Friday, December 10, 2010


Dear Readers:

Today, Barbara Desoer, president of Bank of America announced that the moratorium on foreclosures by Bank of America is at an end.  She stated that in the month of December Bank of America intends to foreclose on 16,000 homes within the next ten days.  However, they will observe a "holiday suspension" of sales and evictions from Dec. 20 to Jan. 2.

My friends if your are scheduled for a foreclosure sale within the next 10 days or in the early part of January, I URGE you to meet with a BANKRUPTCY attorney, who can help you come up with a plan in which to either save your home from foreclosure, or alternatively recommend short-sale or eviction defense proceedings to help you maximize the amount of time you have left in your home. 

If you know that there is no way to save your house from foreclosure, then the economic goal should be to stay in your home as long as legally possible.  The longer you can stay in your home without making a mortgage payment is the more money you save to move out.

Many people with whom I have consulted tell me that their children are able to buy new family homes using the money they save.  Then they are able to file for bankruptcy under Chapter 7 and eliminate the balance of their debt and achieve a fresh start.

I cannot tell you how important it is to PLEASE CONSULT AN ATTORNEY IN YOUR COMMUNITY immediately so that you can develop a strategy that will improve your financial future.  For many of my clients that strategy does not include a bankruptcy.  So if you are afraid or embarrassed about bankruptcy, you owe it to yourself and to your family to consult with an attorney.  THE CONSULTATION at the Law Offices of R. Grace Rodriguez are always free!

Remember if you have a Bank of America loan and you are facing foreclosure, the MORATORIUM IS OVER!!!  Get HELP NOW while you can!

Thursday, December 2, 2010

ATTENTION: All Wells Fargo and Wachovia borrowers!!!! Dec. 8 & 9, Ontario Convention Center LOAN MODIFICATION WORKSHOP

Dear Readers:

If you have a Wells Fargo or Wachovia Loan, your lender will be hosting a free workshop for Wells Fargo Home Mortgage, Wells Fargo Financial, Wachovia Mortgage and Wells Fargo Home Equity customers facing financial hardships. The two-day workshop -- to which Wells Fargo has invited thousands of Southern California homeowners -- will take place Dec. 8 and 9, from 9 a.m. -- 7 p.m. at the Ontario Convention Center Exhibit Hall located at 2000 E. Convention Center Way in Ontario, Calif. To help guarantee your ability to meet with a representative. Sign up by Tuesday, Dec. 6, at For more information call 1-800-405-8067.

HOWEVER...... Do not go to this event unprepared.  Make sure you have six months of bank statements.  Make sure you have three months of paystubs FOR EVERYONE IN YOUR HOUSE who is contributing to the mortgage payment.  If you have renters helping you pay for the home MAKE SURE YOU HAVE RENTAL AGREEMENTS WITH RECEIPTS OF THE MONEY YOU HAVE BEEN PAID.  Bring with you a list of all of your expenses.  You are going to have to show this bank that you can make a reasonable payment on the balance of your loan.  SOOOOOOOO.... google search mortgage calculator.  Add up how much you are behind, add up the taxes the bank has paid on your behalf, add up the balance of your loan.  Put that into the Principle and make that the "new loan."  Give an interest rate of at least 4% for the next 30 years and be prepared to show you make at least 2.5 times that amount if you expect to have any chance at getting a loan modification.  However, this system DOES NOT GUARANTEE that you will get a loan modification.  It will depend on other factors likely to be out of your control including but not limited to what your home is worth, where its located and whether your loan was insured or not.

People don't realize this, but if your lender had insurance on the loan, they just as soon foreclose, cash in on the insurance policy to limit their losses and then reinvest in the cheap real estate left on the market.  DON'T BE FOOLED, I bet the banks are making a killing, while crying broke to Congress.

If you can't get modified, don't wait too long and get too far behind that you can't save your home in a Chapter 13 Bankruptcy.  Make sure before you go to this meeting with Wells Fargo, or any other lender that you go for a free consultation to a LOCAL bankruptcy attorney in your community so they can go over your situation and help you decide whether it is worth it under your circumstances to stay in this home.

Thanks for reading!

Thursday, November 18, 2010

Bank of America headed for Trouble ... or are they???

Oct. 19, 2010 - Because of the Credit Card and Debit Card rules sponsored by Senator Durbin, Bank of America Corp. reported today a loss of $7.6 billion in the third quarter, as it took a writedown of more than $10 billion to prepare for new legislation that it says could virtually wipe out its debit card revenue. 
Bank of America currently makes about $2.9 billion annually in debit-card revenue, and says it expects to have to shed up to 80 percent, or about $2.3 billion. The $10.4 billion writedown is an accounting charge that reduces the goodwill value of the card services unit. BUT keep in mind, the Merchant's Payments Coalition pointed the finger at BofA stating that it was only trying to divert attention away from its foreclosure problems.  Interestingly, the mortgage unit lost $344 million this year, as opposed to the $1.6 BILLION that it lost last year. 

But what's putting some pressure here at home to not provide loan modifications in my opinion is the new capital requirements that banks are having to meet wherein they must maintain higher liquidity and capital levels under the Basel III international regulations.  So in order to meet those requirements. . . FORECLOSURE FORECLOSURE FORECOSURE!  Makes more capital available and increased liquidity!

But tell me something readers. . . .  Bloomberg Business Week writers Dawn Kopecki and Michael J. Moore writing on October 28, 2010 that it's going to be the worst decade for banks since the Great Depression....

YET:  On November 5, 2010, David Frank from Forex said that Bank of America's stocks are UP almost 2 percentage points since the Federal Reserve Board announced that the banks could increase dividend payments. 

HOW is it possible that Bank of America on one hand is posting devastating losses and on the brink of needing bail out funds from the federal government. . . yet there is a plan to pay dividends to its investors.  Someone had to lobby for that change with the Federal Reserve Board. 

If I were a betting lawyer, I would say that with the foreclosures that Bank of America have been snatching up in a race to beat congress from taking action to stop their foreclosure frenzy.  The properties they seize for themselves end up building a portfolio that when sold create liquidity for the bank.  But if you ever have attended a foreclosure auction, there are plenty of cash rich investors coming in and creating bidding wars.  They are not getting "DEALS" on these homes as much as you would expect.

My advice, if you have money, hold on to it.  The roller coaster ride is not over yet, we have not hit bottom.  From an investment point of view, Bank of America attracts more investors as it gets troubled assets off the books.  The losses posted in the mortgage department that I referenced in this article, reflect, that Bank of America took its losses up front.  Took it's tax deductions for the losses up front.  Now that they show fewer losses this year, sadly wealthy investors will flock to Bank of America seeing the dramatic drop in losses.

Like my good friend Melody always says. . . I'm just saying. . . .

Friday, November 12, 2010

HELP from FANNIE MAE coming to LOS ANGELES - Even if you have already been turned down!

Dear Readers: 

If you are struggling to get your loan modified and your loan is owned by Fannie Mae help for you may have arrived if you live in the Los Angeles Area.  Go to this link to find out if Fannie Mae has your loan: The Greater Los Angeles Mortgage Help Center will be offering foreclosure avoidance assistance in both English and Spanish.  The counseling is free!  Call (866) 442-8576 or email to schedule your appointment.

Even if you have already been turned down for a loan modification it is worth it to keep applying.  Because the economy is not recovering as quickly as investors were wanting, they are reconsidering their previous decision not to modify loans, and re-thinking their strategy.  So please don't give up!  However, if you have already received a Notice of Sale, don't wait to until the last minute.  Consult a bankruptcy attorney for free explore options to save your home in bankruptcy, or review your case to fully understand and know your rights.  We are here to help. 

Thursday, September 16, 2010


Feeling powerless when it comes to your creditors calling you on the phone at home at work or on your cell phone?  Have they called your friends or family members and embarrassed you? The only way they are going to stop is if we all band together, know our rights, and fight back!

Under the Telephone Consumer Protection Act it is illegal to use an autodialer in certain instances.  The fines against the collection agency can range go as high as $1,500 a phone call!  You should know that it is illegal for them to call you on your cell phone, unless that is the only number you have provided.  To be sure. . . the next time you get a call on your cell phone, give them your new "MAGICJACK" phone number or home number where calls can be screened and demand that they not call you on your cell phone any more.  Get their name and fax number if you can and fax them a note to that effect as well.  Once you have that documentation, if they do it again, document the phone call and head to the nearest small claims court.  The filing fee is small but the satisfaction of stopping a collection agency from engaging in this unlawful behavior is HUGE!

I say its time to stop cowering to the banks, lenders, collection agencies and their ilk.  Time to stand up and know and enforce our rights.  We shouldn't have to live in fear of answering our telephone, fear that our employers, friends and family members will be told of our indebtedness and embarrassed by the collectors' remarks.

It is time to educate your family members.  Ask your family members to let you know when a collector has called them to ask about information regarding you and your debt.  Let them know that if an autodialer calls them regarding your debt that is an IMMEDIATE VIOLATION of the act!  If the collector knows (because you have written to them previously providing them with the only phone number they may contact) this can be a fine of $1,500.00.  Perhaps enough to pay off the debt you owe!  
You can find out if a collection agency has been calling family members and friends simply by subpoenaing the records.  At $1,500.00 a fine our office is willing to partner with you to put a stop to the harassing phone calls until you can get back on your feet or file your bankruptcy and get your financial fresh start.  My office can help you with both.  

