Suing for Violations of the Homeowner Bill of Rights
California’s Homeowner Bill of Rights: An Uphill Battle, But Worth It.
By: Christopher J. Fry, Esq., Fry Law Corporation
Yuba County jury awards $16,200,000.00 to a homeowner in a wrongful foreclosure case! (See Linza v. Century 21 Mortgage (2014) Yuba County Superior Court Case No. CV12-0000714.) Now that I’ve got your attention, I hate to break it to you but this award was ultimately substantially reduced to roughly $200,000.00, but it was a win nonetheless.
From 2007 to 2011, there were over 900,000 completed foreclosures in the United States. 38 of the top 100 zip codes were in California. Though the numbers have declined, foreclosures are still an increasing problem. In 2014 foreclosures in California were at an 8 year low with a still staggering 108,000 foreclosures.
Until 2007, the big banks could do no wrong. However, when the market began to crash and the government investigations started, it was quickly discovered that the banks were a huge part of the problem.
First, the bank got away with some very questionable lending practices. More importantly, the banks would simply refuse to work with borrowers who would ultimately default. The banks just didn’t care whether or not a borrower kept their home. If they pretended to care, the cost of managing all of the loan modification applications did not please the shareholders so they simply foreclosed.
From 2007 to 2012, Courts have been inundated with lawsuits against the banks with allegations from unfair business practices all the way up to product liability (I know).
Unfortunately, the banks have been able to slither out from liability based on the case of Nymark v. Heart Federal Savings & Loan Association (1991) 231 Cal.App.3d 1089 (“Nymark”).
A reading of Nymark provides a simple statement that a “lender” owes no duty of care whatsoever to a borrower. The case is essentially apples and oranges in terms of dealing with defaulting borrowers as it relates to the appraisal used to support a mortgage. It holds that the bank is not responsible for the negligence of the appraiser at the time of origination.
Unfortunately, this single case has resulted in thousands upon thousands of demurrers being sustained and cases dismissed as to each and every allegation made by a borrower against the bank. The banks were unstoppable and they continued the ruthless tactics.
Finally, some relief for homeowners!
In 2012, SB900 was introduced and signed into law. SB900 took effect on January 1, 2013 and was touted as the Homeowner Bill of Rights (“HBOR”).
The two most important provisions of the HBOR restrict “dual tracking” and require “single points of contact.” Dual tracking occurs when a bank forecloses on a homeowner while the loan is being reviewed for a modification. A single point of contact has been defined as a person or group of people in which a borrower can immediately contact and receive information about their modification. These provisions only scratch the surface.
Sadly, not even black letter law can put a leash on the Nation’s out-of-control mortgage industry.
While the HBOR provided a false sense of security to homeowners, the truth is that the mortgage industry continues to erroneously rely on Nymark and simply does not care about California law. Homeowners are still being foreclosed upon by the bank while simultaneously being reviewed for a loan modification.
That’s great but what do we do to stop it?
Last year, Mr. Johnson (name changed to protect the innocent) walked into my office. Mr. Johnson and his wife had seen a drop in their income from slow business but had bounced back and had been negotiating a loan modification with their bank Globobank (Ibid.).
The negotiations often take months as the borrowers submit a plethora of documents and then the bank follows up with a variety of questions about those documents. This usually prompts another request for documents.
Though Mr. Johnson and his wife were under a review for a loan modification, they came home to a dozen copies of a Notice of Trustee’s sale on their door. The bank was going to sell their home in less than three weeks.
In one hand, Mr. Johnson held a letter from Globobank confirming review of the modification application but in the other, he held a document of legal significance authorizing the sale of his home.
To Court we go!
We filed our complaint alleging a variety of statutory violations under the HBOR and also included a negligence/negligence per se count for the emotional roller coaster Globobank has put our clients through. The HBOR claims provide for an injunction until the bank is in compliance with the law (i.e. a fair review of the loan modification application).
We reached out to the bank to see if the sale can be taken off so that the application can be fully reviewed and they predictably refused.
We were forced to file an ex parte application for a restraining order and request an OSC for a preliminary injunction. Everything is opposed. Nevertheless, the Judge agrees with our extensive argument and issues the TRO, and ultimately the PI.
Problem solved right? Wrong!
After we get our PI, we reach out to continue to attempt to work out the modification and are assured the modification is under review. Our clients are thrilled.
Shortly thereafter, we receive a demurrer that is essentially identical to the opposition to the PI. We of course oppose it and again, the Judge agrees with our argument and overrules the demurrer in its entirety.
Once we’ve earned the respect of the high powered lawyer representing the bank, we finally get an answer on file and a request to stay the case while they review the modification application.
Close to a year later, we received a loan modification reducing the principal balance by 30% and dropping the interest rate to 2%.
Lovely story but pro bono work doesn’t keep the lights on.
One of the big problems with complex litigation is the enormous legal bills that the lay person simply cannot afford. This is especially true when the clients are homeowners struggling just to pay their mortgage.
One of the integral provisions of the HBOR is a section allowing an award of attorney’s fees to a prevailing party or a borrower who obtains “injunctive relief.” The provision was added to ensure that those who ordinarily could not afford an attorney could be adequately represented so David has help in his fight against Goliath.
In Mr. Johnson’s case, we’ve easily got 100+ hours of attorney time. When we ultimately move for attorney’s fees we will undoubtedly move for a Lodestar multiplier to really make the bank think twice when noticing a sale when a modification is under review.
Don’t want to take the risk based solely on a chance at fees?
While the statute calls for attorney’s fees, recent case law has imposed a negligence duty of care on banks when negotiating a loan modification. In 2014, the case of Alvarez v. BAC Home Loans Servicing, L.P. was decided and held that a negligence cause of action can be sustained if a showing that the lender’s mishandling of loan modification paperwork caused a loss of the opportunity to obtain a loan modification. (See Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941.)
While there has yet to be a case directly on point, if taken as mandating a general duty of care, this case gets over the dreaded Nymark, “the bank can do no wrong” decision, and can easily be interpreted to support emotional distress damages as well. These damages are in addition to damage to credit, loss of equity and improper late fees and charges, all of which were included in the roughly $200,000.00 verdict above.
The best part.
Mr. Johnson and his wife walked into my office with certain homelessness in three weeks. Though we had to climb a mountain to do it, they were in the home for over a year without a mortgage payment and ultimately received the modification and kept their family home.