WHY MANY HOMEOWNERS SHOULD FIGHT EVICTION AFTER AN EXTRAJUDICIAL FORECLOSURE

Transcription

1 WHY MANY HOMEOWNERS SHOULD FIGHT EVICTION AFTER AN EXTRAJUDICIAL FORECLOSURE By William Snow Hume, CPA, JD For many people who have had their homes foreclosed on by a Deed Trustee, the eviction after foreclosure is the final humiliating event. Sometimes the new owners will offer a cash for keys deal, to give the former homeowners a way to pay for their move out costs. And a lot of people take steps to sell of all of their unnecessary possessions, so as to minimize their storage expenses, and to have less moving expense when they go to their next, smaller living places. Don t get me wrong there is nothing wrong at all in facing up to the harsh reality of a move out after the auction, and getting ready so as to minimize the costs of a move. But the point I am going to try to make here, is that in the flurry of moving preparations and finding a new place to go, there will be an important legal opportunity to preserve one s legal rights, and that is during the Eviction Suit After Foreclosure. The Difference Between Judicial Foreclosure and Trustee s Foreclosure The Foreclosure Auction which I talk about here is the one that is conducted by a Trust Deed s Trustee. It is not conducted because of any court order. Rather, the Deed Trustee simply acts under the powers which he has from the Deed of Trust, which creates a trust agreement. When he does this, he is said to act extrajudicially that means, outside of the judicial process. The other kind of foreclosure is a judicial foreclosure, and that is one that requires a lawsuit in court, before the property can be auctioned off. About thirty five of the fifty states have laws for Trust Deeds that let the Trustee auction off the property, without court permission. The other fifteen or so states are called common law mortgage states, and they are considered the more Old Fashioned ones, because they make the mortgage

2 owner go into court and sue to foreclose. I think it is very important for as many people as possible to understand this, because many people read things on the Internet about ways that foreclosures have been stopped or held up in court, and they don t realize that most of those stories are coming out of the 15 states that have only judicial foreclosures in court. You just wouldn t believe how many people do not realize that their property can be auctioned off without any sort of lawsuit or day in court. Let us look at a large category of them: Special Problems of Immigrants It has been my experience that immigrants, whose native language is not English, often times have relied on mortgage brokers, who did not tell them that a Deed Trustee would be able to auction off their properties, without having to get permission from the court. Such a practice is contrary to what they know from their homelands in the Phillipines, Mexico, and many other parts of Latin America. As a result, they are not ready for the whole scenario of a Deed Trustee sending them a Notice of Default, and then a Notice of Auction, and then not long after that a Three Day Notice to Quit. In many cases, these homeowners might even have a good defense, based on the fact that they were not provided copies of the lending documents in their own languages. For a good example of this, see California s Civil Code section 1632, which requires that oral negotiations in Spanish, Chinese, Tagalog, Vietnamese or Korean be written down. Under those same laws, a foreclosing mortgage holder is required to send out every single notice in the language of the borrower! The defense that the required notices were not sent out in the correct language could be a good defense to an eviction suit after a foreclosure. Foreclosure Errors Made in Haste by The Big Boys We have all watched the television shows about how the mortgage industry got fired up so much in the last decade, that there was a shortage of manpower to properly process all of the paperwork. In just a few years, the

3 term robo signer has crept into the popular language, to talk about clerks who signed documents all day long without reading them. The same pressures have caused the mortgage industries to cut corners in many other ways. In many cases, the loan servicing agents and the Deed Trustees have not sent out valid notices to all of the people who are entitled them under the various states laws. I am going to list several examples: 1. One or more of the makers of the notes that means, one or more of the borrowers has died. The beneficiary takes no steps to make sure that a proper successor in interest (such as dead person s estate ) is contacted and made part of the foreclosure process. 2. The property is taken over by one of the borrowers, as part of a divorce settlement. The mortgage holder knows that the departing spouse no longer lives there, yet it fails to send notices to the former spouse, who is certainly entitled to such notices. 3. The Deed Trustee conducts an auction, even though one of the listed owners of the property is in bankruptcy. While we all have sat through hourslong auctions where gigantic numbers of auctions are stopped because of bankruptcies, yet sometimes the Deed Trustee makes a mistake. 4. A property, at the time it was borrowed on, was in the name of a Family Trust. The original Trustee at the time of the borrowing has died or been replaced. The mortgage company never contacts the successor trustee. 5. Due to bankruptcies, the auction date has been postponed so many times, that under the state s law, a new, fresh auction date has to be set up. Thus, it is not enough to postpone it one last time. Yet the mortgageholder s trustee does not realize that a brand new notice of auction date is required. 6. The property or a goodly portion of it was reconveyed back to the borrower. Thus, the Deed Trustee does not have any interest to convey, yet

