FYI: 9th Cir Holds "Free and Clear" Bankruptcy Sale Was Not Rejection of Unexpired Leases, Did Not Implicate 11 U.S.C. § 365(h)

The U.S. Court of Appeals for the Ninth Circuit recent held that a bankruptcy trustee was authorized to sell real estate free and clear of unexpired leases under 11 U.S.C. § 363(f), and the sale was not a rejection of the unexpired leases and therefore did not implicate 11 U.S.C. § 365(h).

In so ruling, the Ninth Circuit adopted the minority approach established in Precision Indus., Inc. v. Qualitech Steel SBQ, LLC, 327 F.3d 537 (7th Cir. 2003), which held that sections 363 and 365 may be given full effect without coming into conflict with one another. 

By allowing the bankruptcy trustee to sell the property free and clear of the unexpired leases, in the Ninth Circuit’s view, the estate was able to fetch higher price for the property and maximized recovery for all creditors.

A copy of the opinion is available at:  Link to Opinion

The developer (“Developer”) of a 5,700-acre resort in Montana obtained a $130 million loan secured by a mortgage and assignment of rents from a lender, who later assigned the note and mortgage to a limited liability company.  A collection of interrelated entities owned the resort and managed its amenities, including a ski club, golf course, and residential and commercial real-estate sales and rentals.  At issue are two leases of commercial property at the resort.

The Developer defaulted on loan payments and petitioned for bankruptcy protection.  The limited liability company had a claim of more than $122 million secured by the mortgage on the property, making it the largest creditor in the bankruptcy, and subsequently assigned its interest to an assignee (“Creditor”).  The bankruptcy trustee and Creditor agreed to a plan for liquidating “substantially” all of Developer’s real and personal property, and stated that the sale would be “free and clear of all liens.”

The trustee moved the bankruptcy court for an order authorizing and approving the sale free and clear of all liens except for certain specified encumbrances, and provided that other specified liens would be paid out of the proceeds of the sale or otherwise protected. 

The two leases at issue were not mentioned in either the list of encumbrances that would survive the sale, or the list of liens which protection would be provided.  The lessees (“Lessees”) objected and argued that 11 U.S.C. § 365 gave them the right to retain possession of the property notwithstanding the trustee’s sale.

After the bankruptcy court authorized the sale, Creditor won the auction with a bid of $26.1 million and argued that its bid was contingent on the property being free and clear of the leases.  The bankruptcy court approved the sale, and the order stated that the sale was free and clear of any “Interests,” a term defined to include any leases “(except any right a lessee may have under 11 U.S.C. § 365(h), with respect to a valid and enforceable lease, all as determined through a motion brought before the Court by proper procedure).”

The trustee then requested leave to reject the two leases because the subject property was no longer property of the estate.  Meanwhile, Creditor moved for a determination that the property was free and clear of the leases.  Lessees renewed their prior arguments as objections to Creditor’s motion.

At the evidentiary hearing, the bankruptcy court determined, among other things, that one of the leases was below fair market rental value, that the leases were junior to Creditor’s mortgage, and were not protected from foreclosure of Creditor’s mortgage by subordination or non-disturbance agreements.  Based on these findings, the bankruptcy court held that the sale was free and clear of the two commercial leases.  Lessees appealed to the district court, which affirmed, and this appeal followed.

The principal issue on appeal is whether the two leases survived the trustee’s sale of the property to Creditor. 

As you may recall, 11 U.S.C. § 363 authorizes the trustee to sell property of the estate, both within the ordinary course of business and outside of bankruptcy.  See 11 U.S.C. § 363(b), (c).  Sales may be “free and clear of any interest in such property of an entity other than the estate,” only if:

(1) applicable nonbankruptcy law permits sale of such property free and clear of such interest;

(2) such entity consents;

(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on the property;

(4) such interest is in bona fide dispute; or

(5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.

11 U.S.C. § 363(f).

Meanwhile, 11 U.S.C. § 365 of the Code authorizes the trustee, “subject to the court’s approval,” to “assume or reject any executory contract or unexpired lease of the debtor.”  11 U.S.C. § 365(a).  The rejection of an unexpired lease leaves a lessee in possession with two options:  treat the lease as terminated (and make a claim against the estate for any breach), or retain any rights—including a right of continued possession—to the extent those rights are enforceable outside of bankruptcy.  11 U.S.C. § 365(h).

