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old_book.jpg In historical terms, the California deed of trust is a recent development. Originally parties used a “mortgage” in which the property was conveyed by the buyer to the lender, subject to payment of the debt. Prior to payment of the debt, the lender was entitled to possession of the property. Use of the deed of trust with power of sale was developed to get around some of the restrictions of the mortgage and the required judicial foreclosure, a time consuming lawsuit. The property was conveyed to the buyer, who kept the right to possession, but he then conveys “nominal title” to the trustee, who, on instruction from the lender, could hold a foreclosure (by trustee’s sale) without court involvement. Borrowers and lenders concerned with the difference should contact an experienced Sacramento & El Dorado real estate attorney.

The deed of trust became the dominant security device in California in the early part of the 19th century. Mortgages could also be granted with a power of sale, and eventually the legal distinctions between the two disappeared, almost. The mortgage became considered only a lien against the property, and the buyer-borrower kept the right to possession, just like in the case of the deed of trust.

In California there is “little practical difference between mortgages and deeds of trust,…they perform the same basic function, and…a deed of trust is ‘practically and substantially only a mortgage with power of sale..,deeds of trust are analogized to mortgages, and the same rules are generally applied to deeds of trust that are applied to mortgages.” Domarad v. Fisher ( 270 Cal. App. 2d 543)

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I have posted before discussion of a decision which allowed postponing a trustee’s sale, and one which postponed the sale without requiring an injunction bond, because of claims the lender did not comply with Civil Code 2923.5. This section requires that, before filing the Notice of Default, the lender shall contact the borrower in person or by telephone in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure. I also wrote last week about the California tender requirement to set aside a trustee’s sale. A recent Court of Appeal decision discussed both issues.

In Stebley v. Litton Loan Servicing, Stebley fell behind on their mortgage payments. The lender acted as if they were exploring alternatives to foreclosure, but abruptly foreclosed before telling the borrowers of any decision whether to agree to a loan modification or otherwise postpone the foreclosure.

foreclsoure.jpg2923.5

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California lawsuits to set aside a trustee’s sale are generally suits in equity, and a borrower who seeks equity must do equity. One requirement of equity in this situation is that the borrower must pay, or offer to pay, all the secured debt or at least all of the delinquencies and costs for redemption of the deed of trust before filing suit. There are some exceptions to the tender requirement, and borrowers and lenders involved in lawsuits involving trustees sales should consult with an experienced Sacramento, Yolo, and Placer Foreclosure and real estate lawyer. An exception to the tender requirement recently gave one debtor a second chance at his lawsuit.

In Lona v. Citibank, Lona refinanced his $1.5 million dollar home in 2007. The monthly payment was over $12,000, and his monthly income was only $3,333. He quicky defaulted, and the property was foreclosed. Lona claims he spoke limited English, had little education, and did not understand the details of the transaction which was conducted in English. He argued that the transaction was invalid because the loan broker ignored his inability to pay, and the loan was unconscionable and thus void. (This is certainly true; it does not appear to be a no docs loan, and this borrower qualified; do you wonder how that could be?)

mortgage.jpgTo get to the tender issue, we must first look at unconscionability. The first step taken by the court was to see if this was a “contract of adhesion.” This one was- it was a standardized contract drafted by the party with superior bargaining power without negotiation, giving the plaintiff only the choice between adhering to the contract or rejecting it. The court said yes, it could be contract of adhesion. The next step was to decide whether there were any other factors that made it unenforceable, such as if was unduly oppressive or unconscionable. Here, the plaintiff’s allegations show that it was, in two ways. First, based on the interest rates and balloon payment, and second, it was unconscionable due to his inability to replay the debt. Thus, the contract could be unenforceable.

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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.

4117185183_795186b80bank owned.jpgIn 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…”

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A prescriptive easement is a right to use someone else’s land by using it continuously without permission. The rules for prescriptive easements have long been established in California. Laches is an equitable concept, which may be raised as a defense, when a party claims that the other side waited too long to bring their lawsuit, a delay that indicates they have waived their rights, or acquiesced in the defendant’s conduct. Anyone faced with a prescriptive easement should consult an experienced Sacramento or El Dorado real estate attorney. In a recent case in California, the parties waited too long to consult their attorneys.

In Connolly v. Trabue, Connolly sued to establish that they had created a prescriptive easement on the defendant’s property. The trial court ruled that they had proven the necessary elements, but waited too long to file suit, so the easement was denied due to laches. The appellate court disagreed.

fence.jpgConnolly bought three adjacent lots in Garberville. On the northern boundary of Lot 17 they fenced off a portion so that it was part of their adjacent lot to the North. In other words, they were using a portion of the Northen end of Lot 17. They made a deal with Dobbs to sell him lot 17, with the oral agreement that Connally would keep title to the fenced off portion of 17, and there would be a “lot line adjustment” to accomplish that.

