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California Mortgages, Deeds of Trust, and Foreclosure Litigation

Foreclosures, loan modifications and workouts, and borrower bankruptcies—all in one book. Avoid costly mistakes with clear and concise direction from the late Roger Bernhardt, Chuck Hansen, and other experts; negotiate the best workouts with the commercial forms.

 

“ . . . quite simply, the leading treatise on the complexities of how to enforce loans secured by California real estate. It is a formidable tool; its organization makes it easy to use, and my colleagues and I use it many times each week.”
Maura O’Connor, O'Connor Cochran LLP, Los Angeles

Foreclosures, loan modifications, and consumer protections—all in one book. Avoid costly mistakes with the most up-to-date guidance, covering both federal and state mortgage law, from the late Roger Bernhardt, Chuck Hansen, and other experts.

  • Conduct trustee sales (nonjudicial foreclosure)
  • Challenge sales under HBOR; new complaint forms
  • Apply Dodd-Frank Act & CFPB regulations
  • Use benefits of one-action and antideficiency rules
  • Negotiate short sales and receivership sales
  • Underwater property; commercial loan-workout forms
  • Enforce loans against debtors in bankruptcy; lien-stripping
  • Debtor strategies; defending foreclosures & stay relief motions
  • Judicial foreclosure, deficiency judgment, and redemption
  • Rents and leases; priorities; guarantors
OnLAW RE94920

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$ 470.00
Print RE33920

4th edition, 2 looseleaf volumes, updated February 2021

$ 470.00
Add Forms CD to Print RE23923
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“ . . . quite simply, the leading treatise on the complexities of how to enforce loans secured by California real estate. It is a formidable tool; its organization makes it easy to use, and my colleagues and I use it many times each week.”
Maura O’Connor, O'Connor Cochran LLP, Los Angeles

Foreclosures, loan modifications, and consumer protections—all in one book. Avoid costly mistakes with the most up-to-date guidance, covering both federal and state mortgage law, from the late Roger Bernhardt, Chuck Hansen, and other experts.

  • Conduct trustee sales (nonjudicial foreclosure)
  • Challenge sales under HBOR; new complaint forms
  • Apply Dodd-Frank Act & CFPB regulations
  • Use benefits of one-action and antideficiency rules
  • Negotiate short sales and receivership sales
  • Underwater property; commercial loan-workout forms
  • Enforce loans against debtors in bankruptcy; lien-stripping
  • Debtor strategies; defending foreclosures & stay relief motions
  • Judicial foreclosure, deficiency judgment, and redemption
  • Rents and leases; priorities; guarantors

1

Basics of Real Property Secured Transactions

  • I.  SCOPE OF BOOK  1.1
    • A.  Unsecured Versus Secured Loans
      • 1.  Unsecured Loans  1.2
      • 2.  Secured Loans  1.3
      • 3.  Nonconsensual Secured Obligation  1.4
      • 4.  Advantages and Disadvantages to Lender of Secured Loan  1.5
    • B.  Terminology
      • 1.  “Parties”  1.6
      • 2.  “Instruments”  1.7
      • 3.  “Financing Parties”  1.8
      • 4.  “Obligation”  1.9
  • II.  THE OBLIGATION  1.10
    • A.  Relationship of Obligation to Security  1.11
      • 1.  Consideration  1.12
      • 2.  Destruction  1.13
      • 3.  Type of Obligation  1.14
      • 4.  Personal Liability and “Nonrecourse” Loans  1.15
        • a.  “Trustor” Versus “Debtor”  1.16
        • b.  The “Nonassuming Grantee”  1.17
    • B.  Payment Provisions  1.18
    • C.  Interest Rates
      • 1.  Fixed and Variable Rates  1.19
      • 2.  Shared Appreciation Loans  1.20
      • 3.  Usury Law and Exemptions  1.21
      • 4.  Tax Treatment of Interest
        • a.  To Lender  1.22
        • b.  To Borrower  1.23
    • D.  Transfers of Note and Deed of Trust  1.24
      • 1.  Transferring Note and Deed of Trust Separately  1.25
      • 2.  Recordation Requirements  1.25A
      • 3.  MERS; Nominee of Beneficiary  1.25B
      • 4.  Physical Delivery Required  1.26
      • 5.  Escrow Holder’s Role  1.27
    • E.  Negotiability  1.28
      • 1.  Requirements  1.29
      • 2.  Holder in Due Course  1.30
    • F.  Arbitration Clauses and Unconscionability  1.31
  • III.  THE SECURITY INSTRUMENT
    • A.  Historical Perspectives
      • 1.  Real Property Conveyances  1.32
      • 2.  Equity of Redemption  1.33
    • B.  Mortgage; Lien Theory of Mortgages  1.34
    • C.  Deed of Trust; Applicability of Rules Governing Mortgages  1.35
      • 1.  Forms of Deeds of Trust
        • a.  Title Company Forms  1.36
        • b.  Institutional Lender Forms  1.37
      • 2.  Formal Requirements  1.38
      • 3.  Parties
        • a.  Trustor  1.39
        • b.  Trustee  1.40
          • (1)  Substitution of Trustee  1.41
          • (2)  Involvement in Litigation  1.42
        • c.  Beneficiary
          • (1)  Must Be Obligee  1.43
          • (2)  Relationship to Trustee  1.44
          • (3)  Relationship to Trustor  1.45
          • (4)  Multiple Beneficiaries and Trustees  1.46
      • 4.  Security  1.47
        • a.  Fractional Interests
          • (1)  Tenancies in Common  1.48
          • (2)  Joint Tenancies  1.49
          • (3)  Community Property  1.50
        • b.  Estates Less Than Fee Simple
          • (1)  Life Estates or Terms of Years  1.51
          • (2)  Leasehold Mortgages  1.52
          • (3)  Reversions  1.53
          • (4)  Seller and Buyer Interests  1.54
        • c.  Property Already Encumbered
          • (1)  Monetary Liens  1.55
          • (2)  Nonmonetary Interests  1.56
        • d.  Personal Property; Fixtures  1.57
      • 5.  Choice of Law  1.57A
    • D.  Convertible Mortgages  1.58
    • E.  Installment Land Contracts  1.59
      • 1.  Documentation  1.60
      • 2.  Vendor’s Remedies  1.61
        • a.  Reinstatement  1.62
        • b.  Restitution  1.63
        • c.  Protecting Title  1.64
        • d.  Damages  1.65
      • 3.  Liquidated Damages  1.66

2

Trustee Sales

  • I.  CHOOSING THE REMEDY FOR LOANS IN DEFAULT
    • A.  Role of Trustee Sale Compared With Other Remedies  2.1
      • 1.  Judicial Foreclosure  2.2
      • 2.  Sale Under Receivership  2.2A
      • 3.  Passive Collection Strategy  2.3
    • B.  Attorney’s Role
      • 1.  Representing Beneficiary-Lender  2.4
      • 2.  Representing Junior Secured Creditors
        • a.  Reinstatement Rights  2.5
        • b.  Right to Notice of Default or Delinquency  2.6
      • 3.  Representing Trustor-Borrower
        • a.  Trustee Sale Process; Strategies; Credit Scores  2.7
        • b.  Home Equity (Distress) Sales  2.8
        • c.  Mortgage Foreclosure Consultants  2.9
        • d.  Enjoining or Attacking Trustee Sale; Bankruptcy  2.9A
        • e.  Lender Liability; Loan Rescission  2.9B
      • 4.  Homeowner Bill of Rights  2.9C
      • 5.  Fair Debt Collection Laws  2.9D
    • C.  Trustee Sale and Judicial Foreclosure
      • 1.  Advantages and Disadvantages to Creditor of Trustee Sale  2.10
      • 2.  Reasons to Use Judicial Foreclosure  2.11
    • D.  Receivership Pending Foreclosure  2.12
    • E.  Election of Remedies  2.13
    • F.  Power of Sale Clause
      • 1.  Prerequisite to Sale  2.14
      • 2.  Language of Power of Sale Clause  2.15
      • 3.  Instruments That Include Power of Sale Clause  2.16
      • 4.  Cumulative Remedy  2.17
    • G.  Constitutionality of Trustee Sales
      • 1.  Nonjudicial Foreclosure Not Protected State Action  2.18
      • 2.  Impact of Personal Property Due Process Cases  2.19
      • 3.  Compliance With CC §2924b Does Not Violate Due Process  2.20
  • II.  SPECIAL PROBLEMS IN TRUSTEE SALES
    • A.  Substitution of Trustee  2.21
      • 1.  Substitution Procedures  2.22
      • 2.  Effect of Substitution on Validity of Notices  2.23
      • 3.  Substitution Under Multiple Deeds of Trust  2.24
      • 4.  Effect of Trustee Substitution or Note Assignment on Trustee’s Authority  2.25
      • 5.  Trustee Liability  2.26
    • B.  Federally Insured or Guaranteed Loans
      • 1.  Private Lender Foreclosures  2.27
      • 2.  Federal Agency Foreclosures  2.28
    • C.  FDIC Interests Protected by Federal Law  2.29
    • D.  Servicemembers Civil Relief Act  2.30
    • E.  Federal Tax Liens  2.31
    • F.  Property Tax Postponement  2.32
  • III.  NOTICE OF DEFAULT
    • A.  First Steps
      • 1.  Selecting Foreclosing Trustee  2.33
      • 2.  Authority to Foreclose; Gathering Necessary Information; Multiple Beneficiaries  2.34
      • 3.  Foreclosing on Property in Probate  2.35
      • 4.  Foreclosure by Association of a Common Interest Development  2.36
      • 5.   Consumer Loans: Timing Notice of Default  2.36A
    • B.  Preparing Notice of Default  2.37
      • 1.  Contents of Notice
        • a.  California Civil Code Requirements  2.38
        • b.  Bankruptcy Restrictions  2.38A
        • c.  Federal Law: Accuracy, Timing, and FDCPA Requirements   2.38B
        • d.  Contractual Requirements  2.39
        • e.  Attachment to Notice: Summary of Key Information  2.39A
      • 2.  Unknown or Omitted Defaults  2.40
      • 3.  Responding to Requests for Notice; CC §2924b(a)  2.41
    • C.  Recording, Mailing, and Publishing Notice
      • 1.  Recording Notice of Default; Timing and Loss Mitigation  2.42
      • 2.  Serving Notice of Default
        • a.  Persons Required to Be Served; Methods  2.43
        • b.  Persons Not Required to Be Served  2.44
        • c.  Address Changes  2.45
        • d.  Last Known Address; Due Diligence  2.46
      • 3.  Default Notice Is Privileged  2.47
    • D.  Special Notice for Unruh Act Deeds of Trust  2.48
    • E.  HBOR’s Special Notices and Other Requirements in Residential Foreclosures  2.49
      • 1.  Prerequisites to Notice of Default; CC §2923.5  2.49A
      • 2.  Prerequisites to Notice of Default; All Lending Entities; CC §2923.55  2.49B
      • 3.  Encouraging Loan Modifications; Notice to Borrower; CC §§2923.6, 2924.9  2.49C
      • 4.  Postponement of Foreclosure Pending HBOR Procedures; CC §§2920.7, 2923.6, 2924.11, 2924.18  2.49D
      • 5.  Borrowers’ Remedies; CC §§2924.12, 2924.19  2.49E
      • 6.  Attachment to Notice of Default: Summary of Key Information  2.49F
      • 7.  Tables: Applicability of HBOR and 2018 Amendments
        • a.  Tables: Determining Applicability of HBOR to Borrowers and Lenders Before January 1, 2018, and After January 1, 2019  2.49G
        • b.  Tables: Determining Applicability of HBOR to Borrowers and Lenders Between January 1, 2018, and January 1, 2019  2.49H
    • F.  Effect of Failure to Serve Notice of Default  2.50
    • G.  Ban on Robosigning of Foreclosure Documents; CC §2924.17  2.50A
  • IV.  LOAN REINSTATEMENT RIGHTS
    • A.  “Reinstatement” Defined  2.51
    • B.  Persons Entitled to Reinstate Loan  2.52
    • C.  Time Period for Reinstatement
      • 1.  Up to 5 Business Days Before Sale  2.53
      • 2.  Extension or Revival of Reinstatement Period
        • a.  Sale Postponed  2.54
        • b.  Sale Enjoined or Challenged  2.55
        • c.  Extension by Agreement  2.56
    • D.  Reinstatement Procedure; Payments  2.57
      • 1.  Recurring Obligations  2.58
      • 2.  Reinstatement of Trustee’s and Attorney’s Expenses  2.59
      • 3.  Rejection of Tendered Reinstatement  2.60
      • 4.  Rents and Profits  2.61
      • 5.  Partial Payments by Trustor  2.61A
  • V.  NOTICE OF SALE
    • A.  Timing Notice of Sale Under CC §2924  2.62
    • B.  Notice of Sale; Contents and Attachments
      • 1.  Contents of Notice; CC §§2924, 2924f(b)  2.63
      • 2.  Attachment to Notice; CC §2923.3  2.63A
      • 3.  Notice of Sale to Residential Tenants; CC §2924.8; Repealed  2.63B
    • C.  Recording, Publishing, and Mailing Notice  2.64
      • 1.  Serving Notice of Sale  2.65
      • 2.  Recording Notice of Sale  2.66
      • 3.  Publishing Notice of Sale  2.67
      • 4.  Posting Notice of Sale  2.68
    • D.  Effect of Noncompliance With Notice Statute  2.69
      • 1.  Lack of Adequate Time  2.70
      • 2.  Lack of Actual Receipt of Notice  2.71
    • E.  Reinstatement After Notice of Sale  2.72
  • VI.  REDEMPTION BY TRUSTOR OR THIRD PARTY  2.73
  • VII.  TRUSTEE SALE PROCEDURES
    • A.  Conducting Sale
      • 1.  Public Auction  2.74
      • 2.  Order of Sale; Multiple Securities and Securitized Notes  2.75
      • 3.  Who May Bid  2.76
      • 4.  Disclosure to Bidders  2.77
      • 5.  Bidding Procedures; Credit Bids, Cash, or Checks  2.78
      • 6.  Sale to Highest Bidder; Finality; Delivery of Deed  2.79
    • B.  Bidding
      • 1.  Illegal and Collusive Conduct
        • a.  Chilling or Rigging the Bidding  2.80
        • b.  Inflating the Bidding  2.80A
      • 2.  Calculating Bid Amount  2.81
        • a.  Foreclosing Creditor  2.82
        • b.  Junior Secured Creditors  2.83
        • c.  Third Party Bidders  2.83A
      • 3.  Making Full Credit Bids
        • a.  Definition of “Full Credit Bid”  2.84
        • b.  Reasons to Make Full Credit Bid  2.85
        • c.  Disadvantages of Full Credit Bids  2.86
        • d.  Underbidding and Other Lender Strategies  2.87
    • C.  Postponing Sale
      • 1.  Allowable Reasons for Postponement  2.88
      • 2.  Effect on Reinstatement Right  2.89
      • 3.  Announcing Postponement  2.90
      • 4.  Renoticing Sale  2.91
        • a.  When New Notice Required  2.92
        • b.  When New Notice Not Required  2.93
        • c.  When New Notice May Be Required  2.94
      • 5.  Notice of Delay to Taxing Entities  2.95
      • 6.  Effect of Postponement  2.96
    • D.  Unruh Act Mortgages and Deeds of Trust  2.97
    • E.  Trustee’s Deed
      • 1.  Authority to Convey Title  2.98
      • 2.  Priority and Nature of Title  2.99
      • 3.  Delivery, Recordation, and Notice of Deed  2.99A
  • VIII.  AFTER SALE: POSSESSION, PROCEEDS, AND MAINTENANCE
    • A.  Possession Following Sale  2.100
    • B.  Rescinding Sale  2.101
    • C.  Distributing Sale Proceeds
      • 1.  Obligations Paid  2.102
        • a.  Notice to Juniors of Surplus Proceeds  2.103
        • b.  Junior Advances  2.104
      • 2.  Obligations Not Covered  2.105
      • 3.  Resolving Disputes Over Proceeds  2.106
      • 4.  Effect of Rent Funds Held by Receiver  2.107
    • D.  Effect of Homestead on Surplus Proceeds
      • 1.  Types of Homestead Exemptions  2.107A
      • 2.  Effect of Homestead on Mortgages  2.107B
      • 3.  Distribution of Surplus Proceeds in Nonbankruptcy Sales  2.108
      • 4.  Distribution of Proceeds From Sale in Pending Bankruptcy  2.109
    • E.   Postforeclosure Blight Prevention; CC §2929.3  2.109A
  • IX.  INCOME TAX CONSEQUENCES OF FORECLOSURE
    • A.  For Borrower
      • 1.  Overview of Treatments   2.110
      • 2.  Foreclosure   2.111
        • a.  Gain or Loss or Income  2.111A
        • b.  Character of Gain or Loss  2.111B
        • c.  Timing of Income or Loss   2.111C
      • 3.  Deeds in Lieu  2.112
      • 4.  Short Sales   2.112A
      • 5.  Cancellation of Debt Income  2.112B
    • B.  For Lender
      • 1.  Overview of Treatments  2.113
      • 2.  Basis; Settlement  2.114
      • 3.  Foreclosure Sale to a Third Party  2.115
      • 4.  Foreclosure Sale to Mortgagee  2.116
      • 5.  Deed in Lieu  2.117
      • 6.  Basis of Property Acquired / Future Sale  2.117A
      • 7.  Purchase Money Mortgages  2.117B
    • C.  Lenders’ Information Returns  2.117C
  • X.  LENDER POSTSALE DAMAGES ACTIONS
    • A.  Deficiency Barred After Trustee Sale  2.118
    • B.  Actions for Waste
      • 1.  Bad Faith Claims Not Barred by Antideficiency Laws  2.119
      • 2.  Bad Faith Waste Claims Precluded by Full Credit Bid  2.120
      • 3.  Criminal Actions for Intentional Waste  2.120A
    • C.  Actions for Fraud After Full Credit Bid
      • 1.  Against Borrowers  2.121
      • 2.  Against Third Parties
        • a.  Pre-Alliance Cases  2.122
        • b.  The Alliance Decision  2.123
          • (1)  Policy Underlying Alliance  2.124
          • (2)  Measure of Damages  2.125
      • 3.  Proximate Cause; Burden of Proof; Damages  2.126
    • D.  Negligence Actions After Full Credit Bid  2.127
    • E.  Rationale of Full Credit Bid Rule  2.127A
    • F.  Intentional Interference and Conspiracy  2.128
    • G.  Insurance and Bond Claims After Full Credit Bid  2.129
  • XI.  POSTSALE ACTIONS FOR BENEFIT OF LENDER OR OTHER INTERESTED PARTY  2.129A
    • A.  Voiding False or Forged Recorded Document  2.129B
    • B.  Criminal Prosecution and Restitution  2.129C
    • C.  Lender or Purchaser Actions to Quiet Title  2.129D
  • XII.  BORROWER POSTSALE ACTIONS TO SET ASIDE SALE OR FOR DAMAGES  2.129E
  • XIII.  TRUSTEE SALE FORMS
    • A.  Notice of Default
      • 1.  Form: Recordable Notice of Default  2.130
      • 2.  Form: Summary of Key Information (Attachment to Notice)  2.130A
    • B.  Form: Request for Notice of Default  2.131
    • C.  Form: Unruh Act Special Notice  2.132
    • D.  Notice of Sale
      • 1.  Form: Recordable Notice of Sale for Trustor  2.133
      • 2.  Form: Summary of Key Information (Attachment to Notice)  2.133A
      • 3.  Form: Notice of Sale for Residential Tenant [Repealed]  2.133B
    • E.  Form: Trustee’s Deed  2.134
    • F.  Form: Petition and Declaration Regarding Unresolved Claims and Deposit of Undistributed Surplus Proceeds of Trustee’s Sale (Judicial Council Form CIV–170)  2.135