When the trustee sells property free and clear of encumbrances, and one of the encumbrances is an unexpired lease—federal courts have addressed the interplay between 11 U.S.C § 363 and 11 U.S.C. § 365 in different ways.

The majority of bankruptcy courts that have addressed this issue held that sections 363 and 365 conflict when they overlap because “each provision seems to provide an exclusive right that when invoked would override the interest of the other.”  In re Churchill Props., 197 B.R. 283, 286 (Bankr. N.D. Ill. 1996); see also In re Haskell, L.P., 321 B.R. 1, 8-9 (Bankr. D. Mass. 2005); In re Taylor, 198 B.R. 142, 164-66 (Bankr. D.S.C. 1996).  These courts held that section 365 trumps section 363 under the canon of statutory construction that the specific prevails over the general, and the legislative history regarding section 365 evinced a clear intent by Congress to protect a tenant’s estate when the landlord files bankruptcy.

However, in Precision Indus., Inc. v. Qualitech Steel SBQ, LLC, 327 F.3d 537 (7th Cir. 2003), the U.S. Court of Appeals for the Seventh Circuit held that sections 363 and 365 may be given full effect without coming into conflict with one another, because lessees are entitled to seek “adequate protection” under 11 U.S.C. § 363(e), and were not without recourse in the event of a sale free and clear of their interests. 

The Ninth Circuit here followed the Seventh Circuit, and held that sections 363 and 365 did not conflict.  Section 363 governed the sale of estate property and section 365 governed the rejection of a lease, and according to the Ninth Circuit, where there was a sale but no rejection (or a rejection, but no sale), there was no conflict between the statutes.  Here, because the parties agreed that the two leases were not rejected prior to the sale, the Ninth Circuit ruled that section 365 was not triggered. 

The Ninth Circuit noted that a limitation in the majority approach was that while it protected lessees, a property subject to a lease would presumably fetch a lower price and therefore reduce the value of the property of the estate.  Therefore, this approach is contrary to the goal of maximizing creditor recovery, which was a core purpose of the Bankruptcy Code.

Accordingly, the Ninth Circuit affirmed the lower courts’ ruling that the bankruptcy trustee’s sale of Debtor’s property was free and clear of unexpired leases.

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

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FYI: 9th Cir Holds Bankruptcy Cram Down Valuations to Use "Replacement Value" Not "Foreclosure Value"

The U.S. Court of Appeals for the Ninth Circuit recently held that for cram-down valuations, 11 U.S.C. § 506(a)(1) requires the use of "replacement value" based upon the adoption of the replacement value standard in Associates Commercial Corp. v. Rash, 520 U.S. 953, 956 (1997).

In so ruling, the Ninth Circuit interpreted Rash to instruct that valuation of collateral in a cram-down must be based on the debtor's desires (i.e., the proposed use of the collateral in the debtor's plan of reorganization), and without consideration of the value that the secured creditor would realize in an immediate sale. 

Accordingly, this ruling effectively shifts the risk in cram-down valuations to the secured creditor regardless of the type of debtor and the nature of the property.  

A copy of the opinion is available at:  Link to Opinion

A real estate developer ("Developer") obtained financing from various lenders to fund the development of an apartment complex in Phoenix, Arizona.  The bulk of the financing came from a loan that was guaranteed by the United States Department of Housing and Urban Development ("HUD"), and funded through bonds issued by the Phoenix Industrial Development Authority.  The City of Phoenix and the State of Arizona provided the balance of the funding secured by junior liens.

To secure financing and tax benefits, Developer entered into agreements requiring the apartment complex be used for affordable housing.  

Developer defaulted on the loan with HUD and a bank ("Bank") purchased the loan from HUD.  In connection with the sale, HUD released its regulatory agreement.  However, the loan sale agreement confirmed that the property remained subject to the other "covenants, conditions and restrictions." 

Bank began foreclosure proceedings and a receiver was appointed.  The receiver agreed to sell the apartment complex to a third party in December 2010.  But, before the sale could close, Developer filed a Chapter 11 bankruptcy petition.  Over Bank's objection, Developer sought to retain the complex in its proposed plan of reorganization, exercising the "cram-down" option in 11 U.S.C. § 1325(a)(5)(B).

