statement must be “material” to the subject of the proceeding, meaning that it must have some relationship to the lawsuit, investigation, or inquiry of the proceeding. All parts of this definition are important, so let’s take a closer look at each:

Perjury only happens under oath. The witness must have vowed to tell the truth to someone who is authorized to administer the oath, such as a judge, notary public, or other official. And, the proceeding must be “competent,” that is, authorized by law. For example, a grand jury that has launched an investigation that is beyond its powers is not a competent proceeding.
Perjury requires a statement. Silence or a refusal to give a statement is not perjury (but may lead to other charges). In addition to testimony, a statement adopted in the proceeding, as when a witness authenticates a false writing while under oath, is also perjury.
Intent to mislead. The witness must know that the testimony is false and must give it with the intent to mislead the court.
Only false statements are perjury. False testimony that results from confusion, lapse of memory, or mistake is not perjury. Conflicts in testimony may be perjury if one of the conflicting statements is necessarily false (and prosecutors can prove perjury without proving which one is false).
Inconsistent statements can lead to perjury. A witness’s testimony is viewed as a whole. So, a witness who claimed he did not remember an event when questioned at one point in testimony, but who clearly recalled aspects of the event when asked later, may have committed perjury. (Inconsistency under oath is what led to Bill Clinton’s impeachment.) But, where a witness’s testimony is inconsistent in a way that is of no consequence in the proceeding, that is not perjury.
Statement made in court or other proceeding. False statements made outside of official proceedings are not perjury. For example, if a witness lies to a lawyer who is taking notes in order to draft an affidavit, the witness has not committed perjury (unless she later signs the affidavit under oath with the false statement in it). Sworn, written statements submitted to courts or government agencies are statements made in a proceeding and subject to perjury laws.
Only a “material” statement can be perjury. The false statement must be capable of influencing the proceeding – that is, it must have a relationship to the subject of the proceeding. This includes a false statement that would tend to mislead or hamper an investigation. This means that a lie, even under oath, about a subject that is not material to the proceeding is not perjury. For example, falsely bragging that “I never update my Facebook page at work,” while testifying in a case having nothing to do with social networking at work, would not be a likely candidate for a perjury charge.
A material statement that is superflouos to the outcome may still be perjury. Even where false testimony does not affect the outcome of a case, the lying witness may be prosecuted for perjury. For example, suppose an ex-cop is on trial for his involvement in a gambling operation. Several witnesses have testified to his involvement, but on the stand, he falsely denies any involvement. This denial would be a material statement, even though it arguably did not affect the jury’s finding of guilt (the jury had the other witnesses’ testimony to rely on).

Common Defenses to Perjury

Here are some common defenses to perjury.

True statements

Remember, perjury is giving false testimony—saying or writing something that is not true. This means that true statements, even when made to intentionally mislead, are not perjury. For example, where a defendant in a mail fraud case testifies that he did not “send” the fraudulent document because he did not actually put the document in the mailbox himself, he has told the literal truth and has not committed perjury. In such a situation, the prosecutor has to ask further questions (such as, “did you direct someone to drop the document in the mailbox?”) in order to get the defendant to admit to participating in the fraud, or get the defendant to lie about participating.

Recanted or corrected statements

Sometimes, witnesses say or write something that they later recant. Whether their change of heart constitutes a legally recognized defense to a perjury charge depends on the law of the state where charges would be brought. If the case were to be brought in federal court, one of two results is possible, courtesy of the two federal laws that concern perjury:

A person charged under a broad perjury statute (18 U.S.C. §1621) won’t necessarily avoid prosecution even by recanting during the same proceedings where she committed the perjury, but the recantation can be taken into consideration to show that the person did not intend to mislead.
Someone may be able to avoid eventual prosecution by recanting or correcting the false statement, but must do so during the same proceeding in which it was made; and the false statement must not have “substantially affected” the proceedings. But this only works if the witness is charged under the second, narrower statute (18 U.S.C. §1623). However, by admitting to the prior false statement (in order to take it back), the witness may open herself up to prosecution under the broader statute described above (§1621)! Needless to say, a witness who must decide whether to recant a false statement needs the advice of an experienced attorney (see below).

The “perjury trap”

In some cases, the prosecutor will call a defendant solely because the prosecutor knows that he will likely lie under oath, committing perjury, and the prosecutor doesn’t need his testimony for any other purpose. In these cases, a defendant will claim that this has happened and the prosecutor will deny it. Whether or not a prosecutor has actually set this “perjury trap,” this is a hard defense to raise, for two reasons:

No materiality. For a perjury charge to stick, the lie must be material, as explained above. But where the perjury trap involves asking about something that doesn’t really matter, the lie won’t rise to the level of perjury. So the better course is to claim simply that there’s no materiality.
The prosecutor’s hopes that the witness will lie aren’t enough to defeat the charge. After all, hoping a witness will lie doesn’t make that witness do so. As long as the questions asked of the witness are related to the issue under investigation or raised in a lawsuit, the prosecutor is not setting a trap, even if the prosecutor harbors a hope that the witness will lie.

Defenses that aren’t

Some defenses that you might think will apply will not be available in a perjury prosecution in certain situations. They include:

Double jeopardy. This defense claims that the defendant is being tried twice, in the same jurisdiction (court), for the same offense. It doesn’t apply when a defendant is being tried for a crime, but then is charged later for perjuring himself during trial. For example, a defendant in a rape case who was acquitted based on DNA evidence but lied under oath about his alibi may still be prosecuted for perjury.
The limits of immunity. Prosecutors sometimes offer immunity from prosecution to witnesses who themselves are (or could be) subject to criminal charges, but who have important information that would support a case against another, more serious criminal defendant. For example, a low-level accomplice might be granted immunity so that he can testify against a crime syndicate’s boss. But false testimony given after a prosecutor has granted a witness immunity may still be prosecuted as perjury!

How is Perjury Punished?

A person convicted of perjury under federal law may face up to five years in prison and fines. The punishment for perjury under state law varies from state to state, but perjury is a felony and carries a possible prison sentence of at least one year, plus fines and probation. Penalties are increased in relation to how much the perjury interfered with the proceeding. When the perjurer was a witness in his own criminal trial, his sentence for the underlying conviction may also be increased, on the grounds that a lying defendant is one who has a bad character and is not likely to be rehabilitated quickly.

Judges can punish a perjurer who lied under oath to hide or assist a crime in a way that goes beyond the sentence for perjury. That defendant may also be charged as an accessory to the crime he was attempting to hide or assist, if that charge will carry a greater sentence. And a perjurer may even be charged as an accessory to a crime of which he is convicted, if he lied to conceal that crime.

There is no civil remedy for a criminal defendant wrongly convicted based on another’s perjury, nor for a party to a civil lawsuit who loses because of a witness’s perjury.

A person who commits perjury also may have violated other laws that do provide remedies.

Homeowners need to fight these crime of perjury that is routinely crippling our justice system.

Home owners should wake up TODAY! before it’s too late by mustering enough courage for “Pro Se” Litigation (Self Representation – Do it Yourself) against the Lender – for Mortgage Fraud and other State and Federal law violations using foreclosure defense package found at http://www.fightforeclosure.net “Pro Se” litigation will allow Homeowners to preserved their home equity, saves Attorneys fees by doing it “Pro Se” and pursuing a litigation for Mortgage Fraud, Quiet Title and Slander of Title; amongst other causes of action. This option allow the homeowner to stay in their home for 3-5 years for FREE without making a red cent in mortgage payment, until the “Pretender Lender” loses a fortune in litigation costs to high priced Attorneys which will force the “Pretender Lender” to early settlement in order to modify the loan; reducing principal and interest in order to arrive at a decent figure of the monthly amount the struggling homeowner could afford to pay.

If you find yourself in an unfortunate situation of losing or about to lose your home to wrongful fraudulent foreclosure, and need a complete package that will show you step-by-step litigation solutions helping you challenge these fraudsters and ultimately saving your home from foreclosure either through loan modification or “Pro Se” litigation visit: http://www.fightforeclosure.net

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.

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

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#.

______________________________________________________________________________________

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#.

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# 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…

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# 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.

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# 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).

In Texas, Mortgage Servicing Fraud is REAL !

21 Tuesday Jan 2014

Posted by BNG in Foreclosure Defense, Fraud, Judicial States, Loan Modification, Non-Judicial States, Pro Se Litigation, Scam Artists, Your Legal Rights

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Avoid being cheated out of your home before it’s too late!

DO IT THE WAY THEY DO IT: SUE FIRST, ASK QUESTIONS

LATER!

The mortgage servicing fraud scam is real. I personally have lived and litigated it in court from beginning to end. Your mortgage servicer will take thousands of dollars from you, lose or misapply your payments,
and then kick you and your family right out of your home. I know
that this scam is real because I have lived though
it. I also know that the scam is real because in the course of my lawsuit against the mortgage servicer and their debt collector, I have read a lawsuit against the debt collector where the owners of the debt collection firm were sued by a
former mortgage servicer employee that they promised an ownership i
nterest in their business if she would teach them how to setup the “high-volume foreclosure” scam. The same debt collector also saw fit to brag on his company’s own website that he “specialized in foreclosures and evictions… using specially-trained paralegals and computer technology.” Their website also bragged that they would provide the mortgage servicer with a monthly status report on the number of foreclosures and evictions they had done for them.

The scam from beginning to end…

I think this scam has grown out of the “real estate
boom” that we’re in. People are buying 3 or 4 houses at a
time and getting the mortgages to go along with the
m. The homeowners buy the homes, get the mortgages, and the
mortgage servicing companies are there waiting to get the servicing rights, skim fees off the top, and then eventually move in with foreclosures and forbearance agreements. The real estate broker gets paid, the mortgage
processor gets paid, the lender gets paid, the mortgage servicer gets paid, the debt collector gets paid, and the consumer loses all their money and eventually their home. The economics of this scam break down into two parts: the servicing part and the legal cost part.• The servicing part of the scam is very straight forward. The servicer is buying your Note from the lender or previous servicer with their credit, but taking your real cash to make their payments. Nothing or next
to nothing from each of your mortgage payments is going to your principal balance. So the mortgage servicer is just plain pocketing all that money. The mortgage servicer is pocketing the entire payment plus whatever
other fees they can get you to pay. Over the course of five years as a customer, you’ll have paid none of your principal, plus then they find a way to sell your home all at once for complete, immediate cash at a foreclosure sale auction. The mortgage servicer then recycles that money into their own business cash flow and for buying servicing rights for another loan and pulling the same scam on someone else. There is no risk at all for the servicer.

• The legal cost part of the scam is when you as a customer fight them in court to keep your house. You’ll hear a lot of people say that these guys have infinite legal resources. The bottom-line is that they do have lawyers and debt collector that process so many of these foreclosures that they have the written forms, including the lawsuit forms, all prepared and do many, many of these foreclosures at once. The way it usually works, I believe, is that these debt collectors get paid by the debt they collect (by adding their own fees to
the reinstatement amount) or by the foreclosure. If the debt collector doesn’t get the homeowner to pay their fees or foreclose, then they don’t get paid. If you can get the debt collector sued and into court, you’ll
hear a lot about how they want you to pay their fees. The bottom-line is that you can’t get blood from a stone. Even if the debt collector could win the lawsuit, most home owners don’t have anything of value to satisfy a
judgment and pay the debt collector anyway. As such, all through litigation the mortgage servicer ends up paying the debt collector themselves. Basic math shows that the more litigation costs the mortgage servicer, the
less worthwhile it is to continue foreclosure proceedings and litigation against the homeowner.

REMEMBER: These guys pull this scam on many people
every day. As a consumer, you only deal with it once. These guys make their money by pulling the scams as quick as possible. The goal is to get you foreclosed or to sign a forbearance agreement as quickly as possible. They
want it resolved as quickly as possible. The home owner survives and prevails by making the lawsuit and the process take as much time as it needs to be to get done properly and put the mortgage servicer and debt collector in their p
lace. The house belongs to you, not them. They just made a written
promise to finance the money to pay for the house. They break the promise when they try to sell your house.

Scam 0 – You can’t get away from us

Your loan gets transferred or sold from the lender or some sort of “
trustee” or a previous servicer. In addition, somehow there
’s also some other ‘attorney in fact’ company or trustee involved.
The actual paperwork they would provide to the court if you were to sue them would say something like “<homeowner> executed a Note and a Deed of Trust for the benefit of <original lender>. The Note and Deed were assigned to <some company you’ve never heard of> as Trustee. <Current servicer> is the current servicer and attorney in fact for <Trustee>.” There’s an old ma
gic trick where someone puts a ball under one of three cups and then moves the cups around. This is the legal equivalent of that.
The goal is to keep you from knowing who the hell to sue. It’s also to set everything up where none of the companies has to take responsibility. It’s
also to keep you from getting away from them. Once your loan is obtained by the servicer, you only have three ways to get away from them: just plain let them foreclose on your house, refinance (and pay all the $5,000 or $10,000 refinancing fees), or sue them. There’s no other way out. While you “be
long” to them during their servicing, they can charge you whatever fees they feel like and you’re in no position to argue.

Scam 1 – Lose or misapply payments to charge fees

and interest-on-top-of-the fees

First, the mortgage servicer will lose or misapply your payments or put them in an escrow. They will then charge you fees and interest-on-top-of-the-fees for
the misapplied funds.

Scam 2 – Fabricate a default to sell home or talk

homeowner into forbearance

After losing or misapplying your payments, the mortgage servicer will fabricate a default. The default is intended to either sell your home and get all their
money at once, or talk the homeowner into paying money they
don’t owe for fees and a forbearance agreement.
BE CAREFUL: THE FORBEARANCE AGREEMENT WAIVES YOUR RIGHT TO FUTURE NOTICES OF INTENT TO SELL YOUR HOME.

Scam 3 – Harass the homeowner, scare them with foreclosure, and don’t follow legal guidelines for notices

Unable to talk the homeowner into paying money they
don’t owe or sign the forbearance agreement, the mortgage servicer hands off the debt to a third-party debt collector, whose job it is to harass and threaten foreclosure of the home. The goal is to provide as little notice as possible before foreclosure of the home so that the homeowner can’t get his paperwork ready or file suit and they can just sell the home. The mortgage servicer and the debt collector have no intention of stopping during a dispute.
Another goal is to keep leading the homeowner on long
enough to prevent him from filing suit, getting a restraining order,
or filing for bankruptcy. The goal is to make selling the homeowner’s home as quick and efficient and “clean” as possible. As soon as it’s sold, they’ve won and gotten their money. The homeowner can only argue a wrongful foreclosure after-the-fact. At that point, it’s too late and the debt collector is moving in with procedures to get the homeowner and his family out of there and eventually the homeowner just plain gives up fighting them because they’ve already lost their home. Keep all the envelopes and letters you receive! Those postmark dates on the envelopes are VERY important.
In Texas, the law (Texas Property Code section 51.002) requires the mortgage servicer to give the homeowner 20 days notice BEFORE posting public notice of intent to sell. The public notice of intent to sell must also be posted 21 days BEFORE the sell. So all in all, you legally have at least 41 days to find a way to deal with this situation.