Wednesday, July 7, 2010

George Nicoletti Intends to Capitalize on Mabry v. Aurora Loan Services

Dear Readers: 

My good friend and brother in Christ George Nicoletti a well-respected Real Estate Attorney, Litigator and Counselor at Law had some interesting commentary regarding the Mabry v. Aurora Loan Services case which he included in a demurrer in a case which involved a failure by a lender to contact client regarding loan modification prior to proceeding with a notice of default.  Mr. Nicoletti has been quite successful in his pursuit of ruthless lenders and their foreclosure practices.  Please read below for his comments.  Additionally, if you need help, feel free to call him at 805 719-2750.

There is a temptation to read Mabry v Superior Court (Aurora) loosely (that it permits contact  subsequent to the NOD which would somehow cure the requirements of the contact to take place within the statutory 30 days or more before the NOD is recorded).  Mabry defers to a finding of fact by the trial court that the exploration called out in CC 2923.5 was intended to be simple and explanatory in nature.  That would not change the timing of the “assessment and exploration”, however.  The decision didn’t indicate that the duty giving rise to Plaintiff’s private right of action could be accomplished later in time than the statute designates.  It would be a gross misreading of the case to minimize the timing when the duty to convey these alternatives was to take place.   For the Defendant to simply state that it explained alternatives to foreclosure in casual conversation sometime after the NOD does not embrace the guidance in Mabry nor California’s legislative intent. 
The Court in Mabry construed that the statute was carefully drafted to avoid federal preemption of servicing functions such as new loan application process mandated. The notion that the lender has only a cursory duty to explain the alternatives could lead one to opine that the Court simply views 2923.5 as a 30 day delay, where once a bank adapts a suitable form letter procedure, it satisfies the legislative intent.  Not so. The emergency nature of the statute suggests “personal” contact, not anonymity. This “personal” quality of the contact is affirmed by the language of .5 following the contact requirement itself where it mandates that “during the initial contact, the mortgagee..shall advise the borrower that he or she has the right to request a subsequent meeting, and if requested the mortgagee..shall schedule the meeting to occur in 14 days. 
The “shalls” should not go unnoticed by this Court although the Federal trial Courts seemed to have had no trouble ignoring them (except for Ortiz-also attached herein with highlight).  Neither should the spirit of the statute to encourage personal rather than anonymous contact, be ignored.  The intimacy of the contact is tempered by the last sentence in the section that “any meeting may occur telephonically” but still the statute encourages someone from the bank to take ownership of the account and be personally involved, and not generate anonymous form letters and cosmetic messages.    
The Cardenas amendment to the Perata Mortgage Relief Act also inserted the word “initial” in front of the word contact for a reason.  This obviously suggests that the duty to assess and explore alternatives does not meander through the various conversations taking place after the “initial contact”, unless of course it is at the mandated meeting within 14 days.  Should this Court credit post NOD facts declared herein finding that various conversations at various times after the NOD was recorded or during subsequent  meetings, letters or other communication between the borrower and various bank agents constitute a fulfillment of these duties mandated at that “initial contact”, it would defy the Mabry definition of this Plaintiff’s right of action.  To rule that the duty of contact in .5 is somehow satisfied if an agent mentioned an alternative to foreclosure during one of those later communications, it would be flying in the face of  the specificity of the statute (“initial contact”), California’s legislative intent and the Mabry decision itself. 
The proper determination of “who is telling the truth” is to engage in a trial or take evidence or through Summary Judgment, and certainly not find that factual determination based on Demurrer exhibits, whatever their impressive length and pomp.  This would deprive this Plaintiff of his right to due process through cross examination, hearsay objection and other evidentiary controls, to establish what the Mabry Court gave back to the trial court with the following language  “This case will obviously have to be remanded for an evidentiary hearing”.
               It is important for this Court’s application of the Mabry decision to note that the writ was granted and the guidance to the trial Court was that if it found that .5 was not complied with, the “sale shall be postponed until Aurora files a new Notice of Default in the wake of substantive compliance with .5”

AURORA LOAN SERVICE LOSES ANOTHER ONE - - but not all good news. . .

Dear Friends:

Just wanted to tell you about this case that was recently decided against Aurora Loan Services.  Essentially what it means is that you can sue your lender if they fail to contact you regarding foreclosure avoidance before filing a Notice of Default.  If you were not contacted by your lender and a notice of default has been filed against you, you have rights.  Give us a call and we can help you.

See the full text of the case below.

