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Many California real property owners have challenged lenders foreclosure proceedings based on state and federal laws enacted the past few years to help homeowners during the real estate collapse.. In most cases, the courts have found that the laws do not create new, enforceable rights, with a few exceptions. Mis-interpretation of requirements placed on lenders, through statutes and language of the deed of trust could be perilous, and interested parties should consult with an experienced Sacramento & Yolo real estate attorney. A recent decision out of Alameda County presents one such case, where the deed of trust required the lender to follow HUD servicing guidelines.

Foreclosure sacramento attorney.jpgIn Pfeifer v. Countrywide Homes, a mother and son obtained a $607,000 loan that was purchased by Countrywide. The mother was incompetent, and the son was her court appointed guardian ad litem. It was an FHA guaranteed loan. The standard FHA form Deed of Trust stated, in paragraph 9, which sets forth the “grounds for acceleration of debt.” It states:

“[l]ender may, except as limited by regulations issued by the Secretary, in the case of payment defaults, require immediate payment in full of all sums secured by this Security Instrument… that the “[l]ender shall, if permitted by applicable law … and with the prior approval of the Secretary, require immediate payment in full of all sums secured by this Security Instrument ….” In subdivision (d), under the heading of “Regulations of HUD Secretary,” the agreement reads as follows: “In many circumstances regulations issued by the Secretary will limit Lender’s rights, in the case of payment defaults, to require immediate payment in full and foreclose if not paid. This Security Instrument does not authorize acceleration or foreclosure if not permitted by regulations of the Secretary.”

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In February I published a blog about a California court that would not take judicial notice of a document on a Federal Agency website. It dealt with the FDIC sale of Washington Mutual mortgage loan accounts to JP Morgan Chase. JPMorgan was conveyed all the assets, but none of the liabilities. That means that JPMorgan could foreclose, but the borrower could not make any claims against JP Morgan that they had against WaMu. In a recent court decision, a different court did take judicial notice of that same document on the website. The difference was due both the difference in the courts’ approaches, plus the borrowers’ attorneys’ arguments. A borrower or lender with questions about the different approaches should contact an experienced Sacramento real estate and business attorney, to be sure they do not get the same surprise.

sacramento real estate attorney judicial notice .jpg “Judicial notice” is the court’s recognition of the existence of a matter of law or fact without the necessity of formal proof. It can be described as a substitute for (formal) proof, a judicial shortcut, doing away with the formal necessity for evidence. Judicial notice is limited to matters which are indisputably true. A request for judicial notice can be defeated by showing the matter is reasonably subject to dispute. In California state court, Judicial Notice is limited by the evidence code, indicating matters which the court must take notice of, and matters which the court may take notice of. Federal Courts have a broader discretion as to what they may take judicial notice of.

In Michael D. Scott v. JPMorgan Chase Bank (2013 WL 1098436), the borrower had a $975,000 construction loan. Washington Mutual acquired the loan, was taken over by the FDIC, and JPMorgan acquired the loan, and foreclosed. Scott filed suit, making several claims against JPMorgan. JP Morgan claimed that it had not acquired WaMu’s liabilities along with the assets, and sought judicial notice of the Purchase and Assumption Agreement, as posted on the FDIC web site.

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Generally, in California to prove a claim for fraud and deceit based on concealment, the plaintiff must prove five elements:

(1) the defendant must have concealed or suppressed a material fact,

(2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff,

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A deed of trust represents security for the loan. It has several parties- a) the trustor, who is the borrower and owner of record for the real property that is security for the loan; b) the beneficiary, who is the lender whose debt is secured by the deed of trust; and c) the trustee, who holds bare legal title only for the purpose of conveying it in the event of a foreclosure. The deed of trust contains a “power of sale,” giving the trustee the ability to foreclose. Once the deed of trust is created and recorded, if there is a default, the beneficiary routinely changes who the trustee is by recording a “substitution of trustee,” putting a new trustee in the job. Homeowners in this situation should consult with a Sacramento and Yolo real estate attorney to determine their rights. In a recent case, the borrower- homeowner who lost their property to foreclosure realized that the original deed of trust did not name a trustee, and sued to set aside the foreclosure sale. The court said no.

deed of trust attorney sacramento.jpgIn Shuster vs. BAC Home Loans Servicing LP (formerly known as Countrywide Loan Servicing) Shuster borrowed $670,000 to buy a house in Simi Valley. Mortgage Electronic Registration Systems, Inc. (MERS) was named beneficiary; but there was no trustee named in the document. Shuster ended up in default, MERS recorded a Substitution of Trustee, and the new trustee foreclosed. Shuster brought this action.