As you may recall, a successful cram-down allows the reorganized debtor to retain collateral over a secured creditor's objection, subject to the requirement in § 506(a)(1) that the debt be treated as secured "to the extent of the value of such creditor's interest" in the collateral.  The value of that claim is "determined in light of the purpose of the valuation and of the proposed disposition or use of such property."  Id.

The central issue in the reorganization was the valuation of Bank's collateral – i.e., the apartment complex.  Developer argued that the complex should be valued as low-income housing based on its intended use, while Bank argued that the complex should instead be valued based on its replacement value, which was a higher value because the complex would no longer be used as low-income housing after foreclosure. 

Bank's expert valued the complex at $7.74 million, under the assumption that a foreclosure would remove any low-income housing requirements.  Bank's expert also opined that the value of the property was only $4,885,000 if those requirements remained in place.  Developer's expert valued the property at $2.6 million with the low-income housing restrictions in place, and at $7 million without. 

The bankruptcy court held that under § 506(a)(1), the value of the property was $2.6 million because Developer's plan of reorganization called for continued use of the complex as low-income housing.  The bankruptcy court also declined to include in the value of the complex the tax credits available to Developer.  Bank then elected to treat its claim as fully secured under 11 U.S.C. § 1111(b).

The bankruptcy court confirmed the plan of reorganization, which provided for payment in full of Bank's claim over 40 years.  The reorganization plan required the junior lienholders to relinquish their liens, but provided for payment of their unsecured claims in full, without interest, at the end of the 40 years.

The bankruptcy court found the plan fair and equitable under 11 U.S.C. § 1129(b)(1) because Bank retained its lien, would receive an interest rate equivalent to the prevailing market rate, and could foreclose (and therefore obtain the property without the restrictive covenant) should Developer default on the reorganization.  And, based on Developer's financial projections, the bankruptcy court found the plan feasible under 11 U.S.C. § 1129(a)(11).

After confirmation, a third party ("Investor) invested $1.2 million in the complex.  Bank then obtained a stay of the plan of reorganization from the district court pending appeal.  The district court affirmed the bankruptcy court's valuation of the complex with the low-income housing restrictions in place, but held that the tax credits should have been considered.  Both parties appealed.

After the various appeals were consolidated, the Ninth Circuit initially reversed the bankruptcy court's order approving the plan of reorganization, holding that the court should have valued the apartment complex without the affordable housing requirements.  In re Sunnyslope Hous. Ltd. P'ship, 818 F.3d 937, 940 (9th Cir. 2016).  More specifically, the Ninth Circuit initially held that under § 506(a)(1), replacement cost "is a measure of what it would cost to produce or acquire an equivalent price of property" and that "the replacement value of a 150-unit apartment complex does not take into account the fact that there is a restriction on the use of the complex."

The Ninth Circuit then granted Developer's petition for rehearing en banc to resolve three issues:  (1) whether the bankruptcy court erred by valuing the apartment complex assuming its continued use after reorganization as low-income housing, (2) whether the plan of reorganization was fair, equitable, and feasible, and (3) whether the district court errored in now allowing Developer to withdraw its § 1111(b) election.

First, the Ninth Circuit analyzed the bankruptcy court's valuation with the restrictive covenants.

The Ninth Circuit previously established that, "[w]hen a Chapter 11 debtor or a Chapter 13 debtor intends to retain property subject to a lien, the purpose of a valuation under section 506(a) is not to determine the amount the creditor would receive if it hypothetically had to foreclose and sell the collateral."  In re Taffi, 96 F.3d 1190, 1192 (9th Cir. 1996) (en banc).  "The foreclosure value is not relevant" because the creditor "is not foreclosing."  Id.  In Taffi, the Ninth Circuit noted that its decision was consistent with the approached of all but one circuit – the Fifth Circuit — which had adopted a foreclosure-value standard in In re Rash, 90 F.3d 1036 (5th Cir. 1996) (en banc).  See In re Taffi, 96 F.3d at 1193. 

The Supreme Court of the United States in In re Rash reversed the Fifth Circuit, holding consistent with Taffi, that "§ 506(a) directs application of the replacement-value standard," rather than foreclosure value.  Rash, 520 U.S. 953, 956 (1997).  In so ruling, the Supreme Court held that the value of collateral under § 506(a)(1) is "the cost the debtor would incur to obtain a like asset for the same 'proposed … use.'"  Id. at 965. 