3

Judicial Foreclosure

  • I.  CHOOSING THE REMEDY
    • A.  “Judicial Foreclosure” Defined  3.1
    • B.  Considerations in Choosing Judicial Foreclosure
      • 1.  Effect on Junior Tax Liens  3.2
      • 2.  Lack of Power of Sale Clause  3.3
      • 3.  Advantages of Judicial Foreclosure
        • a.  Availability of Deficiency Judgment  3.4
        • b.  Supporting Appointment of Receiver  3.5
        • c.  Resolving Disputes  3.6
        • d.  Liquidating Debt  3.7
      • 4.  Disadvantages of Judicial Action
        • a.  Redemption and Possession  3.8
        • b.  Delays, Control, and Costs  3.9
        • c.  Effect of Statute of Limitations  3.10
    • C.  When to Choose Remedy  3.11
  • II.  PREPARING THE ACTION
    • A.  Nature of Action  3.12
    • B.  Jurisdiction  3.13
    • C.  Venue  3.14
    • D.  Personal Jurisdiction; Service of Process  3.15
    • E.  Statutes of Limitations  3.16
      • 1.  Underlying Obligation Governs Time Frame  3.17
        • a.  Mortgages  3.18
        • b.  Deeds of Trust  3.19
      • 2.  Effect of Marketable Record Title Act  3.20
    • F.  Title Company Services  3.21
    • G.  Federally Insured or Guaranteed Loans  3.22
    • H.  Parties
      • 1.  Plaintiffs  3.23
      • 2.  Defendants
        • a.  Owners: Past, Present, and Future  3.24
        • b.  Holders of Other Interests in Encumbered Property
          • (1)  Tenants  3.25
          • (2)  Easement Holders  3.26
          • (3)  Vendees Under Land Sale Contracts  3.27
          • (4)  Unrecorded Interests  3.28
          • (5)  Adverse Owners  3.29
          • (6)  Other Lienholders
            • (a)  Senior Lienholders  3.30
            • (b)  Government Agency as Lien Claimant  3.31
            • (c)  Junior Lienholders  3.32
            • (d)  Effect of Omitting Junior Lienholder  3.33
        • c.  Persons Acquiring Interests After Complaint Filed  3.34
        • d.  Persons Liable for Deficiency Judgment  3.35
        • e.  Trustee as Defendant  3.36
      • 3.  Death or Incapacity of Beneficiary or Trustor
        • a.  Beneficiary  3.37
        • b.  Trustor  3.38
  • III.  DRAFTING FORECLOSURE COMPLAINT
    • A.  Checklist: Essential Allegations  3.39
    • B.  Foreclosure: Pleading Ultimate Facts
      • 1.  Introductory Allegations; Parties  3.40
      • 2.  Underlying Note or Other Obligation  3.41
      • 3.  Deed of Trust or Other Security Device  3.42
      • 4.  Property Descriptions  3.43
      • 5.  Hidden Security Devices  3.44
      • 6.  Plaintiff’s Ownership of Note and Deed of Trust  3.45
      • 7.  Interest of Guarantors, Endorsers, or Assuming Grantees  3.46
      • 8.  Interest of Other Defendants  3.47
      • 9.  Right to Accelerate on Default  3.48
      • 10.  Default in Loan Payments  3.49
      • 11.  Default in Tax Payments  3.50
      • 12.  Default in Insurance Payments  3.51
      • 13.  Future Advances; Monetizing Default  3.52
      • 14.  Entitlement to Attorney Fees and Costs  3.53
      • 15.  Demand for Judgment (Prayer)  3.54
    • C.  Application for Receivership  3.55
    • D.  Lis Pendens
      • 1.  Purpose  3.56
      • 2.  Service Requirements  3.57
    • E.  Order of Reference  3.58
  • IV.  DEFENSES; DEFENDANTS’ RIGHTS
    • A.  Trustor  3.59
    • B.  Junior Lienholders  3.60
    • C.  Trustee  3.61
    • D.  Defenses to Claims for Deficiency  3.62
    • E.  Reinstatement and Presale Redemption Rights  3.63
    • F.  Stay of Action Under Servicemembers Civil Relief Act  3.63A
  • V.  OBTAINING FORECLOSURE JUDGMENT
    • A.  Default, Summary Judgment, and Trial Setting  3.64
    • B.  Checklist: Evidence Required for Foreclosure Judgment  3.65
    • C.  Defenses; Statement of Decision  3.66
    • D.  Judgment (Decree) of Foreclosure
      • 1.  Required Elements  3.67
      • 2.  Decree Entered as Judgment  3.68
      • 3.  Appealability of Decree  3.69
      • 4.  Binding Election of Remedies  3.70
  • VI.  FORECLOSURE SALE
    • A.  Summary of Applicable Procedures  3.71
    • B.  Presale Procedures
      • 1.  Obtaining Writ of Sale  3.72
      • 2.  Preparing Notice of Levy and Notice of Sale  3.73
      • 3.  Serving Writ and Notices of Levy and Sale
        • a.  Methods of Service; Persons Served  3.74
        • b.  Time of Service
          • (1)  If No Deficiency Judgment  3.75
          • (2)  If Deficiency Judgment Allowed  3.76
    • C.  Sale Procedures
      • 1.  Location and Order of Sale  3.77
      • 2.  Postponement  3.78
      • 3.  Eligible Bidders  3.79
      • 4.  Bidding Methods and Strategies
        • a.  Foreclosing Creditor
          • (1)  Credit Bids and Cash Supplements  3.80
          • (2)  Disadvantages of Underbidding  3.81
        • b.  Other Parties; Cash Bids  3.82
    • D.  Setting Aside Sale
      • 1.  Statutory Remedy  3.82A
      • 2.  Equitable Remedy  3.82B
    • E.  Steps Following Sale
      • 1.  Disposition of Proceeds  3.83
      • 2.  If No Deficiency Allowed; Deed of Sale; Finality  3.84
      • 3.  If Deficiency Allowed; Certificate of Sale; Redemption Notice  3.85
  • VII.  OBTAINING DEFICIENCY JUDGMENT  3.86
    • A.  Application for Deficiency Judgment
      • 1.  Procedures; Lender Qualifications  3.87
      • 2.  Fair Debt Collection Practices Act  3.87A
      • 3.  Sold-Out Junior Creditors  3.87B
    • B.  Hearing on Fair Value and Deficiency Amount  3.88
    • C.  Entry of Deficiency Judgment  3.89
  • VIII.  POSTSALE REDEMPTION
    • A.  Legal Basis; Distinguishing Other Rights  3.90
    • B.  Who May Redeem  3.91
    • C.  Redemption Time Period  3.92
    • D.  Amount Needed to Redeem
      • 1.  Foreclosure Sale Purchase Price  3.93
      • 2.  Unpaid Junior Liens  3.94
    • E.  Initiating Redemption  3.95
    • F.  Effect of Redemption
      • 1.  Statutory Redemption  3.96
      • 2.  Nonstatutory Redemption by Agreement  3.97
      • 3.  Debtor Protections; CCP §729.080(e)  3.98
      • 4.  Equitable Redemption  3.98A
    • G.  Possession, Rents, and Profits
      • 1.  During Redemption Period  3.99
      • 2.  After Debtor Redeems Property  3.100
    • H.  If Debtor Does Not Timely Redeem  3.101
  • IX.  FORMS
    • A.  Form: Complaint for Foreclosure of Deed of Trust  3.102
    • B.  Form: Judgment of Foreclosure and Order of Sale  3.103
    • C.  Presale Forms
      • 1.  Form: Writ of Sale (Judicial Council Form EJ-130)  3.104
      • 2.  Form: Notice of Levy (Judicial Council Form EJ-150)  3.105
      • 3.  Form: Notice of Sale  3.106
    • D.  Postsale Forms
      • 1.  Form: Certificate of Sale  3.107
      • 2.  Form: Notice of Right of Redemption  3.108
      • 3.  Form: Report of Sheriff/Receiver and Account of Sale  3.109
      • 4.  Form: Deed of Sale  3.110
    • E.  Deficiency Judgment Forms
      • 1.  Form: Notice of Motion for Deficiency Judgment  3.111
      • 2.  Form: Application for Order and Order Appointing Referee to Appraise Property  3.112
      • 3.  Form: Deficiency Judgment Following Foreclosure  3.113

4

Code of Civil Procedure §726(a): The One-Action Rule

  • I.  DEVELOPMENT OF CCP §726(a)
    • A.  Common Law Background  4.1
    • B.  Enactment of CCP §726(a)  4.2
  • II.  APPLICATION AND PURPOSES OF CCP §726(a)
    • A.  Application to Both Mortgages and Deeds of Trust  4.3
    • B.  Purposes of CCP §726(a)
      • 1.  Antimultiplicity  4.4
      • 2.  Consolidated Foreclosure and Deficiency Judgment  4.5
  • III.  EFFECTS OF CCP §726(a)
    • A.  Security-First Rule
      • 1.  Creditor May Be Required to Proceed Against Security First  4.6
      • 2.  Makes Obligation Conditional  4.7
    • B.  One-Action Rule
      • 1.  Prohibits Multiplicity of Actions  4.8
      • 2.  Not Applicable to Trustee Sales  4.9
      • 3.  Combined Effect of One-Action and Antideficiency Rules  4.10
    • C.  Affirmative Defense and Sanction Aspect of CCP §726(a)  4.11
  • IV.  VIOLATIONS OF CCP §726(a)  4.12
    • A.  Judicial Foreclosure Actions  4.13
    • B.  Cross-Complaints  4.14
    • C.  Prejudgment Attachments on Nonpledged Assets  4.15
    • D.  Money Actions  4.16
    • E.  Proceedings Not Constituting Action
      • 1.  Trustee Sale  4.17
      • 2.  Interlocutory Proceedings  4.18
      • 3.  Self-Help Remedies (Bankers’ Liens and Offsets)  4.19
      • 4.  Statutory Exception for Pursuing Attachment  4.20
      • 5.  Attachment of Guarantor’s Property  4.20A
    • F.  Other Creditor Activity Not Constituting Action  4.21
    • G.  Distinguishing Monetary and Nonmonetary Judgments  4.22
  • V.  INVOKING CCP §726(a)  4.23
    • A.  As Affirmative Defense  4.24
    • B.  As Sanction  4.25
      • 1.  Triggering the Sanction  4.26
      • 2.  Extent of Sanction: What Rights Are Forfeited?  4.27
      • 3.  Wozab Letters  4.28
  • VI.  ADDITIONAL EFFECTS OR CONSEQUENCES OF CCP §726(a)
    • A.  Parties
      • 1.  Guarantors  4.29
      • 2.  Codebtors  4.30
      • 3.  Junior Secured Creditors  4.31
    • B.  Transactions
      • 1.  Installment Land Sale Contracts  4.32
      • 2.  Hidden Security Instruments  4.33
      • 3.  Unsecured and Partially Secured Notes: Fractionalizing Debt  4.34
      • 4.  Deeds of Trust Securing Option-to-Purchase Agreements  4.34A
    • C.  Secured Money Judgments  4.35
  • VII.  WORTHLESS SECURITY EXCEPTION
    • A.  Legally Worthless Security  4.36
    • B.  Economically Worthless Security  4.37
    • C.  Partially Worthless Security  4.38
    • D.  Subsequently Worthless Security
      • 1.  Destruction of Security  4.39
      • 2.  Decline in Value of Security  4.40
      • 3.  Without Act or Fault of Creditor  4.41
    • E.  Sold-Out Junior Creditor  4.42
      • 1.  Participation in Senior Sale  4.43
      • 2.  Junior Also Senior Lienholder  4.44
      • 3.  Complaint  4.45
      • 4.  Form Provision: Allegation of Worthless Security  4.46
  • VIII.  PROCEEDINGS NOT BARRED BY CCP §726(a)  4.47
    • A.  Fraud  4.48
    • B.  Rent Skimming  4.49
    • C.  Mistake  4.50
    • D.  Waste
      • 1.  Waste by Trustor
        • a.  Impairment of Security  4.51
        • b.  Timing of Waste Action  4.52
      • 2.  Third Party Waste  4.53
    • E.  Environmentally Impaired Property  4.54
      • 1.  Election to Waive  4.55
      • 2.  Environmental Indemnities  4.56
      • 3.  Right to Enter and Inspect; Appointment of Receiver  4.57
  • IX.  CHOICE OF LAW
    • A.  Location of Secured Property  4.58
    • B.  Application of Federal Law  4.59
  • X.  WAIVERS  4.60
    • A.  Disguised Waivers  4.61
    • B.  Unilateral Waivers by Creditor  4.62
    • C.  Waivers Contemporaneous With Making of Loan  4.63
    • D.  Subsequent Waivers  4.64
    • E.  Executory Waivers  4.65
    • F.  Sanction Effect of CCP §726(a)  4.66

5

The Antideficiency Rules

  • I.  BACKGROUND AND HISTORY OF ANTIDEFICIENCY LEGISLATION  5.1
    • A.  Antideficiency Rules  5.2
    • B.  “Deficiency Judgment” Defined  5.3
  • II.  PRIVATE SALE DEFICIENCY PROHIBITION (CCP §580d)  5.4
    • A.  Purpose of CCP §580d: Equalize Judicial and Nonjudicial Foreclosures  5.5
    • B.  Deterrence to Underbidding  5.6
      • 1.  Judicial Foreclosures and Postsale Redemption  5.7
      • 2.  Nonjudicial Foreclosures and the Ban on Deficiency Judgments  5.8
      • 3.  Effectiveness of Protection of Redemption Statutes  5.9
    • C.  Sold-Out Juniors  5.10
      • 1.  High-Bidding Sold-Out Junior  5.11
      • 2.  When Senior and Junior Lienholders Are the Same  5.12
  • III.  TIME LIMIT ON SEEKING DEFICIENCY JUDGMENT
    • A.  General Rule (CCP §726(b))  5.13
    • B.  Sold-Out Juniors
      • 1.  When 3-Month Period Does Not Apply  5.14
      • 2.  When 3-Month Period Does Apply  5.15
  • IV.  FAIR VALUE LIMITATIONS (CCP §§726(b), 580a)  5.16
    • A.  Rationale  5.17
    • B.  Definition of “Fair Value”  5.18
    • C.  Limits Deficiency Judgments Only  5.19
    • D.  Continuing Viability of CCP §580a  5.20
    • E.  Fair Value and CCP §726(a)  5.21
      • 1.  Not Binding on Nonselling Junior Creditors  5.22
      • 2.  Binding on Junior Creditor Who Purchases at Senior Sale  5.23
  • V.  PURCHASE MONEY PROHIBITION (CCP §580b)
    • A.  Basic Rule and Exceptions  5.24
    • B.  Comparison of CCP §580b With Other Antideficiency Rules  5.25
    • C.  Scope of CCP §580b
      • 1.  Applicable to Standard Transactions  5.26
        • a.  Seller Financing  5.27
        • b.  Third Party Financing  5.28
      • 2.  Effect of Short Sale  5.28A
      • 3.  Nonstandard Transactions That Meet Purposes of CCP §580b  5.29
      • 4.  Nonstandard Transactions Not Subject to CCP §580b  5.30
    • D.  Purposes of CCP §580b  5.31
      • 1.  Overvaluation of Property  5.32
        • a.  Residential Construction  5.33
        • b.  Commercial Construction  5.34
      • 2.  Stabilization of Economy  5.35
      • 3.  Application of CCP §580b to Third Party Loans  5.36
    • E.  Structuring Transactions to Avoid CCP §580b  5.37
    • F.  Effect of Attachment Statute  5.38
    • G.  Sold-Out Junior Creditors
      • 1.  Standard Transaction: Loan Secured by Property Purchased  5.39
      • 2.  Nonstandard Transactions
        • a.  Roseleaf: Loan Secured by “Other” Security  5.40
        • b.  Spangler: Subordination to Construction Loan  5.41
        • c.  Application of Spangler Rationale  5.42
        • d.  DeBerard and Lawler: Limitation on Spangler Rationale  5.43
      • 3.  High-Bidding Purchase Money Sold-Out Junior  5.44
  • VI.  SHORT SALE PROHIBITION (CCP §580e)  5.44A
  • VII.  APPLICATION OF ANTIDEFICIENCY RULES TO OTHER INSTRUMENTS
    • A.  Installment Land Sale Contracts
      • 1.  Under CCP §580b  5.45
        • a.  Applicable Only to Mortgage Substitutes  5.46
        • b.  Installment Land Sale Contracts Distinguished From Purchase and Sale Agreements  5.47
          • (1)  Functional Differences  5.48
          • (2)  Statutory Differences  5.49
      • 2.  Under Other Antideficiency Rules  5.50
    • B.  Other Devices That May Be Mortgage Substitutes  5.51
    • C.  Unsecured Notes  5.52
    • D.  Partially Secured Loans  5.53
  • VIII.  SITUATIONS TREATED AS EXCEPTIONS TO ANTIDEFICIENCY RULES
    • A.  Mistake  5.54
    • B.  Fraud  5.55
    • C.  Intentional Interference, Squeeze Outs, and Sham Foreclosures  5.56
    • D.  Waste  5.57
      • 1.  Bad Faith Waste  5.58
      • 2.  Federal Court Treatment of Waste  5.59
    • E.  Environmentally Impaired Property  5.60
  • IX.  CHOICE OF LAW
    • A.  Security Located Out of State  5.61
    • B.  Debtor Resides Out of State  5.62
    • C.  Application of Federal Law  5.63
  • X.  WAIVERS  5.64
    • A.  Disguised Waivers  5.65
    • B.  Only Debtor Can Waive  5.66
    • C.  Contemporaneous Waivers  5.67
    • D.  Subsequent and Noncontractual Waivers  5.68
    • E.  Distinguishing Contemporaneous From Subsequent Waivers  5.69
    • F.  Executory Waivers  5.70
  • XI.  REFINANCING; CCP §580b  5.71
    • A.  Before January 1, 2013  5.71A
    • B.  After January 1, 2013  5.71B
  • XII.  ANTIDEFICIENCY LAWS AND BANKRUPTCY  5.72