4 continues with an auction. A noncorrupt Unlawful Detainer judge will definitely stop an eviction, when this is the case. 7. Special laws about exploring options to avoid foreclosure with the borrower are not properly explored or documented. (An example is California s Civil Code section ) This is especially true, if there are defects in the notices which were supposed to be given. Oftentimes, a mortgage auction deferral specialist will point this out to a Trustee, and force the Trustee to start over with the entire default & auction process. But if not, it is a reason for an Unlawful Detainer court to conclude that the new auction title was never properly perfected. 8. Sometimes a stranger comes forward and has an original Trust Deed, and forecloses on it. In this circumstances, the stranger does not own the note and does not even claim to own the note, but merely claims to have purchased the Trust Deed. In California, at least, that practice of splitting the note and its Trust Deed violates the clear provisions of the Civil Code. A noncorrupt Unlawful Detainer judge won t let the eviction go forward, under those circumstances. 9. Needless to say, if a stranger comes forward, and claims to own the note but does not really own it and cannot prove it, then the stranger did not have authority to foreclose, and that is a good defense to the eviction. 10. Sometimes dirty mortgage brokers will get borrowers to provide TWO original signature on notes and trust deeds. Then, these brokers turn around and sell off two different, but complete, sets of notes with trust deeds. Then, competing loan servicers seek payments. Inevitably, the homeowner has to disappoint one or the other. The result?? A foreclosure auction. Under this circumstance, an Unlawful Detainer suit can be stopped. 11. A foreclosure sale taken in violation of a forbearance agreement. In the usual case, someone has just gotten a loan modification, and is making all of the required payments. The problem? The loan owner is such a huge institution, that the left hand does not know what the right hand is doing.

5 The result? A foreclosure sale, even though the mortgage owner promised not to do it. 12. The same as the last situation, but with a Twist of Lemon. The loan owner agrees to a Loan Modification in favor of repayments to itself of delinquent payments. In the meantime, the remainder of the payments are governed by the note itself, which is quietly sold back to FANNIE MAE, FREDDIE MAC, or someone else that proceeds to foreclose. The assignee of the note and trust deed can truthfully say that it never had anything to do with the Loan Mod or the forbearance agreement, yet the former owner can say we didn t violate the forbearance agreement, because we were not the ones who foreclosed they did it! Isn t it amazing, the scams that big, huge financial institutions will commit?? A noncorrupt Unlawful Detainer judge, however, will likely find that there was no proper auction sale under these circumstances. 13. The lender was paid, or refused tender of payment by the borrower, yet went ahead and foreclosed. This is classic foreclosure fraud. There are certainly a few other cases where even the Big Boys make mistakes, or get taken by a mortgage broker s scam the foregoing list is intended to include the most common ones. The important thing to recognize is that, even though a foreclosure auction has occurred against the house, it doesn t mean that you will have to lose the Unlawful Detainer suit. What Happens to the Buyer at Auction, if the Unlawful Detainer suit is lost? If the purchaser at auction loses the Unlawful Detainer suit, the buyer now has money tied up in a property that cannot be occupied. The law provides remedies for this situation. One is called Ejectment. The other is not always available, depending upon the particular state s laws; it is called Quiet Title. Either one of these can be used by the buyer at auction to clean up title problems. And if the buyer is in the wrong, such litigation can be used to pull