Scam 4 – Make homeowner think he has to keep making

payments after filing suit

If the homeowner can get a restraining order or a preliminary injunction, the debt collector will send a litigator that won’t let the homeowner get a word in edgewise. The main goal is to prevent the homeowner from getting a restraining order/injunction. The secondary goal if they can’t get the tro/injunction is to make the homeowner feel obligated to keep making payments (the debt collectors and mortgage servicers have a name for this. The term is the “post-petition payments”).
THE HOMEOWNER DOES NOT HAVE TO KEEP MAKING PAYMENTS. THEGOAL WITH MAKING THE HOMEOWNER CONTINUE TO MAKE PAYMENTS IS TO FORCE THE
HOMEOWNER TO GIVE UP HIS RIGHT TO SUE FOR TOTAL BREACH OF CONTRACT.
The court has its own form of a bank called the “registry of the court”. The homeowner should argue to the court to NOT make payments at all until a trial can be held. If the homeowner can’t convince the court for that, the homeowner should argue to place ALL subsequent payments until trial into the court’s registry. To preserve your rights to sue the mortgage servicer for total breach, the homeowner MUST convince the court to either disregard payments until trial or put all payments into the registry of the court.

Scam 5 – Create second default by making homeowner
pay after filing suit

By making the homeowner continue to make payments even if there’s a tro/injunction, the mortgage servicer and their debt collector can create a second default that trivializes the previous default.
The mortgage servicer and their debt collector can put a foreclosure on the homeowner’s credit report and mess up the homeowner’s credit so that there’s a second default even after the tro/in
junction. Putting the foreclosure on the homeowner’s credit also virtually guarantees that the homeowner can’t do any sort of refinancing during this time. The mortgage servicer can then say “well,
he’s fallen behind again. Please dissolve the injunction and let us sell his home.” Alternatively, the mortgage servicer or their “attorney” (the third-party debt collector) will tell the homeowner that they’ll be thrown in jail or held in contempt of court for refusing to pay the mortgage company more money and try and convince the homeowner that they’re “stealing” use of the home.
Check your state laws. I would guess in ALL states, “debtor’s prisons” are illegal. You can’t be thrown in jail
for refusing to pay a debt (except child support, which isn’t actually considered a debt but an obligation). In Texas, Texas Constitution Article 1, Section 18 states specifically, “No person shall ever be imprisoned for debt.” REMEMBER: YOUR MORTGAGE IS NOT A RENTAL
AGREEMENT. IT’S A PROMISE TO FINANCE THE PURCHASE OF YOUR HOME

Scam 6 – Make homeowner think filing for bankruptcy
gives up right to sue
If the homeowner files for bankruptcy during the
injunction period, the mortgage servicer will argue
for judicial estoppel to try and get out of the lawsuit
and the injunction.

Scam 7 – Debt collector’s get-out-quick scam
The third-party debt collector and its officers are
used to being sued constantly. As soon as the
homeowner files suit, the debt collector will follow-up with
a motion to dismiss the claims against them and get
out of the lawsuit. The goal for the debt collector is to get out of
the lawsuit permanently (with a “dismissal with
prejudice”) before the homeowner can prepare a response or know what the debt collector is doing. The debt collector will
say that your issues are with the mortgage servicer and not them.
That is wrong. You’re entitled to sue everyone
and every company that had involvement in selling your house.
They’ll say “we’re the trustees and not liable.”
That’s not true. Don’t let them out of the lawsuit.

Scam 8 – Make the homeowner think its his own fault
The actual lawsuit scam itself is to hope that the
homeowner doesn’t have any receipts or paperwork.
“Sub-prime” homeowners are easy targets because they’re
not usually prepared or organized to produce
paperwork fast enough (if at all). If the homeowner can prove the
payments and can get the mortgage servicer to the
trial, the goal is to show the jury (or judge, in bench trial) that th
e homeowner is at fault. If the homeowner can prove
liability, the goal is to convince the jury that the homeowner is
only entitled to applying the payments that the
mortgage company should have applied in the first place. The truth
is that the mortgage servicer broke the contract an
d tried to sell the plaintiff’s home. When the mortgage servicer broke
the contract, they stopped being entitled to more
money. They try to sell the home to get their money. When they
get caught and restrained before they get away with it, they try to still get more money from the homeowner as a backup
plan or tell the homeowner that he can refinance.
Trying to get more money from the homeowner or get the homeowner
to refinance doesn’t hold the mortgage servicer liable. It just
insures that they get their money one way or another.
The mortgage servicer and their debt collector prey
on the fears of the homeowner by using the lien that they have on the homeowner’s house as “ransom” for more
money. Most people can’t afford to get a jury trial or adequate legal representation, so the homeowner gives in to
the ransom even though at this point the mortgage s
ervicer and debt collector are only entitled to NOTHING from the homeowner. The legal terms for this are “duress
of property” and “unjust enrichment.”

Scam 9 – Make the homeowner think he has to post a
bond to sue them.

If the homeowner files suit, the mortgage servicer
and their debt collector will want the homeowner to
post a bond to maintain the suit. Texas law (Texas Civil
Practice & Remedies Code section 65.041 & 65.042)
specifically prevents the courts from making a homeowner post a
bond in a lawsuit to prevent foreclosure of their
home but the debt collector knows that most homeowners don’t kno
w that. Not being able to post the bond is another
way that the servicer/debt collector can strong-arm the homeowner out of the lawsuit.

Scam 10 – Make the homeowner think they have to deal with them
One of the debt collector’s jobs is to draw the homeowner into dealing with them. They have to draw the homeowner into “working with” them to talk them into money or doing what they want. The entire time, the debt
collector is planning on selling the consumer’s home or working towards a forbearance agreement. The goal in this scam is specifically to get the

homeowner to feel like they have to answer to the debt collector
and mortgage servicer and convince the homeowner that they owe the debt collector and mortgage servicer something. The other goal is to convince the homeowner that they need to work directly with the debt
collector or mortgage servicer and that they need to answer to

the servicer/collector and not go to the courts or

deal with the courts. DON’T DEAL WITH THESE DEBT COLLECTORS OR SERVICERS AT ALL COSTS. GO STRAIGHT
TO THE COURT AND FILE SUIT AGAINST EVERYONE
INVOLVED BEFORE YOUR HOME IS SOLD. GET
A RESTRAINING ORDER. REFUSE TO SIGN ANYTHING THE DEBT COLLECTOR GIVES YOU TO SIGN.

Scam 11 – Make debt collector appear legitimate

The debt collectors hired by the mortgage servicer
may contain attorneys to appear legitimate. The debt
collector may even be owned by an attorney. These
attorneys are shady characters that are the bottom
of the barrel attorneys that got licensed simply so that they could find a way to rip people off and con them by telling them that they’re lawyers. Check your state laws. Texas law (Texas Finance Code 392.101) requires debt collect
ors to have a bond on file with the secretary of state to engage
in third-party debt collection. The secretary of s
tate will provide any consumer with a “certificate of no record” if the debt collector does not have the bond on file.
If the debt collector doesn’t have the bond on file, then they have no right to be engaging in debt collection in the first place. If the debt collector is soliciting money from you and they don’t have that bond on file, then they’re engaging in illegal debt collection activity. Don’t pay them anything and file a complaint with the attorney general’s office.
In Texas, we have the Texas Deceptive Trade Practices Act. It’s designed to protect consumers from false, misleading, and deceptive businesses. If a debt collector does not have a bond on file with the state
to engage in debt collection, then that is specifically defined by law (Texas Business & Commerce Code section 17.46(b)(24)) as
“failing to disclose information concerning goods or services which was known at the time of the transaction if such failure to disclose such information was intended to induce the consumer into a transaction into which
the consumer would not have entered had the information been disclosed.” Would you pay the debt collector if you knew they had no right to solicit money from you? Absolutely not.

Scam 12 – Make the homeowner think he has to pay the legal fees

When the mortgage servicer and the debt collector get sued, they have a legal fees scam they use to con the homeowner into thinking the homeowner can’t afford to fight the lawsuit. The mortgage servicer and debt collector will add a paragraph in every one of their filings with the court that asks the court to award them some giant attorney fee (like $500 or $700) for the filing of that pleading. No court in their right mind would ever award the attorney any

money for filing a routine pleading, let alone a giant $500 or $700 fee for filing a pleading. But there’s no law against requesting it, and the fee is only requested for the purpose of harassing the homeowner and scaring them into thinking they might have to pay it. Also, as a matter of law, the “winner” to a lawsuit doesn’t pay the loser’s fees. It’s the opposite: the loser pays the winner’s fees, but even then only if the court awards the winner the fees.

Scam 13 – Prior breaches scam

When you sue a mortgage servicer or debt collector,

they will argue that your prior breaches still allow them to sell your house. As a matter of law, it is a well-established principal of contract law that when

one party to a contract honors a contract in any way, such as accepting your money as payment on the contract, they waive all breaches prior to that as a defense for breaking the contract later. In short, whenever the mortgage servicer accepts your money, they give up the right to sue or break the contract for anything

before that moment

10 Banks Agree to Pay $8.5B for Foreclosure Abuse

10 Friday Jan 2014

Posted by BNG in Banks and Lenders, Fed, Foreclosure Crisis, Fraud

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Ten major banks agreed Monday to pay $8.5 billion to settle federal complaints that they wrongfully foreclosed on homeowners who should have been allowed to stay in their homes.

The banks, which include JPMorgan Chase (JPM), Bank of America (BAC) and Wells Fargo (WFC), will pay billions to homeowners to end a review process of foreclosure files that was required under a 2011 enforcement action. The review was ordered because banks mishandled people’s paperwork and skipped required steps in the foreclosure process.

The settlement was announced jointly by the Office of the Comptroller of the Currency and the Federal Reserve.

Separately, Bank of America agreed Monday to pay $11.6 billion to government-backed mortgage financier Fannie Mae to settle claims related to mortgages that soured during the housing crash.

The agreements are the banks’ latest step toward eliminating hundreds of billions of dollars in potential liabilities related to the housing crisis that crested in 2008. When they release fourth-quarter earnings later this month, the banks hope to reassure investors that they are making progress toward addressing those so-called legacy claims.

But advocates say the foreclosure deal allows banks to escape responsibility for damages that might have cost them much more. Regulators are settling at too low a price and possibly at the expense of the consumer, they say.

“This was supposed to be about compensating homeowners for the harm they suffered,” said Diane Thompson, a lawyer with the National Consumer Law Center. The payout guidelines already allowed wronged homeowners less compensation than the actual damages to them, she said.

Under the settlement, people who were wrongfully foreclosed on could receive from $1,000 up to $125,000. Failing to offer someone a loan modification would be considered a lighter offense; unfairly seizing and selling a person’s home would entitle that person to the biggest payment, according to guidelines released last summer by the OCC.

The agreement covers up to 3.8 million people who were in foreclosure in 2009 and 2010. All will receive some amount of compensation. That’s an average of $2,237 per homeowner, although the payouts are expected to vary widely.

About $3.3 billion would be direct payments to borrowers, regulators said. Another $5.2 billion would pay for other assistance including loan modifications.

The companies involved in the settlement also include Citigroup (C), MetLife Bank (MET), PNC Financial Services (PNC), Sovereign, SunTrust (STI), U.S. Bank (USB) and Aurora. The 2011 action also included GMAC Mortgage, HSBC (HBC) and EMC (EMC).

The deal “represents a significant change in direction” from the original, 2011 agreements, Comptroller of the Currency Thomas Curry said in a statement.

Banks and consumer advocates had complained that the loan-by-loan reviews required under the 2011 order were time consuming and costly without reaching many homeowners. Banks were paying large sums to consultants who were reviewing the files. Some questioned the independence of those consultants, who often ruled against homeowners.

Curry said the new deal meets the original objectives “by ensuring that consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner.”

“It has become clear that carrying the process through to its conclusion would divert money away from the impacted homeowners and also needlessly delay the dispensation of compensation to affected borrowers,” Curry said.

Thompson agreed that the earlier review process was deeply flawed and said the move toward direct payments is a positive development. But she said the deal will only work if it includes strong oversight and transparency provisions.

“It’s another get out of jail free card for the banks,” said Thompson. “It caps their liability at a total number that’s less than they thought they were going to pay going in.”

Citigroup said in a statement that the bank is “pleased to have the matter resolved” and believes the agreement “will provide benefits for homeowners.” Citi expects to record a charge of $305 million in the fourth quarter of 2012 to cover its cash payment under the settlement. The bank expects that existing reserves will cover its $500 million share of the non-cash foreclosure aid.

Bank of America CEO Brian Moynihan said the agreements were “a significant step” in resolving the bank’s remaining legacy mortgage issues while streamlining the company and reducing future expenses.

Leaders of a House oversight panel asked regulators for a briefing on the proposed settlement on Friday. Regulators refused to brief Congress before announcing the deal publicly.

Maryland Congressman Elijah Cummings, the top Democrat on the House Committee on Oversight and Government Reform, said in a statement that he was “deeply disappointed” in the regulators’ actions.

“I have serious concerns that this settlement may allow banks to skirt what they owe and sweep past abuses under the rug without determining the full harm borrowers have suffered,” Cummings said. He said regulators have failed to answer key questions about how the settlement was reached, who will get the money and what will happen to others who were harmed by these banks but were not included in the settlement.

The settlement is separate from a $25 billion settlement between 49 state attorneys general, federal regulators and five banks: Ally, formerly known as GMAC; Bank of America; Citigroup; JPMorgan Chase and Wells Fargo.

Wrongful Foreclosure Homeowner Wins – State Law Prevailed While Securitizatiion Failed

22 Sunday Dec 2013

Posted by BNG in Affirmative Defenses, Appeal, Case Laws, Case Study, Federal Court, Foreclosure Defense, Fraud, Judicial States, Legal Research, Litigation Strategies, Loan Modification, Non-Judicial States, Pleadings, Pro Se Litigation, Securitization, State Court, Trial Strategies, Your Legal Rights

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Tags

Bank of America, California Court of Appeal, Deed of Trust, Foreclosure, Glaski, New York, Thomas Glaski, Washington Mutual

CASE STUDY:

INTRODUCTION

Many of the loans went into default, which led to nonjudicial foreclosure proceedings.

Some of the foreclosures generated lawsuits, which raised a wide variety of claims.

The allegations that the instant case shares with some of the other lawsuits are that

(1) documents related to the foreclosure contained forged signatures of Deborah Brignac and (2) the foreclosing entity was not the true owner of the loan because its chain of ownership had been broken by a defective transfer of the loan to the securitized trust established for the mortgage-backed securities. Here, the specific defect alleged is that the attempted transfers were made after the closing date of the securitized trust holding the pooled mortgages and therefore the transfers were ineffective.

In this appeal, the borrower contends the trial court erred by sustaining defendants’ demurrer as to all of his causes of action attacking the nonjudicial foreclosure. We conclude that, although the borrower’s allegations are somewhat confusing and may contain contradictions, he nonetheless has stated a wrongful foreclosure claim under the lenient standards applied to demurrers. We conclude that a borrower may challenge the securitized trust’s chain of ownership by alleging the attempts to transfer the deed of trust to the securitized trust (which was formed under New York law) occurred after the trust’s closing date. Transfers that violate the terms of the trust instrument are void under New York trust law, and borrowers have standing to challenge void assignments of their loans even though they are not a party to, or a third party beneficiary of, the assignment agreement.

H. Causes of Action Stated Based on the foregoing, we conclude that Glaski’s fourth cause of action has stated a claim for wrongful foreclosure. It follows that Glaski also has stated claims for quiet title (third cause of action), declaratory relief (fifth cause of action), cancellation of instruments (eighth cause of action), and unfair business practices under Business and Professions Code section 17200 (ninth cause of action).