Best regards
R. Grace

Real Parties in Interest.
(Super. Ct. No. 30-2009-003090696)
Original proceedings; petition for a writ of mandate to challenge an order of
the Superior Court of Orange County, David C. Velazquez, Judge. Writ granted in part
and denied in part.
Law Offices of Moses S. Hall and Moses S. Hall for Petitioners.
No appearance for Respondent.
Akerman Senterfitt, Justin D. Balser and Donald M. Scotten for Real Party
in Interest Aurora Loan Services.
McCarthy & Holthus, Matthew Podmenik, Charles E. Bell and Melissa
Robbins Contts for Real Party in Interest Quality Loan Service Corporation.
Bryan Cave, Douglas E. Winter, Christopher L. Dueringer, Sean D. Muntz
and Kamae C. Shaw for Amici Curiae Bank of America and BAC Home Loans Servicing
on behalf of Real Parties in Interest.
Wright, Finlay & Zak, Thomas Robert Finlay and Jennifer A. Johnson for
Amici Curiae United Trustee’s Association and California Mortgage Association.
Leland Chan for Amicus Curiae California Bankers Association.
Civil Code section 2923.5 requires, before a notice of default may be filed,
that a lender contact the borrower in person or by phone to “assess” the borrower’s
financial situation and “explore” options to prevent foreclosure. Here is the exact,
operative language from the statute: “(2) A mortgagee, beneficiary, or authorized agent
shall contact the borrower in person or by telephone in order to assess the borrower’s
financial situation and explore options for the borrower to avoid foreclosure.”1 There is
nothing in section 2923.5 that requires the lender to rewrite or modify the loan.
In this writ proceeding, we answer these questions about section 2923.5,
also known as the Perata Mortgage Relief Act2:
(A) May section 2923.5 be enforced by a private right of action? Yes.
Otherwise the statute would be a dead letter.
1 All further undesignated statutory references will be to the Civil Code. We will quote relevant portions of the text
of section 2923.5 in part III.A. of this opinion.
2 We do not address the content of any legislation that may now be making its way through the Legislature which
may amend, supplement or otherwise modify section 2923.5.
(B) Must a borrower tender the full amount of the mortgage indebtedness
due as a prerequisite to bringing an action under section 2923.5? No. To hold
otherwise would defeat the purpose of the statute.
(C) Is section 2923.5 preempted by federal law? No -- but, we must
emphasize, it is not preempted because the remedy for noncompliance is a simple
postponement of the foreclosure sale, nothing more.
(D) What is the extent of a private right of action under section 2923.5?
To repeat: The right of action is limited to obtaining a postponement of an impending
foreclosure to permit the lender to comply with section 2923.5.
(E) Must the declaration required of the lender by section 2923.5,
subdivision (b) be under penalty of perjury? No. Such a requirement is not only not in
the statute, but would be at odds with the way the statute is written.
(F) Does a declaration in a notice of default that tracks the language of
section 2923.5, subdivision (b) comply with the statute, even though such language does
not on its face delineate precisely which one of the three categories set forth in the
declaration applies to the particular case at hand? Yes. There is no indication that the
Legislature wanted to saddle lenders with the need to “custom draft” the statement
required by the statute in notices of default.
(G) If a lender did not comply with section 2923.5 and a foreclosure sale
has already been held, does that noncompliance affect the title to the foreclosed property
obtained by the families or investors who may have bought the property at the
foreclosure sale? No. The Legislature did nothing to affect the rule regarding
foreclosure sales as final.
(H) In the present case, did the lender comply with section 2923.5? We
cannot say on this record, and therefore must return the case to the trial court to
determine which of the two sides is telling the truth. According to the lender, the
borrowers themselves initiated a telephone conversation in which foreclosure-avoidance
options were discussed, and there were many, many phone calls to the borrowers to
attempt to discuss foreclosure-avoidance options. According to the borrowers, no one
ever contacted them about nonforeclosure options. The trial judge, however, never
reached this conflict in the facts, because he ruled strictly on legal grounds: namely (1)
that section 2923.5 does not provide for a private right of action and (2) section 2923.5 is
preempted by federal law. As indicated, we have concluded otherwise as to those two
(I) Can section 2923.5 be enforced in a class action in this case? Not
under these facts. The operation of section 2923.5 is highly fact-specific, and the details
as to what might, or might not, constitute compliance can readily vary from lender to
lender and borrower to borrower.
In December 2006, Terry and Michael Mabry refinanced the loan on their
home in Corona from Paul Financial, borrowing about $700,000. In April 2008, Paul
Financial assigned to Aurora Loan Services the right to service the loan. In this opinion,
we will treat Aurora as synonymous with the lender and use the terms interchangeably.3
According to the lender, in mid-July 2008 -- before the Mabrys missed their
August 2008 loan payment -- the couple called Aurora on the telephone to discuss the
loan with an Aurora employee. The discussion included mention of a number of options
to avoid foreclosure, including loan modification, short sale, deed-in-lieu of foreclosure,
and even a special forbearance. The Aurora employee sent a letter following up on the
conversation. The letter explained the various options to avoid foreclosure, and asked the
Mabrys to forward current financial information to Aurora so it could consider the
Mabrys for these options.
According to the lender, the Mabrys missed their September 2008 payment
as well, and mid-month Aurora sent them another letter describing ways to avoid
foreclosure. Aurora employees called the Mabrys “many times” to discuss the situation.
The Mabrys never picked up.
3 Aurora Loan Services will be referred to as Aurora. We also do not burden readers with the technical distinctions
in mortgage law between mortgagors, mortgagees, trustors, or trustees. For purposes of this case, there are only two
categories, lenders and borrowers.
It is undisputed that later in September, the Mabrys filed Chapter 11
bankruptcy and Aurora did not contact the Mabrys while the bankruptcy was pending.
(See 11 U.S.C. § 362 [automatic stay].) The Mabrys had their Chapter 11 case
dismissed, however, in late March 2009.
According to the lender, Aurora once again began trying to call the Mabrys,
calling them “numerous times,” including “three times on different days.” Meanwhile, in
mid-April the Mabrys sent an authorization to discuss the loan with their lawyers.
According to the lender, finally, in June, the Mabrys sent two faxes to
Aurora, the aggregate effect of which was to propose a short sale to the Mabrys’
attorney, Moses S. Hall, for $350,000. If accepted, the short sale would have meant a
loss of over $400,000 on the loan. Aurora rejected that offer, and an attorney in Hall’s
law office proposed a sale price of $425,000, which would have meant a loss to the
lender of about $340,000.
It is undisputed that on June 18, 2009, Aurora recorded a notice of default.
The notice of default used this (obviously form) language: “The Beneficiary or its
designated agent declares that it has contacted the borrower, tried with due diligence to
contact the borrower as required by California Civil Code section 2923.5, or the borrower
has surrendered the property to the beneficiary or authorized agent, or is otherwise
exempt from the requirements of section 2923.5.” Aurora sent six copies of the recorded
notice of default to the Mabrys’ home by certified mail, and the certifications showed
they were delivered.
It is also undisputed that on October 7, the Mabrys filed a complaint in
Orange County Superior Court based on Aurora’s alleged failure to comply with section
According to the borrowers, no one had ever contacted them about their
foreclosure options. Michael Mabry stated the following in his declaration: “We have
never been contacted by Aurora nor [sic] any of its agents in person, by telephone or by
first class mail to explore options for us to avoid foreclosure as required in CC § 2923.5.”
The complaint sought a temporary restraining order to prevent the
foreclosure sale then scheduled just a week away, on October 14, 2009. Based on the
allegation of no contact, the trial court issued a temporary restraining order, and
scheduled a hearing for October 20.
But exactly one week before the October 20 hearing, the Mabrys filed an
amended complaint, this one specifically adding class action allegations and seeking
injunctive relief for an entire class.4 This new filing came with another request for a
temporary restraining order, which was also granted, with a hearing on that temporary
restraining order scheduled for October 27 (albeit the order was directed at Aurora only).
The first restraining order was vacated on October 20, the second on
October 27. The trial judge did not, however, resolve the conflict in the facts presented
by the pleadings. Rather he concluded: (1) the action is preempted by federal law; (2)
there is no private right of action under section 2923.5 -- the statute can only be enforced
by members of pooling and servicing agreements; and (3) the Mabrys were required to at
least tender all arrearages to enjoin any foreclosure proceedings.
The Mabrys filed a motion for reconsideration and a third request for a
restraining order based on supposedly new law. The new law was a now review-granted
Court of Appeal opinion which, let us merely note here, appears to have been quite offpoint
in regards to any issue which the trial judge had just decided. So it is not surprising
that the requested restraining order was denied. The foreclosure sale was now scheduled
for November 30, 2009. Six days before that, though, the Mabrys filed this writ
proceeding, and two days later this court stayed all proceedings. We invited amicus
curiae to give their views on the issues raised by the petition, and subsequently scheduled
an order to show cause to consider those issues.
4 Which is interesting by itself. The original complaint was clearly drafted to be a class action vehicle. The caption
listed what appear to be pretty much everybody in the real estate financing business in California, but the text of the
original complaint merely asserted that the defendants in the case were “doing business as primary real estate
lenders.” It contained none of the plaintiff-is-a-proper-representative-of-the-class allegations one typically sees in
class action pleadings.
A. Private Right of Action? Yes
1. Preliminary Considerations
A private right of action may inhere within a statute, otherwise silent on the
point, when such a private right of action is necessary to achieve the statute’s policy
objectives. (E.g., Cannon v. University of Chicago (1979) 441 U.S. 677, 683 [implying
private right of action into Title IX of the Civil Rights Act because such a right was
necessary to achieve the statute’s policy objectives]; Basic Inc. v. Levinson (1988) 485
U.S. 224, 230-231 [implying private right of action to enforce securities statute].)
That is, the absence of an express private right of action is not necessarily
preclusive of such a right. There are times when a private right of action may be implied
by a statute. (E.g., Siegel v. American Savings & Loan Assn. (1989) 210 Cal.App.3d 953,
966 [“Before we reach the issue of exhaustion of administrative remedies, we must
determine, therefore, whether plaintiffs have an implied private right of action under
California courts have, of recent date, looked to Moradi-Shalal v.
Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287 (Moradi-Shalal) for guidance as to
whether there is an implied private right of action in a given statute. In Moradi-Shalal,
for example, the presence of a comprehensive administrative means of enforcement of a
statute was one of the reasons the court determined that there was no private right of
action to enforce a statute (Ins. Code, § 790.03, subd. (h)) regulating general insurance
industry practices. (See Moradi-Shalal, supra, 46 Cal.3d at p. 300.)
There is also a pre-Moradi Shalal approach, embodied in Middlesex Ins.
Co. v. Mann (1981) 124 Cal.App.3d 558, 570 (Middlesex). (The Middlesex opinion itself
copied the idea from the Restatement Second of Torts, section 874A.) The approach
looks to whether a private remedy is “appropriate” to further the “purpose of the
legislation” and is “needed to assure the effectiveness of the provision.” (Middlesex,
supra, 124 Cal.App.3d at p. 570.)
Obviously, where the two approaches conflict, the one used by our high
court in Moradi-Shalal trumps the Middlesex approach. But we may note at this point
that as regards section 2923.5, there is no alternative administrative mechanism to
enforce the statute. By contrast, in Moradi-Shalal, there was an existing administrative
mechanism at hand (by way of the Insurance Commissioner) available to enforce section
790.03, subdivision (h) of the Insurance Code.
There are other corollary principles as well.
First, California courts, quite naturally, do not favor constructions of
