Wednesday, April 23, 2014

FYI: Cal App Ct Confirms No Relief Under 2923.25 Post-Sale, Actual Tender Required Post-Sale, Borrowers Had No Claim for Elder Abuse

Sunday, January 8, 2012

The California Court of Appeal, Third Appellate District, recently upheld the dismissal of a wrongful foreclosureaction, holding that:  (1) California Civil Code section 2923.5 provides no remedy after a foreclosure sale;  (2) that borrowers failed to tender arrearages before attacking the sale; and  (3) that borrowers failed to state a claim for dependent adult abuse, because they failed to establish that the residence was wrongfully taken.  The Court declined to determine whether the federal Home Owners Loan Act preempted the dependent adult abuse claim, but recognized that at least one federal district court in California has held that it does. 
A copy of the opinion is available at:
Due to procedural violations, the Court held that borrowers had abandoned most of their arguments, and thus only two issues remained before the court.  The first issue was whether the borrowers stated a cause of action based on alleged violations of California Civil Code section 2923.5.  The second issue was whether those facts would support a violation of the California Welfare and Institutions Code section 15610.30, involving elder or dependent adult abuse. 
The borrowers had fallen behind in their mortgage loan payments.  Although the defendants pursued alternatives to foreclosure, foreclosure proceedings began, allegedly without informing the borrowers of the reason why a loan modification was not granted.  One of the borrowers allegedly is a dependent adult, and the defendants allegedlyhad actual notice of her status.
The borrowers, relying on California Civil Code section 2923.5, contended that the defendants failed to fully and fairly explore alternatives to foreclosure.  As you may recall, section 2923.5 generally prohibits filing a default notice until 30 days after the lender contacts the borrower to assess the borrower's financial situation and to explore options for the borrower to avoid foreclosure.  The Court determined, however, that in order to avoid running afoul of the federal Home Owners Loan Act, the only available remedy under section 2923.5 is "more time" before a foreclosure sale occurs.  After the sale, there is no relief under the statute.  More importantly, the statute does not require the lender to modify the loan.
The Court also determined that the borrowers were required to tender arrearages before attacking the sale.  The second amended complaint merely alleged the borrowers' offers to tender.  The Court observed that a full tender must be made to set aside a foreclosure sale, based on equitable principles.  The Court determined that allowing the borrowers to recoup the property without full tender would award them an inequitable windfall and would allow them to evade their lawful debt.  Accordingly, the Court held that the borrowers failed to show that they could plead a viable claim under section 2923.5.
With respect to the borrowers' claim of dependent adult abuse, the trial court found that the borrowers failed to allege any property was taken wrongfully, as required under section 15610.30 of the California Welfare & Institutions Code.  The Court of Appeals agreed.
The Court noted that, although the borrowers alleged "undue financial loss," due to the "abrupt" sale of the property, the alleged "undue" loss was not explained in either the complaint or the briefs.  The Court recognized that legally foreclosing on a home in not actionable, merely because it requires the former owner to move out.  Therefore, the Court found unavailing the borrowers' claim that the dependent borrower had to hastily locate a new residence that sufficiently provided for her disability.  Accordingly, the Court held that the borrowers failed to demonstrate that they could plead a viable claim.
The Court declined to determine whether the federal Home Owners Loan Act ("HOLA") preempted the borrowers' dependent adult abuse claim.  It noted, however, that the federal district court in the Central District of California in Cosio v. Simental, No. CV 08-6853 PSG (PLAX), 2009 U.S. Dist. LEXIS 8385 (C.D. Cal. Jan. 27, 2009), has held that HOLA does preempt such claims.
Because the borrowers could present no allegations sufficient to state a claim, the Appellate Court affirmed the trial court's demurrers of the borrowers' second amended complaint and refusal to grant leave to file a third amended complaint.

Eric Tsai
McGinnis Wutscher Beiramee LLP
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