6

Receiverships, Rents, and Leases

  • I.  INTRODUCTION
    • A.  Creditor’s Limited Right to Possession and Rents  6.1
    • B.  Effect of Assignment of Rents Clause  6.2
    • C.  Alternative Use of Receivership in Workout of Defaulted Commercial Loan  6.2A
      • 1.  Traditional Uses of Receivership: Managing Property  6.2B
      • 2.  Alternative Use of Receivership: Selling Property  6.2C
      • 3.  Unresolved Issues on Alternative Receivership  6.2D
      • 4.  Procedures for Alternative Receivership  6.2E
  • II.  POSSESSION AND RENTS BEFORE FORECLOSURE
    • A.  Mortgagee in Possession  6.3
      • 1.  Rights  6.4
      • 2.  Liabilities  6.5
      • 3.  Debtor’s Consent Required  6.6
      • 4.  Entry After Invalid Foreclosure Sale  6.7
      • 5.  Acts Not Triggering Mortgagee-in-Possession Status  6.8
    • B.  Remedies Absent Assignment of Rents  6.9
      • 1.  Damages for Waste
        • a.  Legal Basis  6.10
        • b.  Effect of Antideficiency and Full Credit Bid Rules  6.11
        • c.  Bad Faith and Other Forms of Waste  6.12
      • 2.  Liability for Rent Skimming  6.13
      • 3.  Injunctive Relief  6.14
      • 4.  Receivership—No Assignment of Rents Clause
        • a.  CCP §564(b)(2): Waste or Default; Insufficient Security  6.15
        • b.  Limited Ability to Collect Rents  6.16
        • c.  Other Grounds for Receivership  6.17
        • d.  Beneficiary Liability and Priorities  6.18
  • III.  STATUTORY REGULATION OF ASSIGNMENT OF RENTS
    • A.  Current and Former Rules  6.19
    • B.  Assignment Needed to Collect Presale Rents  6.20
    • C.  Traditional Types of Clauses  6.21
      • 1.  Absolute Assignment  6.22
      • 2.  Assignment as Additional Security  6.23
      • 3.  Absolute Assignment Conditional on Default  6.24
    • D.  Current Law Abolishes Formal Distinctions Between Types of Clauses  6.25
      • 1.  Effect on Absolute Assignments  6.26
      • 2.  Effect on Assignments as Security  6.27
      • 3.  Effect on Conditional Absolute Assignments  6.28
    • E.  Perfection of Assignment of Rents
      • 1.  Current Statute; Recording  6.29
      • 2.  Former Law  6.30
    • F.  Scope of Assignment of Rents  6.31
  • IV.  ENFORCING ASSIGNMENT OF RENTS DURING FORECLOSURE
    • A.  Former Law  6.32
    • B.  Four Enforcement Options Under Current Law  6.33
    • C.  Obtaining Appointment of Receiver  6.34
      • 1.  Functions of Receiver  6.35
      • 2.  Additional Considerations for Appointment of Receiver  6.36
      • 3.  Specific Performance of Assignment  6.37
      • 4.  Procedures for Obtaining Order Appointing Receiver  6.38
      • 5.  Nomination of Property Manager  6.39
      • 6.  Powers of Receiver Limited by Order; Appealing Order  6.40
      • 7.  Effects of CCP §726  6.41
      • 8.  Effects of Antideficiency Laws  6.42
      • 9.  Mortgagee in Possession Avoided  6.43
      • 10.  Receiver’s Duties; Neutrality  6.44
      • 11.  Disposition of Rents Collected Before Foreclosure
        • a.  Presale  6.45
        • b.  Postsale  6.46
      • 12.  Attorney Fees; Receiver Fees and Costs  6.47
      • 13.  Terminating Receivership on Completion of Foreclosure  6.48
    • D.  Obtaining Possession of Rents  6.49
    • E.  Making Demand on Tenant
      • 1.  Serving Demand  6.50
      • 2.  Form of Demand; CC §2938(k)  6.51
      • 3.  Tenant’s Obligations  6.52
    • F.  Making Demand on Trustor  6.53
    • G.  Rents Collectible Under CC §2938
      • 1.  Accrued, Unpaid Rents  6.54
      • 2.  Proceeds; Improper Payments  6.55
      • 3.  Gross or Net Rents  6.56
    • H.  Priorities of Competing Assignees  6.57
      • 1.  Establishing Priority Under CC §2938
        • a.  Under Current Law  6.58
        • b.  Under Prior Law  6.59
      • 2.  If Junior Enforces Earlier
        • a.  Current Law; Notice Required  6.60
        • b.  Prior Law  6.61
      • 3.  If Senior Enforces Earlier  6.62
      • 4.  If Junior Reinstates Senior Debt  6.63
      • 5.  Priorities in Cash Proceeds  6.64
    • I.  Effect on Leases
      • 1.  If Lease Has Priority Over Deed of Trust  6.65
      • 2.  If Deed of Trust Has Priority Over Lease  6.66
      • 3.  If Deed of Trust Lacks Assignment Clause  6.67
    • J.  Effect on Tenants
      • 1.  Payment of Rent  6.68
      • 2.  Termination by Tenants  6.69
      • 3.  Termination or Modification by Creditor  6.70
    • K.  Charging Trustor Rent  6.71
    • L.  When Trustor Files Bankruptcy  6.71A
  • V.  RENTS AND POSSESSION AFTER SALE  6.72
    • A.  Effect of Judicial Foreclosure Sale
      • 1.  Trustor’s Right to Possession  6.73
      • 2.  Duration of Right to Possession  6.74
      • 3.  Rents During Redemption Period  6.75
      • 4.  Trustor in Possession  6.76
      • 5.  Rights and Duties of Tenants During Redemption Period
        • a.  Rent and Security Deposits  6.77
        • b.  Eviction  6.78
        • c.  Rent Increases  6.79
        • d.  Prepaid Rents  6.80
        • e.  Postsale Payment of Rents  6.81
        • f.  Effect of Expiration of Redemption Period  6.82
    • B.  Effect of Trustee Sale
      • 1.  Effect on Trustor’s Rights  6.83
      • 2.  Effect on Leases
        • a.  If Lease Has Priority Over Deed of Trust
          • (1)  Only Lessor’s Interest Foreclosed  6.84
          • (2)  If Lease Subsequently Modified  6.85
        • b.  If Deed of Trust Has Priority Over Lease  6.86
          • (1)  In Judicial Foreclosure Actions  6.87
          • (2)  If Junior Tenant Not a Party in Senior Foreclosure Action  6.88
          • (3)  If Senior Foreclosure Is by Trustee Sale  6.89
    • C.  Provisions Affecting Priority of Leases and Loans  6.90
      • 1.  Subordination Agreements  6.91
        • a.  Types of Subordination Clauses
          • (1)  Automatic Subordination  6.92
          • (2)  Executory Subordination  6.93
        • b.  Validity of Subordination Clauses  6.94
        • c.  Optional Unsubordination  6.95
        • d.  Combined Subordination and Unsubordination  6.96
      • 2.  Nondisturbance Agreements  6.97
      • 3.  Attornment Agreements  6.98
  • VI.  FORMS
    • A.  Form: Complaint for Specific Performance of Assignment of Rents  6.99
    • B.  Form: Notice of Motion for Appointment of Receiver  6.100
    • C.  Form: Declaration in Support of Application for Receivership  6.101
    • D.  Form: Order Appointing Receiver  6.102
    • E.  Optional Judicial Council Forms
      • 1.  Form: Ex Parte Order Appointing Receiver and Order to Show Cause and Temporary Restraining Order—Rents, Issues, and Profits (Receivership) (Judicial Council Form RC-200)  6.103
      • 2.  Form: Order Confirming Appointment of Receiver and Preliminary Injunction—Rents, Issues, and Profits (Receivership) (Judicial Council Form RC-210)  6.104
      • 3.  Form: Order to Show Cause and Temporary Restraining Order—Rents, Issues, and Profits (Receivership) (Judicial Council Form RC-300)  6.105
      • 4.  Form: Order Appointing Receiver After Hearing and Preliminary Injunction—Rents, Issues, and Profits (Receivership) (Judicial Council Form RC-310)  6.106
    • F.  Form: Notice to Tenant of Demand to Pay Rent  6.107
    • G.  Forms for Terminating Receivership
      • 1.  Form: Application for Order Directing Receiver to Transfer Possession of Real Property and File Final Accounting  6.108
      • 2.  Form: Declaration in Support of Application for Order Directing Receiver to Transfer Possession of Real Property  6.109
      • 3.  Form: Order Directing Receiver to Transfer Possession of Real Property and File Final Accounting  6.110

7

Debtor Strategies

  • I.  INTRODUCTION
    • A.  Chapter Summary  7.1
    • B.  Checklist: Debtor’s Legal Alternatives When Facing Foreclosure  7.1A
  • II.  DEEDS IN LIEU OF FORECLOSURE  7.2
    • A.  Benefits and Risks  7.3
    • B.  Tax Effects  7.4
    • C.  Form and Contents  7.5
    • D.  Actions Accompanying Deeds in Lieu  7.6
    • E.  Challenges by Trustor  7.7
      • 1.  Instrument as Deed or Mortgage  7.8
      • 2.  Immediate or Executory Deed  7.9
      • 3.  Deed Executed When Making Loan  7.10
      • 4.  Deed Executed After Loan Origination  7.11
      • 5.  Validity as a Deed  7.12
    • F.  Third Parties
      • 1.  Nominee of Beneficiary  7.13
      • 2.  Former Beneficiary  7.14
      • 3.  Bona Fide Purchaser  7.14A
      • 4.  Secondary Market Assignments; Mortgage Electronic Registration Systems (MERS)  7.15
      • 5.  Deed From Nontrustor  7.16
    • G.  Deeds in Lieu and Junior Creditors
      • 1.  Effect on Juniors; Merger Doctrine  7.17
      • 2.  Drafting Considerations; Title Insurance  7.18
      • 3.  Avoiding Application of Merger Doctrine  7.19
    • H.  Effect of Deed in Lieu Being Declared Mortgage  7.20
    • I.  Rejecting Deed in Lieu  7.21
  • III.  SHORT SALES
    • A.  Short Sale Defined  7.21A
    • B.  Listing Agreement; Broker Obligations; Indemnity  7.21B
    • C.  Senior Lienholders; Antideficiency Laws  7.21C
    • D.  Junior Lienholders  7.21D
    • E.  Federal Assistance  7.21E
    • F.  Short Sale Fraud  7.21F
    • G.  Tax Consequences  7.21G
    • H.  Escrow; Payoff Demands; Title Insurance; Bankruptcy  7.21H
  • IV.  OPTIONS FOR ATTACKING FORECLOSURE SALE
    • A.  Judicial Versus Nonjudicial Foreclosure  7.22
    • B.  Enjoining or Setting Aside Trustee Sale
      • 1.  Requires Court Action  7.23
      • 2.  Bringing Action Before or After Sale  7.24
      • 3.  Tendering Payment of Debt Owed  7.24A
  • V.  ENJOINING TRUSTEE SALE
    • A.  Legal and Factual Bases for Enjoining Sale  7.25
      • 1.  General Statutory Grounds  7.26
      • 2.  Provisional or Temporary Relief  7.27
      • 3.  Factual or Procedural Grounds  7.28
      • 4.  Contractual Defenses; Payment; Waiver  7.29
      • 5.  Form: Demand Letter Requesting Lender or Loan Servicer to Provide Documentation of Loan Claim  7.30
      • 6.  Passage of Time  7.31
        • a.  Mortgages  7.32
        • b.  Deeds of Trust  7.33
        • c.  Marketable Record Title Act  7.34
      • 7.  Disputed Obligations; Invalid Deeds of Trust  7.35
      • 8.  Truth in Lending Act Violations  7.36
      • 9.  Improper Procedures
        • a.  Procedures Under CC §§2924–2924i  7.37
        • b.  Procedures Under SB 1137 and Homeowner Bill of Rights  7.38
        • c.  Procedures Under Federal Regulations  7.38A
    • B.  Parties to Injunction Action
      • 1.  Plaintiffs: Borrowers or Tenants  7.39
      • 2.  Defendants  7.40
      • 3.  When Tender Is Required in Action for Injunctive Relief  7.41
    • C.  Jurisdiction and Venue; Removal to Federal Court  7.42
    • D.  Procedures for Obtaining Temporary Restraining Orders and Preliminary Injunctions
      • 1.  Complaint to Enjoin Foreclosure  7.43
      • 2.  Form: Complaint to Enjoin Foreclosure, and for Declaratory Relief and an Accounting  7.44
      • 3.  Distinctions Among Types of Injunctive Relief  7.45
      • 4.  TRO or Preliminary Injunction  7.46
        • a.  Temporary Restraining Order
          • (1)  Checklist: Procedure for Obtaining TRO and OSC  7.47
          • (2)  Form: Order to Show Cause and Temporary Restraining Order  7.48
        • b.  When Preliminary Injunction Alone Is Sought by Noticed Motion or OSC
          • (1)  Checklist: Obtaining Hearing on Preliminary Injunction  7.49
          • (2)  Form: Notice of Motion for Preliminary Injunction  7.50
        • c.  Bond or Undertaking  7.51
        • d.  Amount  7.52
      • 5.  Lis Pendens  7.53
    • E.  Appealing Temporary Restraining Orders  7.54
    • F.  Improper Attempts to Enjoin  7.55
  • VI.  SETTING ASIDE TRUSTEE SALE
    • A.  Parties to Set-Aside Action
      • 1.  Plaintiffs  7.56
      • 2.  Junior Creditors  7.57
      • 3.  Guarantors  7.58
      • 4.  Defendants  7.59
    • B.  Factors That Limit Postsale Attacks  7.60
      • 1.  Presumption of Validity  7.61
        • a.  Trustee’s Recitals  7.62
        • b.  Statutory Recitals  7.63
        • c.  If No Trustee’s Deed Issued or If Issued Late  7.64
      • 2.  Bona Fide Purchaser (BFP)  7.65
      • 3.  Value Versus Sale Price  7.66
      • 4.  Inability to Tender Payment of Debt Owed  7.66A
    • C.  Grounds for Setting Aside Sale
      • 1.  Compared With Grounds for Enjoining Sale  7.67
      • 2.  Cases Granting Relief or Allowing Action to Proceed to Set Aside Sale  7.67A
      • 3.  Alleging Tender in Action to Set Aside Sale  7.67B
      • 4.  Cases Denying Relief to Set Aside Sale  7.67C
      • 5.  Commercial Reasonableness  7.68
    • D.  Ancillary Relief  7.69
    • E.  Alternative Relief; Damages  7.70
    • F.  Burden of Proof; Nonjury Trial  7.71
    • G.  Jurisdiction and Venue  7.72
    • H.  Form: Complaint to Set Aside Trustee Sale and for Damages  7.73
    • I.  Lis Pendens  7.74
  • VII.  UNLAWFUL DETAINER AND OTHER POSTSALE ACTIONS
    • A.  Defending Unlawful Detainer and Related Actions  7.75
    • B.  Effect of Federal Law on Evictions  7.75A
    • C.  Effect of Eviction Action on Suit to Set Aside Sale  7.76
      • 1.  Removal of Consolidated Unlawful Detainer and Wrongful Foreclosure Action  7.76A
    • D.  Drawbacks of Challenging Sale During Eviction  7.77
  • VIII.  LENDER LIABILITY  7.78
    • A.  Agreements to Lend  7.79
    • B.  Ongoing Duties; Negotiations  7.80
    • C.  Calling Loans  7.81
    • D.  California Decisions; Risk Analysis  7.82
    • E.  Filing Lender Liability Complaint With CFPB  7.82A
    • F.  Loan Versus Joint Venture  7.83
    • G.  Lender Liability to Third Parties
      • 1.  Liability to Bidders or Purchasers in Foreclosure Sales  7.83A
      • 2.  Liability to Purchasers in REO Sales  7.83B
    • H.  Disclosing Lender Liability Claims in Bankruptcy  7.84
  • IX.  PROTECTION IN BANKRUPTCY  7.85
    • A.  Deciding Whether to File Bankruptcy Petition  7.86
      • 1.  Disadvantages of Bankruptcy Filing  7.87
      • 2.  Advantages of Bankruptcy Filing
        • a.  Lien Reduction or Stripping
          • (1)  Lien-Stripping Under BAPCPA  7.88
          • (2)  Property Valuation Strategies  7.88A
          • (3)  Effect of Lien-Stripping on Debtor Eligibility for Bankruptcy  7.88B
          • (4)  Lien-Stripping in Chapter 7 Cases  7.88C
        • b.  Debtor’s Homestead and Other Exemptions  7.88D
        • c.  Postsale Redemption of Property  7.88E
    • B.  Bankruptcy Estate  7.89
    • C.  Filing Triggers Automatic Stay  7.90
      • 1.  Scope and Effect of Automatic Stay
        • a.  Effect on Creditors  7.91
        • b.  Statutory Exceptions to Stay  7.92
        • c.  Remedies for Violation of Stay  7.93
        • d.  Transfers by Debtor  7.94
        • e.  Who Else Is Protected by Stay?  7.95
        • f.  Income Tax and Short Sale Issues for Debtor  7.96
        • g.  Effect on Redemption and Reinstatement Rights  7.97
      • 2.  Duration of Stay  7.98
      • 3.  Relief From Stay  7.99
        • a.  Grounds for Relief; Burden of Proof  7.100
        • b.  Bad Faith or Fraud  7.101
        • c.  Lack of Adequate Protection  7.102
        • d.  When Debtor Has No Equity  7.103
        • e.  Single Asset Real Estate Case  7.104
      • 4.  Defending Stay Relief Motions on Securitized Loans
        • a.  Recurring Issues; Preserving Claims  7.105
        • b.  Checklist: Defenses to Stay Relief  7.106
      • 5.  Effect of Dismissal or Lifting Stay
        • a.  Foreclosure Process Resumed  7.107
        • b.  Renoticing or Rescheduling Foreclosure Sale  7.108
    • D.  Treatment of Creditor’s Claim
      • 1.  Invalid Secured Claims  7.109
      • 2.  Unrecorded Claims  7.110
      • 3.  Fraudulent Transfers  7.111
      • 4.  Preferences  7.112
      • 5.  Undersecured Claims  7.113
      • 6.  Completed Sales  7.114
      • 7.  Truth in Lending Act Violations  7.115
      • 8.  No Claim or False Claim  7.115A
    • E.  Reinstatement and Modification Rights  7.116
      • 1.  Reinstatement  7.117
      • 2.  Modification
        • a.  Home Mortgages  7.118
        • b.  “Cramdown” Powers; Absolute Priority Rule  7.119
        • c.  Acceptable Modifications  7.120
    • F.  Treatment of Real Property Security During Bankruptcy  7.121
    • G.  Postpetition Attorney Fees, Interest, and Charges  7.122
    • H.  Default Interest Provisions  7.123
    • I.  Postpetition Rents
      • 1.  Lender’s Entitlement to Rents  7.124
      • 2.  Commercial Lodging Property  7.125