Thus, according to the Ninth Circuit, in Rash the Supreme Court held that, in a reorganization involving a cram down, the proper guide was the replacement value.  Therefore, the essential inquiry is to determine the price that a debtor in Developer's position would pay to obtain an asset like the collateral for the particular use proposed in the plan of reorganization.  Id. 

However, Bank alternatively argued that the property should be valued at its "highest and best use" – that is, housing without any low-income restrictions. 

The Ninth Circuit rejected the argument because absent foreclosure, the very event that the Chapter 11 plan sought to avoid, Developer cannot use the property except as affordable housing, nor could anyone else.  In fact, Rash expressly instructed that a § 506(a)(1) valuation cannot consider what would happen after a hypothetical foreclosure—the valuation must instead reflect the property's "actual use."  Id., at 963.

Next, Bank attempted to distinguish Rash by arguing that foreclosure value is greater than replacement value in this case.  But, as the Ninth Circuit explained, Rash implicitly acknowledged that this outcome might occasionally be the case, and the Supreme Court nonetheless adopted a replacement-value standard.  Id., at 960.  Thus, following the Supreme Court's guidance in Rash, the Ninth Circuit was unconvinced that the foreclosure value should be used in place of replacement value.

Bank also argued that the low-income housing requirements do not apply to its security because HUD released its regulatory agreement, and all other covenants are junior to its lien.  The Ninth Circuit again disagreed because while the junior liens were subordinate to Developer's, it was undisputed the restrictions they impose continue to run with the land absent foreclosure.  Thus, according to the Court, the low-income housing requirements were properly considered in determining the value of the collateral.

Additionally, Bank's amici argued that valuing the collateral with the low-income restrictions in place would discourage future lending on like projects. 

The Ninth Circuit disagreed because "while the protection of creditors' interests is an important purpose under Chapter 11, the Supreme Court has made clear that successful debtor reorganization and maximization of the value of the estate are the primary purposes."  In re Bonner Mall P'ship, 2 F.3d 899, 916 (9th Cir. 1993).  Allowing the debtor to "rehabilitate the business" generally maximizes the value of the estate.  Id.

Here, Bank bought the Developer's loan at a substantial discount knowing the risk that the property would remain subject to the low-income housing requirements.  Thus, the Ninth Circuit concluded that valuing Bank's collateral with those restrictions in mind did not subject the lender to more risk than it consciously undertook.

Next, the bankruptcy court ruled that Developer's plan was fair and equitable because Developer retained its lien and received the present value of its allowed claim over the term of the plan.

As you may recall, the cram-down provision in 11 U.S.C. § 1129(b) requires that the reorganization plan be "fair and equitable."  The secured creditor must retain its lien, § 1129(b)(2)(A)(i)(I), and receive payments over time equaling the present value of the secured claim, § 1129(b)(2)(A)(i)(II). 

The interest rate chosen must ensure that the creditor receives the present value of its secured claim through the payments contemplated by the plan of reorganization.  Till v. SCS Credit Corp., 541 U.S. 465, 469 (2004).

The question before the Ninth Circuit was whether the plan provided payments equal to the present value of the secured claim.

Bank argued that it did not receive the present value of its secured claim because the interest rate adopted in the plan, 4.4%, is lower than the original rate on its loan.  However, the bankruptcy court determined that the 4.4% interest rate on the plan payments would result in Bank receiving the present value of its $3.9 million security over the term of the reorganization plan.  The relevant national prime rate was 3.25%, and the bankruptcy court adjusted that rate upward to account for the risk of non-payment.  The bankruptcy court also heard testimony that the market loan rate for similar properties was 4.18%. 

Additionally, plan confirmation requires a finding that the debtor will not require further reorganization.  11 U.S.C. § 1129(a)(11).  The debtor must demonstrate that the plan "has a reasonable probability of success."  In re Acequia, 787 F.2d 1352, 1364 (9th Cir. 1986).

In this case, the record showed that Developer would be able to make plan payments, and expert testimony confirmed that the collateral would remain useful for 40 years – the term of the plan.  The bankruptcy court also found that the balloon payment feasible because it was secured by property whose value exceeded the value of the remaining Developer's claim. 

