By Michael R. Sment
California real estate foreclosures are expected to increase significantly through 2012-2013, due in part to the end of a widespread multilender suspension of such proceedings. With a large number of Bank of America (the No. 1 U.S. consumer lender) loans in Ventura County (due to its takeover of Countrywide Home Loans), local foreclosures are expected to multiply dramatically.
With tens and hundreds of thousands of Californialoans and properties to be foreclosed upon, it will be important for borrowers, their heirs, successors, junior lien holders, and their attorneys, to be wary of, and to carefully scrutinize foreclosure proceedings. The majority of CA foreclosures are “nonjudicial,” as allowed by statute and a “power of sale” contained in the note and deed of trust. These types of foreclosures are quicker, cheaper and less regulated. And, for the borrower and the bank, there are no post-foreclosure sale deficiency liabilities or proceedings.
The top ten problems to look for in connection with a CA non-judicial foreclosure include:
1. Loan Documents: A lender’s rights to foreclosure stems from the loan documents (the note, any riders or addenda, and the deed of trust). The deed of trust should be recorded, but the note, riders and addenda will not be. Try to obtain the loan application, note, escrow loan documents and deed of trust, hopefully from the client. Do a chronological, document-by-document, lineby-important-line review. Make sure that names, dates, the property and amounts, and loan numbers, legal descriptions and notary information, match and are correct. Look match and are correct. Look for blanks, fill-ins, hand-written notations or contradictory information. Are pages missing? Are documents signed and initialed, properly? Do signatures match?
2. Chain of Title: On completion of a real estate loan, the lender/beneficiary gets a deed of trust in its favor (equitable title) securing its note; the borrower/owner gets a grant deed (legal title). The borrower/owner should also (hopefully) have received a preliminary title report, then policy of title insurance, which show the title to the property prior to them, and their title and the deed of trust after the loan. The chain of title should be unbroken. And it should continue, with direct links of title for each party, through any foreclosure.
One big complaint now aboutU.S.foreclosures is that the “chain of title” for the foreclosing entity is not complete or is unbroken. Technically, when a final loan is sold (to a new investor), there should be a separate written instrument, a signed and recorded assignment of deed of trust. But, when lenders began dealing with millions of loans in the 1990- 2000s, and packaging them by the thousands in “mortgage-backed securities,” they became lax, cheap and non-compliant in many instances. One of those areas was to fail to obtain or record an assignment for each transferred loan. Lenders tried/try to avoid that requirement by merely recording substitution of trustee forms, or “robo-signed” assignments from a lender created and owned entity (often M.E.R.S.).
3. Pre-Foreclosure: California enacted many new pre-foreclosure requirements, like mailings to and personal calls with borrowers (“to assess financial situations”). Has each requirement (See Civ. Code, §§2923.5, 2924.3) been complied with? Was a personal contact or telephone call actually made? Could they be? What number? Where?
Michael R. Sment is a member of the CITATIONS editorial board, and practices real estate, foreclosure and bankruptcy law inVentura. He successfully argued aCalifornia foreclosure case before the United States Supreme Court, BFP v. RTC, 511 U.S.53 1.