8

Payment and Related Disputes

  • I.  CHAPTER SUMMARY AND SCOPE  8.1
  • II.  LOAN ACCELERATION PROVISIONS
    • A.  Acceleration-on-Default Clause  8.2
      • 1.  Effect of Absence of Acceleration Clause
        • a.  Judicial Foreclosures  8.3
        • b.  Power of Sale Clause  8.4
      • 2.  Validity of Acceleration Clause  8.5
      • 3.  Income Tax Effects of Acceleration  8.6
      • 4.  Disclosure of Acceleration Provisions  8.7
    • B.  “Due-on” Provisions
      • 1.  Types of Clauses
        • a.  Acceleration on Transfer of Property  8.8
        • b.  Covenant Not to Convey  8.9
      • 2.  Historical Development and Validity
        • a.  Covenants Not to Convey: Coast Bank and Tahoe Bank  8.10
        • b.  Due-on-Encumbrance Clause: La Sala  8.11
        • c.  Balancing Quantum of Restraint Against Justification
          • (1)  Installment Land Sale Contracts: Tucker  8.12
          • (2)  Outright Sales: Wellenkamp and Dawn  8.13
      • 3.  Legislative and Industry Responses to Wellenkamp and Dawn
        • a.  Federally Chartered Banks and Adjustable Rate Loans  8.14
        • b.  Preemption Under Garn Act and Federal Regulations  8.15
          • (1)  Loans Secured by Residential Property  8.16
          • (2)  Loans Secured by Nonresidential Property  8.17
        • c.  California Residential Exemptions  8.18
      • 4.  Effect of “Due-on” Clauses
        • a.  Enforcement  8.19
        • b.  Effect on Reinstatement Rights  8.20
        • c.  Covered Transactions; Federal Exemptions  8.21
      • 5.  Purchase Option and “Due-on” Clause  8.22
      • 6.  Waiver of “Due-on” Clause  8.23
    • C.  Discretionary Loan Balance Acceleration  8.24
  • III.  LATE CHARGES, DEFAULT INTEREST, AND PREPAYMENT PROVISIONS
    • A.  Late Charges
      • 1.  Invalidity as Unreasonable Liquidated Damages  8.25
      • 2.  Liquidated Damages Statute: Presumption of Validity  8.26
      • 3.  Judicial Interpretation: Ridgley v Topa Thrift
        • a.  Garrett Rule on Excessive Late Charges Preserved  8.27
        • b.  Indirect Late Charges Invalidated  8.28
      • 4.  Late Charges as Interest  8.29
      • 5.  Form Provision: Late-Charge Clause  8.30
      • 6.  Restrictions on Late Charges for Residential Loans
        • a.  Monetary Limitations  8.31
        • b.  Pyramiding Prohibited  8.32
        • c.  Notice and Disclosure Obligations  8.33
    • B.  Default Interest
      • 1.  Restrictions on Default Interest for Commercial Loans  8.34
      • 2.  Impact of Chapter 11 Bankruptcy Plan  8.35
    • C.  Prepayment and “Yield Maintenance” Charges
      • 1.  No Automatic Right to Prepay  8.36
      • 2.  Justification for Charges  8.37
      • 3.  Validity  8.38
      • 4.  Waiver of Right to Collect  8.39
      • 5.  Types of Prepayment Provisions
        • a.  Phrases Construed to Permit Prepayment  8.40
        • b.  Prepayment Charge Clause  8.41
      • 6.  Lock-In Provisions
        • a.  Prohibition on Prepayment for Specified Time  8.42
        • b.  Validity of Lock-In Provisions  8.43
      • 7.  Yield Maintenance Provisions  8.44
      • 8.  Regulation of Prepayment Charges
        • a.  Statutory Limitations on Consumer Loans  8.45
        • b.  Federal Regulation and Preemption  8.46
      • 9.  Prepayment Charges on Accelerated Loans
        • a.  After Acceleration on Default  8.47
        • b.  Under “Due-on” Clause  8.48
      • 10.  Involuntary Prepayment
        • a.  Clause Allowing Charges  8.49
        • b.  Exceptions: Property Destruction, Condemnation  8.50
      • 11.  Tax Considerations
        • a.  For Lender  8.51
        • b.  For Borrower  8.52
        • c.  For Seller  8.53
  • IV.  OTHER MONETARY ISSUES
    • A.  Payment of Interest on Residential Lender’s Funds in Escrow  8.54
    • B.  Payment of Multiple Notes  8.55
    • C.  Private Mortgage Insurance (PMI)
      • 1.  California Law Governing PMI  8.56
      • 2.  Federal Law Governing PMI; Preemption  8.56A
    • D.  Casualty Insurance  8.57
      • 1.  Trustor’s Failure to Insure; Force-Placed Insurance  8.58
      • 2.  Beneficiary’s Failure to Require Loss-Payable Clause  8.59
      • 3.  Beneficiary’s Failure to Require Insurance  8.60
      • 4.  Loss After Foreclosure  8.61
      • 5.  Right to Insurance Proceeds
        • a.  Lender’s Option  8.62
        • b.  Using Proceeds to Restore Property  8.63
        • c.  Multiple Beneficiaries and Judgment Creditors  8.64
      • 6.  Tax Considerations
        • a.  For Trustor  8.65
        • b.  For Lender or Seller  8.66
    • E.  Condemnation and Damage Provisions  8.67
      • 1.  Condemnation Awards
        • a.  As Substitute Security  8.68
        • b.  Impairment of Security Requirement  8.69
          • (1)  Standards of Impairment  8.70
          • (2)  Application of Impairment Standards  8.71
        • c.  Taxation of Condemnation Awards  8.72
      • 2.  Damages Awards  8.73
    • F.  Taxes, Senior Liens, Impound Accounts  8.74
      • 1.  Beneficiary’s Right to Advance Funds to Protect Security  8.75
      • 2.  Trustor’s Failure to Pay Taxes; Advances  8.76
      • 3.  Impound Accounts  8.77
      • 4.  Failure to Keep Senior Liens Current
        • a.  Effect of Senior Lien Foreclosure on Junior Lien  8.78
        • b.  Junior Curing Senior Default; Advances  8.79
        • c.  Priority of Payments to Cure Tax Default  8.80
      • 5.  Interest Rate on Advances  8.81
      • 6.  Beneficiary’s Right to Cure  8.82
    • G.  Shared Appreciation Loans  8.82A
    • H.  Attorney Fees  8.83
      • 1.  Loan Reinstatement  8.84
      • 2.  Redemption and Foreclosure  8.85
      • 3.  Accounting and Interpleader Actions  8.86
      • 4.  Other Actions
        • a.  Multiple Issues; Noncontract Judgments  8.87
        • b.  Third Party Claims Against Security  8.88
        • c.  Subsequent Owners  8.89
        • d.  Actions Involving Trustees  8.90
  • V.  PREDATORY LENDING: LOAN PURPOSE AND REPAYMENT ISSUES  8.91
  • VI.  RECONVEYANCE  8.92
    • A.  Reconveyance and Statement Fees  8.93
    • B.  Return of Loan Documents  8.94
    • C.  Recitals in Reconveyance  8.95
    • D.  Damages to Borrower  8.96
    • E.  Substitute Procedures  8.97
    • F.  Liabilities and Rights of Party Reconveying  8.98
    • G.  Forged Payoff Demand, Request to Reconvey, or Reconveyance  8.99

9

Multiple Security, Obligations, and Parties

  • I.  INTRODUCTION  9.1
  • II.  FORECLOSING ON MULTIPLE SECURITY FOR ONE OBLIGATION  9.2
    • A.  Preliminary Caution: Full Credit Bidding  9.3
    • B.  Multiple Parcels of Real Property  9.4
      • 1.  One-Action Rule
        • a.  General Application  9.5
        • b.  Consequences of One-Action Violation  9.6
      • 2.  Antideficiency and Fair Value Rules
        • a.  Code of Civil Procedure §§580d and 580a  9.7
        • b.  Code of Civil Procedure §580b  9.8
      • 3.  Single Deed of Trust Versus Separate Deeds of Trust
        • a.  One-Action, Antideficiency, and Fair Value Rules  9.9
        • b.  Foreclosure Trustees  9.10
    • C.  Real Property Rents  9.11
    • D.  Real Property and Personal Property  9.12
      • 1.  Foreclosure Choices Under Com C §9604(a)  9.13
        • a.  Separate Foreclosure  9.14
        • b.  Unified Foreclosure  9.15
      • 2.  Timing of Election  9.16
      • 3.  Application of Real Property Law Protections in Mixed-Collateral Foreclosures  9.17
        • a.  Purchase Money Antideficiency Rule  9.18
        • b.  One-Action Rule and Security-First Rule  9.19
        • c.  Trustee Sale Antideficiency Rule  9.20
        • d.  Fair Value Rules and Deadlines  9.21
        • e.  Acceleration and Reinstatement Rights  9.22
        • f.  Consumer Mixed Collateral  9.23
    • E.  Real Property and Insurance  9.24
    • F.  Real Property Security Given for Judgments  9.25
  • III.  ENFORCING MULTIPLE OBLIGATIONS SECURED BY SAME SECURITY  9.26
    • A.  One Creditor, Multiple Notes, Multiple Deeds of Trust on Same Property  9.27
      • 1.  When Merger Occurs  9.28
      • 2.  Enforcement Issues for Unmerged Obligations  9.29
      • 3.  Foreclosure of Junior Deed of Trust
        • a.  California Cases  9.30
        • b.  Doctrine of Extinguishment (Merger of Rights)  9.31
    • B.  One Creditor, Multiple Notes, One Deed of Trust  9.32
    • C.  One Creditor, One Note, Multiple Obligors, One Deed of Trust  9.32A
    • D.  Multiple Creditors, Multiple Notes, One Deed of Trust  9.33
      • 1.  Priority of Rights in Security  9.34
      • 2.  Foreclosure  9.35
    • E.  Wraparound Loan  9.36
      • 1.  Advantages
        • a.  Interest Rates  9.37
        • b.  Tax Considerations  9.38
        • c.  Alters Payment Schedules  9.39
      • 2.  Disadvantages
        • a.  Usury Risks  9.40
        • b.  Foreclosure  9.41
  • IV.  PRIORITIES
    • A.  Significance of Lien Priority  9.42
    • B.  Basic Determinants of Priority
      • 1.  First-in-Time Rule  9.43
      • 2.  Race-Notice Recordation Statute  9.44
      • 3.  Other Requirements for Priority by Recordation
        • a.  Instrument Properly Recorded  9.45
        • b.  Without Notice of Other Interest  9.46
        • c.  Value  9.47
      • 4.  Purchase Money Mortgage Priority  9.48
        • a.  Subject to Operation of Recordation Laws  9.49
        • b.  Liens Against Purchaser  9.50
      • 5.  Fixtures
        • a.  Priority Rules  9.51
        • b.  Right to Remove Fixtures  9.52
    • C.  Special Lien Priorities
      • 1.  Vendor’s Liens  9.53
      • 2.  Mechanics Liens  9.54
      • 3.  Tax and Assessment Liens  9.55
      • 4.  Receiver’s Certificate  9.55A
    • D.  Priorities in Bankruptcy  9.56
    • E.  Junior Rights to Reinstate, Redeem, Foreclose, and Assert One-Action Rule Violations  9.57
    • F.  Priority of Liens Versus Other Real Property Interests  9.58
    • G.  Future-Advance and Dragnet Clauses  9.59
      • 1.  Validity  9.60
      • 2.  Disputes Over Security  9.61
        • a.  Preexisting Debts  9.62
        • b.  Future Advances  9.63
          • (1)  Relationship Between Loans  9.64
          • (2)  Reliance on Security  9.65
        • c.  Contemporaneous Obligations  9.66
        • d.  Undesirable Effects of Dragnet Clause  9.67
      • 3.  Lender Disputes Over Priorities  9.68
        • a.  Optional Versus Obligatory Advances  9.69
        • b.  Revolving Line of Credit Problems  9.70
        • c.  Construction Loan Problems  9.71
        • d.  Wraparound Loan Problems  9.72
        • e.  Actual Versus Constructive Notice  9.73
    • H.  Subordination and Release Provisions
      • 1.  Definitions  9.74
      • 2.  Creating Subordination and Release Provisions
        • a.  Recordation Versus Express Contract; Automatic Subordination  9.75
        • b.  Role of Subordination and Release Provisions in Land Development  9.76
        • c.  Express Subordination and Release Clauses in Purchase Contract  9.77
        • d.  Timing Concerns  9.78
        • e.  Collateral Agreement for Subordination and Release in Security Instrument  9.79
      • 3.  Enforcing Subordination Clauses  9.80
        • a.  Relief Against Subordinating Lender  9.81
        • b.  Relief Against Other Parties  9.82
      • 4.  Subsequent Subordination Agreement  9.83
      • 5.  Enforcing Release Clauses  9.84
      • 6.  Release Without Express Release Clause; Effect of Marshaling  9.85
    • I.  Effect of Loan Modifications on Priority  9.86
    • J.  Equitable Subrogation
      • 1.  Effect on Priority  9.87
      • 2.  Requirements  9.88
      • 3.  Exceptions: Knowledge of Intervening Interest; Inexcusable Neglect  9.89
      • 4.  Asserting Equitable Subrogation  9.90
    • K.  Marshaling of Assets  9.91
      • 1.  Two Funds Rule
        • a.  Basic Doctrine  9.92
        • b.  Common Debtor Rule  9.93
      • 2.  Inverse Order of Alienation Rule
        • a.  Rule and Limitation  9.94
        • b.  Application  9.95
      • 3.  Multiple Junior Lienors  9.96
      • 4.  Release of Property by Senior Creditor  9.97
  • V.  MULTIPLE PARTIES  9.98
    • A.  Guarantors and Sureties
      • 1.  Definitions and Terminology  9.99
      • 2.  Surety Distinguished From Principal Obligor  9.100
      • 3.  Prior Distinction Between Guarantors and Sureties Abolished  9.101
      • 4.  Examples of Suretyship  9.102
        • a.  Explicit Guaranty  9.103
        • b.  Co-Obligor  9.104
        • c.  Third Party Security  9.105
        • d.  Loan Purchase Agreement; Indemnity Agreement  9.106
        • e.  Master Lease  9.107
        • f.  Unreleased Seller of Encumbered Property  9.108
        • g.  Caution: Substance Controls Over Form or Language  9.109
      • 5.  Suretyship Formation Issues
        • a.  Consideration  9.110
        • b.  Statute of Frauds  9.111
        • c.  Notice of Acceptance; Knowledge of Principal  9.112
      • 6.  Rights and Defenses Arising From Suretyship Status  9.113
        • a.  Recourse Against Principal
          • (1)  Equity of Exoneration; Reimbursement and Subrogation  9.114
          • (2)  Scope of Reimbursement Right  9.115
          • (3)  Scope of Subrogation Right  9.116
        • b.  Contribution Right Against Cosureties  9.117
        • c.  Rights and Defenses Against Creditor
          • (1)  Defenses of Principal  9.118
          • (2)  Effect of Discharge of Principal  9.119
          • (3)  Alteration of Principal Obligation or Impairment of Remedies  9.120
          • (4)  First Pursuit of Principal and Principal’s Collateral  9.121
          • (5)  Defense Based on Duty to Disclose  9.122
      • 7.  Applying One-Action and Antideficiency Rules: Overview  9.123
      • 8.  One-Action and Antideficiency Rules When Principal’s Real Property Secures Principal Obligation
        • a.  No Direct Protection of Guarantors
          • (1)  Case Law  9.124
          • (2)  Rationales in Case Law  9.125
        • b.  Arguments for Direct Protection of Guarantors  9.126
          • (1)  Effect of 1939 Statutory Change  9.127
          • (2)  Policy Arguments  9.128
        • c.  Indirect Protection of Guarantors  9.129
          • (1)  Civil Code §§2809 and 2810  9.130
          • (2)  Union Bank v Gradsky: Estoppel Defense Exonerates Guarantor  9.131
          • (3)  Union Bank v Gradsky: Limitations on Estoppel Defense  9.132
      • 9.  One-Action and Antideficiency Rules When Guarantor’s Real Property Secures Guaranty  9.133
      • 10.  One-Action and Antideficiency Rules When Guarantor’s Real Property Secures Principal Obligation  9.134
      • 11.  Waiver of Rights and Defenses  9.135
        • a.  Waivable Rights and Defenses; Effect of Waiver  9.136
          • (1)  Suretyship Rights and Defenses  9.137
          • (2)  Election of Remedies Rights and Defenses  9.138
          • (3)  One-Action and Antideficiency Rights and Defenses  9.139
        • b.  Interpretation of Contractual Waivers
          • (1)  Case Law Before CC §2856  9.140
          • (2)  Civil Code §2856  9.141
        • c.  Limitations on Waiver
          • (1)  Beyond CC §2856  9.142
          • (2)  Within CC §2856  9.143
      • 12.  Purported “Guaranty” by Principal Obligor  9.144
        • a.  “Debt of Another”  9.145
        • b.  Examples: Sham Guaranties  9.146
        • c.  Issues Raised by Particular Entity Types
          • (1)  Partnerships, Corporations, and LLCs  9.147
          • (2)  Revocable Trusts  9.148
          • (3)  Spouses  9.149
      • 13.  Types of Guaranties
        • a.  Guaranties of Payment Versus Guaranties of Collection  9.150
        • b.  Continuing Guaranties  9.151
        • c.  Limited or Partial Guaranties  9.152
        • d.  Completion Guaranties  9.153
        • e.  Nonrecourse Carve-Out Guaranties and Springing Recourse Guaranties  9.154
        • f.  “Exploding” Guaranties  9.155
      • 14.  Transfer of Guaranties  9.156
      • 15.  Attachment Against Guarantor When Underlying Debt Is Secured by Real Property  9.157
    • B.  Letter of Credit Issuers
      • 1.  Definitions and Terminology  9.158
      • 2.  Governing Law; Customs and Practice  9.159
      • 3.  Legal Relationships Among Parties  9.160
      • 4.  Documentary Presentation  9.161
      • 5.  Fundamental Principles: “Strict Compliance” and “Independence”  9.162
      • 6.  Effect of One-Action and Antideficiency Rules  9.163
      • 7.  Unenforceability in Certain Residential Mortgage Loan Transactions  9.164
    • C.  Negotiable Instrument Endorsers and Accommodation Parties
      • 1.  Liability of Parties to Negotiable Instruments  9.165
      • 2.  One-Action and Antideficiency Rules  9.166
      • 3.  Division 3 Discharge Defenses of Endorsers and Accommodation Parties  9.167
      • 4.  Relationship to Civil Code Suretyship Provisions  9.168
    • D.  Subsequent Owners of Property  9.169
      • 1.  Effect of Transfers of Encumbered Property: Status of Transferee Generally  9.170
      • 2.  Status of Original Trustor  9.171
      • 3.  Requirement of a Writing  9.172
      • 4.  Effect of Assumption
        • a.  Status of Acquiring Grantee  9.173
        • b.  Nonassuming Grantee  9.174
        • c.  Creditor Status Under Assumption Agreement  9.175
        • d.  Third Party Beneficiary Versus Equitable Subrogation Differences  9.176
        • e.  Liability of Trustor  9.177
        • f.  Liability of Assuming Grantee  9.178
      • 5.  Purchase Money Considerations
        • a.  When Original Loan Was Not Purchase Money  9.179
        • b.  When Loan Was Originally for Purchase Money  9.180
          • (1)  Sales by Original Seller  9.181
          • (2)  Third Party Lenders  9.182
      • 6.  Grantee as Guarantor  9.183