statutes that render them advisory only, or a dead letter. (E.g., Petropoulos v.
Department of Real Estate (2006) 142 Cal.App.4th 554, 567; People v. Stringham (1988)
206 Cal.App.3d 184, 197.) Our colleagues in Division One of this District nicely
summarized this point in Goehring v. Chapman University (2004) 121 Cal.App.4th 353,
375: “The question of whether a regulatory statute creates a private right of action
depends on legislative intent . . . . In determining legislative intent, ‘[w]e first examine
the words themselves because the statutory language is generally the most reliable
indicator of legislative intent . . . . The words of the statute should be given their
ordinary and usual meaning and should be construed in their statutory context. . . . These
canons generally preclude judicial construction that renders part of the statute
“meaningless or inoperative.”’” (Italics added.)
Second, statutes on the same subject matter or of the same subject should
be construed together so that all the parts of the statutory scheme are given effect. (Lexin
v. Superior Court (2010) 47 Cal.4th 1050, 1090-1091.) This canon is particularly
important in the case before us, where there is an enforcement mechanism available at
hand to enforce section 2923.5, in the form, as we explain below, of section 2924g.
Ironically though, the enforcement mechanism at hand, in direct contrast to the one in
Moradi-Shalal, is one that strongly implies individual enforcement of the statute.
Third, historical context can also shed light on whether the Legislature
intended a private right of action in a statute. As noted by one federal district court that
has found a private right of action in section 2923.5, the fact that a statute was enacted as
an emergency statute is an important factor in determining legislative intent. (See Ortiz
v. Accredited Home Lenders, Inc. (S.D. 2009) 639 F.Supp.2d 1159, 1166 [agreeing with
argument that “the California legislature would not have enacted this ‘urgency’
legislation, intended to curb high foreclosure rates in the state, without any accompanying
enforcement mechanism”]; cf. County of San Diego v. State of California (2008) 164
Cal.App.4th 580, 609 [admitting that private right of action might exist, even if the
Legislature did not imply one, if “‘compelling reasons of public policy’” required
“judicial recognition of such a right”].) Section 2923.5 was enacted in 2008 as a
manifestation of a felt need for urgent action in the midst of a cascading torrent of
Finally, of course, there is recourse to legislative history. Alas, in this case,
there is silence on the matter as regards the existence of a private right of action in the
final draft of the statute, and we have been cited to nothing in the history that suggests a
clear legislative intent one way or the other. (See generally J.A. Jones Construction Co.
v. Superior Court (1994) 27 Cal.App.4th 1568, 1575 (J.A. Jones) [emphasizing
importance of clear intent appearing in legislative history].) To be sure, as we were
reminded at oral argument, an early version of section 2923.5 had an express provision
for a private right of action and that provision did not make its way into the final version
of the statute. And we recognize that this factor suggests the Legislature may not have
wanted to have section 2923.5 enforced privately.
On the other hand, the bottom line was an outcome of silence, not a clear
statement that there should be no individual enforcement. And silence, as this court
pointed out in J.A. Jones, has its own implications. There, we cited Professor Eskridge’s
work on statutory interpretation (see Eskridge, The New Textualism (1990) 37 U.C.L.A.
L.Rev. 621, 670-671 (hereinafter “Eskridge on Textualism”)) to recognize that ambiguity
in a statute may itself be the result of both sides in the legislative process agreeing to let
the courts decide a point: “[I]f there is ambiguity it is because the legislature either could
not agree on clearer language or because it made the deliberate choice to be ambiguous --
in effect, the only ‘intent’ is to pass the matter on to the courts.” (J.A. Jones, supra, 27
Cal. App.4th at p. 1577.) As Professor Eskridge put it elsewhere in his article: “The vast
majority of the Court’s difficult statutory interpretation cases involve statutes whose
ambiguity is either the result of deliberate legislative choice to leave conflictual decisions
to agencies or the courts.” (Eskridge on Textualism, supra, 37 UCLA L.Rev. at p. 677.)
We have a concrete example in the case at hand. Amicus curiae, the
California Bankers Association, asserts that if section 2923.5 had included an express
right to a private right of action, the association would have vociferously opposed the
legislation. Let us accept that as true. But let us also accept as a reasonable premise that
the sponsors of the bill (2008, Senate Bill No. 1137) would have vociferously opposed
the legislation if it had an express prohibition on individual enforcement. The point is,
the bankers did not insist on language expressly or even impliedly precluding a private
right of action, or, if they did, they didn’t get it. The silence is consonant with the idea
that section 2923.5 was the result of a legislative compromise, with each side content to
let the courts struggle with the issue.
With these observations, we now turn to the language, structure and
function of the statute at issue.
2. Operation of Section 2923.5
Section 2923.5 is one of a series of detailed statutes that govern mortgages
that span sections 2920 to 2967. Within that series is yet another long series of statutes
governing rules involving foreclosure.5 This second series goes from section 2924, and
then follows with sections 2924a through 2924l. (There is no section 2924m . . . yet.)
Section 2923.5 concerns the crucial first step in the foreclosure process:
The recording of a notice of default as required by section 2924. (Just plain section 2924
-- this one has no lower case letter behind it.)
The key text of section 2923.5 -- “key” because of the substantive
obligation it imposes on lenders -- basically says that a lender cannot file a notice of
5 By foreclosure in this opinion, we mean nonjudicial foreclosure, which is overwhelmingly preferred by lenders --
after all, they don’t have to hire any lawyers to effect it.
default until the lender has contacted the borrower “in person or by telephone.” Thus an
initial form letter won’t do. To quote the text directly, lenders must contact the borrower
by phone or in person to “assess the borrower’s financial situation and explore options for
the borrower to avoid foreclosure.”6 The statute, of course, has alternative provisions in
cases where the lender tries to contact a borrower, and the borrower simply won’t pick up
the phone, the phone has been disconnected, the borrower hides or otherwise evades
6 Here is subdivision (a) of section 2923.5:
“(a)(1) A mortgagee, trustee, beneficiary, or authorized agent may not file a notice of default pursuant to Section
2924 until 30 days after initial contact is made as required by paragraph (2) or 30 days after satisfying the due
diligence requirements as described in subdivision (g).
“(2) A mortgagee, beneficiary, or authorized agent shall contact the borrower in person or by telephone in order to
assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure. During the
initial contact, the mortgagee, beneficiary, or authorized agent shall advise the borrower that he or she has the right
to request a subsequent meeting and, if requested, the mortgagee, beneficiary, or authorized agent shall schedule the
meeting to occur within 14 days. The assessment of the borrower’s financial situation and discussion of options
may occur during the first contact, or at the subsequent meeting scheduled for that purpose. In either case, the
borrower shall be provided the toll-free telephone number made available by the United States Department of
Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency. Any meeting may
occur telephonically.”
The need for a declaration is then spelled out in subdivision (c), which provides as follows:
“(c) If a mortgagee, trustee, beneficiary, or authorized agent had already filed the notice of default prior to the
enactment of this section and did not subsequently file a notice of rescission, then the mortgagee, trustee,
beneficiary, or authorized agent shall, as part of the notice of sale filed pursuant to Section 2924f, include a
declaration that either:
“(1) States that the borrower was contacted to assess the borrower’s financial situation and to explore options for
the borrower to avoid foreclosure.
“(2) Lists the efforts made, if any, to contact the borrower in the event no contact was made.”
7 Subdivision (g) of section 2923.5 provides:
“(g) A notice of default may be filed pursuant to Section 2924 when a mortgagee, beneficiary, or authorized agent
has not contacted a borrower as required by paragraph (2) of subdivision (a) provided that the failure to contact the
borrower occurred despite the due diligence of the mortgagee, beneficiary, or authorized agent. For purposes of this
section, ‘due diligence’ shall require and mean all of the following:
“(1) A mortgagee, beneficiary, or authorized agent shall first attempt to contact a borrower by sending a first-class
letter that includes the toll-free telephone number made available by HUD to find a HUD-certified housing
counseling agency.
“(2)(A) After the letter has been sent, the mortgagee, beneficiary, or authorized agent shall attempt to contact the
borrower by telephone at least three times at different hours and on different days. Telephone calls shall be made to
the primary telephone number on file.
“(B) A mortgagee, beneficiary, or authorized agent may attempt to contact a borrower using an automated system
to dial borrowers, provided that, if the telephone call is answered, the call is connected to a live representative of the
mortgagee, beneficiary, or authorized agent.
“(C) A mortgagee, beneficiary, or authorized agent satisfies the telephone contact requirements of this paragraph if
it determines, after attempting contact pursuant to this paragraph, that the borrower's primary telephone number and
secondary telephone number or numbers on file, if any, have been disconnected.
The contrast between section 2923.5 and one of its sister-statutes, section
2923.6, is also significant. By its terms, section 2923.5 operates substantively on lenders.
They must do things in order to comply with the law. In Hohfeldian language, it both
creates rights and corresponding obligations.8
But consider section 2923.6, which does not operate substantively. Section
2923.6 merely expresses the hope that lenders will offer loan modifications on certain
terms. 9 By contrast, section 2923.5 requires a specified course of action. (There is a
“(3) If the borrower does not respond within two weeks after the telephone call requirements of paragraph (2) have
been satisfied, the mortgagee, beneficiary, or authorized agent shall then send a certified letter, with return receipt
“(4) The mortgagee, beneficiary, or authorized agent shall provide a means for the borrower to contact it in a
timely manner, including a toll-free telephone number that will provide access to a live representative during
business hours.
“(5) The mortgagee, beneficiary, or authorized agent has posted a prominent link on the homepage of its Internet
Web site, if any, to the following information:
“(A) Options that may be available to borrowers who are unable to afford their mortgage payments and who wish
to avoid foreclosure, and instructions to borrowers advising them on steps to take to explore those options.
“(B) A list of financial documents borrowers should collect and be prepared to present to the mortgagee,
beneficiary, or authorized agent when discussing options for avoiding foreclosure.
“(C) A toll-free telephone number for borrowers who wish to discuss options for avoiding foreclosure with their
mortgagee, beneficiary, or authorized agent.
“(D) The toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.”
(Italics added.)
8 Wesley Hohfeld was big in something called analytical jurisprudence about 100 years ago. (See O'Rourke, Refuge
From a Jurisprudence of Doubt: Hohfeldian Analysis of Constitutional Law (2009) 61 S.C. L. Rev. 141, 142
[noting that since Hohfeld developed his “‘canonical theory about legal rights’” in 1913, by “the twenty-first
century, Hohfeldian analysis had become an uncontroversial and widely used theory in private law scholarship”].)
9 The statute conspicuously does not require lenders to take any action:
“(a) The Legislature finds and declares that any duty servicers may have to maximize net present value under their
pooling and servicing agreements is owed to all parties in a loan pool, or to all investors under a pooling and
servicing agreement, not to any particular party in the loan pool or investor under a pooling and servicing
agreement, and that a servicer acts in the best interests of all parties to the loan pool or investors in the pooling and
servicing agreement if it agrees to or implements a loan modification or workout plan for which both of the
following apply:
“(1) The loan is in payment default, or payment default is reasonably foreseeable.
“(2) Anticipated recovery under the loan modification or workout plan exceeds the anticipated recovery through