Shuster argued that, with no trustee, there was no one to receive the conveyance of bare legal title. This transforms the deed of trust into a standard mortgage. Under California law, a mortgage that is not standard deed of trust (with a power of sale) may only be foreclosed by judicial foreclosure – filing a lawsuit for foreclosure and obtaining a court order.

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An acceleration clause in a loan document or promissory note is a provision that requires the entire amount of the unpaid principal and interest to become due when the specified event occurs. There are two kinds. First, in a typical Promissory Note, the entire amount may become due in the event of default in payment of an installment, or any other violation of the terms of the loan documents. The other kind, typical in mortgages and real estate loans, may require the entire balance to become due on sale of the property that is security for the debt. Parties with concerns about an acceleration clause should consult with a Sacramento business or real estate attorney to understand how it applies in their own circumstances. It was the first type of acceleration clause that was the subject of a recent decision, in which a lender was surprised that his acceleration clause (and the higher rate of interest it included), could not be invoked.

sacramento business attorney acceleration.jpgIn JCC Development v. Hyman Levy, Levy was a ‘philanthropist’ who was negotiating with JCC to purchase and operate a Jewish Community Center. He deposited $2.7 million into escrow. The negotiations took longer than expected, so the parties agreed that the $2.7 million would be converted to a loan to JCC, secured by a mortgage on the property. The promissory note provided for interest at the rate of 5%. The acceleration clause provided that, on acceleration, interest would increase to the legal maximum. It stated:

“If: (I) Maker shall default in the payment of any interest, principal, or any other sums due hereunder, or (ii) Maker shall default on performance of any of the covenants, agreements, terms or provisions of the deed of trust securing this Note… then, at Lender’s option, all sums owing hereunder shall, at once, become immediately due and payable. Thereafter, interest shall accrue at the maximum legal rate permitted to be charged by non-exempt lenders under the usury laws of the State of California.”

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In California, a tree growing on a property line is considered a “line tree,” and the owners on both sides have rights and responsibilities. The Civil Code states that they own the tree in common. (Civil Code section 834) As a result, neither owner is free to cut down the tree without consent of the neighbor, nor to cut away the part in his side if it would injure the common interest in the tree. If they do, they can be liable for double or triple the harm done. Anyone with a tree line concern should consult with a Sacramento and El Dorado real estate attorney before taking action, or they may be in the position of the landowner who recently was hit with a judgment for over $107,000.

real estate attorney line tree pine.jpgIn Kallis v Sones there was an Aleppo pine tree growing on the property line. Close to the base it split into two separate trunks, which were far enough apart that the fence ran between them. The defendants became concerned that the tree would topple over, so they hired workers who cut down the entire tree. The tree was large- 70 feet tall, and the separate trunks measured 23 inches & 24 inches in diameter. The shocked neighbors sued.

The tree cutters lost the suit, and the contested issue became damages. Generally, damages may be awarded in an amount that will compensate for the detriment that was caused. The court awarded damages for the value of the entire tree, not just the portion on the plaintiff’s side. The defendants complained that the amount should be reduced to the percentage of tree that was on plaintiff’s side of the line. The court said no. The tree’s unusual size and form made it unusual. The large canopy shaded the plaintiff’s entire home. The large canopy was highly valued and had great personal value to the plaintiffs. The court had discretion to determine the measure of damages, and was not required to reduce it.