10

Workouts of Problem Loans

  • I.  INTRODUCTION
    • A.  “Workout” Broadly Defined  10.1
    • B.  Rules of Professional Conduct and Laws Governing Workouts  10.1A
    • C.  Basic Tools of Workouts
      • 1.  Checklist: Loan Contract Documents  10.2
      • 2.  Default Notices; Demand Letters
        • a.  Distinguish Between Absolute and Conditional Defaults  10.2A
        • b.  Form: Default Notice  10.2B
      • 3.  Pre-Negotiation Letter
        • a.  Purpose and Scope of Pre-Negotiation Letter  10.3
        • b.  Form: Pre-Negotiation Letter  10.3A
      • 4.  Rights and Liabilities of Lender, Borrower, and Third Parties  10.4
      • 5.  Assessing Property Value and Client’s Financial Situation  10.5
      • 6.  Decision-Making Procedure for Multiple Lenders  10.6
      • 7.  Decision-Making Procedure for Multiple Borrowers  10.6A
    • D.  Requirements for Lenders Under SB 1137
      • 1.  Meet-and-Confer Prerequisites Not Applicable to Nonresidential Trustee Sales  10.7
      • 2.  Workouts of Securitized Loans
        • a.  Structure; Parties; Servicing  10.7A
        • b.  Income Tax Issues for Investors  10.7B
        • c.  Lender Obligations Under CC §§2923.6, 2924.9, 2924.10, 2924.11, 2924.18  10.8
    • E.  Residential Loan Workouts and Modifications
      • 1.  Lender Obligations Under SB 1137 and HBOR; CC §2923.5  10.8A
      • 2.  Federal and Private Loan Modification and Refinancing Incentives  10.8B
      • 3.  Residential Loan Modification Process  10.8C
      • 4.  Residential Modifications Under ABX2 7  10.8D
      • 5.  Lender Obligations Under Homeowner Bill of Rights (HBOR)  10.8E
      • 6.  Lender Obligation to Provide Single Point of Contact; CC §2923.7  10.8F
      • 7.  Short Sale Alternative  10.8G
    • F.  Loss Mitigation Procedures Under Dodd-Frank Regulations  10.8H
  • II.  LENDER’S INITIAL STRATEGY
    • A.  Deciding Whether to Foreclose
      • 1.  Determining Causes for Problem Loans  10.9
      • 2.  Relationship of Foreclosure Process to Workout Negotiations  10.10
      • 3.  Drafting Notice of Default
        • a.  Including All Defaults  10.11
        • b.  Late Fees and Default Interest  10.12
        • c.  Prerequisites to Declaring Defaults  10.13
        • d.  Protective Advances  10.14
        • e.  Unapplied Funds or Credits of Borrower  10.15
    • B.  Deciding Whether to Take Possession of Security
      • 1.  Lender’s Possession Rights  10.16
      • 2.  Relevant Factors  10.17
      • 3.  Lender as “Mortgagee in Possession”  10.18
      • 4.  Taking Possession Through Court-Appointed Receiver  10.19
  • III.  WORKOUT AGREEMENTS
    • A.  Workouts Contemplating Avoidance of Foreclosure  10.20
      • 1.  Statute of Frauds  10.21
      • 2.  Forbearance Agreement
        • a.  Purposes of Forbearance Agreement  10.22
        • b.  Form: Forbearance Agreement  10.22A
      • 3.  Deed in Lieu Escrow Pending Workout Negotiations
        • a.  Purpose of Escrow Agreement  10.22B
        • b.  Form: Escrow Agreement for Deed in Lieu of Foreclosure  10.22C
      • 4.  Loan Modification Agreement
        • a.  Purpose and Scope of Loan Modification Agreement  10.23
        • b.  Form: Loan Modification Agreement  10.23A
        • c.  Usury Considerations  10.23B
        • d.  Income Tax Considerations  10.24
        • e.  Avoiding Loss of Lender’s Lien Priority  10.25
        • f.  Future Advances  10.26
        • g.  Avoiding Exoneration of Guarantors and Others  10.27
    • B.  Workouts Contemplating Lender’s Taking Title to Security  10.28
      • 1.  Deed in Lieu of Foreclosure  10.29
        • a.  Insurance Considerations  10.29A
        • b.  When Lease Is Collateral for Loan
          • (1)  Ground Leases  10.29B
          • (2)  Lender’s Considerations  10.29C
        • c.  Income Tax Considerations  10.30
        • d.  Deed in Lieu of Foreclosure Agreement  10.31
          • (1)  Form: Deed in Lieu Agreement  10.31A
          • (2)  Form: Deed in Lieu of Foreclosure (Recordable)  10.32
          • (3)  Form: Covenant Not to Sue  10.32A
      • 2.  Construction Loan Workouts
        • a.  When Lender Takes Title During Construction
          • (1)  Borrower Assists Lender in Completion  10.33
          • (2)  Liability and Insurance Considerations  10.34
          • (3)  Completion by Single-Purpose Entity  10.35
        • b.  When Receiver Takes Possession and Completes Project  10.36
        • c.  Checklist: Issues to Consider in Drafting Workout  10.37
        • d.  Construction Workout Agreement: Selected Clauses
          • (1)  Form: Provision for Lender to Bid at Foreclosure Sale  10.38
          • (2)  Form: Provision for Handling Unpaid Construction Bills  10.39
          • (3)  Form: Provision Defining Borrower’s Role in Workout  10.40
          • (4)  Form: Provision for Determining Proceeds and Profits of Workout  10.41
          • (5)  Form: Provision Regarding Effect of Future Litigation on Workout  10.42
  • IV.  REMEDIES: LENDER’S CONSIDERATIONS
    • A.  Enforcement of Assignment of Rents Through Receivership  10.43
    • B.  Necessity for Lender’s Underbid at Foreclosure Sale  10.44
    • C.  Enforcement of Construction Lender’s Right to Complete Construction by Taking Possession Through Receiver  10.45
      • 1.  Right to Obtain Court-Appointed Receiver to Complete Improvements  10.46
      • 2.  Form: Clause in Construction (Building) Loan Agreement Authorizing Lender or Receiver to Complete Improvements  10.47
      • 3.  Form: Provision in Order Appointing Receiver Authorizing Completion of Improvements  10.48
      • 4.  Form: Receiver’s Certificate for a Borrowing From Lender  10.49
      • 5.  Responsibilities for Payment of Net Deficit Operations of Receiver  10.50
    • D.  Legal Actions by Construction Lender Against Borrower and Third Parties  10.51
      • 1.  Actions on Personal Guaranties of Payment  10.52
      • 2.  Actions on Personal Guaranties of Completion  10.53
      • 3.  Actions in Tort  10.54
        • a.  Fraud  10.55
        • b.  Waste  10.56
        • c.  Dischargeability in Bankruptcy  10.57
      • 4.  Third Persons’ Tortious Impairment of Security  10.58
      • 5.  Contract Actions By or Against Issuers of Take-Out or Standby Commitments
        • a.  Standing to Sue  10.59
        • b.  Remedies for Lender’s Breach  10.60
      • 6.  Actions on Performance Bonds  10.61
      • 7.  Lender’s Actions Against Title Insurer  10.62
    • E.  Underbidding by Lender at Foreclosure Sale
      • 1.  Potential Importance  10.63
      • 2.  Underbidding and Injunction Bonds  10.64
  • V.  REMEDIES: BORROWER’S CONSIDERATIONS
    • A.  Reinstatement of Accelerated Loan
      • 1.  Requirements of CC §2924c  10.65
      • 2.  Reinstatement Rights and Nonmonetary Defaults  10.66
      • 3.  Borrower Excused From Tendering Reinstatement  10.67
    • B.  Partial Releases While in Default
      • 1.  Release Not Conditioned on Absence of Default  10.68
      • 2.  Release Conditioned on Absence of Default  10.69
      • 3.  Borrower’s Remedies for Wrongful Refusal to Allow a Partial Reconveyance  10.70
    • C.  Borrower’s Action to Enjoin Trustee Sale  10.71
      • 1.  Obtaining Injunction  10.72
      • 2.  Lis Pendens  10.73
    • D.  Borrower’s Pre-Trustee Sale Strategy With Multiple Parcels  10.74
    • E.  Actions Against Lender After Trustee Sale
      • 1.  Action to Set Aside Trustee Sale  10.75
      • 2.  Action for Damages for Wrongful Sale  10.76
      • 3.  Third Party Claims Against Lender After Trustee Sale  10.77

11

Enforcing Secured Loans Against Debtors in Bankruptcy

  • I.  INTRODUCTION
    • A.  Scope of Chapter  11.1
    • B.  Types of Bankruptcy Relief  11.2
    • C.  Commencement, Dismissal, Conversion, and Closure  11.3
    • D.  Distinctions Among Debtors, Debtors in Possession, Trustees, and Committees  11.4
  • II.  AUTOMATIC STAY
    • A.  Overview of Automatic Stay
      • 1.  Before and After BAPCPA (2005 Amendments)  11.5
      • 2.  After BAPCPA (2005 Amendments)  11.6
    • B.  Scope of Automatic Stay
      • 1.  Acts to Create, Perfect, or Enforce Lien  11.7
        • a.  Exceptions to Stay Relating to Foreclosure Sales
          • (1)  Postponing Sale  11.8
          • (2)  Recordation of Trustee’s Deed to Effect Prepetition Sale  11.9
        • b.  Other Exceptions  11.10
        • c.  Exceptions Under BAPCPA  11.11
      • 2.  Tolling of Redemption and Reinstatement Periods
        • a.  Redemption  11.12
        • b.  Reinstatement  11.13
      • 3.  Foreclosure by Senior Lienholder When Debtor’s Only Interest Is Junior Lien  11.14
      • 4.  Postforeclosure Eviction  11.15
      • 5.  Acts to Recover Claim Against Debtor or Debtor’s Property  11.16
    • C.  Violation of Automatic Stay
      • 1.  Acts Violating Stay Are Void  11.17
      • 2.  Rights of Third Party Purchaser at Void Sale  11.18
      • 3.  Statutory Damages and Contempt Sanctions  11.19
  • III.  RELIEF FROM AUTOMATIC STAY
    • A.  Relief Available to Creditors  11.20
    • B.  Enforceability of Prepetition Stay Waivers  11.21
    • C.  Grounds for Relief
      • 1.  Overview  11.22
      • 2.  Cause for Stay Relief
        • a.  Lack of Adequate Protection  11.23
        • b.  Bad Faith  11.24
          • (1)  Successive Filings and Chapter 20s  11.25
          • (2)  New Debtor Syndrome  11.26
          • (3)  Other Relief Based on Bad Faith  11.27
        • c.  Other Cause for Stay Relief  11.28
      • 3.  Lack of Equity and Property Not Necessary for Effective Reorganization  11.29
        • a.  Determining Whether Equity Exists  11.30
        • b.  Necessity of Property for Effective Reorganization  11.31
      • 4.  Single Asset Real Estate  11.32
    • D.  Procedure for Obtaining Relief From Automatic Stay
      • 1.  Motion for Relief From Stay
        • a.  Creditor’s Pleadings  11.33
        • b.  Responsive Pleadings  11.34
        • c.  Preliminary Hearing  11.35
        • d.  Final Hearing  11.36
        • e.  Ex Parte Relief  11.37
        • f.  Discovery  11.38
        • g.  Evidence
          • (1)  Burden of Proof  11.39
          • (2)  Encumbrances  11.40
          • (3)  Value of Property  11.41
      • 2.  Agreement for Relief From Stay
        • a.  Overview and Approval  11.42
        • b.  “Drop Dead” Agreement  11.43
        • c.  Periodic Payment Agreement  11.44
        • d.  Protection of Junior Lienholder  11.45
    • E.  Practical Considerations and Planning
      • 1.  Debtor Considerations
        • a.  Client Interview; Anticipating Requests for Relief From Stay  11.46
        • b.  Checklist: Preliminary Hearing  11.47
        • c.  Final Hearing  11.48
      • 2.  Secured Creditor’s Considerations
        • a.  Gathering Information From Creditor  11.49
        • b.  Checklist: Preliminary Hearing  11.50
    • F.  Enforcing and Challenging Stay Relief Orders and Agreements
      • 1.  Enforcing Orders and Agreements  11.51
      • 2.  Vacating Order on Changed Circumstances  11.52
      • 3.  Modifying Stay Relief Agreement in Plan  11.53
      • 4.  Preclusive Effect of Findings in Stay Relief Litigation  11.54
      • 5.  Appeals  11.55
  • IV.  ENFORCING LIEN ON RENTS
    • A.  Perfection of Lien on Rents  11.56
    • B.  Impact of Bankruptcy on Perfection  11.57
    • C.  Impact of Bankruptcy on Existing Receivership  11.58
    • D.  Application of Rents  11.59
  • V.  OBTAINING CREDIT SECURED BY ESTATE ASSETS
    • A.  Overview  11.60
    • B.  Unsecured Administrative Priority Debt  11.61
    • C.  Unsecured Superpriority Debt and Debt Secured by Unencumbered Property or Junior Liens  11.62
    • D.  Debt Secured by Equal or Senior Liens  11.63
    • E.  Postpetition Advances on Secured Guaranty  11.64
    • F.  Appeals From Borrowing Orders  11.65
  • VI.  USE, SALE, LEASE, OR ABANDONMENT OF PROPERTY
    • A.  Overview of Debtor in Possession or Trustee Authority  11.66
    • B.  Use of Cash Collateral  11.67
      • 1.  Stipulated Authority  11.68
      • 2.  Court Approval  11.69
    • C.  Adequate Protection of Secured Lender’s Interest in Noncash Collateral  11.70
    • D.  Superpriority Claim for Insufficient Adequate Protection  11.71
    • E.  Bankruptcy Sales of Collateral
      • 1.  Overview; Employment of Real Estate Broker  11.72
      • 2.  Sales Free and Clear of Liens  11.73
      • 3.  Procedure Governing Sales  11.74
      • 4.  Collusive and Other Improper Sales  11.75
      • 5.  Credit Bidding at Bankruptcy Sale  11.76
    • F.  Abandonment of Collateral  11.77
    • G.  Surcharge of Secured Creditor’s Collateral  11.78
    • H.  Appeals  11.79
  • VII.  AVOIDANCE POWERS
    • A.  Legal Basis; Limitations  11.80
    • B.  Unrecorded Real Property Interests: 11 USC §544  11.81
    • C.  Avoidable Preferences: 11 USC §547
      • 1.  Prima Facie Preference Action  11.82
      • 2.  Defenses to Preference Actions  11.83
      • 3.  Insider Preferences  11.84
      • 4.  Effect of Avoided Preferential Transfer  11.85
    • D.  Fraudulent Transfers: 11 USC §§544, 548  11.86
    • E.  Unauthorized Postpetition Transfers: 11 USC §549  11.87
    • F.  Judicial Liens Impairing Homestead Exemption: 11 USC §522  11.88
  • VIII.  TREATMENT OF SECURED CLAIMS IN BANKRUPTCY
    • A.  Overview of Claims Process  11.89
    • B.  Secured and Unsecured Claims
      • 1.  Allowance of Secured Claims: 11 USC §506
        • a.  Oversecured and Undersecured Lien Claims  11.90
        • b.  Valuation of Lien Claims  11.91
        • c.  Undersecured Claims; Lien-Stripping  11.92
      • 2.  Undersecured Claims in Chapter 11 Cases; Election Under 11 USC §1111(b)  11.93
      • 3.  Recovery of Interest and Reasonable Attorney Fees and Costs
        • a.  By Oversecured or Undersecured Creditor  11.94
        • b.  By Unsecured Creditor  11.95
  • IX.  REORGANIZATION PLANS: CHAPTERS 11, 12, AND 13
    • A.  Overview of Plans  11.96
    • B.  Chapter 11 Plans
      • 1.  Parties and Claims
        • a.  Who May Propose Plan  11.97
        • b.  Contents of Chapter 11 Plan  11.98
        • c.  Classification of Claims Under 11 USC §1122; Impact of §§1111(b) and 1129(b)  11.99
        • d.  Impaired Classes  11.100
        • e.  Modification of Secured Claims  11.101
        • f.  Modification of Claims Secured Only by Principal Residence  11.102
      • 2.  Voting on Plan; Disclosure Statement  11.103
      • 3.  Confirmation of Chapter 11 Plan  11.104
        • a.  Other Bankruptcy Code Requirements  11.105
        • b.  Plan Proposed in Good Faith  11.106
        • c.  Plan Acceptance by Impaired Classes  11.107
        • d.  “Best Interests” of Impaired Creditors  11.108
        • e.  “Cram Down” of Impaired, Dissenting Classes; Absolute Priority Rule  11.109
          • (1)  Make Deferred Cash Payments  11.110
          • (2)  Sell Collateral Free and Clear of Lien  11.111
          • (3)  Provide Indubitable Equivalent  11.112
        • f.  “New Value” Exception to Absolute Priority Rule  11.113
        • g.  Feasibility Requirement  11.114
        • h.  Other Plan Confirmation Requirements  11.115
      • 4.  Preclusive Effect of Plan Confirmation  11.116
      • 5.  Interpretation and Modification of Plan  11.117
      • 6.  Appeals From Confirmation Orders  11.118
    • C.  Chapter 13 Plans
      • 1.  Individual Debt Adjustment; Qualifying Debtors  11.119
        • a.  Nondischargeability  11.119A
        • b.  Chapter 13 Versus Chapter 11  11.119B
      • 2.  Contents and Duration of Chapter 13 Plan  11.120
        • a.  Modification of Secured Debt  11.121
          • (1)  Due Process Issues  11.122
          • (2)  Home Mortgages  11.123
          • (3)  Multiunit Properties; Boarders  11.124
          • (4)  Personal Property  11.125
          • (5)  Junior Liens; Creditor Strategies  11.126
        • b.  Cure of Defaults and De-Acceleration  11.127
        • c.  Postsale Redemption  11.127A
      • 3.  Confirmation and Cramdown in Chapter 13
        • a.  Plan Confirmation Requirements  11.128
        • b.  Cramdown of Secured Creditors  11.129
        • c.  Payment of Claims to Unsecured Creditors  11.130
      • 4.  Preclusive Effect of Plan Confirmation  11.131
      • 5.  Modification of Chapter 13 Plan  11.132
    • D.  Chapter 12 Plans
      • 1.  Overview of Chapter 12  11.133
      • 2.  Special Definition of “Adequate Protection”  11.134
      • 3.  Power to Sell Property Free and Clear  11.135
      • 4.  Contents of Chapter 12 Plan  11.136
        • a.  Modification of Secured Debt  11.137
        • b.  Cure of Defaults and De-Acceleration  11.138
      • 5.  Confirmation and Cram Down in Chapter 12
        • a.  Plan Confirmation Requirements  11.139
        • b.  Cramdown of Secured Creditors  11.140
        • c.  Payment of Claims to Unsecured Creditors  11.141
      • 6.  Preclusive Effect of Plan Confirmation  11.142
      • 7.  Modification of Chapter 12 Plan  11.143
  • X.  EFFECT OF BANKRUPTCY DISCHARGE
    • A.  Effect of Discharge  11.144
    • B.  Exceptions to Discharge; Vacating Discharge  11.145
  • XI.  APPEALS FROM BANKRUPTCY COURT DECISIONS
    • A.  Overview; Stay Pending Appeal  11.146
    • B.  Expedited Timing for Notice of Appeal  11.147
    • C.  Appeal to Bankruptcy Appellate Panel or District Court  11.148
    • D.  Mootness as Grounds for Dismissal  11.149
      • 1.  Appeals From Asset Sale Orders  11.150
      • 2.  Appeals From Plan Confirmation Orders  11.151
      • 3.  Appeals From Borrowing Orders  11.152