foreclosure on a net present value basis.
“(b) It is the intent of the Legislature that the mortgagee, beneficiary, or authorized agent offer the borrower a loan
modification or workout plan if such a modification or plan is consistent with its contractual or other authority.”
“(c) This section shall remain in effect only until January 1, 2013, and as of that date is repealed, unless a later
enacted statute, that is enacted before January 1, 2013, deletes or extends that date.” (Italics added.)
Readers will note, in contrast to section 2923.5, the conspicuously absence of any actual duties imposed on
anybody in this statute. At the most, the statute seems to offer a defense to servicers of loan pools if the servicer
tries -- say, over the objection of an owner of a share in the pool -- to implement a loan modification rather than
going straight to foreclosure.
reason for the difference, as we show in part III.C., dealing with federal preemption. In a
word, to have required loan modifications would have run afoul of federal law.)
As noted above, other steps in the foreclosure process are set forth in
sections 2924a through 2924l. The topic of the postponement of foreclosure sales is
addressed in section 2924g.
Subdivision (c)(1)(A) of section 2924g sets forth the grounds for
postponements of foreclosure sales.10 One of those grounds is the open-ended possibility
that any court of competent jurisdiction may issue an order postponing the sale. Section
2923.5 and section 2924g, subdivision (c)(1)(A), when read together, establish a natural,
logical whole, and one wholly consonant with the Legislature’s intent in enacting 2923.5
to have individual borrowers and lenders “assess” and “explore” alternatives to
foreclosure: If section 2923.5 is not complied with, then there is no valid notice of
default, and without a valid notice of default, a foreclosure sale cannot proceed. The
available, existing remedy is found in the ability of a court in section 2924g, subdivision
(c)(1)(A), to postpone the sale until there has been compliance with section 2923.5.
Reading section 2923.5 together with section 2924g, subdivision (c)(1)(A) gives section
2923.5 real effect. The alternative would mean that the Legislature conferred a right on
individual borrowers in section 2923.5 without any means of enforcing that right.
By the same token, compliance with section 2923.5 is necessarily an
individualized process. After all, the details of a borrower’s financial situation and the
options open to a particular borrower to avoid foreclosure are going to vary, sometimes
widely, from borrower to borrower. Section 2923.5 is not a statute, like subdivision (h)
of section 790.03 of the Insurance Code construed in Moradi-Shalal, which contemplates
10 Subdivision (c)(1) provides:
“There may be a postponement or postponements of the sale proceedings, including a postponement upon
instruction by the beneficiary to the trustee that the sale proceedings be postponed, at any time prior to the
completion of the sale for any period of time not to exceed a total of 365 days from the date set forth in the notice of
sale. The trustee shall postpone the sale in accordance with any of the following:
“(A) Upon the order of any court of competent jurisdiction.
“(B) If stayed by operation of law.
“(C) By mutual agreement, whether oral or in writing, of any trustor and any beneficiary or any mortgagor and any
a frequent or general business practice, and thus its very text is necessarily directed at
those who regulate the insurance industry. (Insurance Code section 790.03, subdivision
(h) begins with the words, “Knowingly committing or performing with such frequency as
to indicate a general business practice any of the following unfair claims settlement
practices: . . . .”; see generally Moradi-Shalal, supra, 46 Cal.3d 287.)
Rather, in order to have its obvious goal of forcing parties to communicate
(the statutory words are “assess” and “explore”) about a borrower’s situation and the
options to avoid foreclosure, section 2923.5 necessarily confers an individual right. The
alternative proffered by the trial court -- enforcement by the servicer of pooling
agreements -- involves the facially unworkable problem of fitting individual situations
into collective pools.
The suggestion of one amicus that the Legislature intended enforcement of
section 2923.5 to reside within the Attorney General’s office is one of which we express
no opinion. Our decision today should thus not be read as precluding such enforcement
by the Attorney General’s office. But we do note that the same individual-collective
problem would dog Attorney General enforcement of the statute. To be sure (which is
why the possibility should be left open), there might, ala Insurance Code section 790.03,
subdivision (h), be lenders who systematically ignore section 2923.5, and their “general
business practice” would be susceptible to some sort of collective enforcement. Even so,
the Attorney General’s office can hardly be expected to take up the cause of every
individual borrower whose diverse circumstances show noncompliance with section
3. Application
We now put the preceding ideas and factors together.
11 As we were reminded at oral argument, servicing pools generally have an obligation to maximize the values of
the loans within the pool. So far so good. But look at the problem from the standpoint of a servicer: Maximizing
value depends on context: A family struggling to stay in its home and willing to make payments to stay there and
who might do well with a loan modification, even a temporary one, presents a different problem than cynical
deadbeats who are intent on dragging out the process as long as they can in order to obtain de facto free rent. But
differentiating the two is not amenable to collective enforcement.
While the dropping of an express provision for private enforcement in the
legislative process leading to section 2923.5 does indeed give us pause, it is outweighed
by two major opposing factors. First, the very structure of section 2923.5 is inherently
individual. That fact strongly suggests a legislative intention to allow individual
enforcement of the statute. The statute would become a meaningless dead letter if no
individual enforcement were allowed: It would mean that the Legislature created an
inherently individual right and decided there was no remedy at all.
Second, when section 2923.5 was enacted as an urgency measure, there
already was an existing enforcement mechanism at hand -- section 2924g. There was no
need to write a provision into section 2923.5 allowing a borrower to obtain a
postponement of a foreclosure sale, since such a remedy was already present in section
2924g. Reading the two statutes together as allowing a remedy of postponement of
foreclosure produces a logical and natural whole.
B. Tender Full Amount of Indebtedness? No
The right conferred by section 2923.5 is a right to be contacted to “assess”
and “explore” alternatives to foreclosure prior to a notice of default. It is enforced by the
postponement of a foreclosure sale. Therefore it would defeat the purpose of the statute
to require the borrower to tender the full amount of the indebtedness prior to any
enforcement of the right to -- and that’s the point -- the right to be contacted prior to the
notice of default. Case law requiring payment or tender of the full amount of payment
before any foreclosure sale can be postponed (e.g., Arnolds Management Corp. v.
Eischen (1984) 158 Cal.App.3d 575, 578 [“It is settled that an action to set aside a
trustee’s sale for irregularities in sale notice or procedure should be accompanied by an
offer to pay the full amount of the debt for which the property was security.”]) arises out
of a paradigm where, by definition, there is no way that a foreclosure sale can be avoided
absent payment of all the indebtedness. Any irregularities in the sale would necessarily
be harmless to the borrower if there was no full tender. (See 4 Miller & Starr, Cal. Real
Estate (2d ed. 1989) § 9:154, pp. 507-508.) By contrast, the whole point of section
2923.5 is to create a new, even if limited right, to be contacted about the possibility of
alternatives to full payment of arrearages. It would be contradictory to thwart the very
operation of the statute if enforcement were predicated on full tender. It is well settled
that statutes can modify common law rules. (E.g., Evangelatos v. Superior Court
44 Cal.3d 1188, 1192 [noting that Civil Code sections 1431 to 1431.5 had modified
traditional common law doctrine of joint and several liability].)
C. Preempted by Federal Law? No -- As Long
As Relief Under Section 2923.5 is Limited to Just Postponement
1. Historical Context
A remarkable aspect of section 2923.5 is that it appears to have been
carefully drafted to avoid bumping into federal law, precisely because it is limited to
affording borrowers only more time when lenders do not comply with the statute. To
explain that, though, we need to make a digression into state debtors’ relief acts as they
have manifested themselves in four previous periods of economic distress.
The first period of economic distress was the depression of the mid-1780’s
that played a large part in engendering the United States Constitution in the first place.
As Chief Justice Charles Evans Hughes would later note for a majority of the United
States Supreme Court, there was “widespread distress following the revolutionary period
and the plight of debtors, had called forth in the States an ignoble array of legislative
schemes for the defeat of creditors and the invasion of contractual obligations.” (Home
Building and Loan Ass’n. v. Blaisdell (1934) 290 U.S. 398, 427 (Blaisdell).)
Consequently, the federal Constitution of 1789 contains the contracts clause, which
forbids states from impairing contracts. (See Siegel, Understanding the Nineteenth
Century Contract Clause: The Role of the Property-Privilege Distinction and ‘Takings’
Clause Jurisprudence (1986) 60 So.Cal. L.Rev. 1, 21, fn. 86 [“Although debtor relief
legislation was frequently enacted in the Confederation era, it was intensely opposed. It
was among the chief motivations for the convening of the Philadelphia convention, and
the Constitution drafted there was designed to eliminate such legislation through a variety
of means.”].)
The second period of distress arose out of the panic of 1837, which
prompted, in 1841, the Illinois state legislature to enact legislation severely restricting
foreclosures.12 The legislation (1) gave debtors 12 months after any foreclosure sale to
redeem the property; and (2) prevented any foreclosure sale in the first place unless the
sale fetched at least two-thirds of the appraised value of the property. (See Bronson v.
Kinzie (1843) 42 U.S. 311 (Bronson); Blaisdell, supra, 290 U.S. at p. 431.) In an
opinion, the main theme of which is the interrelationship between contract rights and
legal remedies to enforce those rights (see generally Bronson, supra, 42 U.S. at pp. 315-
321), the Bronson court reasoned that the Illinois legislation had effectively destroyed the
contract rights of the lender as regards a mortgage made in 1838. (See id. at p. 317 [“the
obligation of the contract, and the rights of a party under it, may, in effect, be destroyed
by denying a remedy altogether”].)
The third period of distress was, of course, the Great Depression of the
1930’s. In 1933, the Minnesota Legislature enacted a mortgage moratorium law that
extended the period of redemption under Minnesota law until 1935. (See Blaisdell,
supra, 290 U.S. at pp. 415-416.) But -- and the high court majority found this significant
-- the law required debtors, in applying for an extension of the redemption period -- to
pay the reasonable value of the income of the property, or reasonable rental value if it
didn’t produce income. (Id. at. pp. 416-417.) The legislation was famously upheld in
Blaisdell. In distinguishing Bronson, the Blaisdell majority made the point that the
statute did not substantively impair the debt the way the legislation in Bronson had: “The
statute,” said the court, “does not impair the integrity of the mortgage indebtedness.” (Id.
at p. 425.) The court went on to emphasize the need to pay the fair rental value of the
property, which, it noted, was “the equivalent of possession during the extended
12 Abraham Lincoln was in the Legislature at the time. It is not readily known how he voted on the legislation.
13 Here is the relevant passage emphasizing the way the statute did not impair the “integrity” of the mortgage
“The statute does not impair the integrity of the mortgage indebtedness. The obligation for interest remains. The
statute does not affect the validity of the sale or the right of a mortgagee-purchaser to title in fee, or his right to
Finally, the fourth period was within the living memory of many readers,
namely, the extraordinary inflation and high interest rates of the late 1970’s. That period
engendered Fidelity Federal Savings & Loan Association v. de la Cuesta (1982) 458 U.S.
141 (de la Cuesta). Many mortgages had (still have) what is known as a “due-on-sale”
clause. As it played out in the 1970’s, the clause effectively required any buyer of a new
home to obtain a new loan, but at the then-very high market interest rates. To circumvent
the need for a new high rate mortgage, creative wrap-around financing was invented
where a buyer would assume the obligation of the old mortgage, but that required the