We therefore reverse the judgment of dismissal and remand for further proceedings.

THOMAS A. GLASKI, Plaintiff and Appellant,
v.
BANK OF AMERICA, NATIONAL ASSOCIATION et al. Defendants and Respondents.

No. F064556.
Court of Appeals of California, Fifth District.
Filed July 31, 2013.
Publish order August 8, 2013.
Law Offices of Richard L. Antognini and Richard L. Antognini; Law Offices of Catarina M. Benitez and Catarina M. Benitez, for Plaintiff and Appellant.

AlvaradoSmith, Theodore E. Bacon, and Mikel A. Glavinovich, for Defendants and Respondents.

CERTIFIED FOR PUBLICATION
OPINION

FRANSON, J.

INTRODUCTION

INTRODUCTION

Before Washington Mutual Bank, FA (WaMu) was seized by federal banking regulators in 2008, it made many residential real estate loans and used those loans as collateral for mortgage-backed securities.[1] Many of the loans went into default, which led to nonjudicial foreclosure proceedings. Some of the foreclosures generated lawsuits, which raised a wide variety of claims. The allegations that the instant case shares with some of the other lawsuits are that (1) documents related to the foreclosure contained forged signatures of Deborah Brignac and (2) the foreclosing entity was not the true owner of the loan because its chain of ownership had been broken by a defective transfer of the loan to the securitized trust established for the mortgage-backed securities. Here, the specific defect alleged is that the attempted transfers were made after the closing date of the securitized trust holding the pooled mortgages and therefore the transfers were ineffective.

We therefore reverse the judgment of dismissal and remand for further proceedings.

FACTS – The Loan

Thomas A. Glaski, a resident of Fresno County, is the plaintiff and appellant in this lawsuit. The operative second amended complaint (SAC) alleges the following: In July 2005, Glaski purchased a home in Fresno for $812,000 (the Property). To finance the purchase, Glaski obtained a $650,000 loan from WaMu. Initial monthly payments were approximately $1,700. Glaski executed a promissory note and a deed of trust that granted WaMu a security interest in the Property (the Glaski deed of trust). Both documents were dated July 6, 2005. The Glaski deed of trust identified WaMu as the lender and the beneficiary, defendant California Reconveyance Company (California Reconveyance) as the trustee, and Glaski as the borrower.

Paragraph 20 of the Glaski deed of trust contained the traditional terms of a deed of trust and states that the note, together with the deed of trust, can be sold one or more times without prior notice to the borrower. In this case, a number of transfers purportedly occurred. The validity of attempts to transfer Glaski’s note and deed of trust to a securitized trust is a fundamental issue in this appeal.

Paragraph 22—another provision typical of deeds of trust—sets forth the remedies available to the lender in the event of a default. Those remedies include (1) the lender’s right to accelerate the debt after notice to the borrower and (2) the lender’s right to “invoke the power of sale” after the borrower has been given written notice of default and of the lender’s election to cause the property to be sold. Thus, under the Glaski deed of trust, it is the lender-beneficiary who decides whether to pursue nonjudicial foreclosure in the event of an uncured default by the borrower. The trustee implements the lender-beneficiary’s decision by conducting the nonjudicial foreclosure.[2]

Glaski’s loan had an adjustable interest rate, which caused his monthly loan payment to increase to $1,900 in August 2006 and to $2,100 in August 2007. In August 2008, Glaski attempted to work with WaMu’s loan modification department to obtain a modification of the loan. There is no dispute that Glaski defaulted on the loan by failing to make the monthly installment payments.

Creation of the WaMu Securitized Trust

In late 2005, the WaMu Mortgage Pass-Through Certificates Series 2005-AR17 Trust was formed as a common law trust (WaMu Securitized Trust) under New York law. The corpus of the trust consists of a pool of residential mortgage notes purportedly secured by liens on residential real estate. La Salle Bank, N.A., was the original trustee for the WaMu Securitized Trust.[3] Glaski alleges that the WaMu Securitized Trust has no continuing duties other than to hold assets and to issue various series of certificates of investment. A description of the certificates of investment as well as the categories of mortgage loans is included in the prospectus filed with the Securities and Exchange Commission (SEC) on October 21, 2005. Glaski alleges that the investment certificates issued by the WaMu Securitized Trust were duly registered with the SEC.

The closing date for the WaMu Securitized Trust was December 21, 2005, or 90 days thereafter. Glaski alleges that the attempt to assign his note and deed of trust to the WaMu Securitized Trust was made after the closing date and, therefore, the assignment was ineffective. (See fn. 12, post.)

WaMu’s Failure and Transfers of the Loan

In September 2008, WaMu was seized by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation (FDIC) was appointed as a receiver for WaMu. That same day, the FDIC, in its capacity as receiver, sold the assets and liabilities of WaMu to defendant JPMorgan Chase Bank, N.A., (JP Morgan). This transaction was documented by a “PURCHASE AND ASSUMPTION AGREEMENT WHOLE BANK” (boldface and underlining omitted) between the FDIC and JP Morgan dated as of September 25, 2008. If Glaski’s loan was not validly transferred to the WaMu Securitized Trust, it is possible, though not certain, that JP Morgan acquired the Glaski deed of trust when it purchased WaMu assets from the FDIC.[4] JP Morgan also might have acquired the right to service the loans held by the WaMu Securitized Trust.

In September 2008, Glaski spoke to a representative of defendant Chase Home Finance LLC (Chase),[5] which he believed was an agent of JP Morgan, and made an oral agreement to start the loan modification process. Glaski believed that Chase had taken over loan modification negotiations from WaMu.

On December 9, 2008, two documents related to the Glaski deed of trust were recorded with the Fresno County Recorder: (1) an “ASSIGNMENT OF DEED OF TRUST” and (2) a “NOTICE OF DEFAULT AND ELECTION TO SELL UNDER DEED OF TRUST” (boldface omitted; hereinafter the NOD). The assignment stated that JP Morgan transferred and assigned all beneficial interest under the Glaski deed of trust to “LaSalle Bank NA as trustee for WaMu [Securitized Trust]” together with the note described in and secured by the Glaski deed of trust.[6]

Notice of Default and Sale of the Property

The NOD informed Glaski that (1) the Property was in foreclosure because he was behind in his payments[7] and (2) the Property could be sold without any court action. The NOD also stated that “the present beneficiary under” the Glaski deed of trust had delivered to the trustee a written declaration and demand for sale. According to the NOD, all sums secured by the deed of trust had been declared immediately due and payable and that the beneficiary elected to cause the Property to be sold to satisfy that obligation.

The NOD stated the amount of past due payments was $11,200.78 as of December 8, 2008.[8] It also stated: “To find out the amount you must pay, or to arrange for payment to stop the foreclosure, … contact: JPMorgan Chase Bank, National Association, at 7301 BAYMEADOWS WAY, JACKSONVILLE, FL 32256, (877) 926-8937.”

Approximately three months after the NOD was recorded and served, the next official step in the nonjudicial foreclosure process occurred. On March 12, 2009, a “NOTICE OF TRUSTEE’S SALE” was recorded by the Fresno County Recorder (notice of sale). The sale was scheduled for April 1, 2009. The notice stated that Glaski was in default under his deed of trust and estimated the amount owed at $734,115.10.

The notice of sale indicated it was signed on March 10, 2009, by Deborah Brignac, as Vice President for California Reconveyance. Glaski alleges that Brignac’s signature was forged to effectuate a fraudulent foreclosure and trustee’s sale of his primary residence.

Glaski alleges that from March until May 2009, he was led to believe by his negotiations with Chase that a loan modification was in process with JP Morgan.

Despite these negotiations, a nonjudicial foreclosure sale of the Property was conducted on May 27, 2009. Bank of America, as successor trustee for the WaMu Securitized Trust and beneficiary under the Glaski deed of trust, was the highest bidder at the sale.

On June 15, 2009, another “ASSIGNMENT OF DEED OF TRUST” was recorded with the Fresno County Recorder. This assignment, like the assignment recorded in December 2008, identified JP Morgan as the assigning party. The entity receiving all beneficial interest under the Glaski deed of trust was identified as Bank of America, “as successor by merger to `LaSalle Bank NA as trustee for WaMu [Securitized Trust]. …”[9] The assignment of deed of trust indicates it was signed by Brignac, as Vice President for JP Morgan. Glaski alleges that Brignac’s signature was forged.

The very next document filed by the Fresno County Recorder on June 15, 2009, was a “TRUSTEE’S DEED UPON SALE.” (Boldface omitted.) The trustee’s deed upon sale stated that California Reconveyance, as the duly appointed trustee under the Glaski deed of trust, granted and conveyed to Bank of America, as successor by merger to La Salle NA as trustee for the WaMu Securitized Trust, all of its right, title and interest to the Property. The trustee’s deed upon sale stated that the amount of the unpaid debt and costs was $738,238.04 and that the grantee, paid $339,150 at the trustee’s sale, either in lawful money or by credit bid.

PROCEEDINGS

In October 2009, Glaski filed his original complaint. In August 2011, Glaski filed the SAC, which alleged the following numbered causes of action:

(1) Fraud against JPMorgan and California Reconveyance for the alleged forged signatures of Deborah Brignac as vice president for California Reconveyance and then as vice president of JPMorgan;

(2) Fraud against all defendants for their failure to timely and properly transfer the Glaski loan to the WaMu Securitized Trust and their representations to the contrary;

(3) Quiet title against Bank of America, Chase, and California Reconveyance based on the broken chain of title caused by the defective transfer of the loan to the WaMu Securitized Trust;

(4) Wrongful foreclosure against all defendants, based on the forged signatures of Deborah Brignac and the failure to timely and properly transfer the Glaski loan to the WaMu Securitized Trust;

(5) Declaratory relief against all defendants, based on the above acts by defendants;

(8) Cancellation of various foreclosure documents against all defendants, based on the above acts by the defendants; and

(9) Unfair practices under California Business and Professions Code section 17200, et seq., against all defendants.

Among other things, Glaski raised questions regarding the chain of ownership, by contending that the defendants were not the lender or beneficiary under his deed of trust and, therefore, did not have the authority to foreclose.

In September 2011, defendants filed a demurrer that challenged each cause of action in the SAC on the grounds that it failed to state facts sufficient to constitute a claim for relief. With respect to the wrongful foreclosure cause of action, defendants argued that Glaski failed to allege (1) any procedural irregularity that would justify setting aside the presumptively valid trustee’s sale and (2) that he could tender the amount owed if the trustee’s sale were set aside.

To support their demurrer to the SAC, defendants filed a request for judicial notice concerning (1) Order No. 2008-36 of the Office of Thrift Supervision, dated September 25, 2008, appointing the FDIC as receiver of Washington Mutual Bank and (2) the Purchase and Assumption Agreement Whole Bank between the FDIC and JP Morgan dated as of September 25, 2008, concerning the assets, deposits and liabilities of Washington Mutual Bank.[10]

Glaski opposed the demurrer, arguing that breaks in the chain of ownership of his deed of trust were sufficiently alleged. He asserted that Brignac’s signature was forged and the assignment bearing that forgery was void. His opposition also provided a more detailed explanation of his argument that his deed of trust had not been effectively transferred to the WaMu Securitized Trust that held the pool of mortgage loans. Thus, in Glaski’s view, Bank of America’s claim as the successor trustee is flawed because the trust never held his loan.

On November 15, 2011, the trial court heard argument from counsel regarding the demurrer. Counsel for Glaski argued, among other things, that the possible ratification of the allegedly forged signatures of Brignac presented an issue of fact that could not be resolved at the pleading stage.

Later that day, the court filed a minute order adopting its tentative ruling. As background for the issues presented in this appeal, we will describe the trial court’s ruling on Glaski’s two fraud causes of action and his wrongful foreclosure cause of action.

The ruling stated that the first cause of action for fraud was based on an allegation that defendants misrepresented material information by causing a forged signature to be placed on the June 2009 assignment of deed of trust. The ruling stated that if the signature of Brignac was forged, California Reconveyance “ratified the signature by treating it as valid.” As an additional rationale, the ruling cited Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149 (Gomes) for the proposition that the exhaustive nature of California’s nonjudicial foreclosure scheme prohibited the introduction of additional requirements challenging the authority of the lender’s nominee to initiate nonjudicial foreclosure.

As to the second cause of action for fraud, the ruling noted the allegation that the Glaski deed of trust was transferred to the WaMu Securitized Trust after the trust’s closing date and summarized the claim as asserting that the Glaski deed of trust had been improperly transferred and, therefore, the assignment was void ab initio. The ruling rejected this claim, stating: “[T]o reiterate, Gomes v. Countrywide, supra holds that there is no legal basis to challenge the authority of the trustee, mortgagee, beneficiary, or any of their authorized agents to initiate the foreclosure process citing Civil Code § 2924, subd. (a)(1).”

The ruling stated that the fourth cause of action for wrongful foreclosure was “based upon the invalidity of the foreclosure sale conducted on May 27, 2009 due to the `forged’ signature of Deborah Brignac and the failure of Defendants to `provide a chain of title of the note and the mortgage.’” The ruling stated that, as explained earlier, “these contentions are meritless” and sustained the general demurrer to the wrongful foreclosure claim without leave to amend.

Subsequently, a judgment of dismissal was entered and Glaski filed a notice of appeal.

DISCUSSION
I. STANDARD OF REVIEW

The trial court sustained the demurrer to the SAC on the ground that it did “not state facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e).) The standard of review applicable to such an order is well settled. “[W]e examine the complaint de novo to determine whether it alleges facts sufficient to state a cause of action under any legal theory. …” (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.)

When conducting this de novo review, “[w]e give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] Further, we treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law. [Citations.]” (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865.) Our consideration of the facts alleged includes “those evidentiary facts found in recitals of exhibits attached to a complaint.” (Satten v. Webb (2002) 99 Cal.App.4th 365, 375.) “We also consider matters which may be judicially noticed.” (Serrano v. Priest (1971) 5 Cal.3d 584, 591; see Code Civ. Proc., § 430.30, subd. (a) [use of judicial notice with demurrer].) Courts can take judicial notice of the existence, content and authenticity of public records and other specified documents, but do not take judicial notice of the truth of the factual matters asserted in those documents. (Mangini v. R.J. Reynolds Tobacco Co. (1994) 7 Cal.4th 1057, 1063, overruled on other grounds in In re Tobacco Cases II (2007) 41 Cal.4th 1257, 1262.) We note “in passing upon the question of the sufficiency or insufficiency of a complaint to state a cause of action, it is wholly beyond the scope of the inquiry to ascertain whether the facts stated are true or untrue” as “[t]hat is always the ultimate question to be determined by the evidence upon a trial of the questions of fact.” (Colm v. Francis (1916) 30 Cal.App. 742, 752.))

II. FRAUD
A. Rules for Pleading Fraud

The elements of a fraud cause of action are (1) misrepresentation, (2) knowledge of the falsity or scienter, (3) intent to defraud—that is, induce reliance, (4) justifiable reliance, and (5) resulting damages. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) These elements may not be pleaded in a general or conclusory fashion. (Id. at p. 645.) Fraud must be pled specifically—that is, a plaintiff must plead facts that show with particularity the elements of the cause of action. (Ibid.)

