More homeowners are considering "short selling" their home in these hard economic times as an alternative to foreclosure. A "short sale" is where a home is sold for less than the homeowner owes to his or her lender or mortgage holder.
However, the mortgage holder/lender who received less than the full amount of the debt owed to it could still pursue the homeowner for the difference remaining on the indebtedness after the short sale. To address this, Governor Schwarzenegger signed Senate Bill no. 931 to provide anti-deficiency protection for borrowers. This protection applies to pre-existing, previously negotiated mortgage loan contracts subject to actions filed on or after June 1, 2011.
SB931 adds section 580e to California's Code of Civil Procedure. Pursuant to this new section: if the mortgage holder gives its written consent for the "short sale" then the mortgage holder must accept the proceeds of that sale as full payment and discharge any remaining claims it may have against its borrower for the remaining amount of indebtedness.
Homeowners should take care to note that section 580e is written with specific reference to a: "note secured by a first deed of trust or first mortgage." SB931 [setting forth the language of C.C.P. section 580e.]. Therefore, homeowners that have a second mortgage or HELOC, may not be able to completely rely on this new law to protect themselves from liability for amounts owed under other notes that are secured by their homes. Also, as indicated above, an anti-deficiency action filed before June 1, 2011, may not be precluded by this new law.
Before taking any action in reliance on this new law, homeowners should take care to consult with an attorney or perform their own legal research. California's leginfo.ca.gov is one helpful website to start with.
Tuesday, October 19, 2010
Sunday, October 17, 2010
Beware: An Unlawful Detainer Following Foreclosure May Affect Your Claim for Ownership
A homeowner facing foreclosure and potential sale of his or her property by the mortgage holder may believe that the foreclosure or subsequent sale was conducted improperly. A homeowner may have a cause of action to dispute the validity of the foreclosure or sale. It is advisable for a homeowner to consult with an attorney to determine if a lawsuit may be appropriate to challenge the foreclosure.
This post regards the situation where a lender has sold a property under a foreclosure sale and has initiated an unlawful detainer proceeding to evict the borrower/homeowner. The borrower/homeowner may have a viable claim to attack the validity of the foreclosure sale. For example, if the statutory procedures for a foreclosure were not followed properly. The borrower/homeowner will therefore likely file its own lawsuit separate from the UD action.
An unlawful detainer proceeding is an expedited avenue to determine issues of possession. However, a judgment granting possession to the lender or purchaser in the UD proceeding could negatively affect the borrower's action to determine the underlying ownership and title issues. It could do this under a legal doctrine called collateral estoppel, or stated very simply- a litigant cannot relitigate any issue that was necessarily included in a prior final judgment.
An unlawful detainer proceeding is an expedited process intended to determine the issue of possession. Therefore, a judgment arising from a UD action is generally given limited res judicata or collateral estoppel affect. This means that generally the findings in a UD action cannot necessarily be used in a later action involving the same property/parties.
However, homeowners/borrowers should be aware of recent case law regarding the collateral estoppel effect that may be given to an unlawful detainer judgment in another proceedings, for example the borrower/homeowner's hypothetical action to oppose the underlying foreclosure.
In Malkoskie v. Option One Mortgage Corporation (2010) the Malkoskies' property was sold to a third party purchaser in a foreclosure sale. The Malkoskies remained on the property and the purchaser-Wells Fargo filed an unlawful detainer action to remove the borrowers from the property. The Malkoskies filed a separate quiet title action to set aside the foreclosure sale and eviction. The Malkoskies contended the sale was not properly conducted and therefore Wells Fargo did not properly obtain valid title to the property.
At the time of trial for the UD action, the Malkoskies and Wells Fargo agreed to a stipulated judgment to resolve the UD action. The case is silent as to the reasons why the Malkoskies agreed to a stipulated judgment, one reason might have been that in doing so Wells Fargo may have agreed not to pursue ancillary damages, costs or fees recoverable in a UD action.
Then, Wells Fargo challenged the Malkoskies' action to set aside the sale and eviction with a legal pleading called a demurrer. The court sustained the demurrer and judgment for Wells Fargo was entered. The court found that the stipulated judgment amounted to the Malkoskies conceding that the sale was "duly conducted and operated to transfer 'duly perfected' legal title to the property.'" The court referred to Code of Civil Procedure section 1161a, which regards UD actions and describes that a purchaser who brings a UD action following a trustee's sale must show that the property was sold in accordance with section 2924 of the Civil Code (regarding power of sale in a deed of trust). The UD action was based on whether the power of sale was proper. Since the borrowers stipulated to judgment that it was, the borrowers could not thereafter claim otherwise in their separate action to quiet title.