12

Lender and Broker Liability

  • I.  THEORIES OF LIABILITY
    • A.  Introduction; Jury Instructions  12.1
    • B.  Primary Theories of Lender Liability
      • 1.  Breach of Contract  12.2
        • a.  Contract Claim Theories  12.3
        • b.  Oral Contracts; Promissory Estoppel  12.4
      • 2.  Fraud; Negligent Misrepresentation  12.5
        • a.  Income Documentation  12.6
        • b.  Aiding and Abetting Fraud; Conspiracy  12.7
        • c.  Promissory Fraud  12.8
        • d.  Causation Requirement  12.9
      • 3.  Duress  12.10
      • 4.  Negligence  12.11
        • a.  Construction Loans  12.11A
        • b.  Nonconstruction Loans  12.11B
          • (1)  Loan Underwriting  12.11C
          • (2)  Loan Modification, Servicing, and Collection  12.11D
        • c.  Breach of Contract Versus Negligence  12.11E
      • 5.  Conversion  12.12
      • 6.  Defamation  12.13
      • 7.  Infliction of Emotional Distress  12.14
      • 8.  Potential Statutory Liability: Summary of Federal and State Law  12.15
    • C.  Developing Theories of Lender Liability  12.16
      • 1.  Constructive Fraud on Basis of Fiduciary Duty  12.17
        • a.  When Loan Broker Acts as Fiduciary  12.18
        • b.  When Lender Acts as Fiduciary  12.19
        • c.  Barrett and Commercial Cotton  12.20
        • d.  Loan Assignments and Participation Contracts  12.21
      • 2.  Covenant of Good Faith and Fair Dealing
        • a.  Basis and Scope  12.22
        • b.  Damages: Tort Versus Contract
          • (1)  Tort: Special Relationship Required  12.23
          • (2)  Lending Cases Denying Tort Damages  12.24
          • (3)  Denial of Existence of Contract  12.25
        • c.  Lending Cases Denying Contract Damages  12.26
      • 3.  Unfair Business Practices  12.27
      • 4.  Improper Control Over Borrower  12.28
        • a.  Construction Lending  12.29
        • b.  Business Lending  12.30
      • 5.  Unconscionability  12.30A
    • D.  Loan Broker Liability
      • 1.  Licensing Required  12.31
      • 2.  Acts Prohibited by License Laws  12.32
      • 3.  Other Statutes Regulating Brokers
        • a.  Real Property Loan Law  12.33
        • b.  Other State and Federal Laws  12.34
      • 4.  Common Law Duties  12.35
      • 5.  Remedies Against Brokers; Limitations on Liability  12.36
  • II.  LIABILITY IN LOAN ORIGINATION  12.37
    • A.  Liability in Loan Application Phase
      • 1.  State Tort and Contract Law  12.38
      • 2.  Federal Law; Preemption  12.39
    • B.  Liability in Loan Commitment Phase  12.40
      • 1.  Loan Commitment as Contract  12.41
      • 2.  Option to Borrower Versus Opportunity to Borrow  12.42
      • 3.  Oral Commitments; Collateral Agreements
        • a.  Statute of Frauds  12.43
        • b.  Parol Evidence Rule  12.44
        • c.  D’Oench Doctrine and FIRREA  12.45
      • 4.  Unauthorized Commitments  12.46
      • 5.  Loan Assignment  12.47
        • a.  Holder in Due Course Doctrine  12.48
        • b.  Successor Under FDIC Receivership  12.49
      • 6.  Failure of Conditions Precedent; Waiver of Conditions  12.50
      • 7.  Checklist: Commitment Letter Procedures  12.51
    • C.  Liability in Loan Documentation and Closing  12.52
      • 1.  Variations From Terms of Commitment Letter; Unwarranted Delays in Closing  12.53
      • 2.  Conduct in Negotiations  12.54
      • 3.  Waiver of Jury Trials  12.55
      • 4.  Mandatory Arbitration Clauses  12.56
      • 5.  Checklist: Loan Documentation Procedures  12.57
    • D.  Disclosure of Material Adverse Information  12.58
      • 1.  Lender to Borrower  12.59
      • 2.  Broker to Borrower  12.60
      • 3.  To Guarantors and Insurers  12.61
  • III.  LIABILITY IN LOAN ADMINISTRATION  12.62
    • A.  Relationship Between Lender and Borrower
      • 1.  Communication Strategy and Policies  12.63
      • 2.  Effect on Loan Transaction and Liability
        • a.  Creating Fiduciary or Special Relationships  12.64
        • b.  Formalizing New Agreement or Changes to Loan  12.65
      • 3.  Effect of Assignment or Securitization  12.66
    • B.  Loan Documentation
      • 1.  Reviewing Initial Documentation  12.67
      • 2.  Relying on Loan Document Terms  12.68
      • 3.  Further Documentation and Notice  12.69
      • 4.  Waiving or Modifying Loan Terms  12.70
    • C.  Lender Control and Interference  12.71
    • D.  Loan Payoff; Reconveyance  12.72
    • E.  Checklist: Loan Administration Guidelines  12.73
  • IV.  LENDER LIABILITY IN WORKOUTS
    • A.  Analysis of Lender’s Position  12.74
      • 1.  Liability to Borrower  12.75
      • 2.  Liability to Third Parties  12.76
      • 3.  Exposure to Environmental Liability  12.77
    • B.  Staffing During Loan Workouts  12.78
    • C.  Duty to Negotiate  12.79
    • D.  Liability Arising From Workout or Refinancing Negotiations
      • 1.  Oral Representations; Parol Evidence Rule  12.80
      • 2.  Trial Period Plans and Permanent Loan Modifications  12.81
      • 3.  Promissory Estoppel  12.81A
    • E.  Liability for Precipitous Action  12.82
    • F.  Structuring Workout Agreement  12.83
    • G.  Checklist: Guidelines for Lenders During Workouts  12.84
  • V.  LENDER LIABILITY IN FORECLOSURE PROCESS  12.85
    • A.  Action for Wrongful Foreclosure  12.86
    • B.  Grounds for Wrongful Foreclosure Action  12.87
      • 1.  Existence of Default  12.88
      • 2.  Nonmonetary Defaults  12.89
      • 3.  Proper Notice  12.90
      • 4.  Manner of Sale  12.91
      • 5.  Conduct of Sale
        • a.  Statutory Formalities; Authority to Foreclose  12.92
        • b.  Bid-Chilling or Control  12.93
      • 6.  Adequacy of Price  12.94
    • C.  Measure of Damages for Wrongful Foreclosure  12.95
    • D.  “Bad Faith” Foreclosure and Other Sources of Liability  12.96
    • E.  Waiver of Lender Liability Claims in Bankruptcy  12.97
    • F.  Environmental Concerns  12.98
      • 1.  Federal Environmental Law Issues  12.99
      • 2.  State Environmental Law Issues  12.100
    • G.  Checklist: Guidelines for Lenders During Foreclosure Process  12.101
  • VI.  POSTFORECLOSURE LENDER LIABILITY CONCERNS
    • A.  Clearing Title to Property  12.102
      • 1.  Priority Concerns  12.103
      • 2.  Stop Payment Notice Claims  12.104
      • 3.  Other Claims by Suppliers and Laborers  12.105
      • 4.  Title Insurance for Foreclosed Properties  12.106
    • B.  Foreclosure Actions and Actions Against Guarantors  12.107
    • C.  Actions by Purchasers After Foreclosure Sales  12.108

13

Special Issues in Consumer Residential Mortgage Loans

  • I.  CHAPTER SCOPE
    • A.  Introduction  13.1
    • B.  Potential Statutory Liability Under Federal and State Law  13.2
  • II.  FEDERAL PREEMPTION
    • A.  Summary of Preemption Applicable to Mortgage Lending  13.3
    • B.  Preemption Under Dodd-Frank (CFPA)
      • 1.  Summary of CFPA Amendments  13.3A
      • 2.  Section 1041; Relationship to State Law; Conflicts
        • a.  CFPA Conflicts  13.3B
        • b.  Enumerated Consumer Law Conflicts  13.3C
      • 3.  Section 1042; Preservation of State Enforcement Powers  13.3D
      • 4.  Section 1043; Preservation of Existing Contracts  13.3E
      • 5.  Sections 1044 and 1045; Preemption of State Law Affecting National Banks and Subsidiaries
        • a.  State Consumer Financial Laws: Definition  13.3F
        • b.  Preemption Standards and Scope  13.3G
        • c.  Preemption Determination Procedures  13.3H
        • d.  Subsidiaries and Affiliates of National Banks  13.3I
      • 6.  Section 1046; Preemption of State Law Affecting Federal Savings Associations  13.3J
      • 7.  Section 1047; Exceptions to Visitorial Standards for National Banks and Federal Savings Associations  13.3K
  • III.  SUMMARY OF CALIFORNIA RESIDENTIAL LENDING STATUTES
    • A.  Consumer Protections in Financial Code  13.4
    • B.  SB 1137 and Homeowner Bill of Rights  13.5
    • C.  Foreclosure Rescue and Foreclosure Consultation Statutes  13.6
    • D.  Suspending or Closing HELOCs  13.6A
  • IV.  SUMMARY OF ELDER ABUSE LAWS
    • A.  Financial Elder Abuse  13.7
    • B.  Regulation of Reverse Mortgages  13.8
      • 1.  Repayment Due Date; Effect on Nonborrower Spouse  13.8A
      • 2.  Notice to Borrower Before Foreclosure  13.8B
  • V.  SUMMARY OF FEDERAL RESIDENTIAL LENDING STATUTES
    • A.  TILA and Regulation Z: Truth in Lending  13.9
      • 1.  History of TILA  13.10
      • 2.  Sources of TILA Law  13.11
      • 3.  Lenders and Loans Governed by TILA  13.12
        • a.  Loans Subject to TILA Disclosures  13.13
        • b.  Rescission Versus Damages  13.14
        • c.  Dodd-Frank Additions Affecting Loan Originating and Servicing  13.15
        • d.  Dodd-Frank and HFA Amendments: Identity of Noteholder; Notice of Note Transfer  13.16
    • B.  HOEPA: Home Ownership and Equity Protection Act of 1994  13.17
      • 1.  “Open-End Credit Loan” Defined  13.18
      • 2.  Required Disclosures  13.19
      • 3.  Limited or Prohibited Loan Practices  13.20
      • 4.  HOEPA Changes Effective October 1, 2009  13.21
      • 5.  HOEPA Changes After Dodd-Frank  13.22
    • C.  Real Estate Settlement Procedures Act of 1974  13.23
      • 1.  RESPA Disclosures; Settlement Statement (Before January 1, 2010)  13.24
      • 2.  RESPA Disclosures; Settlement Statement (Effective January 1, 2010)  13.25
      • 3.  RESPA Disclosures; Settlement Statement (Amendments Effective After Dodd-Frank)  13.25A
    • D.  CFPB Regulations Integrating TILA and RESPA Disclosures for Consumer Loans (Effective in 2015)  13.25B
      • 1.  Purpose of TRID; Effective Dates  13.25C
      • 2.  Applicability of TRID; CFPB Forms  13.25D
      • 3.  Content and Timing Requirements
        • a.  Loan Estimate  13.25E
        • b.  Closing Disclosure  13.25F
      • 4.  Lender Liability  13.25G
    • E.  Fair Housing Laws  13.26
      • 1.  Statute of Limitations  13.27
      • 2.  Actions Under 42 USC §3605; Lending Discrimination  13.28
      • 3.  Conduct Prohibited by FHA; Disparate Treatment or Impact  13.29
      • 4.  Discriminatory Rescue Services  13.30
      • 5.  Gender Discrimination Under FHA  13.31
    • F.  Federally Insured and National Bank Loans  13.32
    • G.  Racketeer Influenced and Corrupt Organizations Act (RICO)  13.33
    • H.  False Claims Act  13.34
  • VI.  RESIDENTIAL MORTGAGE LOANS UNDER DODD-FRANK ACT
    • A.  Dodd-Frank Overview and Effective Dates  13.35
    • B.  Table: Effective Dates for Dodd-Frank Act Title X (§§1001–1100H) (Bureau of Consumer Financial Protection)  13.35A
    • C.  Table: Effective Dates for Dodd-Frank Act Title XIV (§§1400–1498) (Mortgage Reform and Anti-Predatory Lending Act)  13.35B
    • D.  Dodd-Frank’s Lender Obligations During Loan Underwriting  13.36
      • 1.  Consumer’s Ability to Repay Loan  13.37
        • a.  Introduction  13.38
        • b.  Section 1411—Ability to Repay
          • (1)  General Requirements  13.39
          • (2)  Income Verification  13.40
          • (3)  “Nonstandard” Loans  13.41
          • (4)  Refinancing “Hybrid” Loans to “Standard” Loans  13.42
        • c.  Section 1412-Qualified Mortgages
          • (1)  Safe Harbor for Qualified Mortgages and Rebuttable Presumption for Higher-Priced Transactions  13.43
          • (2)  Criteria for Qualified Mortgages  13.44
          • (3)  Balloon-Payment Qualified Mortgages  13.45
      • 2.  Underwriting Standards for TILA Higher-Priced Mortgage Loans  13.45A
        • a.  Underwriting and Prepayment Penalties  13.45B
        • b.  Escrow Rule and Impound Accounts  13.45C
      • 3.  Appraisal Standards
        • a.  Introduction  13.46
        • b.  Appraisal Independence Provisions
          • (1)  Scope  13.47
          • (2)  Coercion to Affect Valuations Prohibited  13.48
          • (3)  Mischaracterization of Value  13.49
          • (4)  Prohibition on Conflicts of Interest  13.50
            • (a)  Employment by Creditor or Affiliate  13.51
            • (b)  Larger Creditor Safe Harbor  13.52
            • (c)  Smaller Creditor Safe Harbor  13.53
          • (5)  Prohibition on Extension of Credit if Creditor Has Knowledge of Violation of Independence or Conflict-of-Interest Rules  13.54
        • c.  Customary and Reasonable Compensation
          • (1)  Scope  13.55
          • (2)  Presumptions of Compliance With Duty to Pay Customary and Reasonable Compensation to Fee Appraisers  13.56
            • (a)  First Presumption of Compliance  13.57
            • (b)  Second Presumption of Compliance  13.58
        • d.  Appraisal Requirements for Higher-Risk/Higher-Priced Mortgages  13.59
        • e.  Minimum Requirements for Appraisal Management Companies  13.59A
      • 4.  Mandatory Arbitration Prohibited  13.60
  • VII.  PREDATORY LENDING LITIGATION
    • A.  Historical Background  13.61
    • B.  Summary of Predatory Lending Practices  13.62
    • C.  Preliminary Considerations
      • 1.  Tort Versus Contract Damages  13.63
      • 2.  Checklist: Predatory Lending Facts  13.64
    • D.  Summary of Predatory Lending Remedies (Former Parties; Sources and Theories of Liability)  13.65
    • E.  Statutory Remedies  13.66
      • 1.  Rescission Remedies Under Truth in Lending Act
        • a.  Rights to Rescind  13.67
          • (1)  Statute of Limitations; Statute of Repose  13.68
          • (2)  Scope of Remedy; Effect of Sale, Foreclosure, Transfer, Bankruptcy, or Refinancing  13.69
          • (3)  Assignee Liability  13.70
          • (4)  Right to Rescind May Be Used Defensively  13.71
        • b.  Inaccurate Disclosures Trigger Rescission Right  13.72
          • (1)  Annual Percentage Rate  13.73
          • (2)  Finance Charge; Amount Financed; Total Payments  13.74
          • (3)  Disclosure Requirements Under Dodd-Frank Amendment to TILA  13.75
        • c.  Rescission Procedure  13.76
        • d.  Tender Issues  13.77
      • 2.  Other Remedies Under TILA
        • a.  Injunctive Relief  13.78
        • b.  Damages Under TILA Before Dodd-Frank  13.79
        • c.  Damages Under TILA After Dodd-Frank  13.80
        • d.  Attorney Fees  13.81
        • e.  Lender’s Title Insurance for TILA Violations No Longer Available  13.82
      • 3.  Remedies Under RESPA
        • a.  Private Right of Action for Violations  13.83
          • (1)  Section 6: Disclosure of Loan Servicing Transfer  13.84
          • (2)  Disclosure of Noteholder’s Identity  13.85
          • (3)  Section 6: Notices of Error, Requests for Information, and Qualified Written Requests  13.86
          • (4)  Section 6: Private Right of Action; Class Actions  13.87
          • (5)  Section 8: Kickbacks, Fee-Splitting, Unearned Fees  13.88
          • (6)  Section 9: Title Companies  13.89
        • b.  Section 10: Impound Accounts  13.90
        • c.  RESPA’s Statute of Limitations  13.91
    • F.  Common Law Remedies
      • 1.  Fraud  13.92
      • 2.  Breach of Fiduciary Duty  13.93
      • 3.  Negligence  13.94
      • 4.  Breach of Contract and the Covenant of Good Faith and Fair Dealing  13.95
    • G.  Procedural Issues
      • 1.  Foreclosure Issues  13.96
      • 2.  Postforeclosure Issues  13.97
      • 3.  Preemption  13.98
    • H.  Comparing Potential Remedies
      • 1.  Rescission; Restitution; Modification  13.99
      • 2.  Damages
        • a.  General Measure of Damages
          • (1)  Breach of Contract  13.100
          • (2)  Tort  13.101
          • (3)  “Benefit of the Bargain” Rule in Fiduciary Breach Cases  13.102
        • b.  Treble Damages in Actions Involving Senior Citizens or Disabled Persons  13.103
        • c.  Punitive Damages; CC §§3294, 3345  13.104
      • 3.  Attorney Fees  13.105
    • I.  Special Problems
      • 1.  Holder in Due Course Sanitization  13.106
      • 2.  Antideficiency Rules  13.107
        • a.  Purchase Money Loans  13.108
        • b.  Nonjudicial Foreclosures  13.109
        • c.  Sold-Out Junior Issues  13.110
      • 3.  Workout Strategies on Residential Loans  13.111
      • 4.  Negligent Appraisals  13.112
      • 5.  Bankruptcy  13.113
        • a.  Of Borrower  13.114
        • b.  Of Lender or Its Officers  13.115
    • J.  Other Resources
      • 1.  Government Websites  13.116
      • 2.  Legal Aid Providers and Attorney or Consumer Resources  13.117

CALIFORNIA MORTGAGES, DEEDS OF TRUST, AND FORECLOSURE LITIGATION

(4th Edition)

February 2021

TABLE OF CONTENTS

 

File Name

Book Section

Title

CH02

Chapter 2

Trustee Sales

02-130

§2.130

Recordable Notice of Default

02-130A

§2.130A

Summary of Key Information (Attachment to Notice)

02-131

§2.131

Request for Notice of Default

02-132

§2.132

Unruh Act Special Notice

02-133

§2.133

Recordable Notice of Sale for Trustor

02-133A

§2.133A

Summary of Key Information (Attachment to Notice)

02-133B

§2.133B

Notice of Sale for Residential Tenant [Repealed]

02-134

§2.134

Trustee’s Deed

CH03

Chapter 3

Judicial Foreclosure

03-039

§3.39

Checklist: Essential Allegations

03-065

§3.65

Checklist: Evidence Required for Foreclosure Judgment

03-102

§3.102

Complaint for Foreclosure of Deed of Trust

03-103

§3.103

Judgment of Foreclosure and Order of Sale

03-106

§3.106

Notice of Sale

03-107

§3.107

Certificate of Sale

03-108

§3.108

Notice of Right of Redemption

03-109

§3.109

Report of Sheriff/Receiver and Account of Sale

03-110

§3.110

Deed of Sale

03-111

§3.111

Notice of Motion for Deficiency Judgment

03-112

§3.112

Application for Order and Order Appointing Referee to Appraise Property

03-113

§3.113

Deficiency Judgment Following Foreclosure

CH04

Chapter 4

Code of Civil Procedure §726(a): The One-Action Rule

04-046

§4.46

Form Provision: Allegation of Worthless Security

CH06

Chapter 6

Receiverships, Rents, and Leases

06-099

§6.99

Complaint for Specific Performance of Assignment of Rents

06-100

§6.100

Notice of Motion for Appointment of Receiver

06-101

§6.101

Declaration in Support of Application for Receivership

06-102

§6.102

Order Appointing Receiver

06-107

§6.107

Notice to Tenant of Demand to Pay Rent

06-108

§6.108

Application for Order Directing Receiver to Transfer Possession of Real Property and File Final Accounting

06-109

§6.109

Declaration in Support of Application for Order Directing Receiver to Transfer Possession of Real Property

06-110

§6.110

Order Directing Receiver to Transfer Possession of Real Property and File Final Accounting

CH07

Chapter 7

Debtor Strategies

07-001A

§7.1A

Checklist: Debtor’s Legal Alternatives When Facing Foreclosure

07-030

§7.30

Demand Letter Requesting Lender or Loan Servicer to Provide Documentation of Loan Claim

07-044

§7.44

Complaint to Enjoin Foreclosure, and for Declaratory Relief and an Accounting

07-047

§7.47

Checklist: Procedure for Obtaining TRO and OSC

07-048

§7.48

Order to Show Cause and Temporary Restraining Order

07-049

§7.49

Checklist: Obtaining Hearing on Preliminary Injunction

07-050

§7.50

Notice of Motion for Preliminary Injunction

07-073

§7.73

Complaint to Set Aside Trustee Sale and for Damages

07-106

§7.106

Checklist: Defenses to Stay Relief

CH08

Chapter 8

Payment and Related Disputes

08-030

§8.30

Form Provision: Late-Charge Clause

CH10

Chapter 10

Workouts of Problem Loans

10-002

§10.2

Checklist: Loan Contract Documents

10-002B

§10.2B

Default Notice

10-003A

§10.3A

Pre-Negotiation Letter

10-022A

§10.22A

Forbearance Agreement

10-022C

§10.22C

Escrow Agreement for Deed in Lieu of Foreclosure

10-023A

§10.23A

Loan Modification Agreement

10-031A

§10.31A

Deed in Lieu Agreement

10-032

§10.32

Deed in Lieu of Foreclosure (Recordable)

10-032A

§10.32A

Covenant Not to Sue

10-037

§10.37

Checklist: Issues to Consider in Drafting Workout

10-038

§10.38

Provision for Lender to Bid at Foreclosure Sale

10-039

§10.39

Provision for Handling Unpaid Construction Bills

10-040

§10.40

Provision Defining Borrower’s Role in Workout

10-041

§10.41

Provision for Determining Proceeds and Profits of Workout

10-042

§10.42

Provision Regarding Effect of Future Litigation on Workout

10-047

§10.47

Clause in Construction (Building) Loan Agreement Authorizing Lender or Receiver to Complete Improvements

10-048

§10.48

Provision in Order Appointing Receiver Authorizing Completion of Improvements

10-049

§10.49

Receiver’s Certificate for a Borrowing From Lender

CH11

Chapter 11

Enforcing Secured Loans Against Debtors in Bankruptcy

11-047

§11.47

Checklist: Preliminary Hearing

11-050

§11.50

Checklist: Preliminary Hearing

CH12

Chapter 12

Lender and Broker Liability

12-051

§12.51

Checklist: Commitment Letter Procedures

12-057

§12.57

Checklist: Loan Documentation Procedures

12-073

§12.73

Checklist: Loan Administration Guidelines

12-084

§12.84

Checklist: Guidelines for Lenders During Workouts

12-101

§12.101

Checklist: Guidelines for Lenders During Foreclosure Process

CH13

Chapter 13

Special Issues in Consumer Residential Mortgage Loans

13-064

§13.64

Checklist: Predatory Lending Facts

 

Selected Developments

February 2021 Update

COVID-19 Pandemic. At the time of this writing, the COVID-19 pandemic continues to disrupt practically every aspect of daily life. To help alleviate the myriad economic and public health concerns caused by the pandemic, federal, state, and local governments have passed a number of significant responsive measures.