In their demurrer, defendants contended facts establishing detrimental reliance were not alleged.

B. First Cause of Action for Fraud, Lack of Specific Allegations of Reliance

B. First Cause of Action for Fraud, Lack of Specific Allegations of Reliance

Glaski’s first cause of action, which alleges a fraud implemented through forged documents, alleges that defendants’ act “caused Plaintiff to rely on the recorded documents and ultimately lose the property which served as his primary residence, and caused Plaintiff further damage, proof of which will be made at trial.”

This allegation is a general allegation of reliance and damage. It does not identify the particular acts Glaski took because of the alleged forgeries. Similarly, it does not identify any acts that Glaski did not take because of his reliance on the alleged forgeries. Therefore, we conclude that Glaski’s conclusory allegation of reliance is insufficient under the rules of law that require fraud to be pled specifically. (Lazar v. Superior Court, supra, 12 Cal.4th at p. 645.)

The next question is whether the trial court abused its discretion in sustaining the demurrer to the first fraud cause of action without leave to amend.

In March 2011, the trial court granted Glaski leave to amend when ruling on defendants’ motion for judgment on the pleadings. The court indicated that Glaski’s complaint had jumbled together many different statutes and theories of liability and directed Glaski to avoid “chain letter” allegations in his amended pleading.

Glaski’s first amended complaint set forth two fraud causes of action that are similar to those included in the SAC.

Defendants demurred to the first amended complaint. The trial court’s minute order states: “Plaintiff is advised for the last time to plead each cause of action such that only the essential elements for the claim are set forth without reincorporation of lengthy `general allegations’. In other words, the `facts’ to be pleaded are those upon which liability depends (i.e., `the facts constituting the cause of action’).”

After Glaski filed his SAC, defendants filed a demurrer. Glaski then filed an opposition that asserted he had properly alleged detrimental reliance. He did not argue he could amend to allege specifically the action he took or did not take because of his reliance on the alleged forgeries.

Accordingly, Glaski failed to carry his burden of demonstrating he could allege with the requisite specificity the elements of justifiable reliance and damages resulting from that reliance. (See Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [the burden of articulating how a defective pleading could be cured is squarely on the plaintiff].) Therefore, we conclude that the trial court did not abuse its discretion when it denied leave to amend as to the SAC’s first cause of action for fraud.
C. Second Fraud Cause of Action, Lack of Specific Allegations of Reliance

Glaski’s second cause of action for fraud alleged that WaMu failed to transfer his note and deed of trust into the WaMu Securitized Trust back in 2005. Glaski further alleged, in essence, that defendants attempted to rectify WaMu’s failure by engaging in a fraudulent scheme to assign his note and deed of trust into the WaMu Securitized Trust. The scheme was implemented in 2008 and 2009 and its purpose was to enable defendants to fraudulently foreclosure against the Property.

The second cause of action for fraud attempts to allege detrimental reliance in the following sentence: “Defendants, and each of them, also knew that the act of recording the Assignment of Deed of trust without the authorization to do so would cause Plaintiff to rely upon Defendants’ actions by attempting to negotiate a loan modification with representatives of Chase Home Finance, LLC, agents of JP MORGAN.” The assignment mentioned in this allegation is the assignment of deed of trust recorded in June 2009—no other assignment of deed of trust is referred to in the second cause of action.

The allegation of reliance does not withstand scrutiny. The act of recording the allegedly fraudulent assignment occurred in June 2009, after the trustee’s sale of the Property had been conducted. If Glaski was induced to negotiate a loan modification at that time, it is unclear how negotiations occurring after the May 2009 trustee’s sale could have diverted him from stopping the trustee’s sale. Thus, Glaski’s allegation of reliance is not connected to any detriment or damage.

Because Glaski has not demonstrated how this defect in his fraud allegations could be cured by amendment, we conclude that the trial court did not abuse its discretion in denying leave to amend the second cause of action in the SAC.
III. WRONGFUL FORECLOSURE BY NONHOLDER OF THE DEED OF TRUST
A. Glaski’s Theory of Wrongful Foreclosure

Glaski’s theory that the foreclosure was wrongful is based on (1) the position that paragraph 22 of the Glaski deed of trust authorizes only the lender-beneficiary (or its assignee) to (a) accelerate the loan after a default and (b) elect to cause the Property to be sold and (2) the allegation that a nonholder of the deed of trust, rather than the true beneficiary, instructed California Reconveyance to initiate the foreclosure.[11]

In particular, Glaski alleges that (1) the corpus of the WaMu Securitized Trust was a pool of residential mortgage notes purportedly secured by liens on residential real estate; (2) section 2.05 of “the Pooling and Servicing Agreement” required that all mortgage files transferred to the WaMu Securitized Trust be delivered to the trustee or initial custodian of the WaMu Securitized Trust before the closing date of the trust (which was allegedly set for December 21, 2005, or 90 days thereafter); (3) the trustee or initial custodian was required to identify all such records as being held by or on behalf of the WaMu Securitized Trust; (4) Glaski’s note and loan were not transferred to the WaMu Securitized Trust prior to its closing date; (5) the assignment of the Glaski deed of trust did not occur by the closing date in December 2005; (6) the transfer to the trust attempted by the assignment of deed of trust recorded on June 15, 2009, occurred long after the trust was closed; and (7) the attempted assignment was ineffective as the WaMu Securitized Trust could not have accepted the Glaski deed of trust after the closing date because of the pooling and servicing agreement and the statutory requirements applicable to a Real Estate Mortgage Investment Conduit (REMIC) trust.[12]
B. Wrongful Foreclosure by a Nonholder of the Deed of Trust

The theory that a foreclosure was wrongful because it was initiated by a nonholder of the deed of trust has also been phrased as (1) the foreclosing party lacking standing to foreclose or (2) the chain of title relied upon by the foreclosing party containing breaks or defects. (See Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 764; Herrera v. Deutsche Bank National Trust Co., supra, 196 Cal.App.4th 1366 [Deutsche Bank not entitled to summary judgment on wrongful foreclosure claim because it failed to show a chain of ownership that would establish it was the true beneficiary under the deed of trust]; Guerroro v. Greenpoint Mortgage Funding, Inc. (9th Cir. 2010) 403 Fed.Appx. 154, 156 [rejecting a wrongful foreclosure claim because, among other things, plaintiffs “have not pleaded any facts to rebut the unbroken chain of title”].)

In Barrionuevo v. Chase Bank, N.A. (N.D.Cal. 2012) 885 F.Supp.2d 964, the district court stated: “Several courts have recognized the existence of a valid cause of action for wrongful foreclosure where a party alleged not to be the true beneficiary instructs the trustee to file a Notice of Default and initiate nonjudicial foreclosure.” (Id. at p. 973.) We agree with this statement of law, but believe that properly alleging a cause of action under this theory requires more than simply stating that the defendant who invoked the power of sale was not the true beneficiary under the deed of trust. Rather, a plaintiff asserting this theory must allege facts that show the defendant who invoked the power of sale was not the true beneficiary. (See Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495, 1506 [plaintiff failed to plead specific facts demonstrating the transfer of the note and deed of trust were invalid].)
C. Borrower’s Standing to Raise a Defect in an Assignment

One basis for claiming that a foreclosing party did not hold the deed of trust is that the assignment relied upon by that party was ineffective. When a borrower asserts an assignment was ineffective, a question often arises about the borrower’s standing to challenge the assignment of the loan (note and deed of trust)—an assignment to which the borrower is not a party. (E.g., Conlin v. Mortgage Electronic Registration Systems, Inc. (6th Cir. 2013) 714 F.3d 355, 361 [third party may only challenge an assignment if that challenge would render the assignment absolutely invalid or ineffective, or void]; Culhane v. Aurora Loan Services of Nebraska (1st Cir. 2013) 708 F.3d 282, 291 [under Massachusetts law, mortgagor has standing to challenge a mortgage assignment as invalid, ineffective or void]; Gilbert v. Chase Home Finance, LLC (E.D.Cal., May 28, 2013, No. 1:13-CV-265 AWI SKO) 2013 WL 2318890.)[13]

California’s version of the principle concerning a third party’s ability to challenge an assignment has been stated in a secondary authority as follows:

“Where an assignment is merely voidable at the election of the assignor, third parties, and particularly the obligor, cannot … successfully challenge the validity or effectiveness of the transfer.” (7 Cal.Jur.3d (2012) Assignments, § 43.)

This statement implies that a borrower can challenge an assignment of his or her note and deed of trust if the defect asserted would void the assignment. (See Reinagel v. Deutsche Bank National Trust Co. (5th Cir. 2013) ___ F.3d ___ [2013 WL 3480207 at p. *3] [following majority rule that an obligor may raise any ground that renders the assignment void, rather than merely voidable].) We adopt this view of the law and turn to the question whether Glaski’s allegations have presented a theory under which the challenged assignments are void, not merely voidable.

We reject the view that a borrower’s challenge to an assignment must fail once it is determined that the borrower was not a party to, or third party beneficiary of, the assignment agreement. Cases adopting that position “paint with too broad a brush.” (Culhane v. Aurora Loan Services of Nebraska, supra, 708 F.3d at p. 290.) Instead, courts should proceed to the question whether the assignment was void.

D. Voidness of a Post-Closing Date Transfers to a Securitized Trust

Here, the SAC includes a broad allegation that the WaMu Securitized Trust “did not have standing to foreclosure on the … Property, as Defendants cannot provide the entire chain of title of the note and the [deed of trust].”[14]

More specifically, the SAC identifies two possible chains of title under which Bank of America, as trustee for the WaMu Securitized Trust, could claim to be the holder of the Glaski deed of trust and alleges that each possible chain of title suffers from the same defect—a transfer that occurred after the closing date of the trust.

First, Glaski addresses the possibility that (1) Bank of America’s chain of title is based on its status as successor trustee for the WaMu Securitized Trust and (2) the Glaski deed of trust became part of the WaMu Securitized Trust’s property when the securitized trust was created in 2005. The SAC alleges that WaMu did not transfer Glaski’s note and deed of trust into the WaMu Securitized Trust prior to the closing date established by the pooling and servicing agreement. If WaMu’s attempted transfer was void, then Bank of America could not claim to be the holder of the Glaski deed of trust simply by virtue of being the successor trustee of the WaMu Securitized Trust.

Second, Glaski addresses the possibility that Bank of America acquired Glaski’s deed of trust from JP Morgan, which may have acquired it from the FDIC. Glaski contends this alternate chain of title also is defective because JP Morgan’s attempt to transfer the Glaski deed of trust to Bank of America, as trustee for the WaMu Securitized Trust, occurred after the trust’s closing date. Glaski specifically alleges JP Morgan’s attempted assignment of the deed of trust to the WaMu Securitized Trust in June 2009 occurred long after the WaMu Securitized Trust closed (i.e., 90 days after December 21, 2005).

Based on these allegations, we will address whether a post-closing date transfer into a securitized trust is the type of defect that would render the transfer void. Other allegations relevant to this inquiry are that the WaMu Securitized Trust (1) was formed in 2005 under New York law and (2) was subject to the requirements imposed on REMIC trusts (entities that do not pay federal income tax) by the Internal Revenue Code.

The allegation that the WaMu Securitized Trust was formed under New York law supports the conclusion that New York law governs the operation of the trust. New York Estates, Powers & Trusts Law section 7-2.4, provides: “If the trust is expressed in an instrument creating the estate of the trustee, every sale, conveyance or other act of the trustee in contravention of the trust, except as authorized by this article and by any other provision of law, is void.”[15]

Because the WaMu Securitized Trust was created by the pooling and servicing agreement and that agreement establishes a closing date after which the trust may no longer accept loans, this statutory provision provides a legal basis for concluding that the trustee’s attempt to accept a loan after the closing date would be void as an act in contravention of the trust document.

We are aware that some courts have considered the role of New York law and rejected the post-closing date theory on the grounds that the New York statute is not interpreted literally, but treats acts in contravention of the trust instrument as merely voidable. (Calderon v. Bank of America, N.A. (W.D.Tex., Apr. 23, 2013, No. SA:12-CV-00121-DAE) ___ F.Supp.2d ___, [2013 WL 1741951 at p. *12] [transfer of plaintiffs’ note, if it violated PSA, would merely be voidable and therefore plaintiffs do not have standing to challenge it]; Bank of America National Association v. Bassman FBT, L.L.C. (Ill.Ct.App. 2012) 981 N.E.2d 1, 8 [following cases that treat ultra vires acts as merely voidable].)

Despite the foregoing cases, we will join those courts that have read the New York statute literally. We recognize that a literal reading and application of the statute may not always be appropriate because, in some contexts, a literal reading might defeat the statutory purpose by harming, rather than protecting, the beneficiaries of the trust. In this case, however, we believe applying the statute to void the attempted transfer is justified because it protects the beneficiaries of the WaMu Securitized Trust from the potential adverse tax consequence of the trust losing its status as a REMIC trust under the Internal Revenue Code. Because the literal interpretation furthers the statutory purpose, we join the position stated by a New York court approximately two months ago: “Under New York Trust Law, every sale, conveyance or other act of the trustee in contravention of the trust is void. EPTL § 7-2.4. Therefore, the acceptance of the note and mortgage by the trustee after the date the trust closed, would be void.” (Wells Fargo Bank, N.A. v. Erobobo (Apr. 29, 2013) 39 Misc.3d 1220(A), 2013 WL 1831799, slip opn. p. 8; see Levitin & Twomey, Mortgage Servicing, supra, 28 Yale J. on Reg. at p. 14, fn. 35 [under New York law, any transfer to the trust in contravention of the trust documents is void].) Relying on Erobobo, a bankruptcy court recently concluded “that under New York law, assignment of the Saldivars’ Note after the start up day is void ab initio. As such, none of the Saldivars’ claims will be dismissed for lack of standing.” (In re Saldivar (Bankr.S.D.Tex., Jun. 5, 2013, No. 11-10689) 2013 WL 2452699, at p. *4.)

We conclude that Glaski’s factual allegations regarding post-closing date attempts to transfer his deed of trust into the WaMu Securitized Trust are sufficient to state a basis for concluding the attempted transfers were void. As a result, Glaski has a stated cognizable claim for wrongful foreclosure under the theory that the entity invoking the power of sale (i.e., Bank of America in its capacity as trustee for the WaMu Securitized Trust) was not the holder of the Glaski deed of trust.[16]

We are aware that that some federal district courts sitting in California have rejected the post-closing date theory of invalidity on the grounds that the borrower does not have standing to challenge an assignment between two other parties. (Aniel v. GMAC Mortgage, LLC (N.D.Cal., Nov. 2, 2012, No. C 12-04201 SBA) 2012 WL 5389706 [joining courts that held borrowers lack standing to assert the loan transfer occurred outside the temporal bounds prescribed by the pooling and servicing agreement]; Almutarreb v. Bank of New York Trust Co., N.A. (N.D.Cal., Sept. 24, 2012, No. C 12-3061 EMC) 2012 WL 4371410.) These cases are not persuasive because they do not address the principle that a borrower may challenge an assignment that is void and they do not apply New York trust law to the operation of the securitized trusts in question.
E. Application of Gomes

The next question we address is whether Glaski’s wrongful foreclosure claim is precluded by the principles set forth in Gomes, supra, 192 Cal.App.4th 1149, a case relied upon by the trial court in sustaining the demurrer. Gomes was a pre-foreclosure action brought by a borrower against the lender, trustee under a deed and trust, and MERS, a national electronic registry that tracks the transfer of ownership interests and servicing rights in mortgage loans in the secondary mortgage market. (Id. at p. 1151.) The subject trust deed identified MERS as a nominee for the lender and that MERS is the beneficiary under the trust deed. After initiation of a nonjudicial forclosure, borrower sued for wrongful initiation of foreclosure, alleging that the current owner of the note did not authorize MERS, the nominee, to proceed with the foreclosure. The appellate court held that California’s nonjudicial foreclosure system, outlined in Civil Code sections 2924 through 2924k, is a “`comprehensive framework for the regulation of a nonjudicial foreclosure sale’” that did not allow for a challenge to the authority of the person initiating the foreclosure. (Gomes, supra, at p. 1154.)