Malkoskie v. Option One Mortgage Corporation presents borrowers with difficult choices.
A UD action is generally not the ideal forum to litigate issues concerning title or whether a trustee sale was proper or not. Going forward with the UD action risks creation of the collateral estoppel issue that the Malkoskies faced. Surrending possession under terms that allow the issue of ownership to be determined later may be possible but by no means guaranteed and assuming the purchaser or lender agrees, that option will probably require the owner to leave the property.
One of the better alternatives is for the borrower to seek a stay of the UD action and request that the UD action be consolidated with the borrower's litigation to determine title. This last option means that the issues of possession and ownership are determined together in the borrower's hypothetical concurrent action to determine title. Of course, lenders or purchasers will likely oppose consolidation if it means that eviction is stayed. Additionally, a borrower must be very vigilant in protecting their rights by seeking consolidation as soon as possible, because if consolidation is denied and a stay is not granted on the UD action, the borrower will need to address the possibility that he or she will need to litigate the issue of ownership in the expedited UD proceeding.
Borrowers who believe the foreclosure process has proceeded improperly or that the sale somehow violated statute should take care to consult with an attorney regarding the issues addressed briefly in this post and other legal issues. Feel free to contact Bustarde Law regarding your real property, business or contract matter.
This post regards the situation where a lender has sold a property under a foreclosure sale and has initiated an unlawful detainer proceeding to evict the borrower/homeowner. The borrower/homeowner may have a viable claim to attack the validity of the foreclosure sale. For example, if the statutory procedures for a foreclosure were not followed properly. The borrower/homeowner will therefore likely file its own lawsuit separate from the UD action.
An unlawful detainer proceeding is an expedited avenue to determine issues of possession. However, a judgment granting possession to the lender or purchaser in the UD proceeding could negatively affect the borrower's action to determine the underlying ownership and title issues. It could do this under a legal doctrine called collateral estoppel, or stated very simply- a litigant cannot relitigate any issue that was necessarily included in a prior final judgment.
An unlawful detainer proceeding is an expedited process intended to determine the issue of possession. Therefore, a judgment arising from a UD action is generally given limited res judicata or collateral estoppel affect. This means that generally the findings in a UD action cannot necessarily be used in a later action involving the same property/parties.
However, homeowners/borrowers should be aware of recent case law regarding the collateral estoppel effect that may be given to an unlawful detainer judgment in another proceedings, for example the borrower/homeowner's hypothetical action to oppose the underlying foreclosure.
In Malkoskie v. Option One Mortgage Corporation (2010) the Malkoskies' property was sold to a third party purchaser in a foreclosure sale. The Malkoskies remained on the property and the purchaser-Wells Fargo filed an unlawful detainer action to remove the borrowers from the property. The Malkoskies filed a separate quiet title action to set aside the foreclosure sale and eviction. The Malkoskies contended the sale was not properly conducted and therefore Wells Fargo did not properly obtain valid title to the property.
At the time of trial for the UD action, the Malkoskies and Wells Fargo agreed to a stipulated judgment to resolve the UD action. The case is silent as to the reasons why the Malkoskies agreed to a stipulated judgment, one reason might have been that in doing so Wells Fargo may have agreed not to pursue ancillary damages, costs or fees recoverable in a UD action.
Then, Wells Fargo challenged the Malkoskies' action to set aside the sale and eviction with a legal pleading called a demurrer. The court sustained the demurrer and judgment for Wells Fargo was entered. The court found that the stipulated judgment amounted to the Malkoskies conceding that the sale was "duly conducted and operated to transfer 'duly perfected' legal title to the property.'" The court referred to Code of Civil Procedure section 1161a, which regards UD actions and describes that a purchaser who brings a UD action following a trustee's sale must show that the property was sold in accordance with section 2924 of the Civil Code (regarding power of sale in a deed of trust). The UD action was based on whether the power of sale was proper. Since the borrowers stipulated to judgment that it was, the borrowers could not thereafter claim otherwise in their separate action to quiet title.
Malkoskie v. Option One Mortgage Corporation presents borrowers with difficult choices.
A UD action is generally not the ideal forum to litigate issues concerning title or whether a trustee sale was proper or not. Going forward with the UD action risks creation of the collateral estoppel issue that the Malkoskies faced. Surrending possession under terms that allow the issue of ownership to be determined later may be possible but by no means guaranteed and assuming the purchaser or lender agrees, that option will probably require the owner to leave the property.
