Articles Posted in foreclosure

I have discussed the California Civil Code section 2923.5 requirement in a prior blog about an effort to stop a foreclosure. It requires that, prior to issuing a notice of default, the mortgage lender must contact the borrower by phone or in person to assess their financial condition, and explore options to foreclosure. .Lenders and borrowers unsure of the procedures for trustee’s sales should consult with an experienced Sacramento and Yolo real estate and foreclosure attorney. In a recent court decision, a borrower claimed the lender never tried to contact them to explore their options. The court gave the borrower a preliminary injunction, and there was no requirement for an injunction bond.

In Bardasian v. Superior Court, the borrowers were behind on their loan and a notice of default had been recorded. Three years earlier the borrowers construction loan was replaced by a conventional loan, which the court treated as a loan modification. (It is standard for a construction loan to be “taken out” or replaced by a conventional loan, so this was not a “loan modification” in the current popular meaning of the term). The foreclosure process was underway and the borrowers sought a preliminary injunction to stop the trustee’s sale.

In seeking the injunction, the borrowers swore in declarations that at no time prior to the notice of default did the lender contact the borrower to explore options as required by 2923.5. The lender opposed, stating first that the loan modification three years prior satisfied the requirement. The court said no. The lender also argued that the declaration attached to the Notice of Default, declaring that the contact was made, complies with the statute. The declaration was not prepared and filed in connection with the lawsuit and is thus hearsay. Also, it is conclusory, as it does not state when contact was made by whom. The court granted the injunction, stating “Plaintiff has established that BAC Home Loan Servicing did not comply with Civil Code section 2923.5 prior to issuance of the notice of default…”

A California woman got behind on her mortgage, and the Lender recorded a Notice of Default, so the borrower filed a ch 7 bankruptcy. She intended to convert to a Ch. 13 to pay the arrears and save her house. U.S. Bank, trustee for the lender, told her that, once she was out of bankruptcy, the bank would work with her on a mortgage reinstatement and loan modification. In reliance on that promise, she did not convert the case, nor oppose the lender’s motion to lift the automatic stay. She submitted documents to the bank for review.

The bank scheduled the foreclosure sale for January 9, 2009. There was no negotiation, but on the day before the foreclosure sale, the bank’s attorney made an oral offer to modify the loan, but refused to put the terms in writing. The borrower lost the home, received a three-day notice, and served with an eviction action.

The court ruled for the borrower, finding that she materially changed her position based on the bank’s promise- the doctrine of “promissory estoppel.”

An a foreclosure sale investor had an oral arrangement with an agent at a California title company. He would ask the agent if the loan being foreclosed was the senior loan; he only wanted a yes or no answer. He asked about an Encino property, was told ‘yes’, and so bid and bought the property for one million dollars. Turned out the answer was no, and the investor ended up losing a million.

He sued the title company for “abstractor” liability. An abstract of title describes all documents in the chain of title. The investor only wanted to know about one lien, but he thought it was in the nature of an abstract.

The court disagreed. Under California law, An abstract of title is a written representation as to documents affecting title. This investor never paid for an abstract; he just sought quick one-word answers.

Lenders on California properties are averaging 367 days from the first late payment and a foreclosure referral, as reported by The Big Picture. This is the time before the notice of default is recorded.

The standard used to be three months of late payments before the lender referred the loan to the foreclosure department. Is this solely due to the volume of properties in default, and under staffing by servicers & lenders? I suspect the volume of real estate owned by lenders to be a factor for another reason. Given the flood of foreclosed properties for sale, to pick up the pace would only place more properties on the market and drive properties down. Meanwhile, efforts at loan modification while the loan is in default generates some cash to the lender.

JFalconeLaw.com

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.

A lender was foreclosing on a house in Southern California, and the owner was arranging financing to avoid foreclosure. They were down to the wire, and the owner’s broker was in contact with the foreclosure officer. The foreclosure sale had been postponed to August 30, but they needed more time. The foreclosure officer said the property ” won’t go to sale because I have the final say-so and as long as I know that you could close it the first week of August [sic], I’ll extend it.”

Of course, he didn’t extend it. The owner closed on the new loan, incurring the costs and debt of a new loan. But, unknown to them, the lender foreclosed, and a lawsuit ensued.

The court found that the lender’s statement did not establish a contract, because the owner suffered no detriment, and provided no consideration. All the owner did was agree to pay the debt, which the owner was obligated to do anyway. The court contrasted this with a case in which an owner, by agreement with the lender, found a new buyer for the property who paid off their loan. The court found that locating a new buyer was not something they were obligated to do, and thus this was sufficient consideration to support a contract. But merely paying off the loan one agreed to pay is not consideration.

While tax consequences may be the last thing on the mind of homeowners facing a real estate foreclosure, they play a role in the bigger picture and should be part of the decision process.  What follows is a simple discussion of three aspects of personal income tax factors that should be considered.

1. Cancellation of Debt Income: when a debt is wiped out and you are no longer liable for it, it can be considered income, which is reported by the lender on form 1099-C.  It is taxable unless either:

A.  You are subject to the Mortgage Debt Forgiveness Act, which applies if the debt was forgiven in years 2007 through 2012.  This requires that the debt was incurred to buy or substantially improve the taxpayer’s principal residence.  This includes a refinance loan, to the extent that the principal balance of the old mortgage would have qualified;