In Naranjo v. SBMC Mortgage (S.D.Cal., Jul. 24, 2012, No. 11-CV-2229-L(WVG)) 2012 WL 3030370 (Naranjo), the district court addressed the scope of Gomes, stating:

“In Gomes, the California Court of Appeal held that a plaintiff does not have a right to bring an action to determine the nominee’s authorization to proceed with a nonjudicial foreclosure on behalf of a noteholder. [Citation.] The nominee in Gomes was MERS. [Citation.] Here, Plaintiff is not seeking such a determination. The role of the nominee is not central to this action as it was in Gomes. Rather, Plaintiff alleges that the transfer of rights to the WAMU Trust is improper, thus Defendants consequently lack the legal right to either collect on the debt or enforce the underlying security interest.” (Naranjo, supra, 2012 WL 3030370, at p. *3.)

Thus, the court in Naranjo did not interpret Gomes as barring a claim that was essentially the same as the post-closing date claim Glaski is asserting in this case.

Furthermore, the limited nature of the holding in Gomes is demonstrated by the Gomes court’s discussion of three federal cases relied upon by Mr. Gomes. The court stated that the federal cases were not on point because none recognized a cause of action requiring the noteholder’s nominee to prove its authority to initiate a foreclosure proceeding. (Gomes, supra, 192 Cal.App.4th at p. 1155.) The Gomes court described one of the federal cases by stating that “the plaintiff alleged wrongful foreclosure on the ground that assignments of the deed of trust had been improperly backdated, and thus the wrong party had initiated the foreclosure process. [Citaiton.] No such infirmity is alleged here.” (Ibid.; see Lester v. J.P. Morgan Chase Bank (N.D.Cal., Feb. 20, 2013) ___ F.Supp.2d ___, [2013 WL 633333, p. *7] [concluding Gomes did not preclude the plaintiff from challenging JP Morgan’s authority to foreclose].) The Gomes court also stated it was significant that in each of the three federal cases, “the plaintiff’s complaint identified a specific factual basis for alleging that the foreclosure was not initiated by the correct party.” (Gomes, supra, at p. 1156.)

The instant case is distinguishable from Gomes on at least two grounds. First, like Naranjo, Glaski has alleged that the entity claiming to be the noteholder was not the true owner of the note. In contrast, the principle set forth in Gomes concerns the authority of the noteholder’s nominee, MERS. Second, Glaski has alleged specific grounds for his theory that the foreclosure was not conducted at the direction of the correct party.

In view of the limiting statements included in the Gomes opinion, we do not interpret it as barring claims that challenge a foreclosure based on specific allegations that an attempt to transfer the deed of trust was void. Our interpretation, which allows borrowers to pursue questions regarding the chain of ownership, is compatible with Herrera v. Deutsche Bank National Trust Co., supra, 196 Cal.App.4th 1366. In that case, the court concluded that triable issues of material fact existed regarding alleged breaks in the chain of ownership of the deed of trust in question. (Id. at p. 1378.) Those triable issues existed because Deutsche Bank’s motion for summary judgment failed to establish it was the beneficiary under that deed of trust. (Ibid.)
F. Tender

Defendants contend that Glaski’s claims for wrongful foreclosure, cancellation of instruments and quiet title are defective because Glaski failed to allege that he made a valid and viable tender of payment of the indebtedness. (See Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 117 [“valid and viable tender of payment of the indebtedness owing is essential to an action to cancel a voidable sale under a deed of trust”].)

Glaski contends that he is not required to allege he tendered payment of the loan balance because (1) there are many exceptions to the tender rule, (2) defendants have offered no authority for the proposition that the absence of a tender bars a claim for damages,[17] and (3) the tender rule is a principle of equity and its application should not be decided against him at the pleading stage.

Tender is not required where the foreclosure sale is void, rather than voidable, such as when a plaintiff proves that the entity lacked the authority to foreclose on the property. (Lester v. J.P. Morgan Chase Bank, supra, ___ F.Supp.2d ___, [2013 WL 633333, p. *8]; 4 Miller & Starr, Cal. Real Estate (3d ed. 2003) Deeds of Trust, § 10:212, p. 686.)

Accordingly, we cannot uphold the demurrer to the wrongful foreclosure claim based on the absence of an allegation that Glaski tendered the amount due under his loan. Thus, we need not address the other exceptions to the tender requirement. (See e.g., Onofrio v. Rice (1997) 55 Cal.App.4th 413, 424 [tender may not be required where it would be inequitable to do so].)
G. Remedy of Setting Aside Trustee’s Sale

Defendants argue that the allegedly ineffective transfer to the WaMu Securitized Trust was a mistake that occurred outside the confines of the statutory nonjudicial foreclosure proceeding and, pursuant to Nguyen v. Calhoun (2003) 105 Cal.App.4th 428, 445, that mistake does not provide a basis for invalidating the trustee’s sale.

First, this argument does not negate the possibility that other types of relief, such as damages, are available to Glaski. (See generally, Annot., Recognition of Action for Damages for Wrongful Foreclosure—Types of Action, supra, 82 A.L.R.6th 43.)

Second, “where a plaintiff alleges that the entity lacked authority to foreclose on the property, the foreclosure sale would be void. [Citation.]” (Lester v. J.P. Morgan Chase Bank, supra, ___ F.Supp.2d ___, [2013 WL 633333, p. *8].)

Consequently, we conclude that Nguyen v. Calhoun, supra, 105 Cal.App.4th 428 does not deprive Glaski of the opportunity to prove the foreclosure sale was void based on a lack of authority.
H. Causes of Action Stated

Based on the foregoing, we conclude that Glaski’s fourth cause of action has stated a claim for wrongful foreclosure. It follows that Glaski also has stated claims for quiet title (third cause of action), declaratory relief (fifth cause of action), cancellation of instruments (eighth cause of action), and unfair business practices under Business and Professions Code section 17200 (ninth cause of action). (See Susilo v. Wells Fargo Bank, N.A. (C.D.Cal. 2011) 796 F.Supp.2d 1177, 1196 [plaintiff’s wrongful foreclosure claims served as predicate violations for her UCL claim].)
IV. JUDICIAL NOTICE
A. Glaski’s Request for Judicial Notice

When Glaski filed his opening brief, he also filed a request for judicial notice of (1) a Consent Judgment entered on April 4, 2012, by the United States District Court of the District of Columbia in United States v. Bank of America Corp. (D.D.C. No. 12-CV-00361); (2) the Settlement Term Sheet attached to the Consent Judgment; and (3) the federal and state release documents attached to the Consent Judgment as Exhibits F and G.

Defendants opposed the request for judicial notice on the ground that the request violated the requirements in California Rules of Court, rule 8.252 because it was not filed with a separate proposed order, did not state why the matter to be noticed was relevant to the appeal, and did not state whether the matters were submitted to the trial court and, if so, whether that court took judicial notice of the matters.

The documents included in Glaski’s request for judicial notice may provide background information and insight into robo-signing[18] and other problems that the lending industry has had with the procedures used to foreclose on defaulted mortgages. However, these documents do not directly affect whether the allegations in the SAC are sufficient to state a cause of action. Therefore, we deny Glaski’s request for judicial notice.
B. Defendants’ Request for Judicial Notice of Assignment

The “ASSIGNMENT OF DEED OF TRUST” recorded on December 9, 2008, that stated JP Morgan transferred and assigned all beneficial interest under the Glaski deed of trust to “LaSalle Bank NA as trustee for WaMu [Securitized Trust]” together with the note described in and secured by the Glaski deed of trust was not attached to the SAC as an exhibit. That document is part of the appellate record because the respondents’ appendix includes a copy of defendants’ request for judicial notice that was filed in June 2011 to support a motion for judgment on the pleadings.

In ruling on defendants’ request for judicial notice, the trial court stated that it could only take judicial notice that certain documents in the request, including the assignment of deed of trust, had been recorded, but it could not take judicial notice of factual matters stated in those documents. This ruling is correct and unchallenged on appeal. Therefore, like the trial court, we will take judicial notice of the existence and recordation of the December 2008 assignment, but we “do not take notice of the truth of matters stated therein.” (Herrera v. Deutsche Bank National Trust Co., supra, 196 Cal.App.4th at p. 1375.) As a result, the assignment of deed of trust does not establish that JP Morgan was, in fact, the holder of the beneficial interest in the Glaski deed of trust that the assignment states was transferred to LaSalle Bank. Similarly, it does not establish that LaSalle Bank in fact became the owner or holder of that beneficial interest.

Because the document does not establish these facts for purposes of this demurrer, it does not cure either of the breaks in the two alternate chains of ownership challenged in the SAC. Therefore, the December 2008 assignment does not provide a basis for sustaining the demurrer.
DISPOSITION

The judgment of dismissal is reversed. The trial court is directed to vacate its order sustaining the general demurrer and to enter a new order overruling that demurrer as to the third, fourth, fifth, eighth and ninth causes of action.

Glaski’s request for judicial notice filed on September 25, 2012, is denied.

Glaski shall recover his costs on appeal.

Wiseman, Acting P.J. and Kane, J., concurs.
ORDER GRANTING REQUEST FOR PUBLICATION

As the nonpublished opinion filed on July 31, 2013, in the above entitled matter hereby meets the standards for publication specified in the California Rules of Court, rule 8.1105(c), it is ordered that the opinion be certified for publication in the Official Reports.

KANE, J., concur.

[1] Mortgage-backed securities are created through a complex process known as “securization.” (See Levitin & Twomey, Mortgage Servicing (2011) 28 Yale J. on Reg. 1, 13 [“a mortgage securitization transaction is extremely complex”].) In simplified terms, “securitization” is the process where (1) many loans are bundled together and transferred to a passive entity, such as a trust, and (2) the trust holds the loans and issues investment securities that are repaid from the mortgage payments made on the loans. (Oppenheim & Trask-Rahn, Deconstructing the Black Magic of Securitized Trusts: How the Mortgage-Backed Securitization Process is Hurting the Banking Industry’s Ability to Foreclose and Proving the Best Offense for a Foreclosure Defense (2012) 41 Stetson L.Rev. 745, 753-754 (hereinafter, Deconstructing Securitized Trusts).) Hence, the securities issued by the trust are “mortgage-backed.” For purposes of this opinion, we will refer to such a trust as a “securitized trust.”

[2] Civil Code section 2924, subdivision (a)(1) states that a “trustee, mortgagee, or beneficiary, or any of their authorized agents” may initiate the nonjudicial foreclosure process. This statute and the provision of the Glaski deed of trust are the basis for Glaski’s position that the nonjudicial foreclosure in this case was wrongful—namely, that the power of sale in the Glaski deed of trust was invoked by an entity that was not the true beneficiary.

[3] Glaski’s pleading does not allege that LaSalle Bank was the original trustee when the WaMu Securitized Trust was formed in late 2005, but filings with the Securities and Exchange Commission identify LaSalle Bank as the original trustee. We provide this information for background purposes only and it plays no role in our decision in this appeal.

[4] Another possibility, which was acknowledged by both sides at oral argument, is that the true holder of the note and deed of trust cannot be determined at this stage of the proceedings. This lack of certainty regarding who holds the deed of trust is not uncommon when a securitized trust is involved. (See Mortgage and Asset Backed Securities Litigation Handbook (2012) § 5:114 [often difficult for securitized trust to prove ownership by showing a chain of assignments of the loan from the originating lender].)

[5] It appears this company is no longer a separate entity. The certificate of interested entities filed with the respondents’ brief refers to “JPMorgan Chase Bank, N.A. as successor by merger to Chase Home Finance, LLC.”

[6] One controversy presented by this appeal is whether this court should consider the December 9, 2008, assignment of deed of trust, which is not an exhibit to the SAC. Because the trial court took judicial notice of the existence and recordation of the assignment earlier in the litigation, we too will consider the assignment, but will not presume the matters stated therein are true. (See pt. IV.B, post.) For instance, we will not assume that JP Morgan actually held any interests that it could assign to LaSalle Bank. (See Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375 [taking judicial notice of a recorded assignment does not establish assignee’s ownership of deed of trust].)

[7] Specifically, the notice stated that his August 2008 installment payment and all subsequent installment payments had not been made.

[8] The signature block at the end of the NOD indicated it was signed by Colleen Irby as assistant secretary for California Reconveyance. The first page of the notice stated that recording was requested by California Reconveyance. Affidavits of mailing attached to the SAC stated that the declarant mailed copies of the notice of default to Glaski at his home address and to Bank of America, care of Custom Recording Solutions, at an address in Santa Ana, California. The affidavits of mailing are the earliest documents in the appellate record indicating that Bank of America had any involvement with Glaski’s loan.

[9] Bank of America took over La Salle Bank by merger in 2007.

[10] The trial court did not explicitly rule on defendants’ request for judicial notice of these documents, but referred to matters set forth in these documents in its ruling. Therefore, for purposes of this appeal, we will infer that the trial court granted the request.

[11] The claim that a foreclosure was conducted by or at the direction of a nonholder of mortgage rights often arises where the mortgage has been securitized. (Buchwalter, Cause of Action in Tort for Wrongful Foreclosure of Residential Mortgage, 52 Causes of Action Second (2012) 119, 149 [§ 11 addresses foreclosure by a nonholder of mortgage rights].)

[12] This allegation comports with the following view of pooling and servicing agreements and the federal tax code provisions applicable to REMIC trusts. “Once the bundled mortgages are given to a depositor, the [pooling and servicing agreement] and IRS tax code provisions require that the mortgages be transferred to the trust within a certain time frame, usually ninety dates from the date the trust is created. After such time, the trust closes and any subsequent transfers are invalid. The reason for this is purely economic for the trust. If the mortgages are properly transferred within the ninety-day open period, and then the trust properly closes, the trust is allowed to maintain REMIC tax status.” (Deconstructing Securitized Trusts, supra, 41 Stetson L.Rev. at pp. 757-758.)

[13] “Although we may not rely on unpublished California cases, the California Rules of Court do not prohibit citation to unpublished federal cases, which may properly be cited as persuasive, although not binding, authority.” (Landmark Screens, LLC v. Morgan, Lewis & Bockius, LLP (2010) 183 Cal.App.4th 238, 251, fn. 6, citing Cal. Rules of Court, rule 8.1115.)

[14] Although this allegation and the remainder of the SAC do not explicitly identify the trustee of the WaMu Securitized Trust as the entity that invoked the power of sale, it is reasonable to interpret the allegation in this manner. Such an interpretation is consistent with the position taken by Glaski’s attorney at the hearing on the demurrer, where she argued that the WaMu Securitized Trust did not obtain Glaski’s loan and thus was precluded from proceeding with the foreclosure.

