Monday, June 29, 2015

FYI: Cal App Ct Holds Tender Not Required for HBOR, Borrower's Failure to Timely Submit Complete Loan Mod Application May Not Preclude HBOR Claim

The California Appellate Court, Second District, recently reversed a trial court’s dismissal of a complaint alleging a servicer violated California’s Homeowner’s Bill of Rights (“HBOR”) by proceeding with a trustee’s sale when the servicer and the borrowers were allegedly exploring a loan modification.

In so ruling, the Appellate Court made two key holdings:

First, the Appellate Court held that a borrower does not need to tender the balance due prior to instituting a suit for alleged violation of the HBOR. 

Second, the Appellate Court also held that a borrower’s failure to timely provide the documents needed for a loan modification may not preclude a suit for alleged violation of the HBOR if the servicer failed to give the borrower adequate time to respond.

A copy of the opinion is available at: http://www.courts.ca.gov/opinions/documents/B256378.PDF

Two borrowers sued a servicer for proceeding with a trustee’s sale while loan-modification discussions were allegedly ongoing. 

The borrowers alleged that, as of March 1, 2013, a new servicer took over their mortgage loan.  Then, on March 13, 2013, the servicer allegedly sent a letter to the borrowers advising them of the potential for a loan modification.  The letter allegedly asked the borrowers to submit a number of documents seven days before the foreclosure sale.  That deadline was March 18, 2013.  But the borrowers supposedly did not receive the letter until March 18, 2013.

The borrowers allegedly submitted financial information to the servicer on March 21, 2013.  Further, the borrowers allegedly submitted additional financial information on March 23, 2013, after speaking with a representative for the servicer.

The servicer allegedly sent a letter to the borrowers on March 25, 2013, stating that they were not eligible for a loan modification, because there was a sale date scheduled within seven days.  The servicer then proceeded with the non-judicial trustee’s sale on March 25, 2013. 

The borrowers sued the servicer, alleging a number of causes of action.  The pertinent portion of the opinion relates to the HBOR’s prohibitions against “dual tracking”— i.e., proceeding with a foreclosure while loan-modification negotiations are ongoing.  See Cal. Civil Code 2923.6.

As you may recall, the HBOR states that a servicer cannot hold a trustee’s sale while a “complete application for a first lien loan modification” is pending.  Id.  The HBOR defines a “complete” application as one where the “borrower has supplied the mortgage servicer with all documents required by the mortgage servicer within reasonable timeframes specified by the mortgage servicer.” Cal. Civil Code 2923.6(h).

If a borrower brings an HBOR claim pre-sale, it can ask the court for injunctive relief.  See Cal. Civil Code 2924.12.  The HBOR allows borrowers to sue servicers for actual economic damages post-sale, and allows for treble damages or statutory damages of $50,000 in the event of “[a] material violation found by the court to be intentional or reckless, or to result from willful misconduct.”  Id.

In this appeal, the servicer advanced two main arguments.  First, the servicer argued that the borrowers could not bring an action under the HBOR until they tendered the principal balance due on the loan. 

In making this argument, the servicer relied on the so-called “tender rule,” which forbids a borrower from setting aside a foreclosure sale on technical grounds unless the borrower made a showing that he or she could have paid off the loan.  To support its position, the servicer relied on case law from before HBOR’s enactment.

The Appellate Court rejected this argument summarily, stating that such a holding would “completely eviscerate” the remedial nature of the HBOR.  It also faulted the servicer for relying on pre-HBOR case law. 

The Court also noted that “several unpublished federal district court cases have concluded that a plaintiff’s failure to allege tender of the loan balance does not alone defeat a plaintiff’s section 2923.6 claim. (See Bingham v. Ocwen Loan Servicing, LLC (2014 WL 1494005 (N.D. Cal.); Stokes v. CitiMortgage, Inc. (2014 WL 4359193 (C.D. Cal.).)”

Second, the servicer argued that, because the borrower did not respond to the request for information by the deadline in the letter, there was no “complete” loan application under the HBOR, and therefore the servicer had not violated the HBOR. 

However, the Appellate Court pointed out that the borrowers alleged they did not receive the letter requesting the information until the day the information was due.  Given this allegation, the Court found that there was at the least a triable issue of fact about whether the servicer gave the borrowers a “reasonable timeframe” to respond to the request for information.

Accordingly, the Appellate Court held that the trial court did not properly consider the sufficiency of the factual allegations to support the borrowers’ HBOR allegations, and reversed the trial court’s ruling on demurrer as to each of them.