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Last post I discussed the decision in Scott Call Jolley v. Chase Home Finance, Inc., where there were ongoing disputes between the borrower and lender, and the lender made many representations that they would likely agree to a loan modification. The court concluded a duty may have been created that could make the lender liable for its negligence. Another aspect of that decision was the Lenders efforts to get into evidence documents and websites which it could not show were authentic, and the Court refused to allow the evidence. Anyone who is concerned about presenting evidence to the court should consult an experienced Sacramento and El Dorado real estate lending attorney. In this decision, the attorney did not do so well.

judicial notice evidence sacramento attorney.jpgThe problem arose when Chase asked the bank to take “judicial notice” of facts. The doctrine of Judicial Notice is a substitute for formal proof. A party asks the court to take judicial notice of certain matters that are assumed to be indisputably true, and the introduction of evidence to prove them will not be required. In California it is allowed by provisions of the Evidence Code, sections 450 to 460.

This case involved disputes between a borrower and his lender Washington Mutual, which went into FDIC receivership and acquired by Chase. Chase bought the assets of WaMu through a purchase agreement between Chase and the FDIC. The Purchase Agreement required Chase to assume liability for WaMu’s accounts. However, it stated that Chase did NOT assume liability for any borrower claims arising out of WaMu’s lending activities. That is what Jolley’s lawsuit was about.

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California law has had a persistent rule that, when it comes to real estate loans, a lender does not own a borrower any duties beyond those expressed in the loan agreement, except those imposed due to special circumstances. Courts rarely find those special circumstances, and hold lenders and buyers to routine, arms-length transactions. Last year I discussed a lender who told the borrower to skip a payment. In a recent decision in Northern California, where there were ongoing disputes between the borrower and lender, and the lender made numerous representations that they would likely agree to a loan modification, a duty may have been created that could make the lender liable for its negligence. The court referenced the recent changes in law at both the state and federal level to protect homeowners (even though these rules did not apply in this case) indicate a policy to protect real estate borrowers from their lender’s negligence. Lenders and borrowers concerned with the question of lender’s duties and negligence should consult with a Sacramento and Yolo real estate loan attorney.

Sacramento real estate loan attorney.jpgIn Scott Call Jolley v. Chase Home Finance, Inc., the loan was for over $2 million to renovate a property in Tiburon, and was essentially a construction loan. The loan was originally with Washington Mutual, which went into FDIC receivership and acquired by Chase. Jolley said that WaMu lost the loan documents, which held up construction financing for 8 months, and then they ad significant disputes with disbursements. WaMu agreed to a loan modification, and was later taken over by Chase. Jolley defaulted, claiming that it was due to WaMu’s breaches of contract and negligence.

Jolley claimed that Chase’s agent, on many occasions, encouraged him to complete construction because there was a “high probability” that Chase would modify the loan to avoid foreclosure. As a result, the plaintiff spent another $100,000 to complete construction. Chase denied the modification.

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California prescriptive easements arise when someone uses someone else’s property without permission; its almost that simple. The idea is that, if the use is open, and continues for five years, the true owner of the property has time, and an obligation, to take action to stop the unwelcome use, which is really a brazen trespass. In a recent Southern California decision, the party claiming a prescriptive easement had a problem – they had permission to use the property. Not only did the court reject their claim, but it awarded attorney fees to the defendant. Anyoneone finding themselves wondering about a prescriptive easement should consult with a Sacramento or El Dorado real estate attorney..

Sacramento real estate attorney prescriptive easement.jpgIn Windsor Pacific v. Samwood Co., Windsor had a written easement giving it the right to access property and use roads across defendant’s property. Specifically, to use Tick Canyon Road, and Trash Canyon Road, two roads that I certainly want to travel on. However, Windsor sued to establish a prescriptive easement.

The is a four prong test for establishing prescriptive easement:

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California landlords are faced with a myriad of regulatory requirements for disclosures as well as enforcement of their leases. Two new mandatory disclosures for commercial leases will be required in 2013- past energy use of the building, and whether the premises have been inspected by a “certified access specialist”, and if it was inspected, whether or not it passed. Property owners with concerns about their leases and disclosures should consult with a Sacramento and El Dorado commercial lease attorney to have their questions answered.

Sacramento El Dorado commercial lease attorney energy use.jpgENERGY USE REPORTING

The new law was actually enacted in 2009, required the California Energy Commission to set a schedule for rolling out, over time, the disclosure requirements. The commission adopted regulations in July 2012 setting the schedule:

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