[15] The statutory purpose is “to protect trust beneficiaries from unauthorized actions by the trustee.” (Turano, Practice Commentaries, McKinney’s Consolidated Laws of New York, Book 17B, EPTL § 7-2.4.)

[16] Because Glaski has stated a claim for relief in his wrongful foreclosure action, we need not address his alternate theory that the foreclosure was void because it was implemented by forged documents. (Genesis Environmental Services v. San Joaquin Valley Unified Air Pollution Control Dist. (2003) 113 Cal.App.4th 597, 603 [appellate inquiry ends and reversal is required once court determines a cause of action was stated under any legal theory].) We note, however, that California law provides that ratification generally is an affirmative defense and must be specially pleaded by the party asserting it. (See Reina v. Erassarret (1949) 90 Cal.App.2d 418, 424 [ratification is an affirmative defense and the defendant ordinarily bears the burden of proof]; 49A Cal.Jur.3d (2010) Pleading, § 186, p. 319 [defenses that must be specially pleaded include waiver, estoppel and ratification].) Also, “[w]hether there has been ratification of a forged signature is ordinarily a question of fact.” (Common Wealth Ins. Systems, Inc. v. Kersten (1974) 40 Cal.App.3d 1014, 1026; see Brock v. Yale Mortg. Corp. (Ga. 2010) 700 S.E.2d 583, 588 [ratification may be expressed or implied from acts of principal and “is usually a fact question for the jury”; wife had forged husband’s signature on quitclaim deed].)

[17] See generally, Annotation, Recognition of Action for Damages for Wrongful Foreclosure—Types of Action (2013) 82 A.L.R.6th 43 (claims that a foreclosure is “wrongful” can be tort-based, statute-based, and contract-based).

[18] Claims of misrepresentation or fraud related to robo-signing of foreclosure documents is addressed in Buchwalter, Cause of Action in Tort for Wrongful Foreclosure of Residential Mortgage, 52 Causes of Action Second, supra, at pages 147 to 149.

INDEPENDENT REVIEW & COMMENTS:

Glaski v Bank of America: Mortgagor’s Defense Based on Lender’s Failure to Properly Securitize a Loan

Roger Bernhardt

Golden Gate University – School of Law

September 29, 2013

CEB 36 Real Property Law Reporter 111, September 2013

Abstract:

Commentary on a recent California decision holding that a lender might be unable to enforce an improperly securitized loan.

Accepted Paper Series

Glaski v Bank of America: Mortgagor’s Defense Based on Lender’s Failure to Properly Securitize a Loan.
Glaski v Bank of America (2013) 218 CA4th 1079 Before being placed into receivership, Washington Mutual Bank (WaMu) established a pool of residential loans as collateral for mortgage-backed securities. New York law governed the resulting securitized trust. According to the lender, the trust included Borrower’s defaulted loan. Bank of America, which claimed it was successor trustee and beneficiary of the trust, purchased Borrower’s property at the trustee’s sale. There were two possible chains of title through which Bank of America could have claimed
to be successor trustee. (Notably, at the demurrer stage, the parties acknowledged that they could not be certain who truly held Borrower’s note.) Borrower challenged both conceivable chains of title as having
been assigned after the trust closing date. The trial court sustained Bank of America’s demurrer without leave to amend.
The court of appeal reversed in part. The court ruled that a borrower may challenge an assignment as being void even if that borrower was not a party to, or a third party beneficiary of, that assignment. Such a
challenge effectively states a claim for wrongful foreclosure. Disagreeing with Texas and Illinois courts, the court literally and strictly construed the applicable New York statute, which states that any act by a trustee in contravention of the trust document is void (218 CA4th at 1096): Because the WaMu Securitized Trust was created by the pooling and servicing agreement and that agreement establishes a closing date after which the trust may no longer accept loans, this statutory provision provides a legal basis for concluding that the trustee’s attempt to accept a loan after the closing date would be void as an act in contravention of the trust document.
This is significant because the borrower need not tender payment of indebtedness when the foreclosure sale is void.
THE EDITOR’S TAKE: If some lenders are reacting with shock and horror to this decision, that is probably only because they reacted too giddily to Gomes v Countrywide Home Loans, Inc. (2011) 192 CA4th 1149 (reported at 34 CEB RPLR 66 (Mar. 2011)) and similar decisions that they took to mean that their nonjudicial foreclosures were completely immune from judicial review. Because I think that Glaski simply holds that some borrower foreclosure challenges may warrant factual investigation (rather than outright dismissal at the pleading stage), I do not find this decision that earth-shaking.
Two of this plaintiff’s major contentions were in fact entirely rejected at the demurrer level: —That the foreclosure was fraudulent because the statutory notices looked robosigned (“forged”); and —That the loan documents were not truly transferred into the loan pool.
Only the borrower’s wrongful foreclosure count survived into the next round. If the bank can show that the documents were handled in proper fashion, it should be able to dispose of this last issue on summary
judgment.
Bank of America appeared to not prevail on demurrer on this issue because the record did include two deed of trust assignments that had been recorded outside the Real Estate Mortgage Investment Conduit (REMIC) period and did not include any evidence showing that the loan was put into the securitization pool within the proper REMIC period. The court’s ruling that a transfer into a trust that is made too late may constitute a void rather than voidable transfer (to not jeopardize the tax-exempt status of the other assets in the trust) seems like a sane conclusion. That ruling does no harm to securitization pools that were created with proper attention to the necessary timetables. (It probably also has only slight effect on loans that were improperly securitized,
other than to require that a different procedure be followed for their foreclosure.)

In this case, the fact that two assignments of a deed of trust were recorded after trust closure proves almost nothing about when the loans themselves were actually transferred into the trust pool, it having been a common practice back then not to record assignments until some other development made recording appropriate. I suspect that it was only the combination of seeing two “belatedly” recorded assignments and also seeing no indication of any timely made document deposits into the trust pool that led to court to say that the borrower had sufficiently alleged an invalid (i.e., void) attempted transfer into the trust. Because that seemed to be a factual possibility, on remand, the court logically should ask whether the pool trustee was the rightful party to conduct the foreclosure of the deed of trust, or whether that should have been done by someone else.

While courts may not want to find their dockets cluttered with frivolous attacks on valid foreclosures, they are probably equally averse to allowing potentially meritorious challenges to wrongful foreclosures to be rejected out of hand. —Roger Bernhardt

From CEB 36 Real Property Law Reporter 111, September 2013, © The Regents of the University of California, reprinted with permission of CEB.”

B. First Cause of Action for Fraud, Lack of Specific Allegations of Reliance – See more at: http://stopforeclosurefraud.com/2013/08/01/glaski-v-bank-of-america-ca5-5th-appellate-district-securitization-failed-ny-trust-law-applied-ruling-to-protect-remic-status-non-judicial-foreclosure-statutes-irrelevant-because-sa/#sthash.jRAaLypz.dpuf

II. FRAUD

A. Rules for Pleading Fraud

We therefore reverse the judgment of dismissal and remand for further proceedings. – See more at: http://stopforeclosurefraud.com/2013/08/01/glaski-v-bank-of-america-ca5-5th-appellate-district-securitization-failed-ny-trust-law-applied-ruling-to-protect-remic-status-non-judicial-foreclosure-statutes-irrelevant-because-sa/#sthash.jRAaLypz.dpuf

How Nevada Homeowners Can Effectively Plead Foreclosure Fraud and Misrepresentation

20 Friday Dec 2013

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

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Dingwall, Federal Court, Foreclosure, Fraud, Legal burden of proof, Nevada Bell, Plaintiff, Reno Air

This post is designed to guide homeowners in wrongful foreclosure litigation when pleading their Fraud and Misrepresentation cases in State and Federal Courts.

Fraudulent or Intentional Misrepresentation

Elements:

Standard Intentional Misrepresentation

(1) defendant made a false representation,
(2) with knowledge or belief that the representation was false or without a sufficient basis for making the representation,
(3) the defendant intended to induce the plaintiff to act or refrain from acting on the representation,
(4) the plaintiff justifiably relied on the representation, and
(5) the plaintiff was damaged as a result of his reliance.

J.A. Jones Const. Co. v. Lehrer McGovern Bovis, Inc., 120 Nev. 277, 290–91, 89 P.3d 1009, 1018 (2004);

Fraud By Omission
With respect to the false representation element, the suppression or omission ” ‘of a material fact which a party is bound in good faith to disclose is equivalent to a false representation, since it constitutes an indirect representation that such fact does not exist.’ Nelson v. Heer, 123 Nev. 217, 163 P.3d 420 (Nev. 2007) (quoting Midwest Supply, Inc. v. Waters, 89 Nev. 210, 212-13, 510 P.2d 876, 878 (1973).

Example Cases:

Foster v. Dingwall, — P.3d —, 2010 WL 679069, at *8 (Nev. Feb. 25, 2010) (en banc); Jordan v. State ex rel. Dep’t of Motor Vehicles & Pub. Safety, 121 Nev. 44, 75, 110 P.3d 30, 51 (2005);J.A. Jones Const. Co. v. Lehrer McGovern Bovis, Inc., 120 Nev. 277, 290–91, 89 P.3d 1009, 1018 (2004); Chen v. Nev. State Gaming Control Bd.,116 Nev. 282, 284, 994 P.2d 1151, 1152 (2000); Albert H. Wohlers & Co. v. Bartgis, 114 Nev. 1249, 1260, 969 P.2d 949, 957 (1998); Barmettler v. Reno Air, Inc., 114 Nev. 441, 956 P.2d 1382 (1998); Blanchard v. Blanchard, 108 Nev. 908, 911, 839 P.2d 1320, 1322 (1992); Bulbman, Inc. v. Nevada Bell, 108 Nev. 105, 110–11, 825 P.2d 588, 592 (1992); Collins v. Burns, 103 Nev. 394, 397, 741 P.2d 819, 821 (1987); Epperson v. Roloff, 102 Nev. 206, 211, 719 P.2d 799, 802 (1986); Hartford Acc. & Indem. Co. v. Rogers, 96 Nev. 576, 580 n.1, 613 P.2d 1025, 1027 n.1 (1980); Lubbe v. Barba, 91 Nev. 596, 540 P.2d 115 (1975).

Proof

“The intention that is necessary to make the rule stated in this Section applicable is the intention of the promisor when the agreement was entered into. The intention of the promisor not to perform an enforceable or unenforceable agreement cannot be established solely by proof of its nonperformance, nor does his failure to perform the agreement throw upon him the burden of showing that his nonperformance was due to reasons which operated after the agreement was entered into. The intention may be shown by any other evidence that sufficiently indicates its existence, as, for example, the certainty that he would not be in funds to carry out his promise.” REST 2d TORTS § 530, comment d.

A plaintiff has the burden of proving each element of fraud claim by clear and convincing evidence. Albert H. Wohlers & Co. v. Bartgis, 114 Nev. 1249, 1260, 969 P.2d 949, 957 (1998);Bulbman, Inc. v. Nevada Bell, 108 Nev. 105, 110–11, 825 P.2d 588, 592 (1992); Lubbe v. Barba, 91 Nev. 596, 540 P.2d 115 (1975).

“Whether these elements are present in a given case is ordinarily a question of fact.” Epperson v. Roloff, 102 Nev. 206, 211, 719 P.2d 799, 802 (1986).

“Further, ‘[w]here an essential element of a claim for relief is absent, the facts, disputed or otherwise, as to other elements are rendered immaterial and summary judgment is proper.’ Bulbman, 108 Nev. at 111, 825 P.2d at 592.” Barmettler v. Reno Air, Inc., 114 Nev. 441, 447, 956 P.2d 1382, 1386 (1998).

“‘[f]raud is never presumed; it must be clearly and satisfactorily proved.’” J.A. Jones Const. Co. v. Lehrer McGovern Bovis, Inc., 120 Nev. 277, 291, 89 P.3d 1009, 1018 (2004) (quoting Havas v. Alger, 85 Nev. 627, 631, 461 P.2d 857, 860 (1969)).

“the essence of any misrepresentation claim is a false or misleading statement that harmed [the plaintiff].” Nanopierce Techs., Inc. v. Depository Trust & Clearing Corp., 123 Nev. 362, 168 P.3d 73, 82 (2007).

False Representations:

Estimates and opinions are not false representations. Commendatory sales talk (puffing) isn’t either.

“Nevada Bell’s representations to Bulbman about the cost of Centrex and the installation time are estimates and opinions based on past experience with the system. As such, these representations are not actionable in fraud. See Clark Sanitation v. Sun Valley Disposal, 87 Nev. 338, 487 P.2d 337 (1971). Nevada Bell’s representations as to the reliability and performance of the system constitute mere commendatory sales talk about the product (‘puffing’), also not actionable in fraud. See e.g., Coy v. Starling, 53 Or.App. 76, 630 P.2d 1323 (1981). Furthermore, in his deposition, Gerald Roth, Jr., testified that he did not believe Nevada Bell had intentionally lied to him about its Centrex system. Rather, Roth stated that Nevada Bell might have been ‘more careful’ in making certain representations, particularly with respect to how long it would take to install a Centrex system. Roth’s testimony establishes the absence of fraudulent intent on the part of Nevada Bell.” Bulbman, Inc. v. Nev. Bell, 108 Nev. 105, 111, 825 P.2d 588, 592 (1992).

“An estimate is an opinion and an estimate of value is an opinion as to value upon which reasonable and honorable men may hold differing views. This is the basis for the frequently announced rule that a charge of fraud normally may not be based upon representations of value. Frankfurt v. Wilson, 353 S.W.2d 490 (Tex.Civ.App.1961); Burke v. King, 176 Okl. 625, 56 P.2d 1185 (1936).” Clark Sanitation, Inc. v. Sun Valley Disposal Co., 87 Nev. 338, 341, 487 P.2d 337, 339 (1971).

“Story, in his work on contracts, in discussing the various questions presented by the misrepresentations of the vendor, lays down the rule as follows: ‘If the seller fraudulently misrepresents facts, or states facts to exist which he knows not to exist, his fraud would vitiate the contract, provided the misstatements were in respect to a material point.’ (Section 636.) But where a statement is not made as a fact, but only as an opinion, the rule is quite different. Thus a false representation as to a mere matter of opinion * * * does not avoid the contract. * * * Ordinarily, a naked statement of opinion is not a representation on which a buyer is legally entitled to rely, unless, perhaps, in some special cases where peculiar confidence or trust is created between the parties. The ground of this rule is, probably, the impracticability of attempting to discover by means of the rules of law the real opinion of the party making the representation, and also because a mere expression of opinion does not alter facts, though it may bias the judgment. Mere expressions of opinion are not, therefore, considered so tangible a fraud as to form a ground of avoidance of a contract, even though they be falsely stated. * * * Yet, where a representation is made, going to the essence of a contract, the party making it should be careful to state it as an opinion, and not as a fact of which he has knowledge, or he may be liable thereon. The question whether a statement was intended to be given as an opinion, and was so received, is, however, one for a jury to determine, upon the peculiar circumstances of the case. But whenever a belief is asserted, as in a fact, which is material or essential, and which the person asserting knows to be false, and the statement is made with an intention to mislead, it is fraudulent and affords a ground of relief.’” Banta v. Savage, 12 Nev. 151, 0–4 (1877).