  • The Tenant, Homeowner, and Small Landlord Relief and Stabilization Act of 2020 expands foreclosure protections under the California Homeowner Bill of Rights (HBOR) to first lien mortgages or deeds of trust secured by tenant-occupied residential real property that contains no more than four dwelling units and meets other criteria (e.g., tenant is unable to pay rent due to hardship arising from COVID-19). See Stats 2020, ch 37 (AB 3088), amending CC §2924.15. These amendments will remain in effect until January 1, 2023. CC §2924.15(b). After that date, HBOR will again apply only to first lien mortgages and deeds of trust secured by owner-occupied residential property. See §§2.49–2.49H, 7.38, 10.8, 10.8E–10.8F.

  • Until January 1, 2026, CC §2924m provides an eligible bidder 45 days after a foreclosure auction of a single-family home to purchase the property if they can match (in the case of tenants) or exceed (for all other eligible bidders) the last and highest bid made at the auction. Eligible bidders include tenants of the foreclosed property, prospective owner-occupants (as defined), local governments, and housing nonprofits. CC §2924m(a). This alternative process will be repealed on January 1, 2026, unless otherwise extended by statute. CC §2924m(g). See Stats 2020, ch 202 (SB 1079) (anticipating wave of foreclosures from pandemic and intending to prevent substantial decline in homeownership rates). See §§2.73, 2.76, 2.79, 2.133.

  • Senate Bill 1079 also amended CC §2924g(a)(4) to prohibit a foreclosure trustee from bundling properties for sale at a foreclosure auction and to require that each property be bid on separately, unless required otherwise by the deed of trust or mortgage. The provision will be repealed on January 1, 2026, unless otherwise extended. See §§2.74–2.75, 9.4, 10.74.

  • Until January 1, 2026, the previous 15-day period under CC §2924h(c), within which the recordation of the trustee’s deed after a nonjudicial foreclosure sale relates back to 8 a.m. on the date of the sale, has been extended to 18 days. In addition, the relation-back period in the case of an eligible bidder purchasing the property under the alternative procedure described in CC §2924m is 48 days. These provisions will be repealed on January 1, 2026, unless otherwise extended by statute. See Stats 2020, ch 202 (SB 1079). See §§2.79, 2.99A, 7.87, 7.93, 11.9, 11.81, 11.87.

  • On September 4, 2020, the Centers for Disease Control and Prevention (CDC) invoked 42 USC §264 to prohibit all residential evictions until December 31, 2020. To avoid eviction, the tenant must submit a declaration stating that (1) the tenant has used best efforts to obtain government assistance for rent or housing; (2) the tenant either (a) expects to earn no more than $99,000 ($198,000 for a married couple) in 2020, (b) was not required to report income in 2019, or (c) received an Economic Impact Payment; (3) the tenant is unable to pay full rent due to substantial loss in income or extraordinary medical expenses; (5) the tenant is using best efforts to make timely partial payments of rent due; and (4) the tenant would be unable to find suitable housing that does not require living in close quarters if evicted. See 85 Fed Reg 55292 (Sept. 4, 2020). In response to the moratorium, a lawsuit was filed alleging that the CDC failed to comply with the Federal Administrative Procedure Act (5 USC §§500–596, 701–706) and that the order violates the Tenth Amendment. See Brown v Azar (ND Ga, Sept. 8, 2020; No. 1:20–CV-03702–JPB). See §7.75A.

  • Under the Coronavirus, Aid, Relief, and Economic Security Act (CARES Act) (Pub L 116–136, 134 Stat 281), a debtor in a plan confirmed before March 27, 2021, who experiences material financial hardship due to the COVID-19 pandemic, may seek to extend their plan payments to 7 years, instead of the usual 5 year cap. 11 USC §1329(d). See §11.120. The CARES Act also temporarily increases the debt limit for an entity to qualify as a small business debtor for purposes of the streamlined Chapter 11 process under the Small Business Reorganization Act of 2019. See §11.97.

Mortgage Contracts

  • An Assessor’s Parcel Number (APN) alone may not sufficiently describe property to render deed enforceable. See MTC Fin. Inc. v California Dep’t of Tax & Fee Admin. (2019) 41 CA5th 742. See §1.47.

  • For two recent cases analyzing whether a choice of a law provision violated California fundamental public policy, see Handoush v LeaseFinanceGroup, LLC (review dismissed Aug. 12, 2020; opinion at 41 CA5th 729) (discussed in §§1.57A, 4.58, 12.55) and Pitzer College v Indian Harbor Ins. Co. (2019) 8 C5th 93 (discussed in §4.58).

Trustee Sales (Nonjudicial Foreclosures)

  • A defrauded lender’s deed of trust, purportedly secured by property sold to borrowers in a fraudulent trustee sale conducted by an improper trustee, is void. Thus, the defrauded lender has no valid interest in the property and cannot maintain a quiet title action against a preexisting lienholder. See WFG Nat’l Title Ins. Co. v Wells Fargo Bank (2020) 51 CA5th 881, discussed in §2.25.

  • The “obligation to pay” is evidenced in the note, not in the deed of trust. Thus, a servicemember who fails to sign the note as a borrower does not receive the protection of the Servicemembers Civil Relief Act (SCRA), despite having signed the deed of trust, and faces loss of the property securing the obligation. See Gustavia Home, LLC v Vaz (ED NY, Sept. 23, 2020, No. 17-CV-5307 (ILG) (RER)) 2020 US Dist Lexis 174939 (although both military spouse and nonmilitary spouse signed deed of trust, only nonmilitary spouse signed note and was obligated to pay; thus, SCRA did not apply), discussed in §2.30.

  • A condominium complex manager’s and its law firm’s conduct in connection to the nonjudicial foreclosure of the plaintiff’s unit did not render either a “debtor collector” for purposes of the Fair Debt Collection Practices Act (FDCPA). Rather, they remained “security-interest enforcers” and were subject only to the prohibitions under 15 USC §1692f(6). Bates v Green Farms Condominium Ass’n (6th Cir 2020) 958 F3d 470, 481. See §2.38A.

  • Depending on its terms, a loan modification may constitute the “making” or “renewing” of a loan, in which case the borrower’s right to reinstatement cannot be waived under CC §2953. Taniguchi v Restoration Homes, LLC (2019) 43 CA5th 478. See §§2.57, 10.8C, 10.65, 12.27, 12.81.

  • Effective January 1, 2021, CC §2924f(b)(2) was amended to eliminate the requirement—for properties located all or in part in a city in which at least one newspaper of general circulation is published—that the notice of sale must be published in a newspaper of general circulation within that city. Instead, the notice may be published in any newspaper of general circulation within the public notice district in which the property is located all or in part. See §2.67.

  • The winning bidder’s “mistake” as to the position of the lien being foreclosed is not sufficient grounds to rescind the trustee’s sale. Matson v S.B.S. Trust Deed Network (2020) 46 CA5th 33. See §2.79.

  • New CC §2924n declares that the legal owner of property purchased at a foreclosure sale must comply with all “applicable law regarding the eviction or displacement of tenants, including, but not limited to, notice requirements, requirements for the provision of temporary or permanent relocation assistance, the right to return, and just cause eviction requirements.” See §2.100.

  • After a foreclosure sale by a senior creditor, the surplus that must be paid to juniors or to the trustor includes only the amount received at the foreclosure sale in excess of the amount owed to the foreclosing beneficiary and costs of sale. Moreover, a junior creditor can recover from the surplus sale proceeds only to the extent the junior lien actually encumbered the foreclosed property. Zieve, Brodnax & Steele, LLP v Dhindsa (2020) 49 CA5th 27 (cotenant owner of foreclosed property, whose interest was encumbered by senior creditor’s lien but not by junior creditor’s lien was entitled to proportionate share of surplus sale proceeds). See §2.102.

  • Effective January 1, 2021, AB 1885 (Stats 2020, ch 97) eliminates the prior tiered homestead exemptions scheme. Instead, the homestead exemption amount is the greater of $300,000 or the countywide median sale price of a single-family home in the calendar year prior to the year in which the debtor claims the exemption, but not to exceed $600,000. CCP §704.730 (amounts to be adjusted annually for inflation beginning January 1, 2022), as amended by Stats 2020, ch 94 (AB 1885). See §2.107A.

Judicial Foreclosures

  • In Robin v Crowell (2020) 55 CA5th 727, the successful bidders at the foreclosure sale waited 8 years from the judicial foreclosure sale to bring its second suit to quiet title. Because the gravamen of the suit was foreclosure of their senior trust deed against the junior lienholder, the junior lienholder was successful in asserting the statute of limitations defense. See §3.19.

  • In Barnes v Routh Crabtree Olsen PC (9th Cir 2020) 963 F3d 993, 995, the Ninth Circuit held that the applicability of the FDCPA does not turn on the foreclosure forum (i.e., judicial versus nonjudicial foreclosure), but on whether the foreclosure plaintiff seeks to recover any debt “beyond the proceeds from the sale of the foreclosed property.” See §3.87A.

  • The Mortgage Forgiveness Debt Relief Act of 2007 (Pub L 110–142, 121 Stat 1803) authorizes taxpayers to exclude debt forgiven on their principal residence if the balance of their loan did not exceed $2 million ($1 million for married person filing separately). The Act has been extended to apply to discharges that occur before January 1, 2021, and discharges that are subject to an arrangement entered into and documented in writing before January 1, 2021. IRC §108(a)(1)(E), (h), as amended by Pub L 116–94, 133 Stat 3227. See §§2.111A–2.111B.

Debtor Strategies

  • Following the majority of California courts, the Ninth Circuit has held that California law does not authorize a preforeclosure suit to preemptively challenge a foreclosing party’s authority to foreclose on the borrower’s property before the foreclosure has occurred. Perez v Mortgage Electronic Registration Sys., Inc. (9th Cir 2020) 959 F3d 334, 339. See §7.24.

  • Under the Housing & Economic Recovery Act (HERA) (12 USC §4617), a 6-year statute of limitations (or the period applicable under state law, if longer) will apply to claims brought by Freddie Mac or Fannie Mae, both of which were placed under conservatorship of the Federal Housing Finance Agency (FHFA) under HERA, to enforce its rights under a deed of trust or mortgage. See M&T Bank v SFR Invs. Pool 1, LLC (9th Cir June 25 2020) 963 F3d 854 and Bourne Valley Court Trust v Wells Fargo Bank (9th Cir 2020) 810 Fed Appx 492, discussed in §7.32.

  • In Stadtmueller v Sarkisian (In re Medina) (BAP 9th Cir 2020) 619 BR 236, the Ninth Circuit held that the claimant need not establish actual injury to support a Uniform Voidable Transactions Act claim. Rather, the claimant need only show that the transfer of an asset, as defined by the Act, was made with the actual intent to hinder, delay, or defraud. See §§7.111, 11.86.

Receiverships, Rents, and Leases

  • When a foreclosure against a commercial landlord causes the assignment of the lease to the foreclosure sale purchaser, the landlord’s rights under the lease terminate. The same is true as to the rights of third-party beneficiaries tied to the landlord. Gietzen v Covenant RE Mgmt., Inc. (2019) 40 CA5th 331. See §§6.84, 10.29C.

Payment and Related Disputes

  • For recent bankruptcy decisions upholding default interest provisions, see In re 3MB, LLC (Bankr ED Cal 2019) 609 BR 841 and In re Heavey (Bankr ED NY 2019) 608 BR 341, discussed in §§8.35, 10.12.

  • Lenders have the power to sell the servicing rights to the loan. When such transfers take place, the borrower may be left with uncertainty regarding the actual payment of the insurance and property taxes that were deposited in escrow. In Harrell v Freedom Mortgage Corp. (4th Cir 2020) 976 F3d 434, the Fourth Circuit held that the borrower has a claim under RESPA when the loan servicer fails to timely pay property taxes. See §8.77.

Enforcing Secured Loans Against Debtors in Bankruptcy

  • The Ninth Circuit bankruptcy appellate panel has held that Rosson v Fitzgerald (In re Rosson) (9th Cir 2008) 545 F3d 764 remains good law after Law v Siegel (2014) 571 US 415, 134 S Ct 1188. See Nichols v Marana Stockyard & Livestock Mkt., Inc. (In re Nichols) (BAP 9th Cir 2020) 618 BR 1 (“For these reasons, we hold that Rosson remains good law; a debtor’s §1307(b) right to dismissal is not absolute”), discussed in §11.3.

  • Joining the majority view, the bankruptcy court for the Eastern District of California held that, in a successive Chapter 7 case filed by a repeat filer, the termination of the automatic stay under 11 USC §362(c)(3)(A) applies only to the property of the debtor and not to the property of the estate. In re Thu Thi Dao (Bankr ED Cal 2020) 616 BR 103. See §11.6.

  • For recent cases in which the bankruptcy court properly exercised its discretion to retroactively annul the automatic stay due to the debtor’s inequitable or bad faith conduct, see In re Oya (BAP 9th Cir, Oct. 18, 2019, No. SC-19-1095-BKuL) 2019 Bankr Lexis 3303 and In re Badax, LLC (Bankr CD Cal 2019) 608 BR 730, discussed in §§11.3, 11.17, 11.20, 11.24.

  • For a recent case holding that the creditor did not violate the automatic stay in recording the foreclosure deed postpetition but within 15 days of the preforeclosure sale, see In re Svacina (Bankr CD Cal 2020) 618 BR 852, discussed in §§2.99A, 7.87, 11.9, 11.81, 11.87.

  • A debtor’s prepetition release of state law claims that the debtor held against a creditor is enforceable as long as the release “does not deprive any party of any rights or protections conferred by the Bankruptcy Code.” Pliskin v Radians Wareham Holding, Inc. (In re ICPW Liquidation Corp.) (Bankr CD Cal 2019) 600 BR 640, 663. See §11.21.

  • For a recent case finding that a tax sale to a third party was not a constructively fraudulent transfer, when the debtor could not establish that the purchase price was not reasonably equivalent to the price that would have been received if the sale had proceeded according to law, see Marshall v Abdoun (Bankr ED Pa 2020) 613 BR 194, discussed in §11.86.

  • In Stadtmueller v Sarkisian (In re Medina) (BAP 9th Cir 2020) 2020 Bankr Lexis 2181, the court held that actual damages is not required to establish a Uniform Voidable Transactions Act (UVTA) claim. Rather, the claimant need only show that the transfer of an asset, as defined under the Act, was made with the actual intent to hinder, delay, or defraud. See §§7.111, 11.86.

  • To properly claim a homestead exemption, the debtor must establish not only physical occupancy on the filing date of the petition but also the requisite intent to continue to live there. See, e.g., In re Gilman (Bankr CD Cal 2019) 608 BR 714 (on remand, trial court found debtor intended to continue to live in property, notwithstanding pending sale, when debtor had already started process to cancel sale on filing date) and In re Johnson (Bankr SD Cal 2019) 604 BR 875 (debtors allowed to claim homestead even though they moved shortly after filing bankruptcy, when they resided in property on petition date, desired to live there, and only moved due to Chapter 7 trustee likely selling their house), discussed in §11.88.

  • If a debtor’s plan is ambiguous as to whether it is attempting to discharge otherwise nondischargeable debt, a creditor may still be able to claim the unpaid amounts through its response to a notice of final cure. See, e.g., In re Gilmore (Bankr ND WV, Sept. 24, 2019, No. 13-bk-1311) 2019 Bankr Lexis 2965 (creditor was entitled to request payment of postpetition arrears upon plan completion, when no interested party objected to creditor’s proof of claim, which listed its required monthly payments, and debtor’s plan was ambiguous). However, it is better practice to object to the plan before confirmation or to file a notice of payment change than to try to recoup missed payments at the end of the case. See §§11.89, 11.127.

  • A contractual default interest, at a rate 4 percent above ordinary contract rate, on a commercial loan’s balloon payment was not unreasonable and constituted a valid liquidated damages provision under CC §1671. In re 3MB, LLC (ED Cal 2019) 609 BR 841. See §11.94.

  • A plan does not “discriminate unfairly” and is “fair and equitable,” as required by 11 USC §§1122(a) and 1129(b), when individual dissenting creditors or interest holders in a class that has accepted the plan are paid at least as much as what they would receive in a Chapter 7, commonly called the “best interests of creditors” test under 11 USC §1129(a)(7)(A). This ensures that dissenting creditors or interest holders in an accepting impaired class receive value not less than the amount they would have received in a hypothetical Chapter 7 liquidation, as of the effective date of the plan. See, e.g., In re Aegerion Pharms (Bankr SD NY 2019) 605 BR 22. See §§11.99, 11.108.

  • Effective February 19, 2020, the Small Business Reorganization Act of 2019 (Pub L 116–54, 133 Stat 1079 (Aug. 23, 2019)) provides small business debtors the ability to reorganize through a more streamlined and cost-effective Chapter 11 process. Key provisions include generally eliminating the disclosure statement requirement, the absolute priority rule, and other confirmation requirements. 11 USC §1181. Eligible small business debtors are defined as entities with less than $2,725,625 in debt and meet other criteria. 11 USC §1182 (debt limit temporarily extended to $7.5 million under Coronavirus, Aid, Relief, and Economic Security Act (CARES Act) (Pub L 116–136, 134 Stat 281)). See §§11.97, 11.103, 11.109

  • Debtor’s plan was not feasible when nondischargeable debt would increase significantly over plan period and debtor was unlikely to be able to pay off debt after the plan’s completion. Hamilton v Elite of L.A., Inc. (In re Hamilton) (9th Cir 2020) 803 Fed Appx 123 (unpublished opinion). See §11.114.

  • The minimum duration requirement for Chapter 13 plans is triggered only on the objection by the trustee or creditor. In re Sisk (9th Cir 2020) 962 F3d 1133. See §§11.120, 11.128.