Thus, the Ninth Circuit affirmed the bankruptcy court determination with respect to plan fairness and feasibility.

Turning to Bank's final argument regarding its § 1111(b) election, the Appellate Court found no error in the bankruptcy court's ruling.

As you may recall, § 1111(b) of the Bankruptcy Code allows a secured creditor to elect to have its claim treated as either fully or partially secured.  An election affects the treatment of the unsecured portion of the claim under the plan and the procedural protections afforded to the creditor.  11 U.S.C. § 1129(a)(7)(B).  In absence of a contrary order by the bankruptcy court, the creditor must make this election before the end of the disclosure statement hearing.  Fed. R. Bankr. P. 3014.

Bank argued that the bankruptcy court erred in not allowing it to make a second election after the district court remanded and required the tax credits to be added to the valuation.  When Bank made its election, the plan provided for 40 years of payments of principal and interest providing the creditor with the present value of its $2.6 million secured claim, with a final balloon payment covering the remainder of the debt. 

However, after remand, according to the Ninth Circuit, the only difference to Bank was that its annual payments will be more and the balloon payment at the end of the 40 years will be less.  Thus, the Appellate Court held that allowing a second election would not only provide Bank with a second bite at the apple, it would not make a material difference in the outcome of the election.

Accordingly, the Ninth Circuit affirmed the judgment of the district court.

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

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FYI: 9th Cir BAP Affirms Dismissal of "Wrongful Securitization" Allegations

The Bankruptcy Appellate Panel of the U.S. Court of Appeals for the Ninth Circuit recently affirmed the dismissal of an adversary proceeding without leave to amend, holding that:

(a) the debtors failed to state a claim for wrongful foreclosure under California law;

(b) the debtors failed to state a claim for breach of contract or breach of the implied covenant of good faith and fair dealing because they were not third-party beneficiaries of the Pooling and Servicing Agreement;

(c) the debtors failed to state a claim for breach of the deed of trust or breach of the implied covenant of good faith and fair dealing by executing the notice of default; and

(d) the debtors failed to state a claim for violating § 2923.5 of California's Civil Code or for violating California's unfair competition law.

A copy of the opinion is available at:  Link to Opinion

Husband and wife borrowers obtained a loan to purchase their home in Livermore, California. The loan was secured by a Deed of Trust, which named a title company as trustee and a national bank as both lender and beneficiary.

The bank sold the Note and Deed of Trust and the purchaser deposited both into a mortgage-backed securities trust pursuant to a Pooling and Servicing Agreement ("PSA"), which named another national bank as trustee. The language of the trust required the transfer of assets into the trust within 90 days after the trust pool's start date, but the Note and Deed of Trust allegedly were not deposited into the trust until 2012.

A third-party default services company recorded a Notice of Default against the borrowers' property acting as agent or trustee for the beneficiary. The trustee then recorded Substitution of Trustee naming the default services company as trustee, after which the default services company recorded a Notice of Trustee's Sale.

The borrowers filed for bankruptcy shortly thereafter, but failed to pay as required by their reorganization plan, and the bank originally named as trustee filed a motion for relief from stay, which the bankruptcy court granted.

The borrowers then filed an adversary proceeding, alleging that the transfer of the Deed of Trust into the trust was void because it breached the PSA ninety-day transfer requirement. They also alleged breach of the Deed of Trust and supposed violation of two California statutes.

The bankruptcy court dismissed the adversary complaint without leave to amend. The borrowers appealed to the district court, which affirmed the dismissal. They then appealed the Ninth Circuit.

On appeal the Ninth Circuit was presented with two questions: "(1) whether the bankruptcy court correctly concluded that the [borrowers'] Adversary Complaint failed to state a claim and (2) whether the bankruptcy court erred in denying the [borrowers] leave to amend."

The Ninth Circuit first addressed the borrower's claim for wrongful foreclosure, explaining that under California law a residential borrower "has standing to claim a nonjudicial foreclosure was wrongful because an assignment by which the foreclosing party purportedly took a beneficial interest in the deed of trust was not merely voidable but void. … Unlike a voidable transaction, a void one cannot be ratified or validated by the parties to it even if they so desire."