Fraudulent or Intentional Misrepresentation

Pleading Standards

Standard

In actions involving fraud, the circumstances of the fraud are required by Nev.R.Civ.P. 9(b) to be stated with particularity. The circumstances that must be detailed include averments to the time, the place, the identity of the parties involved, and the nature of the fraud or mistake.”
Brown v. Kellar, 97 Nev. 582, 583-84, 636 P.2d 874, 874 (Nev. 1981).

Allegations of fraud upon “information or belief” must be backed up with reasons for the belief

[i]t is not sufficient to charge a fraud upon information and belief…without giving the ground upon which the belief rests or stating some fact from which the court can infer that the belief is well founded.
Tallman v. First Nat. Bank of Nev., 66 Nev. 248, 259, 208 P.2d 302, 307 (Nev. 1949).

Requirements for pleading fraud generally: The “Relaxed Standard”

The federal district court found that the plaintiffs’ allegations did not meet the strict requirement of FRCP 9(b), but it also found that “[w]here a plaintiff is claiming . . . to have been injured as the result of a fraud perpetrated on a third party, the circumstances surrounding the transaction are peculiarly within the defendant’s knowledge.”[22] Therefore, the court applied the relaxed standard and, pointing to the above facts, allowed the plaintiffs to conduct discovery and to amend their complaint to meet FRCP 9(b)’s pleading requirements.[23]

This exception strikes a reasonable balance between NRCP 9(b)’s stringent requirements for pleading fraud and a plaintiff’s inability to allege the full factual basis concerning fraud because information and documents are solely in the defendant’s possession and cannot be secured without formal, legal discovery. Therefore, we adopt this relaxed standard in situations where the facts necessary for pleading with particularity “are peculiarly within the defendant’s knowledge or are readily obtainable by him.”[24]

In addition to requiring that the plaintiff state facts supporting a strong inference of fraud, we add the additional requirements that the plaintiff must aver that this relaxed standard is appropriate and show in his complaint that he cannot plead with more particularity because the required information is in the defendant’s possession. If the district court finds that the relaxed standard is appropriate, it should allow the plaintiff time to conduct the necessary discovery.[25] Thereafter, the plaintiff can move to amend his complaint to plead allegations of fraud with particularity in compliance with NRCP 9(b).[26] Correspondingly, the defendant may renew its motion to dismiss under NRCP 9(b) if the plaintiff’s amended complaint still does not meet NRCP 9(b)’s particularity requirements.

Rocker v. KMPG LLP, 122 Nev. 1185, 148 P.3d 703, (2006) (overruled on other grounds Buzz Stew, LLC v. City of N. Las Vegas, 181 P.3d 670 (Nev.2008)).(emphasis added).

Particular pleading

NRCP 9(b) requires that special matters (fraud, mistake, or condition of the mind), be pleaded with particularity in order to *473 afford adequate notice to the opposing party.
Ivory Ranch, Inc. v. Quinn River Ranch, Inc., 101 Nev. 471, 73, 705 P.2d 673 (Nev. 1985).

Particular pleading

NRCP 8(a) requires that a pleading contain only a short and plain statement showing that the pleader is entitled to relief. In actions involving fraud, the circumstances of the fraud are required by NRCP 9(b) to be stated with particularity. The circumstances that must be detailed include averments to the time, the place, the identity of the parties involved, and the *584 nature of the fraud or mistake. 5 Wright and Miller, Federal Practice and Procedure s 1297 at p. 403 (1969). Malice, intent, knowledge and other conditions of the mind of a person may be averred generally. NRCP 9(b); see Occhiuto v. Occhiuto, 97 Nev. 143, 625 P.2d 568 (1981).

Brown v. Kellar, 97 Nev. 582, 584, 636 P.2d 874 (Nev. 1981).

Damages

Damages must have been proximately caused by the reliance and must be reasonably foreseeable

“with respect to the damage element, this court has concluded that the damages alleged must be proximately caused by reliance on the original misrepresentation or omission. Collins, 103 Nev. at 399, 741 P.2d at 822 (determining that an award of damages for intentional misrepresentation based on losses suffered solely due to a recession was inappropriate). Proximate cause limits liability to foreseeable consequences that are reasonably connected to both the defendant’s misrepresentation or omission and the harm that the misrepresentation or omission created. See Goodrich & Pennington v. J.R. Woolard, 120 Nev. 777, 784, 101 P.3d 792, 797 (2004); Dow Chemical Co. v. Mahlum, 114 Nev. 1468, 1481, 970 P.2d 98, 107 (1998).” Nelson v. Heer, 123 Nev. 26, 426, 163 P.3d 420 (2007).

“Chen’s skill in playing blackjack, rather than his misrepresentation of identity, was the proximate cause of his winnings. The false identification allowed Chen to receive $44,000 in chips, but it did not cause Chen to win. Thus, we hold that the Gaming Control Board’s determination that Chen committed fraud is contrary to law because the Monte Carlo did not establish all of the elements of fraud.” Chen v. Nev. State Gaming Control Bd., 116 Nev. 282, 285, 994 P.2d 1151, 1152 (2000).

“Appellants contend they should recover all their losses throughout the life of the business. We cannot agree. The district court found subsequent operating losses were solely due to a recession that devastated the Carson City area in the early 1980’s. The trial court’s determination of a question of fact will not be disturbed unless clearly erroneous or not based on substantial evidence. Ivory Ranch v. Quinn River Ranch, 101 Nev. 471, 472, 705 P.2d 673, 675 (1985); NRCP 52(a).

Since there is substantial evidence in the record indicating a severe economic recession in the period following the sale of the store, we will not disturb the district court’s finding that the economic climate caused subsequent losses. Collins v. Burns, 103 Nev. 394, 399, 741 P.2d 819, 822 (1987).

Defenses

‘As a general rule, it is not sufficient to charge a fraud upon information and belief (and here there is not even an allegation of ‘information’) without giving the ground upon which the belief rests or stating some fact from which the court can infer that the belief is well founded.’ Bancroft Code Pleading, Vol. 1, page 79. See also-Dowling v. Spring Valley Water Co., 174 Cal. 218, 162 P. 894.
Tallman v. First Nat. Bank of Nev., 66 Nev. 248, 259, 208 P.2d 302, 307 (Nev. 1949).

Misrepresentations may be implied

“a defendant may be found liable for misrepresentation even when the defendant does not make an express misrepresentation, but instead makes a representation which is misleading because it partially suppresses or conceals information. See American Trust Co. v. California W. States Life Ins. Co., 15 Cal.2d 42, 98 P.2d 497, 508 (1940). See also Northern Nev. Mobile Home v. Penrod, 96 Nev. 394, 610 P.2d 724 (1980); Holland Rlty. v. Nev. Real Est. Comm’n, 84 Nev. 91, 436 P.2d 422 (1968).” Epperson v. Roloff, 102 Nev. 206, 212–13, 719 P.2d 799, 803 (1986).

False statement may be conveyed through an agent

“a party may be held liable for misrepresentation where he communicates misinformation to his agent, intending or having reason to believe that the agent would communicate the misinformation to a third party. See generally W. Prosser, supra, § 107 at 703; Restatement (Second) of Torts, § 533 (1977).” Epperson v. Roloff, 102 Nev. 206, 212, 719 P.2d 799, 803 (1986).

There is a duty to disclose where the defendant alone has knowledge of material facts not accessible to the plaintiff

“Finally, with regard to the leakage problem, respondents argue that no affirmative representation was ever made that the house was free of leaks. At least implicitly, they argue that an action in deceit will not lie for nondisclosure. This has, indeed, been described as the general rule. Seediscussion, W. Prosser, supra, § 106, at 695-97. An exception to the rule exists, however, where the defendant alone has knowledge of material facts which are not accessible to the plaintiff. Under such circumstances, there is a duty of disclosure. Thus, in Herzog v. Capital Co., supra, the court upheld a jury’s award of damages to the purchaser of a leaky house, holding under the circumstances of that case, that the jury correctly found that the vendor had a duty to reveal ‘the hidden and material facts’ pertaining to the leakage problem. Id. at 10. In numerous other cases, involving analogous facts, a jury’s finding of a duty of disclosure has been upheld. See, e.g., Barder v. McClung, 93 Cal.App.2d 692, 209 P.2d 808 (1949) (vendor failed to disclose fact that part of house violated city zoning ordinances); Rothstein v. Janss Inv. Corporation, 45 Cal.App.2d 64, 113 P.2d 465 (1941) (vendor failed to disclose fact that land was filled ground).” Epperson v. Roloff, 102 Nev. 206, 213, 719 P.2d 799, 803–804 (1986).

Intent to Induce the Plaintiff to Act or Refrain from Acting

The intent to defraud must exist at the time the promise is made.

“The mere failure to fulfill a promise or perform in the future, however, will not give rise to a fraud claim absent evidence that the promisor had no intention to perform at the time the promise was made. Webb v. Clark, 274 Or. 387, 546 P.2d 1078 (1976).” Bulbman, Inc. v. Nev. Bell, 108 Nev. 105, 112, 825 P.2d 588, 592 (1992).

“Intent must be specifically alleged.” Jordan v. State ex rel. Dep’t of Motor Vehicles & Pub. Safety, 121 Nev. 44, 75, 110 P.3d 30, 51 (2005); see also Tahoe Village Homeowners v. Douglas Co., 106 Nev. 660, 663, 799 P.2d 556, 558 (1990) (upholding the dismissal of an intentional tort complaint that failed to allege intent).

‘[F]raud is not established by showing parol agreements at variance with a written instrument and there is no inference of a fraudulent intent not to perform from the mere fact that a promise made is subsequently not performed. 24 Am.Jur. 107; 23 Am.Jur. 888.” Tallman v. First Nat’l Bank of Nev., 66 Nev. 248, 259, 208 P.2d 302, 307 (1949).

“It is only when independent facts constituting fraud are first proven that parol evidence is admissible. ‘Our conception of the rule which permits parol evidence of fraud to establish the invalidity of the instrument is that it must tend to establish some independent fact or representation, some fraud in the procurement of the instrument, or some breach of confidence concerning its use, and not a promise directly at variance with the promise of the writing. We find apt language in Towner v. Lucas’ Ex’r, 54 Va. (13 Grat.) 705, 716, in which to express our conviction: ‘It is reasoning in a circle, to argue that fraud is made out, when it is shown by oral testimony that the obligee contemporaneously with the execution of a bond promised not to enforce it. Such a principle would nullify the rule: for conceding that such an agreement is proved, or any other contradicting the written instrument, the party seeking to enforce the written agreement according to its terms, would always be guilty of fraud. The true question is, Was there any such agreement? And this can only be established by legitimate testimony. For reasons founded in wisdom and to prevent frauds and perjuries, the rules of the common law exclude such oral testimony of the alleged agreement; and as it cannot be proved by legal evidence, the agreement itself in legal contemplation cannot be regarded as existing in fact. Neither a court of law or of equity can act upon the hypothesis of fraud where there is no legal proof of it.’’ Bank of America Nat. Trust & Savings Ass’s v. Pendergrass, 4 Cal.2d 258, 48 P.2d 659, 661.” Tallman v. First Nat’l Bank of Nev., 66 Nev. 248, 258–59, 208 P.2d 302, 307 (1949).

Justifiable Reliance

The false representation must have played a material and substantial role in the plaintiff’s decisionmaking, and made him make a decision he would not otherwise have made.

“In order to establish justifiable reliance, the plaintiff is required to show the following:’The false representation must have played a material and substantial part in leading the plaintiff to adopt his particular course; and when he was unaware of it at the time that he acted, or it is clear that he was not in any way influenced by it, and would have done the same thing without it for other reasons, his loss is not attributed to the defendant.’ Lubbe v. Barba, 91 Nev. 596, 600, 540 P.2d 115, 118 (1975) (quoting Prosser, Law of Torts, 714 (4th ed. 1971)) (emphasis added).” Blanchard v. Blanchard, 108 Nev. 908, 911, 839 P.2d 1320, 1322 (1992).

If the plaintiff made independent investigations and discovered facts that he is now claiming the defendant disclosed, he cannot be said to have justifiably relied on any of the defendant’s statements.

“Generally, a plaintiff making ‘an independent investigation will be charged with knowledge of facts which reasonable diligence would have disclosed. Such a plaintiff is deemed to have relied on his own judgment and not on the defendant’s representations.’ Id. at 211, 719 P.2d at 803 (citingFreeman v. Soukup, 70 Nev. 198, 265 P.2d 207 (1953)). However, we also recognize that ‘an independent investigation will not preclude reliance where the falsity of the defendant’s statements is not apparent from the inspection, where the plaintiff is not competent to judge the facts without expert assistance, or where the defendant has superior knowledge about the matter in issue.’ Id. 102 Nev. at 211-12, 719 P.2d at 803 (emphasis added) (citations omitted).” Blanchard v. Blanchard, 108 Nev. 908, 912, 839 P.2d 1320, 1323 (1992).

Where falsity of defendant’s statements is not apparent from the inspection, the plaintiff will not be charged with this knowledge.

“We have previously held that a plaintiff who makes an independent investigation will be charged with knowledge of facts which reasonable diligence would have disclosed. Such a plaintiff is deemed to have relied on his own judgment and not on the defendant’s representations. See Freeman v. Soukup, 70 Nev. 198, 265 P.2d 207 (1953). Nevertheless, an independent investigation will not preclude reliance where the falsity of the defendant’s statements is not apparent from the inspection, where the plaintiff is not competent to judge the facts without expert assistance, or where the defendant has superior knowledge about the matter in issue. See Stanley v. Limberys, 74 Nev. 109, 323 P.2d 925 (1958); Bagdasarian v. Gragnon, 31 Cal.2d 744, 192 P.2d 935 (1948).” Epperson v. Roloff, 102 Nev. 206, 211–12, 719 P.2d 799, 803 (1986).

There is only a duty to investigate where there are red flags–where the hidden information is patent and obvious, and when the buyer and seller have equal opportunities of knowledge.

“Lack of justifiable reliance bars recovery in an action at law for damages for the tort of deceit. Pacific Maxon, Inc. v. Wilson, 96 Nev. 867, 870, 619 P.2d 816, 818 (1980). However, this principle does not impose a duty to investigate absent any facts to alert the defrauded party his reliance is unreasonable. Sippy v. Cristich, 4 Kan.App.2d 511, 609 P.2d 204, 208 (1980). The test is whether the recipient has information which would serve as a danger signal and a red light to any normal person of his intelligence and experience. Id. It has long been the rule in this jurisdiction that the maxim of caveat emptor only applies when the defect is patent and obvious, and when the buyer and seller have equal opportunities of knowledge. Fishback v. Miller, 15 Nev. 428, 440 (1880). Otherwise, a contracting party has a right to rely on an express statement of existing fact, the truth of which is known to the party making the representation and unknown to the other party. Id. The recipient of the statement is under no obligation to investigate and verify the statement. Id.” Collins v. Burns, 103 Nev. 394, 397, 741 P.2d 819, 821 (1987).

How Florida Homeowners Can Quiet Title to their Properties

20 Friday Dec 2013

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

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Court clerk, Default judgment, Filing (legal), Florida, Lis pendens, Motions, Process Service, Quiet title

The information provided below is for a quiet title action in Florida. Your state may use different procedures.