due-on-sale clause not be enforced.
An earlier decision of the California Supreme Court, Wellenkamp v. Bank
of America (1978) 21 Cal.3d 943, had encouraged this sort of creative financing by
holding that due-on-sale clauses violated California state law as an unreasonable restraint
on alienation. Despite that precedent, the trial judge in the de la Cuesta case (Edward J.
Wallin, who would later join this court) held that regulations issued by the Federal Home
Loan Bank Board, by the authority of the Home Owners’ Loan Act of 193314 preempted
state law that invalidated due-on-sale clause. A California appellate court in the Fourth
District (in an opinion by Justice Marcus Kaufman, who would later join the California
Supreme Court) reversed the trial court. The United States Supreme Court, however,
agreed with Judge Wallin’s determination, and reversed the appellate judgment and
squarely held the state law to be preempted.
The de la Cuesta court observed that the bank board’s regulations were
plain -- “even” the California appellate court had been required to recognize that. (de la
Cuesta, supra, 458 U.S. at p. 154). On top of the express preemption, Congress had
obtain a deficiency judgment, if the mortgagor fails to redeem within the prescribed period. Aside from the
extension of time, the other conditions of redemption are unaltered. While the mortgagor remains in possession, he
must pay the rental value as that value has been determined, upon notice and hearing, by the court. The rental value
so paid is devoted to the carrying of the property by the application of the required payments to taxes, insurance, and
interest on the mortgage indebtedness. While the mortgagee-purchaser is debarred from actual possession, he has,
so far as rental value is concerned, the equivalent of possession during the extended period.” (Blaisdell, supra, 290
U.S. at p. 425, italics added.)
14 Like much federal legislation, it has an acronym ending in “a,” -- in this case “HOLA.”
expressed no intent to limit the bank board’s authority to “regulate the lending practices
of federal savings and loans.” (Id. at p. 161.) Further, going into the history of the Home
Owners’ Loan Act, the de la Cuesta court pointed out that “mortgage lending practices”
are a “critical” aspect of a savings and loan’s “‘operation,’” and the Home Loan Bank
Board had issued the due-on-sale regulations in order to protect the economic solvency of
such lenders. (See id. at pp. 167-168.) In what is perhaps the most significant part of the
rationale for our purposes, the bank board had concluded that “the due-on-sale clause is
‘an important part of the mortgage contract,’” consequently its elimination would have an
adverse effect on the “financial stability” of federally chartered lenders. (Id. at p. 168.)
For example, invalidation of the due-on-sale clause would make it hard for savings and
loans “to sell their loans in the secondary markets.” (Ibid.)
With this history behind us, we now turn to the actual regulations at issue in
the case before us.
2. The HOLA Regulations
Under the Home Owner’s Loan Act of 1933 (12 U.S.C. § 1461 et seq.) the
federal Office of Thrift Supervision15 has issued section 560.2 of title 12 of the Code of
Federal Regulations, a regulation that itself delineates what is a matter for federal
regulation, and what is a matter for state law.16 Interestingly enough, section 560.2 is
15 The acronym is OTS.
16 All further references to “section 560.2” will be to title 12 of the Code of Federal Regulations.
Here is the complete text of 12 C.F.R. section 560.2:
“(a) Occupation of field. Pursuant to sections 4(a) and 5(a) of the HOLA, 12 U.S.C. 1463(a), 1464(a), OTS is
authorized to promulgate regulations that preempt state laws affecting the operations of federal savings associations
when deemed appropriate to facilitate the safe and sound operation of federal savings associations, to enable federal
savings associations to conduct their operations in accordance with the best practices of thrift institutions in the
United States, or to further other purposes of the HOLA. To enhance safety and soundness and to enable federal
savings associations to conduct their operations in accordance with best practices (by efficiently delivering low-cost
credit to the public free from undue regulatory duplication and burden), OTS hereby occupies the entire field of
lending regulation for federal savings associations. OTS intends to give federal savings associations maximum
flexibility to exercise their lending powers in accordance with a uniform federal scheme of regulation. Accordingly,
federal savings associations may extend credit as authorized under federal law, including this part, without regard to
state laws purporting to regulate or otherwise affect their credit activities, except to the extent provided in paragraph
(c) of this section or § 560.110 of this part. For purposes of this section, ‘state law’ includes any state statute,
regulation, ruling, order or judicial decision.
“(b) Illustrative examples. Except as provided in § 560.110 of this part, the types of state laws preempted by
paragraph (a) of this section include, without limitation, state laws purporting to impose requirements regarding:
written in the form of examples, using the “ejusdem generis” approach of requiring a
court to figure out what is, and what is not, in the same general class or category as the
items given in the example.
On the preempted side, section 560.2 includes:
-- “terms of credit, including amortization of loans and the deferral and
capitalization of interest and adjustments to the interest rate” (§ 560.2(b)(4));
-- “balance, payments due, or term to maturity of the loan” (§ 560.2(b)(4));
and, most importantly for this case,
-- the “processing, origination, servicing, sale or purchase of, or investment
or participation in, mortgages.” (§ 560.2(b)(10), italics added.)
“(1) Licensing, registration, filings, or reports by creditors;
“(2) The ability of a creditor to require or obtain private mortgage insurance, insurance for other collateral, or
other credit enhancements;
“(3) Loan-to-value ratios;
“(4) The terms of credit, including amortization of loans and the deferral and capitalization of interest and
adjustments to the interest rate, balance, payments due, or term to maturity of the loan, including the circumstances
under which a loan may be called due and payable upon the passage of time or a specified event external to the loan;
“(5) Loan-related fees, including without limitation, initial charges, late charges, prepayment penalties, servicing
fees, and overlimit fees;
“(6) Escrow accounts, impound accounts, and similar accounts;
“(7) Security property, including leaseholds;
“(8) Access to and use of credit reports;
“(9) Disclosure and advertising, including laws requiring specific statements, information, or other content to be
included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related
documents and laws requiring creditors to supply copies of credit reports to borrowers or applicants;
“(10) Processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages;
“(11) Disbursements and repayments;
“(12) Usury and interest rate ceilings to the extent provided in 12 U.S.C. 1735f-7a and part 590 of this chapter and
12 U.S.C. 1463(g) and § 560.110 of this part; and
“(13) Due-on-sale clauses to the extent provided in 12 U.S.C. 1701j-3 and part 591 of this chapter.
“(c) State laws that are not preempted. State laws of the following types are not preempted to the extent that they
only incidentally affect the lending operations of Federal savings associations or are otherwise consistent with the
purposes of paragraph (a) of this section:
“(1) Contract and commercial law;
“(2) Real property law;
“(3) Homestead laws specified in 12 U.S.C. 1462a(f);
“(4) Tort law;
“(5) Criminal law; and
“(6) Any other law that OTS, upon review, finds:
“(i) Furthers a vital state interest; and
“(ii) Either has only an incidental effect on lending operations or is not otherwise contrary to the purposes
expressed in paragraph (a) of this section.” (Italics added.)
On the other side, left for the state courts, is “Real property law.” (12
C.F.R. § 560.2(c)(2).)
We agree with the Mabrys that the process of foreclosure has traditionally
been a matter of state real property law, a point both noted by the United States Supreme
Court in BFP v. Resolution Trust Corp. (1994) 511 U.S. 531, 541-542,17 and academic
commentators (e.g., Alexander, Federal Intervention in Real Estate Finance:
Preemption and Federal Common Law (1993) 71 N.C. L. Rev. 293, 293 [“Historically,
real property law has been the exclusive domain of the states.”]), including at least one
law professor who laments that diverse state foreclosure laws tend to hinder efforts to
achieve banking stability at the national level. (See Nelson, Confronting the Mortgage
Meltdown: A Brief for the Federalization of State Mortgage Foreclosure Law (2010) 37
Pepperdine L.Rev. 583, 588-590 [noting that mortgage foreclosure law varies from state
to state, and advocating federalization of mortgage foreclosure law].) By contrast, we
have not been cited to anything in the federal regulations that govern such things as
initiation of foreclosure, notice of foreclosure sales, allowable times until foreclosure, or
17 Here is the relevant (and interesting) passage, giving a quick primer on foreclosure law. (Citations are replaced
with ellipses for easier reading.)
“The history of foreclosure law also begins in England, where courts of chancery developed the ‘equity of
redemption’ -- the equitable right of a borrower to buy back, or redeem, property conveyed as security by paying the
secured debt on a later date than ‘law day,’ the original due date. The courts’ continued expansion of the period of
redemption left lenders in a quandary, since title to forfeited property could remain clouded for years after law day.
To meet this problem, courts created the equitable remedy of foreclosure: after a certain date the borrower would be
forever foreclosed from exercising his equity of redemption. This remedy was called strict foreclosure because the
borrower’s entire interest in the property was forfeited, regardless of any accumulated equity. . . . The next major
change took place in 19th-century America, with the development of foreclosure by sale (with the surplus over the
debt refunded to the debtor) as a means of avoiding the draconian consequences of strict foreclosure. . . . Since then,
the States have created diverse networks of judicially and legislatively crafted rules governing the foreclosure
process, to achieve what each of them considers the proper balance between the needs of lenders and borrowers.
All States permit judicial foreclosure, conducted under direct judicial oversight; about half of the States also permit
foreclosure by exercising a private power of sale provided in the mortgage documents. . . . Foreclosure laws
typically require notice to the defaulting borrower, a substantial lead time before the commencement of foreclosure
proceedings, publication of a notice of sale, and strict adherence to prescribed bidding rules and auction procedures.
Many States require that the auction be conducted by a government official, and some forbid the property to be sold
for less than a specified fraction of a mandatory presale fair-market-value appraisal. . . . When these procedures have
been followed, however, it is “black letter” law that mere inadequacy of the foreclosure sale price is no basis for
setting the sale aside, though it may be set aside (under state foreclosure law, rather than fraudulent transfer law) if
the price is so low as to ‘shock the conscience or raise a presumption of fraud or unfairness.’” (BFP v. Resolution
Trust Corp., supra, 511 U.S. at pp. 541-542, italics added and deleted.)
redemption periods. (Though there are commentators, like Professor Nelson, who argue
there should be.)
Given the traditional state control over mortgage foreclosure laws, it is
logical to conclude that if the Office of Thrift Supervision wanted to include foreclosure
as within the preempted category of loan servicing, it would have been explicit. Nothing
prevented the office from simply adding the words “foreclosure of” to section
D. The Extent of Section 2923.5?
More Time and Only More Time
State law should be construed, whenever possible, to be in harmony with
federal law, so as to avoid having the state law invalidated by federal preemption. (See
Greater Westchester Homeowners Assn. v. City of Los Angeles (1979) 26 Cal.3d 86, 93;
California Arco Distributors, Inc. v. Atlantic Richfield Co. (1984) 158 Cal.App.3d 349,
We emphasize that we are able to come to our conclusion that section
2923.5 is not preempted by federal banking regulations because it is, or can be construed
to be, very narrow. As mentioned above, there is no right, for example, under the statute,
to a loan modification.
A few more comments on the scope of the statute:
First, to the degree that the words “assess” and “explore” can be narrowly
or expansively construed, they must be narrowly construed in order to avoid crossing the
line from state foreclosure law into federally preempted loan servicing. Hence, any
“assessment” must necessarily be simple -- something on the order of, “why can’t you
make your payments?” The statute cannot require the lender to consider a whole new