6 in the Deed Trustee who auctioned off the property, as well as the Deed Trustee s beneficiary that is the former mortgage owner, who foreclosed. The key point here is that, if the homeowner is successful in stopping the Unlawful Detainer, then the burden of litigation is then cast upon the purchaser at auction. It may not seem like a big difference, but by the end of a long case, the burden of litigation could have a price tag that is ten or twenty thousand dollars more expensive than the litigation price tag for the defending homeowner. What to do about lender wrongdoings that can NOT help at the eviction? As a general rule, only a wrongful foreclosure can be used to stop an eviction after foreclosure sale. And, in such a case, the term wrongful is interpreted according to the condition of the note and Trust Deed at the time of the default & auction. It does NOT concern itself with wrongful acts that occurred when the loan was formed, or shortly after that time. Here is a good example. A mortgage fraud was committed, by not providing a copy of the deal, written in the language of the immigrant. Even though the failure to give notices of default etc. in the foreign language is a grounds to stop the foreclosure sale, or to declare it unlawful, yet the illegality at the very beginning is not something that can be raised in the Unlawful Detainer action. Quite a few California cases have been written about the distinction between formative frauds and fraudulent foreclosures. It is not really important for this article. What is important, is to know that these same kinds of lender misconduct or creditor misconduct can be the basis for litigation that is brought by the homeowner. In this case, we say that the borrower bears the burden of litigation. Sometimes the litigation is to prevent or stop the Deed Trustee from selling off the property. Often, this kind of litigation is started during a bankruptcy, and then the Bankruptcy Judge, following federal policy,

7 will punt it over to the state court. Sometimes, the litigation is brought after the foreclosure, and is brought to sue for damages for wrongful foreclosure. The court has discretion to order to order a lower court to stop an Unlawful Detainer suit, even though the wrongs which are complained of in the borrower s suit which are used playing offense could not be used in the eviction suit to play defense. So, after an auction has occurred, it is important to figure out whether or not you are the victim of some wrongdoing by the original broker, the original lender, or by one of the assignees or later owners of the note and Trust Deed. You will not have much time, but you will need to decide whether or not you can play strictly defense, or whether or not you will need to bring a suit to not only seek damages for wrongful foreclosure, but also to stop the eviction, on the grounds of restitution and balancing of equities. Doing Nothing the worst possible course of action If you are indecisive about what you will do after a foreclosure auction, the worst thing that you can do is to be indecisive. Even if you think that you may want to sue later, it is still in your interests to try and move as much as possible, so that just in case things don t go right, you will not face a full on crisis. Many people have lost their life s mementos, historically important documents, important business and trade documents, important financial documents, and so on, because they don t act early to safeguard their valuable papers and possessions. Even if you think that you might win, you still need to safeguard the possessions which you will need to start over. There are many realtors out there who are eager to please the banks which have foreclosed on homes. They will offer cash for keys and then reneg on promises. They will move possessions out of the house, and change the locks, while you are still living there. And they will steal your litigation documents, to make it more difficult for you to fight.

8 If at all possible, get the use of an address that is elsewhere than the foreclosed property, to use as the official court address for your litigations. The opposing party will not send it to your new address, unless you formally notify the court in a particular manner. The post office cannot be counted on to forward the mail, and frequently there are fatal delays. So it is best to start off with a permanent court mailing address that is not where you have been living! Conclusion Like anything else, the decision whether to flee or fight is one that should start some amount of time before the auctioneer s gavel comes down. The planning is not only legal, it is also financial, because there are very real costs to litigation, even if you act as your own lawyer. The planning is also very practical, as noted before, concerning things like mailing addresses and the safeguarding of documents and possessions. On the other hand, if you as a homeowner have definitely been wronged, it is psychologically rewarding to stand up for yourself and fight. It is also, to the extent it is practical for you to do it, a sort of patriotic act, because you are forcing the court system to work, forcing the judges to learn law, and forcing the parties to face the consequences of breaking the law, even if it is private law. As the Romans used to say, Pacta sunt servanda.