  • Courts may look at the terms of the note, the deed of trust, and applicable state law to determine the maturity date of the note. In re Lewis (Bankr SD Miss 2019) 607 BR 539 (loan not eligible for cramdown when Mississippi law extended rights under deed of trust beyond plan end date). See §11.123.

  • When a plan revests property in the debtor after confirmation, any postpetition appreciation belongs to the debtor and not the estate—even if the debtor realizes a windfall. See Black v Leavitt (BAP 9th Cir 2019) 609 BR 518, discussed in §11.132.

  • Although a Chapter 7 discharge order bars subsequent collection or a contract action against the debtor arising from the secured mortgage claim that survived discharge, it does not bar an action against the debtor based exclusively on the common law theory of unjust enrichment that occurred postdischarge or the recovery of attorney fees when the debtor “returns to the fray” of prepetition litigation. Umpqua Bank v Burke (In re Burke) (BAP 9th Cir, Nov. 25, 2019, No. NC-18-1260-STaB) 2019 Bankr Lexis 3653 (unpublished opinion). See §11.144.

  • In Oregon Dep’t of Human Servs. v Mcharo (In re Mcharo) (BAP 9th Cir 2020) 611 BR 657, the court held that a debtor’s failure to update his financial information after promising to do so did not constitute false “statement respecting financial condition.” Thus, 11 USC §523(a)(2)(A)’s exception to discharge may apply, and the matter was remanded for further proceedings. See §11.145.

  • A creditor that is complicit in preparing a false financial statement cannot later claim that the debt is excepted from discharge under 11 USC §523(a)(2)(A). See BMW Bank of N. Am. v Davis-Brown (Bankr ED Cal 2019) 610 BR 641 (BMW Bank had inquiry notice when incomplete credit application, prepared with assistance of BMW dealer, did not comport with borrower’s credit report), discussed in §11.145.

Lender and Broker Liability

  • Attorney fee clauses in some contracts can vary greatly and sometimes are not broad enough to support an award of fees in a tort cause of action. See, e.g., Orozco v WPV San Jose, LLC (2019) 36 CA5th 375 (tenant who prevailed in action against landlord for misrepresentation arising from lease transaction was not entitled to award of attorney fees, because lease provided for fee award only in actions arising from contract; but lease guarantor’s fraud action arising from same facts did merit attorney fee award, because guaranty broadly provided for fee award in actions against other party arising out of or in connection with guaranty). See §12.5.

  • The California Supreme Court has granted review in Sheen v Wells Fargo Bank (review granted Nov. 13, 2019, S258019; opinion at 38 CA5th 346, to remain published and citable for persuasive value until further order) to determine whether a mortgage servicer owes a borrower a duty of care to refrain from making material misrepresentations about the status of a foreclosure sale following the borrower’s submission of a loan modification application. See also Weimer v Nationstar Mortgage, LLC (review granted July 22, 2020, S262024; opinion at 47 CA5th 341, to remain published and citable for persuasive value until further order) (review deferred pending resolution of Sheen). See §§12.11, 13.94.

  • Lenders generally do not owe a duty of care to third parties, such as competing lien holders. See WFG Nat’l Title Ins. Co. v Wells Fargo Bank (2020) 51 CA5th 881 (lender has no “duty to monitor public records in order to detect, and correct, a fraudulent or erroneous recording” by others affecting real property security), discussed in §12.11.

Special Issues in Consumer Residential Mortgage Loans

  • The Home Owners’ Loan Act (HOLA)’s former implementing regulations, including former 12 CFR §560.2(a), were removed due to the abolishment of the former Office of Thrift Supervision and the transfer of its rulemaking authority and operative rules to the Office of the Comptroller of the Currency under the Dodd-Frank Act. See 12 CFR §100.1; 82 Fed Reg 47083 (Oct. 11, 2017). The operative rules are now contained in 12 CFR §§101.1–101.8, 160.1–160.40. 84 Fed Reg 24005 (May 24, 2019). The current regulations now provide that “[s]tate law applies to the lending activities of Federal savings associations and their subsidiaries to the same extent and in the same manner that those laws apply to national banks and their subsidiaries.” 12 CFR §160.2. See §13.3.

  • In McShannock v Chase Bank (9th Cir 2020) 976 F3d 881, the Ninth Circuit held that California’s escrow interest law (CC §2954) was preempted by Home Owners’ Loan Act (HOLA) (12 USC §§1461–1470) to the extent the law’s regulation of escrow accounts affected loans originated by federal savings associations under former 12 CFR §560.2. However, the holding is expressly limited to loans obtained before the effective date of Dodd-Frank and the abolishment of the Office of Thrift Supervision and its regulations. See §§13.3, 13.3G.

  • The Supreme Court struck down the for-cause restriction on the President’s power to remove the Director of the Consumer Finance Protection Bureau as a violation of the separation of powers. Seila Law LLC v Consumer Fin. Protection Bureau (2020) 591 US ___, 140 S Ct 2183 (abrogating PHH Corp. v Consumer Fin. Protection Bureau (DC Cir 2018) 881 F3d 75). However, it further held that the provision was severable from the remainder of the Dodd-Frank Act, leaving the CFPB and its authority intact. See §13.10.

  • The Ninth Circuit has held, as a matter of first impression, that a loan borrowed by a trustee to repair a beneficiary’s personal residence—as opposed to the trustee’s—constitutes a consumer credit transaction subject to TILA and RESPA, as well as to federal and state consumer protection laws. See Gilliam v Levine (9th Cir 2020) 955 F3d 1117, discussed in §§13.13, 13.23.

  • In Elliot v First Fed. Community Bank (6th Cir, July 8, 2020, No. 19–3690) 2020 US App Lexis 21470, the Sixth Circuit held that a bank violated income verification requirements by considering spousal support and rental income that were not properly verified and documented in making its ability to repay determination. 15 USC §1639c; 12 CFR §1026.43(c)(4). However, the borrower could not establish a negligence claim based on the lender’s violation of the statutes when the lender had relied on the borrower’s own representations in approving the loan. See §§13.15, 13.40.

  • In late 2020, HUD amended 24 CFR §100.500—its interpretation of the disparate impact standard—to better reflect the Supreme Court’s decision in Texas Dep’t of Hous. & Community Affairs v Inclusive Communities Project (2015) ___ US ___, 135 S Ct 2507. Generally, amended 24 CFR §100.500 imposes a modified burden-shifting analysis making it more difficult to establish a disparate impact claim under the Fair Housing Act. See 24 CFR §100.500(b)–(c); 85 Fed Reg 60288 (Sept. 24, 2020). Although the final rule set an effective date of October 26, 2020, its enforcement has been stayed pending a legal challenge to the rule under the Administrative Procedures Act. See Massachusetts Fair Housing Ctr. v HUD (D Mass, Oct. 25, 2020, No. 20-11765-MGM) 2020 US Dist Lexis 205633. See §13.29.

  • Originally set to expire on January 10, 2021, the temporary Government-Sponsored Enterprise (GSE) exception in 12 CFR §1026.43(e)(4)(ii)(A) has been extended to apply to covered transactions for which the creditor received the consumer’s application before the mandatory compliance date of CFPB’s anticipated final rules amending the general qualified mortgage definition under 12 CFR §1026.43(e)(2). See 12 CFR §1026.43(e)(4)(iii)(B); 85 Fed Reg 67938 (Oct. 26, 2020) (extending sunset date); 85 Fed Reg 41448 (July 10, 2020) (proposed rules amending general qualified mortgage definition), discussed in §13.44.

About the Authors

Roger Bernhardt, now deceased, received his B.A., M.A., and J.D. degrees from the University of Chicago and was Emeritus Professor of Law at Golden Gate University, San Francisco. He was also the editor of CEB’s California Real Property Law Reporter and the author of numerous real property titles. Admitted to practice law in both California and New York, Professor Bernhardt was a member of the American Law Institute, the American College of Real Estate Lawyers, and the American College of Mortgage Attorneys.

Charles A. Hansen, B.A., 1973, University of California, Los Angeles; J.D., 1977, University of California, Berkeley, School of Law, is a partner in Wendel, Rosen, Black & Dean, LLP, Oakland, with a focus on real estate, commercial, and secured transactions litigation. He is currently a consultant and expert witness in a variety of state and federal court litigation matters relating to commercial and real estate lending, title insurance, escrows, trust deeds and foreclosures, real estate sales transactions, commercial leasing, guarantees, attorney and broker standards of care and conduct, title searching and chain-of-title issues, priorities, real estate development, personal property secured transactions, and usury in the real estate context. From 1985 to 2016, he taught advanced real estate courses to law and MBA students at the University of California, Berkeley, School of Law. He is a frequent lecturer on mortgage remedies for CEB and is the Transactions & Litigation Editor of CEB’s Real Property Law Reporter.

Chapter 7

Louis J. Esbin, B.S., 1981, Albany State (SUNY); J.D., 1984, Golden Gate University, San Francisco, contributed to chapter 7. Mr. Esbin has practiced law as the owner of Esbin Law Offices in Stevenson Ranch since 1993, where he provides bankruptcy, corporate formation, transactional, and merger and acquisition services to clients throughout California. He represents both corporate and individual clients, including small emerging businesses, corporations, and individuals, as debtors and creditors. Mr. Esbin counsels his clients on approaching their matters with a practical cost-benefit analysis. He is a founding board member of the Santa Clarita Valley Bar Association, a founding member of the Central District Consumer Bankruptcy Attorneys Association, a California Certified Legal Specialist in Bankruptcy Law (State Bar of California), and a member of the Financial Lawyers Conference and California Bankruptcy Forum.

Chapter 9

Michael T. Andrew, B.S., 1974, Regis College, Denver; J.D., 1979, Stanford Law School, Palo Alto, contributed to chapter 9. Mr. Andrew is of counsel with Dentons US LLP, San Diego. Mr. Andrew practices and consults in the areas of real and personal property secured transactions, commercial law, and business bankruptcy. His primary practice is representing real property secured lenders in matters ranging from negotiation, structuring, and documentation of loan transactions to enforcement and bankruptcy. He is a frequent lecturer and writer on commercial and bankruptcy law, and he has taught at Stanford Law School, the University of Colorado School of Law, and the University of San Diego School of Law.

Chapter 10

Randy Sugarman, B.A., M.B.A., Stanford University, contributed to chapter 10. Mr. Sugarman, a certified public accountant, is the managing partner of Sugarman & Company LLP, San Francisco. He serves as a financial consultant on loan workouts and bankruptcies for a wide range of industries, including construction, financial institutions, professional service firms (including accounting, engineering, and law), and real estate investment. He provides litigation support to both defense and plaintiff legal counsel, prepares financial analyses, and provides expert witness testimony on management and financial issues. Mr. Sugarman has assumed management responsibilities, implemented cost controls, negotiated with creditors, and supervised the orderly liquidation of assets. He acts as a State Court Receiver, Federal Bankruptcy Trustee, Assignee for Benefit of Creditors, and Examiner. Substantial portions of chapter 10 were based on chapter 1 of 2 California Real Property Financing (Cal CEB 1989), written by Bernard Kolbor, Aaron M. Peck, and Stephen E. Traverse and updated in 2003 by Joan M. Cambray, Martin M. Fleisher, and Timothy S. Williams.

Chapter 11

Richard M. Adler, B.A., 1981, University of California, Santa Barbara; J.D., 1984, University of California, Davis, School of Law, was the original author of chapter 11 and an update author for several years on the third edition. An attorney in Berkeley, Mr. Adler specializes in bankruptcy, including business restructuring and creditors’ rights. He represents financially distressed public and private companies, creditors, and other interested parties including lessors, purchasers of assets, and creditors’ committees in connection with matters related to financial workouts and restructurings, bankruptcy cases, and assignments for the benefit of creditors.

Mark S. Bostick, B.A., 1978, University of California, Berkeley; J.D., 1983, University of San Francisco School of Law, has been an update author, contributing editor, or consultant for chapter 11 continuously since 2007. Mr. Bostick is a partner in Wendel, Rosen, Black & Dean, Oakland, and represents debtors, committees, trustees, creditors, and other interested parties in bankruptcy proceedings and workouts. He has served as lead counsel to debtors in possession or trustees in Chapter 11 bankruptcy cases for a wide range of companies. He also represents numerous official and informal creditors’ committees, trustees, and receivers. His practice emphasizes bankruptcy administration and litigation. He is a member of the California Bankruptcy Forum, the Alameda County Bar Association, the American Bankruptcy Institute, and the National Association of Bankruptcy Trustees.

Chapter 12

Kurt F. Eggert, B.A., Rice University, Houston; J.D., University of California, Berkeley, School of Law, contributed to chapters 12 and 13. Mr. Eggert is a professor of law at Chapman University School of Law, Orange. He has published several articles in legal journals on the holder in due course doctrine, the securitization of mortgages, mortgage servicing issues, and the subprime mortgage market. He is a former member of the Federal Reserve Board’s Consumer Advisory Council and has testified to Congress on mortgage issues. Previously, he litigated mortgage and other consumer finance issues at Bet Tzedek Legal Services, a legal aid organization.

Chapter 13

Pamela D. Simmons, J.D., Lincoln Law School of San Jose, contributed to chapter 13. Ms. Simmons is a partner with Simmons & Purdy, Soquel. She represents homeowners on mortgage loan and loan servicing issues. Before private practice, she was an assistant district attorney prosecuting real estate, mortgage, and other white-collar fraud in Santa Cruz County. Since 1995 she has represented borrowers in litigation on violations of federal and state lending laws, including the Truth in Lending Act (TILA) and the Homeowner Bill of Rights (HBOR). One of her specialized skills involves the “audit” of payment records provided by lenders. She has taught secured real estate transactions at Lincoln Law School in San Jose. Ms. Simmons regularly speaks on mortgage-related matters to real estate professionals, homeowners, elders, and investors and at the American Bar Association’s annual real estate symposia.

About the 2021 Update Authors

Richard L. Antognini, A.B., 1974, University of California Berkeley; J.D., 1977, University of California, Hastings College of the Law, is a civil appellate lawyer in private practice in Grass Valley, California. He represents consumers and borrowers in the California courts of appeal, the California Supreme Court, the Ninth Circuit, and the United States Supreme Court. His appellate practice focuses on consumer protection statutes, such as the Truth in Lending Act, the Consumer Legal Remedies Act, and borrower protection statutes, such as the Homeowners Bill of Rights. Mr. Antognini’s important appellate decisions include Yvanova v New Century Mortgage Corp. (2016) 62 C4th 919; Glaski v Bank of America (2013) 218 CA4th 1079; Demarest v HSBC Bank USA (9th Cir 2019) 920 F3d 1223; Hacker v Homeward Residential (2018) 26 CA5th 270; and Chacker v JPMorgan Chase Bank (2018) 27 CA5th 351. His notable bankruptcy decisions include Pham v Golden (9th Cir BAP 2015) 536 BR 428, a sanctions case. He also handles attorney fees disputes, both as appellate counsel and expert witness. Mr. Antognini is an update author for chapters 2, 7, 10, and 12.

Elizabeth Berke-Dreyfuss, B.A., 1976, Ohio State University, Columbus; M.A., 1978, Lone Mountain College, San Francisco; J.D., 1984, University of San Francisco School of Law, is a partner with Wendel Rosen LLP, Oakland, specializes in bankruptcy, and is an update author for chapter 11 as well as CEB’s Ground Lease Practice (2d ed Cal CEB). She has substantial Chapter 11 experience and represents creditors, trustees, and debtors in bankruptcy and insolvency matters for businesses and high net worth individuals. She assists companies transitioning from public to private ownership and in recapitalization; she represents both sellers and buyers in asset sales through the bankruptcy process.

Corrine Bielejeski, B.A., 2003, University of California, Santa Barbara; J.D., 2006, University of California, Davis, School of Law, joined as an annual update author for chapter 11 in 2018. Following her graduation from law school, she served as law clerk to the Honorable Edward D. Jellen in the United States Bankruptcy Court, Northern District of California. After her term ended, she worked for a Bay Area bankruptcy firm for a few years before opening her own office, East Bay Bankruptcy Law & Financial Planning, in Brentwood. She currently specializes in debtor reorganization and liquidation in bankruptcy. Specifically, she assists clients with Chapter 7, Chapter 13, Chapter 11, Lien Stripping, and Budgets. She is a member of many bar associations and attorney organizations, including the Earl Warren Inn of Court and the American Bar Association.

Kevin Brodehl, B.A., with High Honors, 1995, University of California, Santa Barbara; J.D., 1998, University of California, Davis, School of Law, is a partner with Patton Sullivan Brodehl, LLP, with offices in the San Francisco Bay Area. He joined the update team for this book in 2013 and continued to assist in updating nearly all chapters through the 2020 update. He specializes in real property litigation involving secured transactions, deeds of trust, foreclosure and antideficiency, receivership, development agreements, joint ventures, LLCs, and commercial leases. He also handles civil appeals and writs in the California courts of appeal and federal courts of appeals. He has taught at the University of California, Berkeley, School of Law and presents MCLE classes for California attorneys on the subjects of real estate and mortgage law.

Louis J. Esbin updated the bankruptcy sections in chapter 7. See his biography in the About the Authors section of this book.

Tracy Green, B.A., 1979, University of California, Santa Cruz; J.D., 1984, University of San Francisco School of Law, is a partner with Wendel Rosen LLP, Oakland, in the firm’s insolvency practice and is an update author for chapter 11. Ms. Green represents clients in all aspects of their dealings with financially troubled companies. She represents debtors, creditors’ committees, creditors, and trustees in connection with Chapter 11 reorganizations and liquidations, out-of-court workouts, buying and selling assets, assignment for the benefit of creditors, avoidance actions (fraudulent conveyances, preferences, and equitable subordination), and Chapter 7 liquidations. She also represents parties in commercial disputes and secured transactions.

Lisa Lenherr, B.A., 2000, Lewis & Clark College; J.D., cum laude, 2008, Lewis & Clark Law School, joined as an annual update author in 2018 and assisted in updating chapter 11 on bankruptcy. She is an attorney with Wendel Rosen LLP, Oakland, in the firm’s bankruptcy practice group and focuses on insolvency and restructuring issues, representing trustees, debtors, asset sellers and purchasers, title companies, landlords, lenders (commercial and private), and other creditors and parties in all aspects of Chapter 11 and Chapter 7 business bankruptcy matters, out-of-court workouts, assignments for the benefit of creditors, and appeals.

Glen L. Moss, B.S., 1965, University of California, Los Angeles; J.D., 1968, University of California, Berkeley, School of Law, is a contributing author for chapters 1–3, 7–8, and 13. Mr. Moss has represented consumers and small businesses for all types of real estate problems, in trial courts and upon appeal. Since the “Great Rescession,” he has concentrated in real estate finance as well as trust and probate issues related to protecting the real estate owned by estates and trusts. He also serves as co-counsel with bankruptcy lawyers to set aside trustee sales through adversary actions. Mr. Moss is a partner in the Hayward firm of Moss & Murphy.

Daniel J. Mulligan, B.A., 1975, and M.A., 1981, University of California, Berkeley; J.D., 1981, University of California, Berkeley, School of Law, is a partner with Jenkins Mulligan & Gabriel LLP, San Diego, and is an update author for chapter 13. He specializes in real property and lending litigation, as well as consumer rights law, including class litigation. He is a leading member of the plaintiffs’ bar on consumer lending issues and regularly speaks for meetings of the California State Bar Association, the American Bar Association, the American Conference Institute, the National Consumer Law Center, and the National Association of Consumer Advocates. Daniel also continues a practice in antitrust law, serving as co-counsel in a number of indirect purchaser claims for consumer goods.

Pamela D. Simmons assisted in updating chapter 13. See her biography in the About the Authors section of this book.

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