loan application or take detailed loan application information over the phone. (Or, as is
unlikely, in person.)
Second, the same goes for any “exploration” of options to avoid
foreclosure. Exploration must necessarily be limited to merely telling the borrower the
traditional ways that foreclosure can be avoided (e.g., deeds “in lieu,” workouts, or short
sales), as distinct from requiring the lender to engage in a process that would be
functionally indistinguishable from taking a loan application in the first place. In this
regard, we note that section 2923.5 directs lenders to refer the borrower to “the toll-free
telephone number made available by the United States Department of Housing and Urban
Development (HUD) to find a HUD-certified housing counseling agency.” The obvious
implication of the statute’s referral clause is that the lender itself does not have any duty
to become a loan counselor itself.
Finally, to the degree that the “assessment” or “exploration” requirements
impose, in practice, burdens on federal savings banks that might arguably push the statute
out of the permissible category of state foreclosure law and into the federally preempted
category of loan servicing or loan making, evidence of such a burden is necessary before
the argument can be persuasive. For the time being, and certainly on this record, we
cannot say that section 2923.5, narrowly construed, strays over the line.
Given such a narrow construction, section 2923.5 does not, as the law in
Blaisdell did not, affect the “integrity” of the basic debt. (Cf. Lopez v. World Savings &
Loan Assn. (2003) 105 Cal.App.4th 729 [section 560.2 preempted state law that capped
payoff demand statement fees].)
E. The Wording of the Declaration:
Okay If Not Under Penalty of Perjury
In addition to the substantive act of contacting the borrower, section 2923.5
requires a statement in the notice of default. The statement is found in subdivision (b),
which we quote here: “(b) A notice of default filed pursuant to Section 2924 shall
include a declaration that the mortgagee, beneficiary, or authorized agent has contacted
the borrower, has tried with due diligence to contact the borrower as required by this
section, or that no contact was required pursuant to subdivision (h).” (Italics added.)
The idea that this “declaration” must be made under oath must be rejected.
First, ordinary English usage of the word “declaration” imports no requirement that it be
under oath. In the Oxford English Dictionary, for example, numerous definitions of the
word are found, none of which of require a statement under oath or penalty of perjury. In
fact, the second legal definition given actually juxtaposes the idea of a declaration against
the idea of a statement under oath: “A simple affirmation to be taken, in certain cases,
instead of an oath or solemn affirmation.” (4 Oxford English Dict. (2d. ed. 1991) at p.
Second, even the venerable Black’s Law Dictionary doesn’t define
“declaration” to necessarily be under oath. Its very first definition of the word is: “A
formal statement, proclamation or announcement, esp. one embodied in an instrument.”
(Black’s Law Dict. (9th ed. 2009) at p. 467.)
Third, if the Legislature wanted to say that the statement required in section
2923.5 must be under penalty of perjury, it knew how to do so. The words “penalty of
perjury” are used in other laws governing mortgages. (E.g., § 2941.7, subdivision (b)
[“The declaration provided for in this section shall be signed by the mortgagor or trustor
under penalty of perjury.”].)
And, finally -- back to our point about the inherent individual operation of
the statute -- the very structure of subdivision (b) belies any insertion of a penalty of
perjury requirement. The way section 2923.5 is set up, too many people are necessarily
involved in the process for any one person to likely be in the position where he or she
could swear that all three requirements of the declaration required by subdivision (b)
were met. We note, for example, that subdivision (a)(2) requires any one of three entities
(a “mortgagee, beneficiary, or authorized agent”) to contact the borrower, and such
entities may employ different people for that purpose. And the option under the statute of
no contact being required (per subdivision (h)18) further involves individuals who would,
18 Which we now quote:
“(h) Subdivisions (a), (c), and (g) shall not apply if any of the following occurs:
“(1) The borrower has surrendered the property as evidenced by either a letter confirming the surrender or delivery
of the keys to the property to the mortgagee, trustee, beneficiary, or authorized agent.
“(2) The borrower has contracted with an organization, person, or entity whose primary business is advising
people who have decided to leave their homes on how to extend the foreclosure process and avoid their contractual
obligations to mortgagees or beneficiaries.
“(3) A case has been filed by the borrower under Chapter 7, 11, 12, or 13 of Title 11 of the United States Code and
the bankruptcy court has not entered an order closing or dismissing the bankruptcy case, or granting relief from a
stay of foreclosure.”
in any commercial operation, probably be different from the people employed to do the
contacting. For example, the person who would know that the borrower had surrendered
the keys would in all likelihood be a different person than the legal officer who would
know that the borrower had filed for bankruptcy.
The argument for requiring the declaration to be under penalty of perjury
relies on section 2015.5 of the Code of Civil Procedure, but that reliance is misplaced.
We quote all of section 2015.5 in the margin.19 Essentially the statute says if a statement
in writing is required to be supported by sworn oath, making the statement under penalty
of perjury will be sufficient. The key language is: “Whenever, under any law of this
state . . . made pursuant to the law of this state, any matter is required . . . to be . . .
evidenced . . . by the sworn . . . declaration . . . in writing of the person making the same
. . . such matter may with like force and effect be . . . evidenced . . . by the unsworn . . .
declaration . . . in writing of such person which recites that it is . . . declared by him or
her to be true under penalty of perjury . . . .” (Italics added.) The section sheds no light
on whether the declaration required in section 2923.5, subdivision (b) must be under
penalty of perjury.
19 The statute reads in its entirety:
“Whenever, under any law of this state or under any rule, regulation, order or requirement made pursuant to the
law of this state, any matter is required or permitted to be supported, evidenced, established, or proved by the sworn
statement, declaration, verification, certificate, oath, or affidavit, in writing of the person making the same (other
than a deposition, or an oath of office, or an oath required to be taken before a specified official other than a notary
public), such matter may with like force and effect be supported, evidenced, established or proved by the unsworn
statement, declaration, verification, or certificate, in writing of such person which recites that it is certified or
declared by him or her to be true under penalty of perjury, is subscribed by him or her, and (1), if executed within
this state, states the date and place of execution, or (2), if executed at any place, within or without this state, states
the date of execution and that it is so certified or declared under the laws of the State of California. The certification
or declaration may be in substantially the following form:
“(a) If executed within this state:
“‘I certify (or declare) under penalty of perjury that the foregoing is true and correct’:
“___________________________________ ___________________________________
(Date and Place) (Signature)
“(b) If executed at any place, within or without this state:
“‘I certify (or declare) under penalty of perjury under the laws of the State of California that the foregoing is true
and correct’:
“_________________________________ _________________________________
(Date) (Signature)”
F. The Wording of the Declaration:
Okay If It Tracks the Statute
In light of what we have just said about the multiplicity of persons who
would necessarily have to sign off on the precise category in subdivision (b) of the statute
that would apply in order to proceed with foreclosure (contact by phone, contact in
person, unsuccessful attempts at contact by phone or in person, bankruptcy, borrower
hiring a foreclosure consultant, surrender of keys), and the possibility that such persons
might be employees of not less than three entities (mortgagee, beneficiary, or authorized
agent), there is no way we can divine an intention on the part of the Legislature that each
notice of foreclosure be custom drafted.
To which we add this important point: By construing the notice
requirement of section 2923.5, subdivision (b), to require only that the notice track the
language of the statute itself, we avoid the problem of the imposition of costs beyond the
minimum costs now required by our reading of the statute.
G. Noncompliance Before Foreclosure
Sale Affect Title After Foreclosure Sale? No
A primary reason for California’s comprehensive regulation of foreclosure
in the Civil Code is to ensure stability of title after a trustee’s sale. (Melendrez v. D & I
Investment, Inc. (2005) 127 Cal.App.4th 1238, 1249-1250 [“comprehensive statutory
scheme” governing foreclosure has three purposes, one of which is “to ensure that a
properly conducted sale is final between the parties and conclusive as to a bona fide
purchaser” (internal quotations omitted)].)
There is nothing in section 2923.5 that even hints that noncompliance with
the statute would cause any cloud on title after an otherwise properly conducted
foreclosure sale. We would merely note that under the plain language of section 2923.5,
read in conjunction with section 2924g, the only remedy provided is a postponement of
the sale before it happens.
H. Lender Compliance in This Case?
Somebody is Not Telling the Truth
and It’s the Trial Court’s Job to
Determine Who It Is
We have already recounted the conflict in the evidence before the trial court
regarding whether there was compliance with section 2923.5. Rarely, in fact, are stories
so diametrically opposite: According to the Mabrys, there was no contact at all.
According to Aurora, not only were there numerous contacts, but the Mabrys even
initiated a proposal by which their attorney would buy the property.
Somebody’s not telling the truth, but appellate courts do not resolve
conflicts in evidence. Trial courts do. (Butt v. State of California (1992) 4 Cal.4th 668,
697, fn. 23 [“Moreover, Diaz and Bezemek concede the proffered evidence is disputed;
appellate courts will not resolve such factual conflicts.”].) This case will obviously have
to be remanded for an evidentiary hearing.
I. Is This Case Suitable for
Class Action Treatment? No
As we have seen, section 2923.5 contemplates highly-individuated facts.
One borrower might not pick up the telephone, one lender might only call at the same
time each day in violation of the statute, one lender might (incorrectly) try to get away
with a form letter, one borrower might, like the old Twilight Zone “pitchman” episode,
try to keep the caller on the line but change the subject and talk about anything but
alternatives to foreclosure, one borrower might, as Aurora asserts here, try to have his or
her attorney do a deal that avoids foreclosure, etcetera.
In short, how in the world would a court certify a class? Consider that in
this case, there is even a dispute over the basic facts as to whether the lender attempted to
comply at all. We do not have, under these facts at least, a question of a clean, systematic
policy on the part of a lender that might be amenable to a class action (or perhaps
enforcement by the Attorney General). This case is not one, to be blunt, where the lender
admits that it simply ignored the statute and proceeded on the theory that federal law had
preempted it. We express no opinion as to any scenario where a lender simply ignored
the statute wholesale -- that sort of scenario is why we do not preclude, a priori, class
actions and have not expressed an opinion as to whether the Attorney General or a private
party in such a situation might indeed seek to enforce section 2923.5 in a class action.
Consequently, while we must grant the writ petition so as to allow the
Mabrys a hearing on the factual merits of compliance, we deny it insofar as it seeks
reinstatement of any claims qua class action. By the same token, in light of the limited
right to time conferred under section 2923.5, we also deny the writ petition insofar as it
seeks reinstatement of any claim for money damages.20
Let a writ issue instructing the trial court to decide whether or not Aurora
complied with section 2923.5. To the degree that the trial court’s order precludes the
assertion of any class action claims, we deny the writ. If the trial court finds that Aurora
has complied with section 2923.5, foreclosure may proceed. If not, it shall be postponed
until Aurora files a new notice of default in the wake of substantive compliance with
section 2923.5.
Given that this writ petition is granted in part and denied in part, each side
will bear its own costs in this proceeding.
20 We express no opinion here as to how any attorney fees issue may play out. Those are for a later day.