Eric Tsai
Maurice Wutscher LLP
 
71 Stevenson Street, Suite 400
San Francisco, CA 94105
Direct: (415) 529-7654
Fax: (866) 581-9302
Mobile: (714) 600-6000
Email: etsai@MauriceWutscher.com

Admitted to practice law in California, Nevada and Oregon



FYI: 9th Cir Holds Debt Collector Did Not Violate FDCPA By Charging Pre-Judgment Interest Under State Law

The U.S. Court of Appeals for the Ninth Circuit recently held that a debt collector’s demand seeking ten percent interest that was not expressly authorized by the debt agreement did not violate the federal Fair Debt Collection Practices Act or California’s equivalent Rosenthal Act, because the pre-judgment interest was permitted by state law.


The plaintiff incurred a debt for dental services in 2011. The provider referred the debt to a collection agency, which sent a demand letter in May of 2012 seeking the principal balance owed, plus interest at ten percent per year.

In July of 2012, the debtor filed suit in federal district court, alleging that the collection agency violated section 1692(f)(1) of the federal Fair Debt Collection Practices Act and California’s state equivalent (the “Rosenthal Act”) by seeking to collect the 10% interest in the demand letter.

Section 1692f(1) of the FDCPA, 15 U.S.C. 1692(f)(1), prohibits debt collectors from attempting to collect any sum not “expressly authorized by the agreement creating the debt or permitted by law.”  Courts have held that this provision is not violated if what the debt collector is trying to collect is authorized by state law.

The debtor moved for summary judgment, which the district court granted, holding that the collection agency could not collect prejudgment interest at the statutory rate without first obtaining a judgment for breach of contract awarding prejudgment interest.

The debtor waived her remaining claims and instead sought statutory damages, and the district court awarded her $500 in statutory damages, plus attorney’s fees and costs. The collection agency appealed.

On appeal, the Ninth Circuit first pointed out that the collection agency was clearly entitled to collect prejudgment interest under California law when it sent the demand letter, if the debt was “certain or capable of being made certain at that time,” even though no judgment had been entered yet.

This is because section 3287(a) of the California Civil Code permits the recovery of interest from the point in time when a creditor’s right to recover “is vested,” and California courts have uniformly interpreted “vesting” as the point in time “damages become certain or capable of being made certain, not the time liability to pay those amounts is determined.”

The Court then pointed out that once the amount of damages becomes calculable mechanically based on indisputable evidence, prejudgment interest is available as a matter right, not at the court’s discretion.

The Court reasoned that its conclusion that the collection agency was entitled to prejudgment interest without a prior judgment is supported by section 3287(b), which applies where damages are not certain or capable of being made certain, and which provides that prejudgment interest is only allowed where a person “is entitled under any judgment to receive damages based upon a cause of action in contract where the claim was unliquidated.”

Therefore, the Ninth Circuit held, it follows that a judgment awarding interest under section 3287(a) “merely vindicates a pre-existing right to interest instead of creating it,” and because the contract at issue was silent as to the rate of interest, the applicable rate would be the ten percent default rate contained in section 3289 of California’s Civil Code.

The Court concluded that the district court’s summary judgment in the debtor’s favor was based on a wrong interpretation of section 3287 because the district court never determined that the debt at issue was unliquidated, i.e., not certain or capable of being made so, which would have meant that section 3287 did not apply at all.

In addition, the Ninth Circuit held that the collection agency’s argument that the claim was certain or liquidated was supported by documents from the debtor’s insurer and a settlement in small claims court between the debtor and the dental provider.

The Ninth Circuit concluded that, because the debt was certain or liquidated by May of 2012 when the letter was sent, collection of prejudgment interest was permitted by section 3287(a) of California’s Civil Code and thus did not violate section 1692f(1) of the FDCPA or the Rosenthal Act.

The district court’s judgment was reversed and the case remanded for further proceedings.



Eric Tsai
Maurice Wutscher LLP
 
71 Stevenson Street, Suite 400
San Francisco, CA 94105
Direct: (415) 529-7654
Fax: (866) 581-9302
Mobile: (714) 600-6000
Email: etsai@MauriceWutscher.com

Admitted to practice law in California, Nevada and Oregon



Thursday, June 25, 2015

FYI: Cal App Ct Holds HOBR Allows Borrowers to be Paid Attorney Fees for Obtaining a Preliminary Injunction as to Trustee's Sale

The Court of Appeal of the State of California, Third District, recently vacated a trial court order denying two borrowers’ motion for attorney fees and costs pursuant to Cal. Civ. Code § 2924.12 after they obtained a preliminary injunction as to the trustee’s sale of their home due to alleged “dual tracking” violations.

A copy of the opinion is available at: http://www.courts.ca.gov/opinions/documents/C077683.PDF

Two borrowers filed an ex parte application for a temporary restraining order (“TRO”) to prevent the trustee’s sale of their residence, as well as a civil complaint against the real parties in interest.  The trial court granted the TRO enjoining the trustee’s sale pending a hearing on the petitioners’ motion for a preliminary injunction.

