Lender’s Failure to Explore Options to Prevent Foreclosure Allows Court to Postpone Foreclosure. California Civil Code section 2923.5.

California Civil Code section 2923.5 requires that, prior to recording a Notice of Default (the first step in a non-judicial foreclosure), the lender must contact the borrower to assess their financial situation and explore options to prevent foreclosure.

An Orange County homeowner filed suit against the lender for recording a notice of default without contacting them. The judge gave them a restraining order stopping the foreclosure.

The lender argued that the Civil code was preempted by federal law. The concern is that when there is federal law regulating federally chartered lenders, state law cannot be enforced if it impacts an important part of the mortgage contract.

Here, the court explained that the “process of foreclosure” has traditionally been a matter of state real property law. Section 2923.5 is very narrow; it does not create a right, for example, for a loan modification, nor affects the integrity of the basic debt. It only gives the borrower more time. Given these considerations, it is not preempted by federal law.

The court also went on to find that the lender’s declaration, which states the contact (or attempts to contact), does not need to be signed under penalty of perjury.

That the declaration is not under oath allows more robo signing. But the bottom line of this decision is that, if the borrower claims there was no attempt to contact them, the courts may delay the foreclosure, forcing the lender to prove what the declaration states.

Mabry v. Superior Court (2010) 185 Cal. App. 4th 208.