California Eviction Judgment Cures a Wrongful Foreclosure

March 31, 2011

In a recent court decision homeowners in Los Angeles were foreclosed. The foreclosing lender then filed an eviction action (unlawful detainer); the former owners stipulated the eviction judgment. The Homeowners filed suit for wrongful foreclosure.

The claim was that a Notice of Default was recorded on behalf of 'Option One' as beneficiary, but there was no substitution showing that Option One was the new beneficiary of record, and the foreclosure was conducted on behalf a trustee for which there was no substitution recorded.

The court dismissed the homeowners lawsuit. The court found that no substitution showing Option One as the new beneficiary of record with the statutory authority to designate a substituted trustee. The beneficiary of record remained Home Loans USA, Inc., the original beneficiary and lender to plaintiff in her refinance transaction. But even so, the eviction judgment which the homeowners stipulated to was res judicata as to plaintiffs' claims in this action which all arise from the alleged invalidity of the foreclosure sale- they essentially agreed that it was already determined that there were no defects in the foreclosure, and that the lender had good title with which to evict them. "Res Judicata" means that the issue was already determined by a court.

The court stated "By stipulating to judgment against them, plaintiffs conceded the validity of Wells Fargo's allegations that the sale had been duly conducted and operated to transfer "duly perfected" legal title to the property."

Unlawful Detainer is a quick proceeding, and the trial seldom gets 30 minutes of court time. This decision will encourage sophisticated foreclosing lenders to move to eviction quickly to cut off claims of wrongful foreclosure, and sophisticated homeowners to hire a real estate attorney to represent them. It is nearly impossible to prove defects in the foreclosure at an eviction trial, and the owner must file their own suit and obtain an injunction from it going forward while they litigate the foreclosure.