All posts in Foreclosure Corner

Sciarratta – State of Void Sales post Yvanovva

Sciarratta v. U.S. Bank National Assn, 2016 WL 2941194 (California Court of Appeal, Nares, J., May 18, 2016)

Issue: Must a foreclosure sale be set aside where the foreclosing lender is not the actual owner of the loan at the time of the sale, or must the borrower show prejudice first?

Holding: Yes, “a homeowner who has been foreclosed on by one with no right to do so—by those facts alone—sustains prejudice or harm sufficient to constitute a cause of action for wrongful foreclosure.”

APPEAL from a judgment of the Superior Court of Riverside County, John Vineyard, Judge. Reversed and remanded.

Nares Huffman O’Rourke

The lender here filed a Notice of Default. Subsequently it assigned the loan to a different bank. Shortly after the foreclosure sale, the original lender assigned the loan to yet a second different bank who purportedly “purchased” the property at the sale. The court agreed that the lender that foreclosed was not the owner of the note at the time of the foreclosure. The borrower brought an action for wrongful foreclosure and the lender argued that there was no prejudice to the borrower since the conflicting transfers were paperwork mistakes and either way, the borrower was in default and had not cured. The trial court agreed with the lender and dismissed the case. Read more…

Reviewing the Anti-Deficiency Rules

I was reading an article today about the Heritage Financial litigation that has been going on the past few years – until Heritage filed chapter 7 in Texas.  I want to remind myself of the existing anti-deficiency rules in California and the anti-fraud rules.

C.C.P. § 726(g)

(g) [the right of a lender to sue for fraud] does not apply to loans secured by single-family, owner-occupied residential real property, when the property is actually occupied by the borrower as represented to the lender in order to obtain the loan and the loan is for an amount of one hundred fifty thousand dollars ($150,000) or less, as adjusted annually, commencing on January 1, 1987, to the Consumer Price Index as published by the United States Department of Labor.

The anti-deficiency rules apply to 1) land-sale contracts, 2) purchase money loans from the seller of the property, 3) purchase money loans from lenders on SFR or less than 4 units including refis of those loans. Read more…

Two Peas in Pod: Foreclosure + Fraudulent Sale

Think about this — a month before a debtor files bankruptcy, you buy his rental property at a foreclosure sale at a significant deal – 70% of the market value. Great deal!     Debtor then files bankruptcy and seeks to avoid the sale and take back his property from you because the debtor did not receive reasonably equivalent value in return, and thus a hidden “constructive fraudulent transfer.”

Under §548, a trustee (or debtor) may avoid a transfer made prepetition if the transfer was based upon actual fraud or if the transfer of the property resulted in the debtor receiving “less than reasonably equivalent value” in exchange (called constructive fraud).

So – how do we tell whether the Debtor received ‘reasonably equivalent value‘ in his prepetition foreclosure sale?

Read more…

One Action Rule

Be careful Banks – in California you get one bite at the apple in collecting a deficiency judgment against a homeowner (or possible debtor in bankruptcy).

For creditor attorneys - make sure you’ve complied with the ‘one action rule,’ or you waive your client’s right in a deficiency judgment against the former homeowner.

For debtor attorneys -  if the creditor has violated the ‘one action rule,’ and are seeking to recoup against your debtor-client now, make sure to object to their proof of claim under §502(b)(1), such that the claim is unenforceable against the debtor under state law. Read more…

Wrongful Foreclosure – What is “Tender”

I usually try to stay away from what might appear to be blatant advertising for my firm.  But this is an exception.  And besides, its bragging rather than advertising.

Matt Resnik did a masterful job at the Court of Appeals downtown on Tuesday.  He filed a wrongful foreclosure action for a client to undo a foreclosure.  The bank of course demurred and the court, on the second try, dismissed the case with prejudice.  The court ruled that “tender” means actually paying the bank the entire amount owed as a condition of being permitted to pursue the wrongful foreclosure.  That is clearly not what the code says.  The code says the Plaintiff must – in the complaint – allege “plausible” tender.  The Court of Appeals seemed to agree.  We will find out in a few months.