The petitioners alleged that they repeatedly requested a hardship assistance package, but their servicer supposedly failed to send the package.  Thereafter, the servicer purportedly denied the borrowers’ request for hardship assistance because a completed package was not received from them, and recorded a notice of default.

The borrowers allegedly submitted a loan modification application subsequently provided the missing documents, and the servicer allegedly confirmed it received a complete package.  However, the borrowers were allegedly informed the loan modification was denied due to missing documents, and the servicer recorded a notice of trustee’s sale on the subject property.

The trial court granted the borrowers’ motion for a preliminary injunction enjoining the trustee’s sale conditioned on the posting of a $20,000 bond or monthly payments to the real party in interest pending trial of the action.

After the preliminary injunction, the borrowers moved for attorney fees and costs (the “Motion”) pursuant to Cal. Civ. Code § 2924.12(i), due to alleged violation of the “dual tracking” provisions of the California Home Owner’s Bill of Rights, Cal. Civ. Code § 2923.6(c).  The trial court denied the Motion, stating that statutory fees were only awardable at the end of the case and not upon provisional relief, such as a preliminary injunction.

The borrowers filed a writ of mandate seeking an order directing the trial court to grant the Motion.

In its analysis of legislative intent, the Appellate Court acknowledged the legislature’s targeting of a practice known as “dual tracking,” which occurs when a servicer continues to pursue foreclosure at the same time a borrower in default seeks a loan modification.  The Court also noted that the prohibition against dual tracking at issue here is found in Cal. Civ. Code § 2923.6(c), the violation of which gives rise to various remedies including attorney’s fees set forth in Cal. Civ. Code § 2924.12(i).

Cal. Civ. Code § 2924.12(i) specifically provides: “A court may award a prevailing borrower reasonable attorney’s fees and costs in an action brought pursuant to this section.  A borrower shall be deemed to have prevailed for purposes of this subdivision if the borrower obtained injunctive relief or was awarded damages pursuant to this section.” 

The Appellate Court stated that the statute refers to “injunctive relief,” which according to the Court incorporates preliminary and permanent injunctive relief.  Therefore, the Court held, a borrower who obtains a preliminary injunction has prevailed in obtaining “injunctive relief,” and Cal. Civ. Code § 2924.12(i) provides for attorney fees and costs to a borrower who obtains a preliminary injunction.

In addition, the Appellate Court held that even if the “prevailing borrower” language created an ambiguity, the language and purpose of the statutory scheme, and its legislative history, demonstrated legislative intent to award attorney fees and costs when a preliminary injunction issues when read in conjunction with related statutes and legislative reports. 

The Appellate Court specifically rejected the position put forth by the trial court and the servicer that “interim” attorney fee awards may never be made in conjunction with provisional relief such as a preliminary injunction, as well as their reliance on a practice guide, which states the general rule that attorney fees are ordinarily award at the end of the case rather than when interim relief is granted.

The Court further held that, despite purpose of a preliminary injunction to maintain the status quo, the award of attorney fees was proper as the trial court was required to -- and did in fact -- determine that the borrowers were likely to prevail on the merits.

The Appellate Court also rejected the position that an attorney fees award would result in an absurd consequence if the borrower obtains preliminary injunction, but the servicer subsequently corrects the violation or the borrower fails to obtain a permanent injunction. 

Thus, the Court held, a borrower who prevails in obtaining injunctive relief preventing the foreclosure of his or her home may recover attorney fees expended in obtaining the preliminary injunction. 

The Court explained that a servicer’s correction of a violation and successful motion to dissolve the injunction will not entitle the servicer to recover the attorney fees.  According to the Court, if the servicer fails to correct the violation and to move to dissolve the preliminary injunction, as a practical matter, the borrower may have little incentive to set the matter for trial of a permanent injunction. But, the Court noted, in the scenario where the borrower has obtained a preliminary injunction and then pursues but fails to obtain a permanent injunction, the borrower will still have been entitled to seek the attorney fees he or she incurred in order to obtain the preliminary injunction.

Accordingly, the Court issued a peremptory writ of mandate issue directing the trial court to vacate its order denying the borrowers’ motion for attorney fees and costs, and to consider that motion on its merits. The Court also awarded the borrowers their costs in this writ of mandate proceeding.



Eric Tsai
Maurice Wutscher LLP
 
71 Stevenson Street, Suite 400
San Francisco, CA 94105
Direct: (415) 529-7654
Fax: (866) 581-9302
Mobile: (714) 600-6000
Email: etsai@MauriceWutscher.com

Admitted to practice law in California, Nevada and Oregon