Mortgage

Published on: June 4, 2012

Quiet title lawsuits and California real estate. How the quiet title judgment was not enough for one homeowner

Quiet title is a lawsuit used in California to establish title to real estate against adverse claims. Quiet title attorneys know that If there is a dispute as to title, and claims against a property, the court order decides it once and for all- or almost all. California statutes allow naming even unknown defendants, and publishing notice of the suit. However, on homeowner who was victim of a scam found out the her quiet title judgment did not affect a deed of trust.

quiet title foreclosure.jpg In Deutsche Bank v McGurk, McGurk owned a home until she was convinced by scamsters to convey the property to them, and take back a lease- option. The scamsters then got a new loan against the property from lender New Century, and took off with the cash. She filed a quiet title action against the scamsters and New Century, and recorded a lis pendens. New Century filed Bankruptcy. It then assigned the subject deed of trust to Deutsche Bank, which neither recorded the assignment nor notified McGurk. McGurk dismissed New Century from the quiet title to chase them in bankruptcy court, and proceeded against the others in the quiet title lawsuit.

The Quiet Title Judgment

Published on: May 8, 2012

California court establishes bright line on the tender requirement & finds that the lender’s failure to explore options- Civil Code 2923.5 – does not allow setting aside foreclosure

by Law Office of James J. Falcone

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.

2923.5

Published on: May 5, 2012

Setting Aside California Foreclosures and the Tender Requirement; The 4 Exceptions to The Rule, and How This Homeowner Was Saved By One.

by Law Office of James J. Falcone

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?)

To 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.

Published on: April 24, 2012

California Commercial Mortgage Loans and the Bad Boy Carve Out Guaranty; How It Works, And Whether A Tenant Who Abandons Property Can Trigger Liability

by Law Office of James J. Falcone

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.jpg In 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.

Published on: March 29, 2012

Does A Lender Foreclosing on California Real Estate Need to Possess the Note? California State Court Clarifies The Rules On Assignment of Deeds of Trusts and Promissory Notes

by Law Office of James J. Falcone

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

Published on: February 23, 2012

California Foreclosures and Utility Bills- What Steps Homeowners Can Take To Avoid or Reduce Liability After The Sale

by Law Office of James J. Falcone

California homeowners facing foreclosure are right to be concerned about whether their mortgage is a non-recourse loan, or if they will end up personally liable for the loan. However, some foreclosed Californians are surprised to find that they may be liable for utilities after the trustee’s sale, when they no longer own the property. Experienced Sacramento and El Dorado real estate lawyers are seeing former owners being pursued by utilities for bills charged after they lost the house.

How It Works

In this problem there are two kinds of utility companies; the local government agency, and the private or quasi-public utilities. Local governments, such as City and County, may provide and bill for services such as sewer, water, garbage, and street cleaning. The non-government utilities provide electricity, gas, and other services such as phone or cable. In the case of government agencies, there are local ordinances that govern how they bill the consumer. Usually the agency is notified by the County Assessor when a deed is recorded which changes ownership of the property, and this is the legal trigger by which they change who they bill for the utilities. The agency is bound be the Assessors determination; an example is Sacramento City Code section 13.12.010

Published on: January 19, 2012

CFSB and Mortgage Complaints – What California Homeowners With Loan Problems Can Do

by Law Office of James J. Falcone

There are a number of steps troubled California home mortgage borrowers can take. The can negotiate with the lender or servicer of their loan. As I discussed last June in the California Real Estate Lawyers Blog, they can apply to the Keep Your Home California program HERE. One new step they can take is to file a complaint with the new federal Consumer Finance Protection Bureau. While a troubled borrower should always consult with an experienced Yolo and El Dorado County Real Estate Attorney, these other steps cost nothing and should be done simultaneously.

The CFPB was formed by the legislators who wanted to appear to be doing something in response to the 2008 financial crisis. Congress blocked appointment of a director for months, preventing the agency from taking much action. However, the agency staffed up and they have been busy. Last July they stated taking credit card complaints. The President recently made a sneak ‘interim’ appointment of a Director, and now they are taking mortgage complaints.

Complaints can be made by phone, mail, fax, or ONLINE. They can cover loan documents, servicing, and foreclosures. CFPB will review the complaint for completeness and forward the complaint to the relevant financial institution for review and resolution. The institution has 15 days to provide a response to the CFPB. Institutions are expected to resolve and close all but the most complicated complaints within 60 days. Throughout the process, the homeowner can check the status of their complaints on the CFPB’s website. If they are not happy with the result, they can dispute the resolution.

Published on: September 28, 2011

Buying California Real Estate at a Trustee’s Sale -What Happens if the 2nd Is Foreclosing, and The Buyer Is Subject to The First Deed Of Trust?

by Law Office of James J. Falcone

Often in California real estate nonjudicial foreclosures (trustee sales), it is not the first lender that is foreclosing, but the second deed of trust. Concerning priorities: the “first” is the first deed of trust to be recorded, and is usually the purchase money loan, or a refinance. The first is usually the biggest loan against the property. If there is sufficient equity in the property, there may be a 2nd, and a 3rd. For the rest of this post, I will call the first the “senior lien”, and the second the “junior lien.”

In residential properties, the junior is usually an equity line, for a much lower amount then the second. If the junior is the foreclosing lender, the trustee’s sale wipes out any liens recorded after the junior was recorded, but does not affect the senior lien. The buyer at the sale steps into the shoes of the junior lender- and is subject to the senior lien. That means the buyer must pay the senior, and is subject to the terms of the senior note and deed of trust.

Some considerations:

Published on: September 15, 2011

California Commercial Real Estate Loan Modification And Workouts; As Loans Come Due, What Do the Commercial Borrowers Do?

by Law Office of James J. Falcone

I had noted in a previous post that between late 2009 and 2013, more than $2 trillion in commercial mortgages, which typically have a five- to 10-year term, will need to be refinanced. Many California commercial mortgage loans have gone into default and the properties are being run by court appointed receivers such as has happened recently in Sacramento to the Le Rivage Hotel (As reported by Bob Shallit) & the Senator Hotel. These workouts differ from residential modifications, because the dollars involved allow the servicers to focus on the projects.

If the loan is involved in a commercial mortgage back security “CMBS”, the institutional lender may keep the portfolio and try to manage the workouts, or may sell a distressed portfolio at a steep discount and leave it to the buyer to workout. In either case a short sale is an option. If the portfolio is sold the buyer may elect to workout through the servicer, modifying the loan so it can become performing again.

The buyer may direct the borrower to a third-party lender to refinance (at a discount to the remaining balance, though with a premium). If these steps fail, they may just foreclose or accept a deed in lieu of foreclosure. In the case of La Rivage, mentioned above, the lender filed a lawsuit for judicial foreclosure, had a receiver appointed, but is still trying to work out the loan.

Published on: August 19, 2011

Terms of the California All-Inclusive Deed of Trust or Wraparound Mortgage: Part 2

by Law Office of James J. Falcone

Last week I discussed the use of the all-inclusive or wrap deed of trust. First, some definitions. The Seller owns property and pays the underlying note secured by the underlying deed of trust. The Buyer is the person who commits to pay the overriding note to the Seller secured by the All-Inclusive Deed of trust. The underlying note is the existing note that is wrapped by the Buyer’s new note and deed of trust. And the “AITD” is All-Inclusive security instrument.

Given that both parties play a significant role in the life of the transaction, there are many considerations to negotiate.

There may be restrictions on Right of the Seller to refinance the underlying note.