Wednesday, June 16, 2010

Can I Be Discriminated Against by an Employer Because I Filed Bankruptcy

I could happen if you are in the military or require security clearances for your employment.  Since 2007, the Defense Office of Hearing and Appeals (DOHA) showed approximately a 50 percent rate of denials.  This is two times more than any other security clearance denial.

Guideline F listed in the Adjudicative Guidelines For Determining Eligibility For Access To Classified Information provides denial of security clearance for "Financial Considerations."  Specifically,  "Excessive indebtedness increases the temptation to commit unethical or illegal acts in order to obtain funds to pay off the debts."  Most Americans who betrayed their country did it for financial gain—about half were motivated by a real or perceived urgent need for money and about half by personal greed.

Aside from compulsive/addictive behavior, deceptive/illegal financial practices, and unexplained affluence, the remaining potentially disqualifying conditions detailed in Guideline F can be boiled down to one security concern—delinquent debt.  High debt to income ratio and excessive indebtedness are listed as a potentially disqualifying condition, but this rarely comes into play absent any past or present delinquent debt or obvious signs of unexplained income.  

Low credit scores are not listed as a potential disqualifying condition, because factors unrelated to debt affect credit scores.

However, all is not lost.  While Delinquent debt causes the greatest concern, you can appeal the denial.  In looking at the denial the Board will take into consideration what caused the debt.  How did you respond to the debt.  How much was the debt.  Emergencies, family illness, bad business investment and other factors which do not reflect upon a person's reliability, trustworthiness or judgment factor into how debt is accumulated.  If the debt occurred due to situations beyond the applicant’s control and the applicant is handling the debt in a reasonable manner (including bankruptcy or debt consolidation), the significance of the problem is substantially reduced. 

Response to debt is evaluated by the things people do (or don’t do) about delinquent debt. How people deal with debt is often a decisive consideration. Those who ignore their financial responsibilities may also ignore their responsibility to safeguard classified information.  Classic indicators of irresponsibility and unethical behavior are:

• Changing addresses without notifying creditors
• Failure to take reasonable measures to pay or reduce debts
• Knowingly issuing bad checks
• Increased credit card use immediately before filing for bankruptcy

The words, “bankruptcy” and “credit counseling” do not appear anywhere in the Adjudicative Guidelines.  This is because both bankruptcy and credit counseling can be considered positive efforts to get one’s finances under control.  What is important is the underlying reason for the bankruptcy or credit counseling.

Amount of debt focuses primarily on the delinquent amount, but as previously mentioned total debt, if it appears excessive, may also be taken into consideration.  Significant delinquent debt is a security concern.  

Your monthly payment for all of your credit cards should not exceed 20 percent of your monthly take-home pay.  Having bills which cause you to spend more than 20% of your monthly take-home is a sign of a financial problem.  

According to Office of Personnel Management (OPM), Federal Investigative Notice No. 06-07, OPM does not automatically expand investigations for financial issues, unless:

• Credit report reflects current aggregate delinquent debt totaling $3,500 or
• Bankruptcy within the past 2 years or
• Bankruptcy within the past 3 to 5 years with evidence of current credit problems.

This does not mean that delinquent debt totaling less than $3,500 is not significant, but it does suggest that, absent any aggravating circumstances or other security issues, the government is not overly concerned about small amounts of delinquent debt.  OPM considers bankruptcy only as a trigger for further inquiry.

In making a decision as to whether to file for Bankruptcy, if you work for the government or in any other highly sensitive security location, it is important that you learn how to use a budget and avoid the kind of indebtedness that could put you at risk.  However, if you have already crossed that line, call me so we can teach you special budgeting techniques and possible debt settlement options which could help you avoid bankruptcy.

Call us today for your free consultation!