The Court rejected the borrowers' argument that the assignments of the Deed of Trust were void, relying on three California Courts of Appeal opinions all holding that "such an assignment is merely voidable" because "an unauthorized act by the trustee is not void but merely voidable by the beneficiary." Thus, the Ninth Circuit found that the district court correctly dismissed the wrongful foreclosure claim.

Turning to the borrowers' claim for breach of contract of the PSA or breach of the implied covenant of good faith and fair dealing under the PSA, the Ninth Circuit rejected the borrowers' argument that they were third-party beneficiaries of the PSA, relying on "numerous California appellate courts [that] have held, borrowers, … are not third-parties [sic] beneficiaries of the PSA." Accordingly, the Court concluded that "the district [court] correctly ruled that the [borrowers] failed to state a claim for either breach of the express agreement or the related breach of the implied covenant of good faith and fair dealing under the PSA."

The Ninth Circuit next rejected the borrowers' argument that the lender/beneficiary bank breached the Deed of Trust because it did not sign the Notice of Default and its agent, the default services company, "could not record the Notice of Default because the Notice was issued three months before [the default services company] was substituted as Trustee."

The Court reasoned that their argument lacked merit because the express terms of the Deed of Trust did not require the lender/beneficiary bank "to execute the Notice of Default, but rather, it can cause the Trustee to execute a written notice of default."  Because "a substitution of trustee was recorded naming [the default services company] as Trustee, … [it] had the authority to issue the Notice of Default [under Cal. Civ. Code § 2934a(d)]" which provides that "[o]nce recorded, the substitution shall constitute conclusive evidence of the authority of the substituted trustee or his or her agents to act pursuant to this section."

The Ninth Circuit also rejected the borrowers' argument that the bank breached the implied covenant of good faith and fair dealing "by obscuring the identity of the true holder of the beneficial interest making it impossible for them to know to whom to make their mortgage payments" because they "have not alleged that their payments were not accurately credited, that they sustained any damages, or that they were not in default. Having failed to identify any prejudice, the district court properly dismissed their claims."

The Court then addressed the borrowers' claim that the substituted trustee violated Cal. Civ. Code § 2923.5, which provides that "[a] mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent may not record a notice of default until either thirty days after initial contact with the borrower or thirty days after satisfying the due diligence requirements."

Because the Notice of Default was signed by the substitute trustee as agent for the lender/beneficiary bank, a substitution of trustee was thereafter recorded, and "[t]he only remedy for noncompliance with [Section 2923.5] is the postponement of the foreclosure sale[,]" the Court concluded that the district court correctly dismissed the borrowers' claim under section 2923.5.

Turning to the borrowers' remaining claim that defendants violated California's unfair competition law ("UCL"), which "prohibits unlawful, unfair, deceptive, untrue or misleading advertising[,]" the Ninth Circuit found that the borrowers "failed to establish standing to bring a claim under the UCL."

The Ninth Circuit reasoned that in order to have standing to bring a UCL claim, "the plaintiff must '(1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that the economic injury was the result of, i.e., cause by, the unfair business practice …."  The Court noted that a plaintiff fails "to satisfy this causation requirement if he or she would have suffered 'the same harm whether or not a defendant complied with the law.'"

The Court concluded that the borrowers lacked standing because "they cannot establish the second prong." Their "home would have been foreclosed regardless of the alleged deficiencies in the timing of the assignments of the [Deed of Trust] and Substitution of Trustee. [They] have not disputed that they stopped making payments, causing the loan to go into default." Because it was the borrowers' default "that triggered the lawful enforcement of the power of sale clause in the deed of trust, and the triggering of the power of sale clause subjected [the borrowers'] home to nonjudicial foreclosure, not any procedural deficiencies in the assignment … they do not  have standing to pursue a claim under the UCL."

Finally, the Ninth Circuit found that the district court correctly dismissed the borrowers' claims without leave to amend "because any amendment would be futile."

The Ninth Circuit affirmed the district court's dismissal of the borrowers' claims without leave to amend.

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

ALABAMA   |   CALIFORNIA   |   FLORIDA   |   ILLINOIS   |   INDIANA   |   MARYLAND   |   MASSACHUSETTS   |   NEW JERSEY   |   NEW YORK   |   OHIO   |   PENNSYLVANIA   |   TEXAS   |   WASHINGTON, D.C.