Foreclosed Homeowner Goes to Jail for Stripping Home on Way Out the Door

Thanks to Mike Avanesian for this:

People v. Acosta
California Court of Appeal, Fourth District, Division 3 (Ikola, J.)
May 12, 2014
2014 WL 1878105

Penal Code section 502.5 defines larceny to include a defaulted or foreclosed borrower’s stripping a house of its fixtures or destroying them with intent to harm the lender or buyer at the foreclosure sale. Though the statute was enacted 91 years ago, this is the first decision interpreting it. The borrowers were real estate brokers and they thoroughly trashed a very high-end house, carting away kitchen appliances, destroying the pool, stripping rock facing off the house, and more. They were convicted and sentenced to 5 years probation including 270 days of actual imprisonment. The decision upholds the constitutionality of the statute as well as the conviction and most of the conditions of probation.

California Foreclosures Down ….but Numbers May Be Misleading

For three straight quarters, California foreclosure starts remain little changed, hovering at a level last seen in early 2006. According to a market study released by DataQuick, steady economic growth and higher home values are responsible for the steady pace of new foreclosures.

Lenders and servicers in the first quarter of 2014 recorded roughly 19,000 notices of default on California house and condo owners, up 6 percent from the previous quarter.

Compared to peak numbers of roughly 135,000 in Q1 2009, foreclosure starts have dropped significantly over the intervening years. However, DataQuick posits that the numbers could be misleading.

“It may well be that the foreclosure starts in recent quarters don’t reflect the ebb and flow of financial distress as much as they reflect a steady state of workload capacity on the part of the servicers. They may well be just working their way through a backlog, stacks of paper piled high on desks,” said John Karevoll, DataQuick analyst.

This year’s first quarter was the first to see a year-over-year increase in default filings since 2009, but that gain can be attributed to new laws in California, known as the “Homeowner Bill of Rights” which took effect in January and February of last year. The laws caused lenders and services to pause, artificially decreasing notices sent to homeowners and pushing foreclosure start numbers downward.

DataQuick points out that most of the loans in California going into default are still from the 2005-2007 period. The median origination quarter reported by the company for defaulted loans is still the third quarter of 2006, noting that weak underwriting standards peaked in that period of time.

California homeowners were a median 9.8 months behind on their payments when the lender filed the notice of default. Borrowers owed a median $22,538 on a median $301,732 mortgage.

The most active companies in the foreclosure process last quarter were Wells Fargo (2,834), Bank of America (1,637), and Nationstar (1,282).

“The trustees who pursued the highest number of defaults last quarter were Quality Loan Service Corp (for Wells Fargo and others), MTC Financial (Bank of America, Greentree, JP Morgan Chase) and Western Progressive (OCWEN and Deutsche Bank),” DataQuick said.

Nationstar Mortgage-Servicing Growth Probed by Lawsky

New York’s top bank regulator asked Nationstar Mortgage LLC for information about “explosive growth” in its mortgage-servicing business, citing hundreds of consumer complaints about the company’s practices.

Benjamin Lawsky, superintendent of New York’s Department of Financial Services, also asked about Nationstar’s apparent failure to fund 141 loans in a letter to Nationstar Chief Executive Officer Jay Bray.

“We have received hundreds of complaints from New York consumers about your company’s mortgage practices, including problems related to mortgage modifications, improper fees, lost paperwork, and numerous other issues,” Lawsky said in the letter.

The request marks an expansion of Lawsky’s investigation of non-bank mortgage servicers. U.S. officials have also raised concerns that mortgage servicing is increasingly being transferred from banks to specialty firms that don’t face the same degree of regulatory oversight.

Lawsky last week said he was probing possible conflicts of interest at Ocwen Financial Corp. and four related firms that could harm borrowers and push homeowners into foreclosure.

Nationstar had fallen 3.5 percent to $29.99 at 2:05 p.m. New York time after dropping more than 5 percent on news of Lawsky’s letter. Shares are down 19 percent this year. Ocwen slid 0.2 percent to $37.90, bringing its 2014 decline to 32 percent.

Read more…

FANNIE MAE — Allowable Bankruptcy Attorney Fees Exhibit

The attached table contains the maximum attorney’s fees that Fannie Mae allows for legal work related to bankruptcy  services provided on Fannie Mae whole mortgage loans and MBS mortgage loans serviced under special servicing  options. The fee will vary depending on the Chapter under which the bankruptcy is filed (and, if applicable, the status of  the mortgage loan at the time of the bankruptcy filing).