One of the better alternatives is for the borrower to seek a stay of the UD action and request that the UD action be consolidated with the borrower's litigation to determine title. This last option means that the issues of possession and ownership are determined together in the borrower's hypothetical concurrent action to determine title. Of course, lenders or purchasers will likely oppose consolidation if it means that eviction is stayed. Additionally, a borrower must be very vigilant in protecting their rights by seeking consolidation as soon as possible, because if consolidation is denied and a stay is not granted on the UD action, the borrower will need to address the possibility that he or she will need to litigate the issue of ownership in the expedited UD proceeding.
Borrowers who believe the foreclosure process has proceeded improperly or that the sale somehow violated statute should take care to consult with an attorney regarding the issues addressed briefly in this post and other legal issues. Feel free to contact Bustarde Law regarding your real property, business or contract matter.
Tuesday, October 12, 2010
Oral Contracts for Home Improvement Work Can Be Enforced
Home owners that engage the services of a contractor for home improvement work are generally protected by the requirement that a home improvement contract be in writing and contain certain specific requirements. California Business & Professions Code section 7159.
Last month, the California Court of Appeal, Second District upheld enforcement of an oral contract for home improvement services. Hinerfeld-Ward Inc. v. Lipian (2010) 188 Cal.App.4th 86.
In Hinerfeld-Ward the Lipians retained an architect to design a major remodel to a single family home. They retained a contractor that left the job because of repeated design changes and replaced that contractor with Hinerfeld. No written contract was entered.
The Lipians terminated Hinerfeld, leaving an unpaid balance to him of $200,000.00. Hinerfeld sued the Lipians who counterclaimed, stating in part that Hinerfeld violated section 7159 making the oral contract void. The Court of Appeal upheld the jury's finding of a contract that Hinerfeld substantially complied with and affirmed the trial court's award of damages in favor of Hinerfeld in addition to attorneys fees.
The Appellate Court noted that enforcement of the contract was justified: to avoid unjust enrichment to the Lipians, and because the Lipians had the benefit of their architect to look out for their interests.
The Appellate Court also upheld an award of attorneys fees based on Civil Code section 3260 et al. That, and related sections, provide for a penalty to be assessed where one wrongfully withholds amounts owed to the contractor pursuant. The Appellate Court found that the penalty contemplated under the statutory scheme also includes an award of attorneys fees under 3260.1. Consequently, $200,000.00 in attorney's fees was awarded to Hinerfeld.
The opinion is silent whether the Lipians relied on advice of counsel to withheld payment or to support a belief they ultimately could avoid payment to Hinderfeld on an assertion that the oral contract was void. However, it is a helpful example of the importance of retaining legal advice before relying upon or taking definitive action where there is a potential dispute.
Last month, the California Court of Appeal, Second District upheld enforcement of an oral contract for home improvement services. Hinerfeld-Ward Inc. v. Lipian (2010) 188 Cal.App.4th 86.
In Hinerfeld-Ward the Lipians retained an architect to design a major remodel to a single family home. They retained a contractor that left the job because of repeated design changes and replaced that contractor with Hinerfeld. No written contract was entered.
The Lipians terminated Hinerfeld, leaving an unpaid balance to him of $200,000.00. Hinerfeld sued the Lipians who counterclaimed, stating in part that Hinerfeld violated section 7159 making the oral contract void. The Court of Appeal upheld the jury's finding of a contract that Hinerfeld substantially complied with and affirmed the trial court's award of damages in favor of Hinerfeld in addition to attorneys fees.
The Appellate Court noted that enforcement of the contract was justified: to avoid unjust enrichment to the Lipians, and because the Lipians had the benefit of their architect to look out for their interests.
The Appellate Court also upheld an award of attorneys fees based on Civil Code section 3260 et al. That, and related sections, provide for a penalty to be assessed where one wrongfully withholds amounts owed to the contractor pursuant. The Appellate Court found that the penalty contemplated under the statutory scheme also includes an award of attorneys fees under 3260.1. Consequently, $200,000.00 in attorney's fees was awarded to Hinerfeld.
The opinion is silent whether the Lipians relied on advice of counsel to withheld payment or to support a belief they ultimately could avoid payment to Hinderfeld on an assertion that the oral contract was void. However, it is a helpful example of the importance of retaining legal advice before relying upon or taking definitive action where there is a potential dispute.
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