In order to file a quiet title action, you will need the following documents:
1)   Civil Cover sheet
2)   Summons
3)   Lis Pendens
4)   Complaint
5)   Exhibit-A: Copy of the Warranty Deed
6)   Exhibit-B: Rescission letter or court order if applicable

Cover Sheet
The Civil Cover Sheet form is filed by the plaintiff or petitioner for the use of the Clerk of Court for the purpose of reporting judicial workload data pursuant to Florida Statute section 25.075.

Summons
This document is given to the sheriff or process server to be served on the defendant. If there is more than one defendant, additional copies will be needed.

Lis Pendens
The lis pendens serves to put the public on notice that a case is pending concerning a specific property.

Complaint
The complaint should have a style case and signature block in compliance with Florida filing guidelines. The sample complaint complies with the guideline.

Once the package of documents is ready, take them to the filing office at the county Court that has jurisdiction over your property. The filing fee may be a shock based on the value of the property. In 2009, Florida legislator passed new law dramatically increasing filing fee for foreclosure and quiet title actions. It may cost you a few hundred if not thousands of dollar. I don’t think you should be discouraged by that. If you don’t have the money, you can file for indigent status by filing the proper form. Your county clerk can give you the form.

Once your case has been filed, the clerk will assign a case number and return to you copies of the summons, lis pendens and the complaint.
You need to take them to the sheriff office for process service or choose a private process server company. It is possible that the summon cannot be served because the company is out of the business. If that’s the case, notice should be published in the local law journal. Check with the clerk for a list of acceptable publication.

The sheriff will charge about $40. Once the summons is served:
–   The plaintiff has 20 days to answer your complaint.
–    If the plaintiff does not answer within that time frame, file a Motion for Default.
–    When a default is entered, file a Motion for Default Judgment.
–   File an affidavit in support of Motion for Default Judgment.
–    Schedule a hearing with the judicial assistance after 20 days to have your motion for default judgment heard. Remember to bring a court reporter along.
–    Prepare and bring with you a proposed order for Final Default Judgment Quieting Title.
–    If your motion is granted, hand over the proposed order to the judge to sign.
–    Once the judge signed the order, you will receive a copy by mail.
–    The clerk will be ordered to record the judgment in the public record.
You’re done! You have quieted your title. Enjoy your property free and clear. No more refi PLEASE.

For additional protection you may want to put the title under a living trust out of your name or record a new mortgage.

Quiet title is not a silver bullet; it is just another tool to protect your property. Any party can come later and try to vacate your quiet title judgment. For that reason, you need to make sure that you do it right.

If a party who is entitled to service of process is not served, the judgment will most likely be vacated. Proper service of process is extremely important. Do not take it lightly.

With the passing of time, the quiet title judgment becomes stronger.

What Homeowners Must Know About Pleading their Wrongful Foreclosure Cases in the Courts

12 Thursday Dec 2013

Posted by BNG in Affirmative Defenses, Case Laws, Case Study, Federal Court, Foreclosure Defense, Fraud, Judicial States, Legal Research, Litigation Strategies, Mortgage Laws, Non-Judicial States, Pleadings, Pro Se Litigation, State Court, Trial Strategies, Your Legal Rights

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Aurora Loan Services of Nebraska, Deeds of Trust, Foreclosure, Fraud, JPMorgan Chase Bank, Mortgage Electronic Registration System, Motions, Pleading

This post is to assist homeowners in wrongful foreclosure understand principles and theories that must be well plead before their case can survive a motion to dismiss which are usually brought by the foreclosure mills in order to cover their fraud and quickly foreclose using demurrer (Motion to Dismiss), without answering the complaint.

Rules for Pleading Fraud: The elements of a fraud cause of action are (1) misrepresentation, (2) knowledge of the falsity or scienter, (3) intent to defraud—that is, induce reliance, (4) justifiable reliance, and (5) resulting damages. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) These elements may not be pleaded in a general or conclusory fashion. (Id. at p. 645.) Fraud must be pled specifically—that is, a plaintiff must plead facts that show with particularity the elements of the cause of action.

Homeowners should be careful here as foreclosure mill counsels may sometimes allege that in their demurrer, that facts establishing detrimental reliance were not alleged.

Homeowners should plead each cause of action such that only the essential elements for the claim are set forth without reincorporation of lengthy `general allegations’.

Homeowners should avoid pleading allegation is a general allegation of reliance and damage, but should rather identify the particular acts homeowners took because of the alleged forgeries that resulted to injury to homeowners. If you did not plead that way even if you forgot to identify the action you took, the court will conclude that similarly, you did not identify any acts that did not take because of your reliance on the alleged forgeries, and therefore will conclude that your conclusory allegation of reliance is insufficient under the rules of law that require fraud to be pled specifically. See (Lazar v. Superior Court, supra, 12 Cal.4th at p. 645.)

In other words, the `facts’ that homeowners must pleaded are those upon which liability depends i.e., `the facts constituting the causes of action’ homeowners will alleged in their complaint.

When homeowners finds themselves in a situation where they have already made such arguments, they need to do a damage control by arguing in their subsequent pleadings that they could amend to allege specifically the action they took or did not take because of their reliance on the alleged forgeries.

Wrongful Foreclosure by a Nonholder of the Deed of Trust The theory that a foreclosure was wrongful because it was initiated by a nonholder of the deed of trust has also been phrased as (1) the foreclosing party lacking standing to foreclose or (2) the chain of title relied upon by the foreclosing party containing breaks or defects. (See Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 764; Herrera v. Deutsche Bank National Trust Co., supra, 196 Cal.App.4th 1366 [Deutsche Bank not entitled to summary judgment on wrongful foreclosure claim because it failed to show a chain of owner ship that would establish it was the true beneficiary under the deed of trust ]; Guerroro v. Greenpoint Mortgage Funding, Inc. (9th Cir. 2010) 403 Fed.Appx. 154, 156 [rejecting a wrongful foreclosure claim because, among other things, plaintiffs “have not pleaded any facts to rebut the unbroken chain of title”].)

Homeowners should be careful here when pleading their cases because numerous courts though had agreed with this statement of law, but sometimes believe that properly alleging a cause of action under this theory requires more than simply stating that the defendant who invoked the power of sale was not the true beneficiary under the deed of trust.

When that happens the courts usually concluded that [plaintiff failed to plead specific facts demonstrating the transfer of the note and deed of trust were invalid].)

Therefore, a plaintiff Homeowner asserting this theory must allege facts that show the defendant who invoked the power of sale was not the true beneficiary. (See Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495, 1506

One basis for claiming that a foreclosing party did not hold the deed of trust is that the assignment relied upon by that party was ineffective. Courts have held that when a borrower asserts an assignment was ineffective, a question often arises about the borrower’s standing to challenge the assignment of the loan (note and deed of trust) — an assignment to which the borrower is not a party. (E.g., Conlin v. Mortgage Electronic Registration Systems, Inc. (6th Cir. 2013) 714 F.3d 355, 361 [third party may only challenge an assignment if that challenge would render the assignment absolutely invalid or ineffective, or void]; Culhane v. Aurora Loan Services of Nebraska (1st Cir. 2013) 708 F.3d 282, 291 [under Massachusetts law, mortgagor has standing to challenge a mortgage assignment as invalid, ineffective or void]; Gilbert v. Chase Home Finance, LLC (E.D. Cal., May 28, 2013, No. 1:13 – CV – 265 AWI SKO) 2013 WL 2318890.)

California‟s version of the principle concerning a third party‟s ability to challenge an assignment has been stated in a secondary authority as follows:

“Where an assignment is merely voidable at the election of the assignor,
third parties, and particularly the obligor, cannot … successfully challenge
the validity or effectiveness of the transfer.” (7 Cal.Jur.3d (2012) Assignments, § 43.)

Therefore Homeowners should craft the allegations to present a theory under which the challenged assignments are void, not merely voidable, because numerous courts have rejected the view that a borrower’s challenge to an assignment must fail once it is determined that the borrower was not a party to, or third party beneficiary of, the assignment agreement. The courts held that cases adopting that position “paint with too broad a brush.” See (Culhane v. Aurora Loan Services of Nebraska, supra, 708 F.3d at p. 290.) The deciding court held that instead, courts should proceed to the question whether the assignment was void.

On the Tender Rule, for wrongful foreclosure, many foreclosure mills had plead that cancellation of instruments and quiet title are defective because homeowners failed to allege that the made a valid and viable tender of payment of the indebtedness. (See Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 117 [“valid and viable tender of payment of the indebtedness owing is essential to an action to cancel a voidable sale under a deed of trust”].)

Tender is not required where the foreclosure sale is void, rather than voidable,

such as when a plaintiff proves that the entity lacked the authority to foreclose on the property. (Lester v. J.P. Morgan Chase Bank, supra, ___ F.Supp.2d____, [2013 WL 633333, p. *8]; 4 Miller & Starr, Cal. Real Estate (3d ed. 2003) Deeds of Trust, § 10:212, p. 686.)

See generally, Annotation, Recognition of Action for Damages for Wrongful Foreclosure—Types of Action (2013) 82 A.L.R.6th 43 (claims that a foreclosure is “wrongful” can be tort – based, statute – based, and contract – based) Claims of misrepresentation or fraud related to robo-signing of foreclosure documents is addressed in Buchwalter, Cause of Action in Tort for Wrongful Foreclosure of Residential Mortgage, 52 Causes of Action Second, supra, at pages 147 to 149.

In ruling on Foreclosure Mills request for judicial notice of there worthless fraudulent foreclosure documents, the trial courts has stated that it could only take judicial notice that certain documents in the request, including the assignment of deed of trust, had been recorded, but it could not take judicial notice of factual matters stated in those documents. This ruling is correct and unchallenged on appeal.

So the courts may take judicial notice of the existence and recordation of a document with the county such as assignment, but the court “do not take notice of the truth of matters stated therein.” (Herrera v. Deutsche Bank National Trust Co., supra, 196 Cal.App.4th at p. 1375.) In most cases, the assignment of deed of trust does not establish that foreclosure mill was, in fact, the holder of the beneficial interest in the said deed of trust that the assignment states was transferred to it. The courts has further held that similarly, it does not establish that foreclosing bank in fact became the owner or holder of that beneficial interest. So because the document does not establish these facts for purposes of this demurrer, (Motion to Dismiss – Objection), it does not cure breaks in the chains of ownership that homeowners may allege. When plead correctly, these tips usually help homeowners in the litigation to survive the motion to dismiss brought by the Foreclosure Mills who cannot explain their documents and therefore allow homeowners wrongful foreclosure claims to advance from the pleading stage to discovery without being dismissed outright.

Kentucky Federal Case Against MERS to Move Forward

12 Thursday Dec 2013

Posted by BNG in Federal Court, Foreclosure Crisis, Fraud, Judicial States, MERS, Mortgage Laws, Non-Judicial States, State Court, Your Legal Rights

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Attorney general, Conway, Freddie Mac, Jack Conway, Kentucky, MERS, Mortgage Electronic Registration System, Wells Fargo

Attorney General Conway’s Federal Case Against MERS to Move Forward

Attorney General Jack Conway today announced that a Franklin Circuit Court judge has ruled that the Office of the Attorney General properly alleged violations of Kentucky’s Consumer Protection Act against MERSCORP Holdings, Inc., and its wholly-owned subsidiary Mortgage Electronic Registration Systems, Inc. (MERS).

“I appreciate the court’s careful consideration on this matter, and I am pleased with the result,” General Conway said. “This ruling paves the way to allow my office to hold MERS accountable for its deceptive conduct, and we look forward to continuing our fight for Kentucky consumers.”

MERS was created in 1995 to enable the mortgage industry to avoid paying state recording fees, to facilitate the rapid sale and securitization of mortgages, and to shorten the time it takes to pursue foreclosure actions. Its corporate shareholders include, among others, Bank of America, Wells Fargo, Fannie Mae, Freddie Mac, and the Mortgage Bankers Association. Currently, more than 6,500 MERS members pay for access to the private system. More than 70 million mortgages have been registered on the system.

In January, as a result of General Conway’s investigation of mortgage foreclosure issues in Kentucky, the Attorney General’s office filed a lawsuit in Franklin Circuit Court alleging that MERS had violated Kentucky’s Consumer Protection Act by committing unfair or deceptive trade practices. The lawsuit alleged that since MERS’ creation in 1995, members have avoided paying more than $2 billion in recording fees nationwide. Hundreds of thousands of Kentucky loans are registered in the MERS system.

Additionally, the lawsuit alleged that MERS violated Kentucky’s statute requiring mandatory recording of mortgage assignments, and that MERS had generally committed fraud and unjustly enriched itself at the expense of consumers and the Commonwealth of Kentucky. MERS had moved to dismiss all of the claims on various grounds.

On Dec. 3, the court determined that Attorney General Conway had properly alleged violations of the Consumer Protection Act, as MERS engages in trade or commerce, and that the Attorney General had sufficiently alleged unfair, misleading, or deceptive practices. The court also found that the Attorney General had sufficiently alleged its claims that MERS had committed fraud and had unjustly enriched itself at the expense of the public. The only claim dismissed by the court was the Commonwealth’s allegation that MERS violated the statute requiring recording of mortgage assignments. The court did not determine whether or not MERS had violated the recording statute; the court simply found that the recording statute itself lacks an enforcement mechanism. In all, eight of the nine causes of action brought against MERS by General Conway survived MERS’ motion to dismiss.

Other states have filed similar lawsuits against MERS, including Massachusetts, Delaware and New York. The Kentucky Office of the Attorney General is the first state Attorney General’s office to move past the motion to dismiss stage against MERS.

The Franklin Circuit Court found that the Attorney General had sufficiently stated legal causes of action. It has not yet taken any evidence or ruled on whether MERS committed the alleged violations.

MORTGAGE FORECLOSURE SETTLEMENT

In addition to the MERS lawsuit, General Conway joined 48 other state Attorneys General in negotiating the historic $25 billion national mortgage foreclosure settlement. The Attorneys General uncovered that the nation’s five largest banks had been committing fraud during some foreclosures by filing “robo-signed” documents with the courts.

Kentucky’s share of the settlement totals more than $63.7 million. Thirty-eight million dollars is being allocated by the settlement administrator to consumers who qualify for refinancing, loan write downs, debt restructuring and/or cash payments of up to $2,000. To date, the banks report providing relief to 1,833 Kentucky homeowners. The average borrower received an average of $34,771 in assistance.

Kentucky also received $19.2 million in hard dollars from the banks. The money went to agencies that create affordable housing, provide relief or legal assistance to homeowners facing foreclosure, redevelop foreclosed properties and reduce blight created by vacant properties.

If you find yourself in an unfortunate situation of losing or about to your home to wrongful fraudulent foreclosure, visit: http://www.fightforeclosure.net

MORTGAGE FORECLOSURE SETTLEMENT

The Franklin Circuit Court found that the Attorney General had sufficiently stated legal causes of action. It has not yet taken any evidence or ruled on whether MERS committed the alleged violations. – See more at: http://stopforeclosurefraud.com/2013/12/11/franklin-circuit-judge-allows-attorney-general-conways-case-against-mers-to-move-forward/comment-page-1/#comment-109158

– See more at: http://stopforeclosurefraud.com/2013/12/11/franklin-circuit-judge-allows-attorney-general-conways-case-against-mers-to-move-forward/comment-page-1/#comment-109158

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II. FRAUD

A. Rules for Pleading Fraud

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Proof

False Representations:

Pleading Standards

Damages

Defenses

Intent to Induce the Plaintiff to Act or Refrain from Acting

Justifiable Reliance

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