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A typical California commercial mortgage loan requires the borrower and/or its principals to execute a “bad boy guaranty” (a/k/a recourse carve out guaranty). This which provides for personal liability against the borrower and principals of borrower if certain listed ‘bad acts’ are committed by the borrower and its principals. It can change a non-recourse loan into a recourse loan. Potential guarantors will want to be sure to understand the carve outs, and may want to consult an experienced Sacramento and El Dorado real estate attorney.

If triggered by one of bad acts, bad boy guarantees require the guarantor to be personally liable for damages to the lender, or alternatively, converts an otherwise non-recourse loan into a full-recourse loan as against the borrower or guarantor. Lenders then have the right to seek personal liability against the borrower and guarantors. Some of the bad can acts include Fraud, Misapplication of funds, Unauthorized transfers of the mortgaged property or other collateral; or filing bankruptcy.

mortgage 2.jpgIn a recent case the lender tried to claim that, because a tenant abandoned the premises, the bad boy was triggered and the guarantor was liable. Plummer Street Office LP v. NRFC Holdings involved a loan of $44 million to buy two office buildings in Chatsworth. The loans included a bad boy guaranty. The buyer leased the buildings to Washington Mutual.

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California Homeowners and Commercial Property Owners often hire contractors to do repairs, remodeling, or new additions to their structures. Most know to make sure that the person or company they hire is a licensed contractor (though you should not rely solely on the contractor’s state license board website). But experienced Sacramento and El Dorado real estate and construction lawyers are often asked about, defend lawsuits, concerning injuries related to the construction project.

The recent California decision in Gravelin v. Satterfield reviewed the rules in contractor construction injuries. The homeowner was having Dish Network install a satellite dish for their service. The network hired an independent contractor (though he might have been Disk’s employee with the same result) to install the dish. The contractor went to the house, but only brought his short ladder, and left the long one at the shop. He could not access the roof proper, but could reach a small roof extension between the house and carport. The extension was added to the house after it was completed as a rain cover for walking to the car. The roof extension collapsed, and the installer was injured. He sued the homeowner.

chimney_on_roof.jpgThe Rule

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A California Real Estate Broker has a right to payment of a commission only when there is a signed written agreement that provides for a commission. The commission is not earned until the broker completes the performance, and satisfies the conditions, spelled out in the agreement. But, as a recent decisions show, contract language regarding commissions is subject to interpretation, and concerned sellers , brokers, and agents may want to cunsult with an experienced Sacramento and Yolo County real estate lawyer.

In RealPro Inc. v. Smith the sellers entered a listing agreement with MGR, a broker. The agreement proved that a commission was earned when “a buyer is procured who is ready, willing, and able to buy the Property at the price and on the terms stated herein, or on any other price and terms agreeable to sellers.” It also authorized payment of commissions at close of escrow.

storefront.jpgThe listing price was $17 million. RealPro, another broker, presented a written offer to MGR for the full listing price. The listing broker then told MGR that the seller was increasing the listing price to $19,500,000. Except for the price, all other terms of the offer were acceptable. RealPro then demanded its share of the commission from MGR as a third party beneficiary of the listing agreement. MGR refused to pay, and RealPro sued.

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Sometimes a debt may be disputed between the parties. In the early days of my practice I heard stories of people sending a check to their creditor for less then it was due, marked “payment in full” with the hope that the creditor would not notice, cash it and be tricked into accepting less than was due. The rules then were thought to be clear, but they turn out not to be so obvious, so anyone with the situation who is not sure of the consequences should consult with an experienced Sacramento, El Dorado, or Yolo Business Lawyer.

“Accord and Satisfaction” is a legal term for an agreement to accept something different from what a contract provides for in order to satisfy the requirements of the contract. Something different can be less money than due, or it can be different in kind, such a bushel of apples instead of a peck of peppers. The creditors acceptance of something different than required extinguishes the contract (or ‘satisfies’ it). Civil Code section1521, 1523.

check_book_and_statement.jpgRegarding checks, in 1987 the California legislature enacted Civil Code section 1526. It provides that for a a check mark “payment in full,” acceptance does not create an accord and satisfaction if the creditor protests by deleting the notation, or accepts the check inadvertently or without knowledge of the notation. There are exceptions to this rule where the check is tendered in conjunction with a release of a claim, or under a composition or extension agreement with creditors.

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Court decisions in other states, as well as California bankruptcy courts, have implied that there are strict rules regarding assigning and recording assignments of Deeds of Trust and Promissory Notes. The Salazar bankruptcy court decision implied that the note had to be assigned, and in possession of the foreclosing lender. However, California state courts are independent, and are charting their own approach to these issues. Parties who are considering conducting a California foreclosure, or are the owner facing a foreclosure, should consult with an experienced Sacramento and El Dorado real estate attorney to clarify the requirements.

In Debrunner v. Deutsche Bank National Trust Company the plaintiff, attempting to stop a trustee’s sale, made arguments based on the recorded, and unrecorded, documents relied on by the lender. California law regarding trustee’s sales is detailed and specific, and plaintiffs often look for specific technical defects in the process.

The Note was not Assigned with the Deed of Trust

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